FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended: July 3, 2004 Commission File Number: 1-10730
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 Wood Road, Braintree, MA 02184
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 848-7100
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes _X__ No ___
The number of shares of $.01 par value common stock outstanding as of July
3, 2004:
25,213,617
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Consolidated Statements of Income - Three Months 2
Ended July 3, 2004 and June 28, 2003
Unaudited Consolidated Balance Sheets - July 3, 2004 and April 3, 2004 3
Unaudited Consolidated Statement of Stockholders' Equity - 4
Three Months Ended July 3, 2004
Unaudited Consolidated Statements of Cash Flows -Three Months Ended 5
July 3, 2004 and June 28, 2003
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 23
ITEM 4. Controls and Procedures 24
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 26
Signatures
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands, except share data)
Three Months Ended
----------------------
July 3, June 28,
2004 2003
-------- --------
Net revenues $ 94,602 $ 88,283
Cost of goods sold 47,502 48,697
-------- --------
Gross profit 47,100 39,586
-------- --------
Operating expenses:
Research and development 4,054 4,997
Selling, general and administrative 28,084 26,403
-------- --------
Total operating expenses 32,138 31,400
-------- --------
Operating income 14,962 8,186
Interest expense (661) (786)
Interest income 363 283
Other income (expense), net (232) 103
-------- --------
Income before provision for income taxes 14,432 7,786
Provision for income taxes 4,612 2,803
-------- --------
Income from operations before cumulative effect
of a change in accounting principle 9,820 4,983
Net income $ 9,820 $ 4,983
======== ========
Basic income per common share $ 0.39 $ 0.21
Income per common share assuming dilution $ 0.38 $ 0.21
Weighted average shares outstanding
Basic 25,155 24,063
Diluted 25,579 24,223
The accompanying notes are an integral part of these
consolidated financial statements.
2
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
July 3, 2004 April 3, 2004
------------ -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 130,356 $ 118,117
Accounts receivable, less allowance of $1,768 as of July 3, 2004
and $2,261 as of April 3, 2004 84,046 82,640
Inventories 52,589 52,235
Deferred tax asset, net 20,507 21,856
Prepaid expenses and other current assets 8,169 6,601
--------- ---------
Total current assets 295,667 281,449
Property, plant and equipment:
Total property, plant and equipment 268,321 269,121
Less: accumulated depreciation 194,511 191,091
--------- ---------
Net property, plant and equipment 73,810 78,030
Other assets:
Other intangibles, less amortization of $6,010 as of July 3, 2004
and $5,569 as of April 3, 2004 24,299 24,784
Goodwill, net 16,862 17,242
Other long-term assets 5,745 5,889
--------- ---------
Total other assets 46,906 47,915
--------- ---------
Total assets $ 416,383 $ 407,394
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 30,647 $ 32,818
Accounts payable 13,344 14,249
Accrued payroll and related costs 12,489 14,547
Accrued income taxes 11,427 7,967
Other accrued liabilities 22,321 26,262
--------- ---------
Total current liabilities 90,228 95,843
Deferred tax liability, net 1,592 1,682
Long-term debt, net of current maturities 25,322 25,442
Other long-term liabilities 4,609 4,678
Stockholders' equity:
Common stock, $0.01 par value; Authorized - 80,000,000 shares;
Issued - 32,761,755 shares at July 3, 2004 and 32,647,910
shares at April 3, 2004 328 326
Additional paid-in capital 130,549 127,744
Retained earnings 332,111 322,291
Accumulated other comprehensive loss (4,716) (6,535)
--------- ---------
Stockholders' equity before treasury stock 458,272 443,826
Less: Treasury stock at cost - 7,548,138 shares at July 3, 2004
and 7,568,289 shares at April 3, 2004 163,640 164,077
--------- ---------
Total stockholders' equity 294,632 279,749
--------- ---------
Total liabilities and stockholders' equity $ 416,383 $ 407,394
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Additional Other Total
------------- Paid-in Treasury Retained Comprehensive Stockholders' Comprehensive
Shares $ Capital tock Earnings Loss Equity Income
------ ---- --------- ------- --------- ------------- ------------- -------------
Balance, April 3, 2004 32,648 $ 326 $127,744 ($164,077) $322,291 ($ 6,535) $ 279,749
-----------------------------------------------------------------------------
Employee stock purchase plan - - - - - - (42) 437 - - - - - - 395
Exercise of stock options
and related tax benefit 114 2 2,847 - - - - - - - - - 2,849
Net income - - - - - - - - - - - - 9,820 - - - 9,820 $ 9,820
Foreign currency translation
adjustment - - - - - - - - - - - - - - - (1,262) (1,262) (1,262)
Unrealized gain on derivatives - - - - - - - - - - - - - - - 3,081 3,081 3,081
----------
Comprehensive income - - - - - - - - - - - - - - - - - - - - - $ 11,639
----------------------------------------------------------------------------- ---------
Balance, July 3, 2004 32,762 $ 328 $130,549 ($163,640) $332,111 ($ 4,716) $ 294,632
=============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
4
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Three Months Ended
---------------------
July 3, June 28,
2004 2003
--------- ---------
Cash Flows from Operating Activities:
Net income $ 9,820 $ 4,983
Adjustments to reconcile net income to net cash provided by operating
activities:
Non cash items:
Depreciation and amortization 7,161 7,585
Deferred tax expense (benefit) (559) (95)
Gain on sales of plant, property and equipment (2,565) (425)
Tax benefit related to exercise of stock options 134 3
Unrealized gain from hedging activities 211 (616)
Change in operating assets and liabilities:
Increase in accounts receivable, net (2,724) (4,062)
(Increase) decrease in inventories (2,240) 138
(Increase) decrease in prepaid income taxes (1,133) (907)
Increase in other assets and other long-term liabilities (375) (916)
Increase (decrease) in accounts payable and accrued expenses 1,729 (3,125)
--------- ---------
Net cash provided by operating activities 9,459 2,563
Cash Flows from Investing Activities:
Capital expenditures on property, plant and equipment (3,758) (3,099)
Proceeds from sale of property, plant and equipment 4,539 1,397
Acquisition of software development company and milestone payments -- (1,020)
--------- ---------
Net cash provided by (used in) investing activities 781 (2,722)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage (111) (101)
Net (decrease) increase in short-term revolving
credit agreements (978) (943)
Employee stock purchase plan 395 454
Exercise of stock options 2,715 235
--------- ---------
Net cash provided by (used in) financing activities 2,021 (355)
Effect of Exchange Rates on Cash and Cash Equivalents (22) 819
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 12,239 305
Cash and Cash Equivalents at Beginning of Year 118,117 49,885
--------- ---------
Cash and Cash Equivalents at End of Period $ 130,356 $ 50,190
========= =========
Non-cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placements
of Haemonetics equipment $ 1,181 $ 2,870
========= =========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 996 $ 1,219
========= =========
Income taxes paid $ 2,819 $ 4,482
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
5
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Our accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
our management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. All significant
intercompany transactions have been eliminated. Operating results for the
three-month period ended July 3, 2004 are not necessarily indicative of the
results that may be expected for the full fiscal year ending April 2, 2005. For
further information, refer to the audited consolidated financial statements and
footnotes included in our annual report on Form 10-K for the fiscal year ended
April 3, 2004.
Certain amounts in the prior year financial statements have been reclassified to
conform to the fiscal year 2005 presentation.
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal
year 2005 includes 52 weeks with all four quarters including 13 weeks. Fiscal
year 2004 included 53 weeks with the first three quarters of the fiscal year
including 13 weeks and the fourth quarter of fiscal 2004 including 14 weeks.
2. EARNINGS PER SHARE ("EPS")
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 net income by
weighted average shares outstanding. Diluted EPS includes the effect of
potential dilutive common shares.
For the three months ended
July 3, 2004 June 28, 2003
------------ -------------
(in thousands, except per share amounts)
----------------------------------------
Basic EPS
Net income $ 9,820 $ 4,983
Weighted average shares 25,155 24,063
------- -------
Basic earnings per share $ 0.39 $ 0.21
------- -------
Diluted EPS
Net income $ 9,820 $ 4,983
Basic weighted average shares 25,155 24,063
Effect of stock options 424 160
------- -------
Diluted weighted average shares 25,579 24,223
------- -------
Diluted earnings per share $ 0.38 $ 0.21
------- -------
6
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
3. STOCK-BASED COMPENSATION
We adopted the disclosure only provisions for employee stock-based compensation
under Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," and will continue to
account for employee stock-based compensation using the intrinsic value method
under Accounting Principles Board Opinion No. 25 ("APB No. 25").
At the date of grant, the exercise price of our employee stock options equals
the market price of the underlying stock. Therefore, under the intrinsic value
method no accounting recognition is given to options granted to employees and
directors until the options 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."
Had compensation costs under our stock-based compensation plans been determined
based on the fair value model of Statement of Financial Accounting Standards
(SFAS) 123 "Accounting for Stock-Based Compensation," the effect on our earnings
per share would have been as follows:
For the three months ended
July 3, 2004 June 28, 2003
------------ -------------
(in thousands, except per share amounts)
Net income (as reported): $9,820 $4,983
Deduct: Total stock-based compensation
expense determined under the fair value
method for all awards, net of tax
$(1,419) $(1,480)
------- -------
Pro Forma Net Income: $8,401 $3,503
======= =======
Earnings per share:
Basic
As reported $0.39 $0.21
Pro forma $0.33 $0.15
Diluted
As Reported $0.38 $0.21
Pro forma $0.33 $0.15
4. ACCOUNTING FOR SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in costs of goods sold with the
exception of $1.3 million for both the three month period ended July 3, 2004 and
June 28, 2003 which is included in selling, general and administrative expenses.
7
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
5. FOREIGN CURRENCY
We enter into forward exchange contracts to hedge the anticipated cash flows
from forecasted foreign currency denominated revenues, principally Japanese Yen
and Euro. The purpose of our hedging strategy is to lock in foreign exchange
rates for twelve months to minimize, for this period of time, the unforeseen
impact on our results of operations of fluctuations in foreign exchange rates.
We also enter 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.
6. PRODUCT WARRANTIES
We provide a warranty on parts and labor for one year after the sale and
installation of each device. We also warrant our disposable products through
their use or expiration. We estimate our potential warranty expense based on our
historical warranty experience, and we periodically assess the adequacy of our
warranty accrual and make adjustments as necessary.
For the three months ended
July 3, 2004 June 28, 2003
------------ -------------
(in thousands)
Warranty accrual as of the
beginning of the period $677 $1,056
Warranty Provision 271 158
Warranty Spending (197) (492)
---- ----
Warranty accrual as of the end of the period $751 $722
==== ====
7. COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner changes
in stockholders' equity. For us, all other non-owner changes are primarily
foreign currency translation, the change in our net minimum pension liability
and the changes in fair value of the effective portion of our outstanding cash
flow hedge contracts.
8
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
A summary of the components of other comprehensive income is as follows:
Quarter Ended
July 3, 2004 June 28, 2003
------------ -------------
(in thousands)
-----------------------------
Net income $9,820 $4,983
------- ------
Other comprehensive income:
Foreign currency translation (1,262) 3,807
Unrealized gain (loss) on cash flow hedges,
net of tax 2,000 (2,163)
Reclassifications into earnings of cash flow
hedge losses, net of tax 1,081 1,881
------- ------
Total comprehensive income $11,639 $8,508
======= ======
8. 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:
July 3, 2004 April 3, 2004
------------ -------------
(in thousands)
Raw materials $13,156 $11,630
Work-in-process 6,731 5,340
Finished goods 32,702 35,265
------- -------
$52,589 $52,235
======= =======
9. ACQUIRED INTANGIBLE ASSETS
As of July 3, 2004
Weighted
Average
Gross Carrying Accumulated Useful Life
Amount Amortization (in years)
------ ------------ ----------
(in thousands)
Amortized Intangibles
Patents $6,371 $ 1,713 14
Other technology 11,753 1,943 15
Customer contracts and related
relationships 11,697 2,354 15
-------- -------
Subtotal 29,821 6,010 15
Indefinite
Life Intangibles
Trade name 488 --
-------- -------
Total Intangibles $ 30,309 $ 6,010
======== =======
9
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
As of April 3, 2004
Weighted
Average
Gross Carrying Accumulated Useful Life
Amount Amortization (in years)
------ ------------ ----------
(in thousands)
Amortized Intangibles
Patents $6,371 $1,594 14
Other technology 11,754 1,810 15
Customer contracts and related
relationships 11,738 2,165 15
------- ------
29,863 5,569 15
Subtotal
Indefinite Life Intangibles
Trade name 490 -- Indefinite
------- ------
Total Intangibles $30,353 $5,569
======= ======
The only change to the net carrying value of our intangible assets from April 3,
2004 to July 3, 2004 was amortization expense and the effect of rate changes in
the translation of the intangibles contained in the financial statement of our
Canadian subsidiary.
Aggregate amortization expense for amortized other intangible assets was $0.5
million for both the three months ended July 3, 2004 and June 28, 2003.
Additionally, expected future amortization expenses on other intangible assets
approximates $1.8 million for fiscal 2005, $2.6 million for fiscal years 2006
through 2008 and $2.4 million for fiscal 2009 and fiscal 2010.
10
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
10. GOODWILL
The change in the carrying amount of our goodwill during the three months ended
July 3, 2004 is as follows (in thousands):
Carrying amount as of April 3, 2004 $17,242
Effect of change in rates used for translation (380)
-------
Carrying amount as of July 3, 2004 $16,862
=======
11. INCOME TAXES
For the three months ended July 3, 2004, the income tax provision, as a
percentage of pretax income, was 36% before the impact of the reversal of
previously established tax reserves related to a local Japanese tax matter. As a
consequence of the release of reserve for $0.6 million during the three months
ended July 3, 2004, the effective tax rate was reduced to 32%. For the three
months ended June 28, 2003, the tax rate was 36%.
12. COMMITMENTS AND CONTINGENCIES
We are presently engaged in various legal actions, and although ultimate
liability cannot be determined at the present time, we believe, based on
consultation with counsel, that any such liability will not materially affect
our consolidated financial position or our results of operations.
13. DEFINED BENEFIT PENSION PLANS
Two of our subsidiaries have defined benefit pension plans covering
substantially all full time employees at those subsidiaries. Net periodic
benefit costs for the plans in the aggregate include the following components:
For the three months ended
July 3, 2004 June 28, 2003
------------ -------------
(in thousands):
Service Cost $142 $123
Interest cost on benefit obligation 38 34
Expected return on plan assets (14) (47)
Recognized net actuarial (gain) loss -- 42
Amortization of unrecognized prior service cost (9) (8)
Amortization of unrecognized gain 12 13
Amortization of Unrecognized Initial Obligation 6 5
---- ----
Net periodic benefit cost $175 $162
==== ====
11
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
14. SEGMENT INFORMATION
Segment Definition Criteria
We manage our business on the basis of one operating segment: the design,
manufacture and marketing of automated blood processing systems. Our chief
operating decision-maker uses consolidated results to make operating and
strategic decisions. Manufacturing processes, as well as the regulatory
environment in which we operate, are largely the same for all product lines.
Product and Service Segmentation
We have two families of products: (1) those that serve the donor and (2) those
that serve the patient. Under the donor product of families we have included
blood bank, red cell and plasma collection products. The patient products are
the surgical collection products.
Donor
The blood bank products include machines, 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 as the washing of red blood cells for certain procedures. In addition, the
blood bank product line includes solutions used in non-apheresis applications.
The main devices used for these blood component therapies are the MCS(R)+ mobile
collection system and the ACP(R) 215 automated cell processing 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 MCS(R)+ 8150 mobile collection 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 devices used in automated plasma collection are the PCS(R)2
plasma collection system and the Superlite(TM).
Patient
Surgical products include machines and single use disposables that perform
surgical blood salvage in transplant, orthopedic and cardiovascular surgical
applications. Surgical blood salvage is a procedure whereby shed blood is
collected, cleansed and made available to be transfused back to the patient. The
devices used in the surgical area are the OrthoPAT(R) and the Cell Saver(R)
autologous blood recovery systems.
12
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-continued
Other
Other revenue includes revenue generated from equipment repairs performed under
preventative maintenance contracts or emergency service billings and
miscellaneous sales, including revenue from our software division, Fifth
Dimension, acquired on January 1, 2002. Fifth Dimension provides collection and
data management systems to plasma collectors.
Revenues from External Customers:
(in thousands) Three months ended
July 3, 2004 June 28, 2003
------------ -------------
Donor:
Blood Bank $32,004 $27,591
Red Cell 9,962 4,679
Plasma 25,942 30,241
------- -------
67,908 62,511
Patient:
Surgical 22,254 20,370
Other 4,440 5,402
------- -------
Total revenues from external customers $94,602 $88,283
======= =======
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our Business
We design, manufacture and market automated systems for the collection,
processing and surgical salvage of donor and patient blood, including the
single-use disposables used with our systems and related data management
software. Our systems allow users to collect and process only the blood
component(s) they target, red blood cells, platelets or plasma, increasing donor
and patient safety as well as collection efficiencies. Our systems consist of
proprietary disposable sets that operate on our specialized equipment. Our data
management systems are used by blood collectors to improve the safety and
efficiency of blood collection logistics by eliminating previously manual
functions at commercial plasma and not-for-profit blood banks. We organize our
business into two global product families: donor and patient to better serve our
customers and better position us for continued growth.
As a general practice we place our equipment at customers' sites, with
contractual requirements that customers purchase a certain number of disposables
in a predetermined time frame and, in some cases, pay a fee for the use of our
equipment. This disposable revenue stream (including sales of disposables and
fees for the use of our equipment) accounted for approximately 88% and 89% of
our total revenues for the first quarters of fiscal 2005 and fiscal 2004,
respectively.
Financial Summary
For the quarter ended
%
Increase/(Decrease)
July 3, 2004 June 28, 2003 Q105 vs. Q104
(in thousands, except per share data)
Net revenues $94,602 $88,293 7.2%
Gross Profit 47,100 39,586 19.0
% of net revenues 49.8% 44.8%
Operating income 14,962 8,186 82.8
% of net revenues 15.8% 9.3%
Provision for income tax 4,612 2,803 64.5
------- -------
% of net revenues 4.9% 3.2%
------- -------
Net income $9,820 $4,983 97.1
% of net revenues 10.4% 5.6%
Earnings per share-diluted $0.38 $0.21 81.0%
Net revenues for the first quarter of fiscal 2005 increased 7.2% over the same
period in fiscal 2004. The favorable effects of foreign exchange contributed
6.3% to the increase. The remaining 0.9%increase resulted from increases in
disposable revenue across our blood bank, surgical, and red cell product lines,
14
and increases in equipment revenue. These increases were almost entirely offset
by volume decreases in our plasma product line and in miscellaneous and service
revenue. (5D revenue, reported in the miscellaneous and service revenue line,
was adversely affected by the continued volatility in the plasma market).
Gross profit increased 19.0% versus Q1 fiscal 2004. The favorable effects of
foreign exchange accounted for a 12.5% increase in gross profit. The remaining
6.5% increase was due to the change in the mix of products being sold, price
improvements and increased sales volumes. Operating income increased 82.8% over
Q1 fiscal 2004 due to gross profit improvements and a decrease in operating
expenses as a percentage of total revenues. Net income increased 97.1% as
compared to Q1 last year. This increase was due to two factors: (i) higher
operating income, and (ii) a reduction in our quarterly effective tax rate to
32% due to a $0.6 million income tax benefit in Japan.
RESULTS OF OPERATIONS
Q1 FISCAL 2005 AS COMPARED TO Q1 FISCAL 2004
Net Revenues
By geography
(in thousands) $ %
Increase/ Increase/
July 3, 2004 June 28, 2003 (Decrease) (Decrease)
------------ ------------- ---------- ----------
United States $32,907 $31,552 $1,355 4.3%
International 61,695 56,731 4,964 8.8
------- ------- ------ ---
Net revenues $94,602 $88,283 $6,319 7.2%
======= ======= ====== ===
International Operations and the Impact of Foreign Exchange
Our principal operations are in the U.S., Europe, Japan and other parts of Asia.
Our products are marketed in more than 50 countries around the world via a
direct sales force as well as independent distributors.
Approximately 65% and 64% of our revenues during the first quarters of fiscal
year 2005 and 2004, respectively, were generated outside the U.S. Revenues in
Japan accounted for approximately 28% and 26% of total revenues for Q1 fiscal
2005 and 2004, respectively. Revenues in Europe accounted for approximately 30%
of our total revenues for Q1 of fiscal 2005 and Q1 of fiscal 2004. International
sales are primarily conducted in local currencies, specifically the Japanese Yen
and the Euro. Accordingly, our results of operations are significantly affected
by changes in the value of the Yen and the Euro relative to the U.S. dollar. The
favorable effects of foreign exchange resulted in a 6.3% increase in sales.
Please see section entitled "Foreign Exchange" in this management's discussion
for a more complete discussion of how foreign currency affects our business, as
well as our strategy to manage this exposure.
15
By product type
(in thousands)
$ %
Increase/ Increase/
July 3, 2004 June 28, 2003 Decrease) (Decrease)
------------ ------------- --------- ----------
Disposables $83,489 $78,395 $ 5,094 6.5%
Misc. & service 4,440 5,402 (962) (17.8)
Equipment 6,673 4,486 2,187 48.8
------- ------- ------- -----
Net revenues $94,602 $88,283 $ 6,319 7.2%
======= ======= ======= =====
Disposables revenue by product line
(in thousands)
$ %
Increase/ Increase/
July 3, 2004 June 28, 2003 (Decrease) (Decrease)
------------ ------------- ---------- ----------
Donor:
Plasma $25,486 $29,589 ($4,103) (13.9%)
Blood bank 30,769 25,949 4,820 18.6
Red Cells 6,461 4,564 1,897 41.6
------- ------- ------- -----
Subtotal $62,716 $60,102 $ 2,614 4.3%
Patient:
Surgical 20,773 18,293 2,480 13.6
------- ------- ------- -----
Total disposables revenue
$83,489 $78,395 $ 5,094 6.5%
======= ======= ======= =====
DONOR PRODUCTS
Donor products include the Plasma, Blood Bank and Red Cell product lines.
Disposable revenue for all donor products increased 4.3% compared to the first
quarter of fiscal year 2004. The favorable effects of foreign exchange increased
donor disposable revenue 6.4%. Without this favorable impact of foreign
exchange, disposable revenue declined 2.1% from the same period in the prior
year. Red cell and blood bank product revenues increases were more than offset
by a decline in plasma product revenue, as more specifically detailed below.
Plasma
Disposable revenue in the plasma product line decreased 13.9%. Without the 4.1%
favorable effect of foreign exchange, the decrease in plasma disposable revenues
was 18.0%. The 18.0% decline is largely attributable to volume decreases in the
U.S. market due to the loss of our U.S. customer, Alpha Therapeutic Corporation
("Alpha") (whose plasma collection operations were purchased by our only plasma
competitor in October 2003). Disposable revenue was also affected to a lesser
degree by plasma collection declines in Asia and Europe.
Blood bank
Blood bank disposable revenues increased 18.6%. The favorable effects of foreign
exchange resulted in a 9.6% increase in blood bank disposable revenues as the
majority of our platelet sales occur in Europe and Japan. The remaining 9.0%
increase in blood bank disposable revenue was due to several factors including;
(i) market share gains in Japan achieved in the fourth quarter of fiscal year
2004, which we
16
sustained during the first quarter of fiscal year 2005 and, (ii) a product mix
shift in Japan in the first quarter of fiscal year 2005 to higher-priced
filtered platelet sets from non-filtered sets.
Red Cell
Red Cell disposable revenue increased 41.6%. The favorable effects of foreign
exchange resulted in a 4.8% increase in red cell disposable revenues. The
remaining 36.8% increase is due to the continuing adoption of our technology in
the United States where blood shortages are more prevalent. In fiscal 2005 as
more blood collectors continue to increase the use of our technology to increase
the supply of red cells from a declining number of eligible donors, to reduce
collection costs, and to improve operating quality and efficiency. Increased
U.S. sales of our higher priced filtered sets, which include a filter to remove
white blood cells from the collected blood, also contributed to the revenue
increase.
PATIENT PRODUCTS
Surgical
Disposable revenue for the surgical product line increased 13.6%. The favorable
effects of foreign exchange accounted for a 6.9% increase with the remaining
6.7% increase attributable to increases in OrthoPAT disposable revenues.
The surgical product line has two major brand platforms: the Cell Saver brand
and the OrthoPAT brand.
Cell Saver disposables revenue increased 4.2% for the quarter. Without the 6.5%
favorable effects of foreign exchange, Cell Saver disposable revenues declined
2.3% for the quarter. In the U.S., the Cell Saver product line is used primarily
for higher blood loss surgeries. This is a mature market that is declining and
may continue to decline due to improved surgical techniques minimizing blood
loss. In Europe, the Cell Saver is used in both high and low blood loss
surgeries, including the orthopedic market.
OrthoPAT disposable revenues increased 71% as orthopedic surgeons continue to
adopt surgical blood salvage as an effective alternative to using blood from
patient pre-donation or a blood bank in hip and knee replacements and other
orthopedic surgeries. The favorable effects of foreign exchange accounted for a
7.5% of the increase in OrthoPAT disposable revenues.
Other Revenues
(in thousands) $ %
Increase/ Increase/
July 3, 2004 June 28, 2003 (Decrease) (Decrease)
------------ ------------- ---------- ----------
Miscellaneous & Service $4,440 $5,402 $(962) (17.8%)
Equipment 6,673 4,486 2,187 48.8%
------ ------ ------ ----
Total other revenues 11,113 $9,888 $1,225 12.4%
====== ====== ====== ====
Our miscellaneous and service revenue includes revenue from repairs performed
under preventive maintenance contracts or emergency service visits, spare part
sales, various training programs and revenue from our software division, 5D.
Miscellaneous and service revenue decreased 17.8%. Without the favorable effects
of foreign currency, the decrease would have been 20.8%. A 13.9% decrease in
miscellaneous and service revenue was due to reduced software revenue from 5D.
5D currently sells its products primarily to plasma customers who
17
have been negatively impacted by the recent volatility in the worldwide
commercial plasma collection market.
Revenue from equipment sales increased 48.8%. The favorable effects of foreign
exchange accounted for a 3.9% increase. An increase of 44.9% was due primarily
to a large sale during the quarter of equipment being used by a red cell
customer. Due to the variable nature of equipment sales, the level of equipment
sales cannot be easily forecasted.
Gross profit
$ %
Increase/ Increase/
(in thousands) July 3, 2004 June 28, 2003 (Decrease) (Decrease)
- -------------- ------------ ------------- ---------- ----------
Gross Profit $47,100 $39,586 $7,514 19.0%
% of net sales 49.8% 44.8%
Gross profit increased 19.0% versus Q1 fiscal 2004. The favorable effects of
foreign exchange accounted for a 12.5% increase in gross profit. The remaining
6.5% increase was due to the change in the mix of products being sold, price
improvements and increased sales volumes.
Operating Expenses
$ %
(in thousands) Increase/ Increase/
July 3, 2004 June 28, 2003 (Decrease) (Decrease)
------------ ------------- ---------- ----------
Research and development $4,054 $4,997 $(943) (18.9%)
Selling, general and
administrative 28,084 26,403 1,681 6.4%
------- ------- ----- ---
Total operating expenses $32,138 $31,400 $ 738 2.4%
======= ======= ===== ===
Research and Development
Research and Development expenses were down slightly from spending in the first
quarter of the prior year due to our restructuring in the second quarter of
fiscal year 2004 which lowered our head count. We anticipate an increase in R&D
spending later in the fiscal year to support the R&D projects currently in our
pipeline, such as the CardioPat and enhancements to the MCS multi component
platform.
Selling, general and administrative
For the first quarter of fiscal 2005 selling, general and administrative
expenses increased 6.4%. An increase of approximately 3.8% was due to foreign
exchange. The remaining 2.6% increase was related to the increase in marketing
and manufacturing expenses to support our higher level of sales.
18
Operating income
$ %
Increase/ Increase/
(in thousands) July 3, 2004 June 28, 2003 (Decrease) (Decrease)
------------ ------------- ---------- ----------
Operating Income $14,962 $8,186 $6,776 82.8%
% of net sales 15.8% 9.3%
Operating income for the quarter increased 82.8% over the prior year.
Approximately 47.2% of the increase was due to foreign exchange. The remaining
35.6% of the increase was a result of the effect of gross profit improvements,
partly offset by increased selling, general and administrative expenses.
Other expense, net
$ %
Change Change
(in thousands)
July 3, 2004 June 28, 2003
---------------------------------------------------
Interest expense $(661) $(786) $ 125 (15.9%)
Interest income 363 283 80 28.3
Other (expense) income, net (232) 103 (335) (325.2)
----- ----- ----- -----
Total other expense, net $(530) $(400) $(130) (32.5%)
===== ===== ===== =====
Several factors contributed to the increase in total other expense, net: (1) a
decrease in interest expense as we had lower average debt outstanding as
compared to fiscal 2004, (2) an increase in interest income due to higher cash
balances during the year, (3) offset by an increase in other miscellaneous
expenses (such as royalty expense) over the first quarter of fiscal year 2004.
Income taxes
For the current quarter, the income tax provision, as a percentage of pretax
income, was 36% before the impact of the reversal of previously established tax
reserves related to a local Japanese tax matter. As a consequence of the release
of reserve for $0.6 million during the current quarter, the effective tax rate
was reduced to 32%. For the first quarter of fiscal 2004, the tax rate was 36%.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe
depict our liquidity and cash flow position:
July 3, 2004 April 3, 2004
------------ -------------
(dollars in thousands)
Cash & cash equivalents $130,356 $118,117
Working capital $205,439 $185,606
Current ratio 3.3 2.9
Net cash (debt) position (1) $ 74,387 $ 59,857
Days sales outstanding (DSO) 76 76
Disposables finished goods inventory turnover 5.8 5.7
(1) Net cash position is the sum of cash and cash equivalents less total debt.
19
Our primary sources of capital include cash and cash equivalents, internally
generated cash flows and bank borrowings. We believe these sources to be
sufficient to fund our requirements, which are primarily capital expenditures
(including systems to improve our product life cycle management), acquisitions,
new business and product development and working capital for at least the next
twelve months.
Cash Flow Overview:
For the quarter ended
July 3, 2004 June 28, 2003 Change
------------ ------------- ------
(In thousands)
Net cash provided by (used in):
Operating activities $9,459 $2,563 $6,896
Investing activities 781 (2,722) 3,503
Financing activities 2,021 (355) 2,376
Effect of exchange rate changes on cash (1) (22) 819 (841)
------- ---- -------
Net increase in cash and cash equivalents
$12,239 $305 $11,934
======= ==== =======
(1) The balance sheet is affected by spot exchange rates used to translate local
currency amounts into U.S. dollars. In comparing spot exchange rates at Q1
fiscal 2005 versus Q1 fiscal 2004, the European currencies and the Japanese Yen
have weakened against the U.S. dollar. In accordance with GAAP, only the effect
of foreign currency on cash is included on our cash flow statement.
Q1 FISCAL 2005 AS COMPARED TO Q1 FISCAL 2004
Operating Activities:
Net cash provided by operating activities was $9.5 million for the first quarter
of fiscal 2005, an increase of $6.9 million from the same period in the prior
year, due primarily to:
o a $2.8 million increase in cash provided by net income adjusted for
non-cash items,
o $1.3 million less cash used by accounts receivable during the first
quarter of fiscal 2005 due primarily to the timing of the collection of
customer payments, particularly in Japan.
o $2.4 million more cash used by inventory during the first quarter of
fiscal 2005 as spending and inventory balances decreased during Q1 of
fiscal 2004,
o $3.6 million more cash used by accounts payable and accrued payroll due
to the change in the timing of bonus payments.
o a $4.5 million increase in cash due to lower tax payments,
20
o and $4.0 million more cash provided by accrued expenses during Q1
fiscal 2005 as compared to Q1 fiscal 2004.
Investing Activities:
Net cash from investing activities increased $3.5 million as a result of an
increase in proceeds from the sale of property, plant and equipment due to a
significant sale at the end of the first quarter of fiscal 2005
During the first quarter of fiscal 2005, we had capital expenditures of $3.8
million, an increase of $0.7 million over the first quarter of fiscal 2004.
Financing Activities:
Net cash provided by financing activities increased $2.4 million primarily due
to an increase in proceeds from stock option exercises during the first quarter
of fiscal 2005.
Inflation
We do not believe that inflation has had a significant impact on our results of
operations for the periods presented. Historically, we believe we have been able
to minimize the effects of inflation by improving our manufacturing and
purchasing efficiencies, by increasing employee productivity and by adjusting
the selling prices of new products...
Foreign Exchange
Approximately 65% of our sales are generated outside the U.S. in local
currencies, yet our reporting currency is the U.S. dollar. Our primary foreign
currency exposures in relation to the U.S. dollar are the Japanese Yen and the
Euro. Foreign exchange risk arises because we engage in business in foreign
countries in local currency. Exposure is partially mitigated by producing and
sourcing product in local currency and expenses incurred by local sales offices.
However, whenever the U.S. dollar strengthens relative to the other major
currencies, there is an adverse affect on our results of operations and
alternatively, whenever the U.S. dollar weakens relative to the other major
currencies there is a positive effect on our results of operations.
It is our policy to minimize for a period of time, the unforeseen impact on our
financial results 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 sales. Hedging through the
use of forward contracts does not eliminate the volatility of foreign exchange
rates, but because we generally enter into forward contracts one year out, rates
are fixed for a one-year period, thereby facilitating financial planning and
resource allocation. We enter into forward contracts that mature one month prior
to the anticipated timing of the forecasted foreign currency denominated sales.
These contracts are designated as cash flow hedges intended to lock in the
expected cash flows of forecasted foreign currency denominated sales at the
available spot rate. Actual spot rate gains and losses on these contracts are
recorded in sales, at the same time the underlying transactions being hedged are
recorded.
We compute 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 is weighted by sales in those currencies. The composite was set
21
at 1.00 based upon the weighted rates at March 31, 1997. The composite rate is
presented in the period corresponding to the maturity of the underlying forward
contracts.
The favorable or (unfavorable) changes are in comparison to the same period of
the prior year. A favorable change is presented when we will obtain relatively
more U.S. dollars for each of the underlying foreign currencies than we did in
the prior period. An unfavorable change is presented when we obtain relatively
fewer U.S. dollars for each of the underlying foreign currencies than we did in
the prior period. These indexed hedge rates impact sales, and as a result also
gross profit, operating income and net income, in our 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 versus Prior Year
---------------- ------------------------
FY2001 Q1 1.04 5.4%
Q2 1.00 8.2%
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%)
Q2 1.08 (10.3%)
Q3 1.10 (8.1%)
Q4 1.17 (11.0%)
----------------------------------------
2003 Total 1.11 (9.5%)
FY2004 Q1 1.13 (3.6%)
Q2 1.05 3.6%
Q3 1.06 3.2%
Q4 1.01 15.9%
----------------------------------------
2004 Total 1.06 4.9%
FY2005 Q1 0.97 15.7%
Q2 0.99 5.1%
Q3 0.92 15.5%
Q4 0.89 14.1%
----------------------------------------
2005 Total 0.94 12.7%
FY2006 Q1 0.92 5.2%
Q2 0.91* 9.7%
* NOTE: Represents hedges for July FY06
22
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements we make which
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 our future plans of operations, business
strategy, results of operations, and financial position. These statements are
based on our current expectations and estimates as to prospective events and
circumstances about which we can give no firm assurance. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and we undertake 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 our
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 anticipated.
Such risks and uncertainties include technological advances in the medical field
and our standards for transfusion medicine and our ability to successfully
implement products that incorporate such advances and standards, product demand
and market acceptance of our products, regulatory uncertainties, the effect of
economic and political conditions, the impact of competitive products and
pricing, , foreign currency exchange rates, changes in customers' ordering
patterns, the effect of industry consolidation as seen in the Plasma market, the
effect of communicable diseases and the effect of uncertainties in markets
outside the U.S. (including Europe and Asia) in which we operate. The foregoing
list should not be construed as exhaustive.
ITEM 3. 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
See the section entitled Foreign Exchange for a discussion of how foreign
currency affects our business. It is our policy to minimize for a period of
time, the unforeseen impact on our financial results of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge anticipated cash flows from forecasted foreign currency
denominated sales. We do not use the financial instruments for speculative or
trading activities. At July 3, 2004, we had the following significant foreign
exchange contracts to hedge the anticipated cash flows from forecasted foreign
currency denominated sales outstanding:
23
Hedged (BUY) / SELL Weighted Spot Weighted Forward
Currency Local Currency Contract Rate Contract Rate
- -------- -------------- ------------- -------------
Euro 6,000,000 $1.133 $1.123
Euro 8,000,000 $1.176 $1.165
Euro 8,250,000 $1.254 $1.244
Euro 7,600,000 $1.196 $1.192
Japanese Yen 1,250,000,000 120.4 per US$ 118.7 per US$
Japanese Yen 1,925,000,000 109.2 per US$ 107.8 per US$
Japanese Yen 1,725,000,000 106.9 per US$ 105.6 per US$
Japanese Yen 1,650,000,000 110.4 per US$ 108.3 per US$
Hedged
Currency Fair Value Maturity
- -------- ---------- --------
Euro ($553,282) Jul-Aug 2004
Euro ($388,284) Sep-Nov 2004
Euro $235,957 Dec 2004-Feb 2005
Euro ($160,527) Mar-May2005
Japanese Yen ($916,924) Jul-Aug 2004
Japanese Yen $144,409 Sep-Nov 2004
Japanese Yen $371,159 Dec 2004-Feb 2005
Japanese Yen ($105,589) Mar-May 2005
-----------
Total: ($1,373,081)
===========
We estimate 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 $11.3 million increase
in the fair value of the forward contracts; whereas a 10% weakening of the U.S.
dollar would result in a $12.7 million decrease in the fair value of the forward
contracts.
Interest Rate Risk
All of our long-term debt is at fixed rates. Accordingly, a change in interest
rates has an insignificant effect on our interest expense amounts. The fair
value of our long-term debt, however, does change in response to interest rates
movements due to its fixed rate nature. At July 3, 2004, the fair value of our
long-term debt was approximately $2.4 million higher than the value of the debt
reflected on our financial statements. This higher fair market is entirely
related to our $17.1 million, 7.05% fixed rate senior notes and our $8.2
million, 8.41% real estate mortgage.
At June 28, 2003, the fair value of our long-term debt was approximately $3.6
million higher than the value of the debt reflected on our financial statements.
This higher fair market is entirely related to our $22.9 million, 7.05% fixed
rate senior notes and our $8.6 million, 8.41% real estate mortgage.
Using scenario analysis, if we changed the interest rate on all long-term
maturities by 10% from the rate levels that existed at July 3, 2004 the fair
value of our long-term debt would change by approximately $0.2 million.
ITEM 4. CONTROLS AND PROCEDURES
We conducted an evaluation, as of July 3, 2004, under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer (the Company's principal executive officer and principal
financial officer, respectively) regarding the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rule 13a-15 of
the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to
24
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to them by others within those
entities.
There was no change in our internal control over financial reporting during
the quarter ended July 3, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
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
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of
2002, of Brad Nutter, President and Chief Executive Officer of the
Company
31.2 Certification pursuant to Section 302 of Sarbanes-Oxley of 2002,
of Ronald J. Ryan, Vice President and Chief Financial Officer of the
Company
32.1 Certification Pursuant to 18 United States Code Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
Brad Nutter, President and Chief Executive Officer of the Company
32.2 Certification Pursuant to 18 United States Code Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
Ronald J. Ryan, Vice President and Chief Financial Officer of the
Company
(b) Reports on Form 8-K
We furnished a report on Form 8-K on July 29, 2004 furnishing a press
release we issued on July 29, 2004 announcing fiscal 2005 first quarter
results.
26
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 9, 2004 By: s/Brad Nutter
-----------------------------------------
Brad Nutter, President and
Chief Executive Officer
Date: August 9, 2004 By: s/ Ronald J. Ryan
------------------------------------------
Ronald J. Ryan, Vice President and
Chief Financial Officer
(Principal Financial Officer)
27