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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 1998. Commission file number 1-10730
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Haemonetics Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
(State of Incorporation) (I.R.S. Employer
Identification No.)
400 Wood Road,
Braintree, Massachusetts 02184-9114
(617) 848-7100
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange
Title of each class on which registered
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Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price of May 28, 1998, was
approximately $383,000,000.
The number of shares of the registrant's common stock, $ .01 par
value, outstanding as of May 28, 1998 was 26,584,679.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
Proxy Statement for the Registrant's Annual Meeting to be held July 22,
1998.
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TABLE OF CONTENTS
Page Number
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Item 1. Business 3
(a) New Developments in the Business 3
(b) General Development of the Business 4
(c) Financial Information about Industry Segments 5
(d) Narrative Description of Business 5
(e) Financial Information about Foreign and Domestic
Operations and Export Sales 11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
Item 10. Directors and Executive Officers of the Registrant 40
(a) Identification of Directors 40
(b) Identification of Executive Officers 40
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management 41
Item 13. Certain Relationships and Related Transactions 41
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 41
(a) Financial Statements 41
(b) Reports on Form 8-K 42
(c) Exhibits 42
ITEM 1. BUSINESS
(a) New Developments in the Business.
Regulatory Developments
In April 1997, Haemonetics (the "Company") received marketing
clearance from the FDA to market its proprietary two-unit red blood cell
collection protocol for homologous (typically volunteer) donors. This
followed the clearance given in April 1996 to market the two-unit red cell
collection protocol for patients donating blood for their own surgical use
and the clearance given in October 1995 to market the one-unit red cell and
two-unit plasma protocol for the entire donor population. These protocols
allow blood centers to replace labor-intensive manual collection methods for
red blood cells with highly efficient automated apheresis systems while
producing a more consistent red blood cell transfusion unit. Haemonetics is
the first to provide its customers with the ability to collect two
transfusable units of red blood cells from a single donor. Two-unit red cell
collection saves blood banks precious dollars and labor in testing,
labeling, handling and distribution requirements.
The ability to collect red cells is a significant opportunity for the
Company. The yearly market potential for two-unit red blood cell collection
alone is approximately $500 million. However, it has not been a small
undertaking to see this technology into the marketplace as it has been five
years since the Company's first submission to the FDA for marketing
clearance for a red cell protocol. Now that the Company has received
approval to market the two-unit red blood cell protocol, the U.S. blood
centers desiring to use the two-unit red cell technology must receive
approvals from the FDA both to license their centers to use the technology
and to collect and ship products obtained through this technology across
state lines to other communities. During the year, Kansas Blood Services in
Topeka, Kansas was the first blood bank in the United States to receive
approval from the FDA to collect two-units of red blood cells and for that
blood to be shipped across state borders for use by other communities. In
addition, the international markets for red cells continued to move forward
with their red cell approvals. During the year, the French regulatory
authority approved the use of the filtered two-unit red cell protocol for
patients donating blood for their own surgical use and the German regulatory
authority approved the filtered two-unit red cell protocol for the
homologous (typically volunteer) donor.
New Business Developments
Restructuring Charge in Q3
The Company recorded a charge of $24.5 million related to the
restructuring plans announced by the Company during the third quarter of
fiscal 1998. From a manufacturing perspective, the Company made a decision
not to undertake certain rework and to terminate the manufacture of certain
products. Additionally, certain products, which would have required
additional investments to continue their useful lives, will no longer be
supported. The Company has also identified certain operations, which it
intends to close or partially close, resulting in losses associated with the
abandonment of certain leases and fixed assets, and the termination of
certain employees.
New Management
On January 27, 1998, at the request the Board of Directors, John F.
White stepped down as Chairman and Chief Executive Officer of Haemonetics
Corporation. Sir Stuart Burgess, a Board member of Haemonetics since 1992,
replaced Mr. White as Chairman of the Board. James L. Peterson, formerly
Vice Chairman and President of Haemonetics International was elected CEO and
President. Mr. Peterson has been with the Company 18 years.
Additional key management changes during the year included the
appointment of Ronald Ryan, former Chief Financial Officer and Senior Vice
President of Finance and Administration, Converse Inc., to Senior Vice
President and Chief Financial Officer; the appointment of Michael Mathews,
who has been with the Company since 1987, to President of the worldwide
Blood Bank division; the appointment of Dr. Peter Tomasulo, who held senior
positions in community blood banking and with the American and International
Red Cross, to the Vice President in charge of Blood Bank Management
Services, ("BBMS"); and the promotion of Bruno Deglaire to President of
European and Asian Field Operations.
New Direction
With the changes in management, came key changes in the direction of
the business.
Exit BBMS
On May 1, 1998, the Board of Directors approved a plan to discontinue
the Company's Blood Bank Management Services Business, citing the objectives
of bringing the Company's focus back to its core competence as a
manufacturer of medical device equipment and disposables and expanding the
available market by no longer competing with its other customers. BBMS
represented an extension into the blood services business, whereby the
Company managed blood banks owned and operated by it. The Company had key
successes in the BBMS business. Through the use of its apheresis products at
its BBMS blood centers, the Company was successful in 1) demonstrating the
ability to meet hospital's total blood product requirements, 2) improving
the donor recruiting process and 3) increasing the supply of high-quality
blood components to the communities served. In spite of the successes, the
financial performance of BBMS was below the Company's original expectations
and future improvement was not assured. The divestiture plan is underway as
management has begun to seek potential buyers for the various blood centers
within their local communities. (See Note 12 to the Consolidated Financial
Statements included herein for a further discussion of the discontinuance.)
Reinvigorate Research and Development Efforts
The Company is committed to reorganizing and expanding resources to
get more new products to the market faster, especially related to red cell
products.
Re-engineering Manufacturing and Logistics Processes
The Company has undertaken a program of reengineering its
manufacturing and logistics processes to achieve a low cost advantage in the
industry.
Move to selling direct in the U. S. cardiovascular market
The Company is planning to end its long time distributor relationship
with Bentley Laboratories, a division of Baxter International, Inc., as its
distributor and utilize its existing surgical sales force to sell its Cell
Saver[registered trademark] and related disposables directly to the U.S.
cardiovascular market.
(b) General Development of the Business.
Haemonetics Corporation was incorporated in Massachusetts in 1985. The
terms "Haemonetics" and the "Company" as used herein include its
subsidiaries and its predecessor where the context so requires.
Haemonetics was founded in 1971 and became a publicly owned company
for the first time in 1979. In August 1983, Haemonetics was acquired by
American Hospital Supply Corporation ("AHS"). In connection with the
acquisition of AHS by Baxter Travenol Laboratories, Inc. in 1985, Baxter
Travenol divested Haemonetics to address antitrust concerns related to the
acquisition. Haemonetics was purchased in December 1985 by investors that
included the Company's present executive officer James L. Peterson, E. I. du
Pont de Nemours and Company ("Du Pont"), and other present and former
employees of the Company. In May 1991, the Company completed an Initial
Public Offering, at which time Du Pont divested its entire interest in the
Company.
Haemonetics is engaged in the manufacture of both automated systems
for the collection, processing and surgical salvage of blood and until the
completion of the planned divestiture of BBMS, in the manufacture of blood
components through its service business. Since the development of its first
proprietary cell washing system in 1971, the Company has pioneered a family
of innovative systems and technologies for blood processing. The Company's
business is focused on surgical blood salvage, blood component therapy,
automated red cell and plasma collection. Haemonetics' blood processing
systems consist of proprietary disposable sets driven by specialized
equipment. The Company's equipment employs over 100 different sterile,
single-use disposable products. The Company markets its products to
hospitals, independent blood banks, commercial plasma fractionators and
national health organizations in over 50 countries.
(c) Financial Information about Industry Segments.
The Company reports the results of its operations for only one
industry segment.
(d) Narrative Description of Business.
Background
All of the Company's products involve the extracorporeal processing of
human blood. Each person has approximately 10 units of blood (1 unit = one
pint), which consists of both cellular and liquid portions. The cellular
portion, which constitutes approximately 45% of the body's blood by volume,
is composed of red blood cells, white blood cells and platelets. All of
these are derived from stem cells which originate in the bone marrow. The
liquid portion, which constitutes the remaining 55% of blood volume, is
composed of plasma and soluble blood proteins.
The practice of modern medicine relies on the availability of a safe
and adequate blood supply and the ability to treat a deficiency in one or
more of the above components. These deficiencies can be related to
hereditary disorders (e.g., hemophilia), serious injury or major surgery
(e.g., open heart surgery).
Traditionally, a deficiency in any one of the components of blood has
been addressed by the transfusion of whole blood or blood components from
one or more third-party donors ("homologous blood transfusion"). These
transfusions have major drawbacks. First, homologous blood transfusions
carry the risk of transfusion reactions ranging from mild allergic responses
to life-threatening red cell incompatibility. Second, while the vast
majority of units of blood in the United States and other developed
countries are tested for transfusion-related diseases such as AIDS,
hepatitis and cytomegalovirus, such screening tests are not completely
comprehensive and the evidence of disease contamination in the blood supply
is well documented. This risk is multiplied when using blood collected from
multiple donors.
As a result of the above risks and limitations of traditional
transfusion treatment, three important trends have emerged in blood
transfusion therapy and practice: increasing acceptance of autologous blood
transfusion which involves the reinfusion of a patient's own blood;
increasing use of techniques and systems that reduce the number of donors to
which patients are exposed in the course of therapies involving donor blood
or blood components; and increasing prevalence of blood component therapy
which involves the administration of only those blood components needed by
the patient.
Markets and Products
Haemonetics' products address four important therapeutic markets for
blood and blood components: surgical blood salvage, blood component therapy,
automated red cell and plasma collection.
Surgical Blood Salvage
Surgical blood salvage, also known as autologous blood transfusion,
involves the rapid and safe collection of a patient's own blood before,
during and after surgery for reinfusion to the same patient. This process
normally includes an additional washing procedure whereby unwanted
substances are removed from the blood prior to reinfusion.
Autologous blood transfusion reduces or eliminates a patient's
dependence on blood donated from others, which carries the risk of
transmission of diseases, such as AIDS and hepatitis, as well as potentially
severe transfusion reactions. The decision to transfuse a unit of homologous
blood involves weighing the potential therapeutic benefits of such
transfusion against the risks of the transfusion itself. The Company
believes there is increasing recognition within the medical community that
blood transfusions should be autologous wherever possible to avoid the risks
associated with homologous blood transfusion. Moreover, patients are
becoming increasingly aware of the availability and advantages of autologous
blood transfusions. Ongoing shortages of blood and blood components
reinforce the benefits of this approach.
The need for a blood transfusion during surgery is common with open
heart, trauma, transplant, vascular and orthopedic operations.
Haemonetics, which pioneered the first autologous blood transfusion
system, has developed a full line of products to address the needs of the
surgical blood salvage market. The core product line, the Cell
Saver[registered trademark] autologous blood recovery system, reduces the
patient's dependence on homologous red cell transfusions and leads to more
rapid delivery of higher quality, compatible blood to the surgical patient
intra- and post-operatively. An extension of this product line is the
HaemoLite[registered trademark] autologous blood recovery system, an
automated portable system which requires limited operator monitoring and is
designed for lower blood loss procedures. The Collectfirst[registered
trademark] autologous blood collection system allows continual collection,
filtration and reinfusion of salvaged blood. This system offers versatility
to the physician through its ability to be used either for direct reinfusion
or with the Cell Saver[registered trademark] system for washing of the
collected red blood cells.
The Company markets its surgical blood salvage products to hospital-
based medical specialists, primarily cardiovascular, orthopedic and trauma
surgeons.
Blood Component Therapy
Blood component therapy involves the treatment of patients using
specific blood components, such as platelets, red blood cells, peripheral
blood stem cells or white blood cells, as opposed to whole blood. Blood
component therapy applications are increasing and have become integral to
the treatment of a wide variety of cancers, blood disorders and conditions
involving hemorrhaging. Platelet therapy is most often used to alleviate the
side effects of bone marrow suppression, a condition in which bone marrow is
unable to produce a sufficient quantity of platelets. Bone marrow
suppression arises from a number of causes, including infection, but most
typically as a side effect of chemotherapy. The demand for platelets is
growing in conjunction with increasingly aggressive cancer therapies.
Traditionally, platelets for therapeutic use have been derived from
the manual separation of platelets from blood obtained through whole blood
donations. However, platelets constitute a very small portion of an
individual's total blood volume. Hence, a single unit of whole blood
contains only one-sixth to one-eighth the quantity of platelets required for
a therapeutically useful dosage. As a result, the medical community has had
to rely on platelet pooling (the merging of platelets from multiple donors)
to obtain a volume of platelets sufficient for therapeutic treatment, thus
amplifying the risk of transmission of blood-borne disease or adverse
reaction.
The Company addresses these drawbacks of platelet therapy with its
apheresis systems such as the Haemonetics MCS[registered trademark]+ mobile
collection system. The apheresis process permits the collection of
therapeutically useful quantities of components such as platelets from a
single donor. The end product of platelet apheresis is referred to as single
donor platelets (as opposed to pooled or random donor platelets
traditionally available from blood banks or hospital centers). Apheresis
technology conserves the donor pool since donors can donate non-red cell
blood components more often than whole blood. Whole blood donors are
restricted in their ability to donate by regulatory agencies to eight week
intervals, whereas apheresis donors may donate as often as twice a week. In
addition, apheresis systems offer a purer and safer product to the recipient
because of the significant reduction in the number of donors to which the
recipient is exposed.
The Company markets its automated apheresis systems to hematologists,
oncologists and blood bankers.
Plasma Collection
Many important therapeutic and diagnostic products are derived from
the collection and subsequent processing of plasma. Therapeutic products
derived from plasma include albumin and plasma protein fractions, which are
used primarily as volume expanders for burn and shock victims; gamma
globulins, which are used for the prevention of diseases such as tetanus,
rabies, measles, etc.; coagulation specific concentrate products such as
Factor VIII and other derivatives such as hepatitis vaccine. Several
companies have developed and applied for U.S. Food and Drug Administration
("FDA") approval to market non-plasma derived recombinant Factor VIII
products. While such products may reduce demand for plasma derived Factor
VIII, the Company believes they should have minimal effect on the demand for
other plasma products such as albumin and gamma globulin. Diagnostic
products derived from source plasma include blood grouping sera, test kit
controls and quality control reagents.
Traditionally, plasma has been collected by manual techniques as part
of whole blood collection. As in the case of manual blood component
collection, manual techniques for collection of plasma have had poor product
yields and are very time consuming.
In the United States, commercial operators account for approximately
95% of plasma collection, with the remainder collected from volunteer donors
of other blood bank organizations. Outside of the United States, plasma is
collected primarily from volunteer donors.
Commercial plasma collection firms in the United States pay donors for
their plasma and then fractionate the collected plasma themselves and sell
the resultant protein products or sell the collected plasma worldwide for
fractionation purposes. Outside the United States, virtually every
industrialized nation has expressed the desire to increase their access to
the plasma market worldwide due to the ever growing need for the plasma-
based therapeutic products and their desire to improve the quality of their
country's blood products. The increased appeal of more efficient, user-
friendly automated systems is leading to conversion from manual to automated
plasma collection techniques.
The Haemonetics automated plasma collection systems, PCS[registered
trademark] and PCS[registered trademark]2, shorten the collection procedure
to approximately forty minutes from ninety minutes required for manual
collection. Donor safety is also increased as the donor is never separated
from his or her own blood, eliminating the risk that exists in manual
collection of having the wrong red cells returned to the donor. The
PCS[registered trademark] and PCS[registered trademark]2 systems also yield
a higher quality plasma than manual methods, since a smaller amount of
anticoagulant is needed and the donor is not given any intravenous fluids to
dilute his or her native plasma.
Haemonetics has aggressively pursued the conversion of commercial
plasma collection firms from manual methods to the Company's automated
PCS[registered trademark] systems. Under contracts with Alpha Therapeutics
and Bayer, the Company has agreed to install and service its PCS[registered
trademark] and PCS[registered trademark]2 systems free of charge to certain
plasma collection centers operated by these parties. These fractionators, in
turn, have agreed to purchase certain minimum numbers of processing chambers
from Haemonetics.
Plasma collection from volunteer donors is undergoing dramatic changes
due to greater focus on the quality, safety and cost of plasma-based
therapeutic products. The Company has been the primary supplier of automated
plasma collection systems to the national blood collection programs of
Japan, France, Sweden, Canada and the United Kingdom. The Company is also in
the early stages of developing a plasma program in China. Haemonetics is one
of two approved vendors in China.
Automated Red Cell Collection
Red blood cell transfusions are performed to restore the oxygen-
carrying capacity of the blood in situations involving hemorrhaging, such as
surgery and trauma and other blood disorders.
Traditionally, red blood cells have been derived from the manual
separation of red blood cells obtained through whole blood donations.
However, this process involves time consuming secondary handling and
processing. It also produces a red cell transfusion product of variable
therapeutic content due to variations found in donor characteristics and the
whole blood donation process.
Haemonetics has extended its MCS[registered trademark]+ system product
line to offer systems for the apheresis collection of red blood cells. The
Company's red blood cell apheresis systems automate the manual red blood
cell collection process, producing a more consistent red cell transfusion
unit and eliminating the lengthy secondary handling and processing steps. In
addition, by collecting red blood cells in multiple units or together with
other apheresis products such as plasma, the blood center can meet its
collection requirements more efficiently and make better use of a shrinking
donor base.
Revenue Detail
In the year ended March 28, 1998, sales of disposable products
accounted for approximately 89% of net revenues. Sales of disposable
products by the Company were 3.6% lower in 1998 than in 1997 (6.0% higher in
1998 than in 1997 without the effects of currency) and grew at a compound
average annual growth rate of 4% for the three years ended March 28, 1998.
Service revenues, which are included as part of disposables revenues,
accounted for approximately .6% of the Company's net revenues during the
year ended March 28, 1998.
Sales of equipment accounted for approximately 11% of net revenues in
fiscal 1998 and approximately 13% in fiscal 1997. Variations in the level of
the Company's sales of equipment are likely to occur from year to year and
quarter to quarter. These variations reflect the buying cycles of the
Company's customers and, in particular, the level of equipment purchases by
the national blood organizations in Europe, Japan and other countries that
are implementing programs for national self-sufficiency in blood products
with the use of the Company's products.
Marketing/Sales/Distribution
Haemonetics markets and sells its products to hospitals, independent
blood banks, commercial plasma collection centers and national health
organizations through its own direct sales force in North America, Western
Europe and Japan. This sales force is composed of full-time sales
representatives and clinical specialists based in the United States, United
Kingdom, Germany, France, Sweden, The Netherlands, Denmark, Italy,
Australia, Austria, Hong Kong, Canada, Japan, Switzerland, China and
Belgium. These sales representatives and clinical specialists interact with
physicians, surgeons and nurses to promote and sell Haemonetics' products
and services, approximately 40% focusing on the surgical blood salvage
market and the remainder on the combination of the Company's other markets.
The clinical specialists assist the Company's sales force and customers
through demonstrations and training.
Haemonetics distributes its disposable Cell Saver[registered
trademark] products in North American cardiovascular hospitals primarily
through the Bentley Laboratories division of Baxter International, Inc.
("Bentley"). In addition, Haemonetics distributes its
Collectfirst[registered trademark] autologous blood collection system in the
United States and Canada through DePuy Orthopedics. In addition, Haemonetics
uses numerous distributors to market its products in South America, Eastern
Europe, the Middle East and the Far East.
Haemonetics' field service engineers support its equipment sales
through ongoing professional equipment service worldwide. The functional and
safety features of the equipment are checked to ensure correct and reliable
operation. All new equipment is covered by a 12-month warranty, during which
all service needs are covered at no charge and all equipment receives a
preventive maintenance check. After the initial warranty period, the Company
provides service compensated under preventive maintenance contracts or
through emergency service fees.
The field service engineer group is supported by a headquarters-based
technical support engineering staff which also provides 24-hour phone
support 365 days a year. Many hospital customers have their own staffs of
biomedical engineers who rely on the Company's technical training and spare
parts logistic systems.
The Company endeavors to minimize the time between the receipt of
purchase orders and the date of delivery of products. Accordingly, the
Company's backlog as of the end of any period represents only a portion of
actual sales for the succeeding period.
Research and Development
The development of extracorporeal blood processing systems has
required that Haemonetics develop technical expertise in mechanical
engineering, electrical engineering, software engineering and biomedical
engineering. The Company's mechanical engineers design pumps, valves,
equipment packaging, centrifuge rotors and disposable plastic components
(i.e., harness sets and processing chambers). The Company's electrical
engineers design sensors (optical, ultrasonic, pressure, weight, speed),
motors, control circuits, driver circuits, computers and display systems.
The Company's software engineers create programs that use input data from
sensors to control the actuation of mechanical components used to collect or
manipulate the blood components. The biomedical engineers monitor products'
biocompatibility and clinical performance and work with major raw materials
and tooling vendors. Innovations resulting from these efforts will allow the
Company to develop systems that are faster, smaller and more user-friendly
or that incorporate additional features important to its customer base.
Haemonetics operates research and development centers in Switzerland,
Japan and the United States, so that protocol variations are incorporated
that closely match local customer requirements. For the past three fiscal
years, the Company's expenditures for research and development were $17.9
million, $18.6 million and $18.1 million, respectively. All research and
development costs are expensed as incurred. The Company expects to continue
to invest substantial resources in research and development.
Customer collaboration is an important part of Haemonetics' technical
strength and competitive advantage. Since its inception, Haemonetics has
built close working relationships with a significant number of blood
processing professionals around the world. This network of experts provides
Haemonetics with ideas for new products, ways to improve existing products,
new applications and enhanced protocols. They also provide Haemonetics with
test sites, objective evaluations and expert opinions regarding technical
and performance issues.
Manufacturing
Disposables
Each individual blood collection procedure requires a disposable
plastic set, which contains a medical-grade tubing harness, bags, filters
and a processing chamber. Haemonetics molds many of its own components which
it then assembles with manufactured and purchased tubing and sheeting to
form the final products. The Company tests the materials for purity to
determine that they are biocompatible and free of contamination. Assembly is
accomplished in a clean room environment.
Production begins with injection molding, blow molding or extrusion of
plastic parts. Molding tools are qualified to ensure specified tolerances
and reproducibility. Each step of the subsequent manufacturing and assembly
processes is qualified and validated. Critical process steps and materials
are documented to ensure that every unit produced consistently meets
performance requirements.
All processing chamber manufacture and most set assembly is done in
the Company's Braintree, Pittsburgh, or Scotland facilities. All disposable
blood processing products are sterilized for patient and donor protection
and are tested in laboratories to confirm sterility. Some manufacturing of
less proprietary components is performed for the Company by outside
contractors. The Company also maintains two important relationships with
Japanese manufacturers who provide finished sets in Singapore and Thailand.
These sets are primarily used by Haemonetics' customers in Japan.
Equipment
Each Haemonetics blood processing machine is designed in-house and
assembled from components that are either manufactured by the Company or
manufactured by others to Company specifications. Many critical mechanical
assemblies are machined and fabricated utilizing the Company's own process
control procedures. The completed instruments are programmed, calibrated and
tested to ensure compliance with the Company's engineering and quality
assurance specifications. Throughout the manufacturing process, inspection
checks are made to verify proper assembly and functionality. When mechanical
and electronic components are sourced from outside vendors, detailed vendor
qualification requirements are met and verified through focused incoming
inspection programs. Approximately 99% of the Company's equipment, including
all new systems, is manufactured by Haemonetics. The remainder is
manufactured for the Company by an outside contractor.
Certain parts and components used in the Company's equipment and
disposables are purchased from various single sources. If it became
necessary to do so, the Company believes that, in most cases, alternative
sources of supply could be developed over a relatively short period of time.
Nevertheless, an interruption in supply could temporarily interfere with
production schedules and affect the Company's results of operations.
All of the Company's equipment and disposable manufacturing sites are
certified to the ISO 9000 standard and to the medical device directive
allowing placement of the CE mark of conformity.
Competition
The markets for the Company's products are developing and are highly
competitive. Although the Company competes directly with others, no one
company competes with the Company across its full line of products.
Haemonetics has established a record of innovation and leadership in each of
the areas in which it competes.
Competition in the surgical blood salvage market, where the underlying
technology among the major competitors is similar, is based upon
reliability, ease of use, service, support and price. Haemonetics competes
with Medtronics, Inc.; COBE Laboratories, Inc. ("COBE"), a subsidiary of
Gambro AB; and Sorin Biomedica.
In the blood component therapy market, competition is based upon the
ability of systems to achieve higher levels of performance as measured by
the time and efficiency of component collection and the quality of the
components collected. The Company's major competitors in this market are
COBE and Baxter International, Inc. Each of these companies has taken a
different technological approach than the Company in the design of systems
for the component therapy market.
In the red cell market, the Company has pioneered automated
collection. Currently the sole provider of automated systems for red cell
collection, the Company competes with traditional methods of collecting and
separating whole blood on the basis of total cost, process control, product
quality, and inventory management.
In the area of plasma collection, the Company competes with Baxter
International, Inc. on the basis of overall cost-effectiveness of equipment
and disposables over the long term and on the quality, ease of use and
technical features of their systems. The Company's automated systems also
compete with manual collection systems, which are less expensive, but also
slower, less efficient and clinically riskier.
The Company believes its technical staff is highly skilled, but many
of its competitors have substantially greater financial resources and larger
technical staffs at their disposal. There can be no assurance that such
competitors will not direct substantial efforts and resources toward the
development and marketing of products competitive with those of the Company.
The Company believes its ability to maintain its competitive advantage
will continue to depend on a combination of market leadership, its
reputation, its patents, its unpatented proprietary know-how in several
technological areas, the quality, safety and cost effectiveness of its
products and the need to rigorously document clinical performance.
Seasonality
Net revenues have historically been higher in the second half of the
Company's fiscal year, reflecting principally the seasonal buying patterns
of the Company's customers.
Patents
Haemonetics holds patents in the United States and abroad on certain
of its machines and disposables. These patents cover certain elements of its
systems, including protocols employed in its equipment and certain aspects
of its processing chambers and other disposables. The Company considers its
patents to be important but not indispensable to its business. To maintain
its competitive position, the Company relies to a greater degree on the
technical expertise and know-how of its personnel than on its patents. The
Company pursues an active and formal program of invention disclosure and
patent application both in the United States and abroad. The Company also
owns various trademarks which have been registered in the United States and
certain other countries.
Regulation
The products manufactured and marketed by the Company are subject to
regulation by the Center for Biologics ("CBER") and the Center of Devices
("CDRH") of the U.S. Food and Drug Administration ("FDA") and non-U.S.
regulatory bodies.
All medical devices introduced to the U.S. market since 1976 are
required by the FDA, as a condition of marketing, to secure either a 510(k)
premarket notification clearance or an approved Premarket Approval
Application ("PMA"). A 510(k) premarket notification clearance indicates FDA
agreement with an applicant's determination that the product for which
clearance has been sought is substantially equivalent to another legally
marketed medical device. An approved PMA application indicates that the FDA
has determined that the device has been proven, through the submission of
clinical data and manufacturing information, to be safe and effective for
its labeled indications. The process of obtaining a 510(k) clearance
typically takes six to twelve months and involves the submission of limited
clinical data and supporting information, while the PMA process typically
will last more than a year and requires the submission of significant
quantities of clinical data and supporting information.
The Company maintains customer complaint files, records all lot
numbers of disposable products and conducts periodic audits to assure
compliance with FDA regulations. The Company places special emphasis on
customer training and advises all customers that blood processing procedures
should be undertaken only by qualified personnel.
The Company is also subject to regulation in countries outside the
U.S. in which it markets its products. Many of the regulations applicable to
the Company's products in such countries are similar to those of the FDA.
However, the national health or social security organizations of certain
countries require the Company's products to be qualified by those countries
before they can be marketed in those countries. Haemonetics has complied
with these regulations and has obtained such qualifications.
Federal, state and foreign regulations regarding the manufacture and
sale of products such as the Company's systems are subject to change. The
Company cannot predict what impact, if any, such changes might have on its
business.
Environmental Matters
The Company does not anticipate that compliance with federal, state
and local environmental protection laws presently in effect will have a
material adverse impact upon the Company or require any material capital
expenditures.
Employees
As of March 28, 1998, Haemonetics employed 1,687 persons assigned to
the following functional areas: manufacturing, 731; sales and marketing,
258; general and administrative, 183; research and development, 84; quality
control and field service, 140; and blood bank services, 291. The Company
considers its employee relations to be satisfactory.
(e) Financial Information about Foreign and Domestic Operations and Export
Sales.
The information required by this item is included in Part II of this
report in footnote 13 of the financial statements, page 38.
ITEM 2. PROPERTIES
The Company owns its main facility, which is located on 14 acres in
Braintree, Massachusetts. This facility is located in a light industrial
park and was constructed in the 1970s. The building is approximately 180,000
square feet, of which 67,000 square feet are devoted to manufacturing and
quality control operations, 35,000 square feet to warehousing, 63,000 square
feet for administrative and research and development activities and 15,000
square feet available for expansion.
The Company leases an 81,850 square foot facility in Pittsburgh,
Pennsylvania. This facility is used for warehousing, distribution of the
products and, as of November of 1991, manufacturing operations. Annual lease
expense is $280,056 for this facility.
In April 1994, the Company purchased a facility in Bothwell, Scotland.
The facility manufactures disposable components for its automated plasma
collection and surgical blood salvage systems for its European customers.
The facility and related property were acquired at a cost of approximately
$1,600,000. The facility is approximately 22,200 square feet. Manufacturing
operations began in August, 1994.
In August 1995, the Company purchased a facility in Union, South
Carolina. This facility will be used for the manufacture of sterile
solutions to support the Company's component therapy and plasma businesses
once approval to do so is received from the FDA. The Company is presently
engaged in the lengthy process of seeking such approval. The Company expects
approval to take approximately eighteen months. The facility and land were
acquired for a cost of $2,423,000. The facility is approximately 57,700
square feet.
Effective August 1997, the Company began leasing a 48,000 square foot
facility in Avon, Massachusetts. This facility is used for warehousing and
distribution of products. Annual lease expense for this facility is
$259,096.
The Company also operates 17 collection centers (11 leased and 6 owned
properties) for the BBMS business and it leases sales, service and
distribution facilities overseas in the United Kingdom, France, Sweden,
Switzerland, The Netherlands, Germany, Japan, Hong Kong, Italy, Belgium,
Austria, Taiwan and China to support the international business.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently engaged in various legal actions, and
although ultimate liability cannot be determined at the present time, the
Company believes that any such liability will not materially affect the
consolidated financial position of the Company or its results of operations.
The Company's products are relied upon by medical personnel in
connection with the treatment of patients and the collection of blood from
donors. In the event that patients or donors sustain injury or death in
connection with their condition or treatment, the Company, along with
others, may be sued, and whether or not the Company is ultimately determined
to be liable, it may incur significant legal expenses. In addition, such
litigation could damage the Company's reputation and, therefore, impair its
ability to market its products and impair its ability to obtain professional
or product liability insurance or cause the premiums for such insurances to
increase. The Company carries product liability and professional liability
(malpractice) coverage. While management of the Company believes that the
aggregate current coverage is sufficient, there can be no assurance that
such coverage will be adequate to cover liabilities which may be incurred.
Moreover, the Company may in the future be unable to obtain product and
professional liability coverages in amounts and on terms that it finds
acceptable, if at all.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Executive Officers of the Registrant
The information concerning the Company's Executive Officers required
by this item is incorporated by reference to the section in Part III hereof
entitled "Directors and Executive Officers of the Registrant."
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Summary of Quarterly Data
(unaudited)
(in thousands, except share data)
1998 Quarter Ended 1997 Quarter Ended
------------------------------------------- -------------------------------------------
June 28, Sept. 27, Dec. 27, March 28, June 29, Sept. 28, Dec. 28, March 29,
1997 1997 1997 1998 1996 1996 1996 1997
-----------------------------------------------------------------------------------------
Net revenues $79,485 $72,520 $70,479 $63,278 $75,049 $73,230 $74,211 $80,519
Gross profit 37,088 34,734 35,402 28,531 42,140 39,893 37,916 39,214
Non-recurring restruct-
uring expense - - 24,500 - - - - -
Operating income 11,448 8,694 (14,252) 522 14,888 13,918 11,404 12,297
Earnings from continuing
operations 7,717 5,736 (9,281) (3,571) 9,910 9,319 7,717 8,688
Loss from discontinued
operations (1,236) (1,705) (2,396) (20,036) (488) (670) (697) (809)
Net income (loss) 6,481 4,031 (11,677) (23,607) 9,422 8,649 7,020 7,879
Share data:
Net Income (loss):
Basic $ 0.24 $ 0.15 $ (0.44) $ (0.89) $ 0.35 $ 0.32 $ 0.26 $ 0.29
Diluted $ 0.24 $ 0.15 $ (0.44) $ (0.89) $ 0.34 $ 0.31 $ 0.26 $ 0.29
Haemonetics' common stock is listed on the New York Stock Exchange.
The following table sets forth for the periods indicated the high and low of
the daily sales prices, which represent actual transactions as reported by
the New York Stock Exchange.
1998 Quarter Ended 1997 Quarter Ended
------------------------------------------- -------------------------------------------
June 28, Sept. 27, Dec. 27, March 28, June 29, Sept. 28, Dec. 28, March 29,
1997 1997 1997 1998 1996 1996 1996 1997
-----------------------------------------------------------------------------------------
Market price of
Common Stock
High 19-5/8 21-1/16 20-15/16 17-3/4 21-3/4 21-3/8 21-1/4 19-1/2
Low 16-1/4 16-1/16 13-11/16 13-3/8 16-5/8 17-1/4 16-5/8 16
There were approximately 565 holders of record of the Company's common
stock as of May 28, 1998.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
TEN-YEAR REVIEW
(in thousands, except share data)
Summary of Operations 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
Net revenues $285,762 $303,009 $276,470 $261,287 $248,449 $216,286 $176,419 $157,332 $124,363 $115,244
Cost of goods sold 150,007 143,846 122,468 116,723 104,879 97,296 85,524 82,656 62,322 54,611
-----------------------------------------------------------------------------------------------------
Gross profit 135,755 159,163 154,002 144,564 143,570 118,990 90,895 74,676 62,041 60,633
-----------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 17,934 18,586 18,104 16,607 15,786 13,589 10,478 8,386 5,776 5,226
Selling, general and
administrative 86,909 88,070 78,654 74,650 75,940 63,576 50,517 42,452 34,940 34,783
Non-recurring restructuring
expense 24,500 - - - - - - - - -
-----------------------------------------------------------------------------------------------------
Total Operating Expenses 129,343 106,656 96,758 91,257 91,726 77,165 60,995 50,838 40,716 40,009
-----------------------------------------------------------------------------------------------------
Operating income 6,412 52,507 57,244 53,307 51,844 41,825 29,900 23,838 21,325 20,624
Other income / (expense),
net (1,946) 2,298 931 192 (1,050) (1,839) (2,222) (2,927) (4,491) (2,822)
-----------------------------------------------------------------------------------------------------
Income from continuing
operations before taxes 4,466 54,805 58,175 53,499 50,794 39,986 27,678 20,911 16,834 17,802
Provision for income taxes 3,865 19,171 20,351 19,250 19,305 15,231 9,687 7,110 5,455 6,272
-----------------------------------------------------------------------------------------------------
Net income from continuing
operations $ 601 $ 35,634 $ 37,824 $ 34,249 $ 31,489 $ 24,755 $ 17,991 $ 13,801 $ 11,379 $ 11,530
-----------------------------------------------------------------------------------------------------
Net loss from discontinued
operations $(25,373) $ (2,664) $ (1,899) $ (604) - - - - - -
-----------------------------------------------------------------------------------------------------
Net Income (loss) $(24,772) $ 32,970 $ 35,925 $ 33,645 $ 31,489 $ 24,755 $ 17,991 $ 13,801 $ 11,379 $ 11,530
Earnings (loss) per share:
Basic $ (0.93) $ 1.21 $ 1.32 $ 1.21 $ 1.13 $ 0.89 $ 0.65 $ 0.51 $ 0.42 $ 0.43
Diluted $ (0.93) $ 1.20 $ 1.30 $ 1.18 $ 1.09 $ 0.87 $ 0.63 $ 0.50 $ 0.41 $ 0.42
Weighted average number
of shares 26,537 27,160 27,294 27,896 27,964 27,818 27,670 27,000 27,000 27,000
Common Stock Equivalents 52 291 428 547 838 794 672 554 554 554
-----------------------------------------------------------------------------------------------------
Weighted average number of
common and common
equivalent shares 26,589 27,451 27,722 28,443 28,802 28,612 28,342 27,554 27,554 27,554
=====================================================================================================
Financial and Statistical
Data: 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital $112,792 $ 94,045 $112,440 $108,459 $ 81,504 $ 63,431 $ 40,919 $ 29,471 $ 27,233 $ 30,369
-----------------------------------------------------------------------------------------------------
Current ratio 2.44 2.3 3.4 3.2 2.7 2.6 2.1 1.8 1.8 2.4
Property, plant and
equipment, net $ 84,219 $ 97,402 $ 82,869 $ 82,059 $ 68,342 $ 56,015 $ 46,751 $ 42,300 $ 36,214 $ 23,267
-----------------------------------------------------------------------------------------------------
Capital expenditures $ 20,380 $ 36,725 $ 19,073 $ 21,642 $ 22,891 $ 17,595 $ 11,373 $ 12,975 $ 17,538 $ 7,314
Depreciation and
amortization $ 22,861 $ 19,507 $ 12,682 $ 13,480 $ 10,720 $ 8,517 $ 6,954 $ 6,996 $ 4,561 $ 3,494
-----------------------------------------------------------------------------------------------------
Total assets $336,693 $320,474 $287,541 $280,509 $230,684 $187,755 $144,846 $117,754 $110,630 $ 87,752
Total debt $ 71,054 $ 29,526 $ 18,534 $ 33,392 $ 14,278 $ 13,562 $ 24,098 $ 24,805 $ 33,903 $ 28,588
-----------------------------------------------------------------------------------------------------
Stockholders' equity $194,655 $225,274 $216,970 $193,177 $160,776 $126,650 $ 90,581 $ 67,543 $ 54,083 $ 42,415
Return on average equity (11.8)% 14.9% 17.5% 19.0% 21.9% 22.8% 22.8% 22.7% 23.6% 31.1%
Debt as a % of stock-
holders' equity 36.5% 13.1% 8.5% 17.3% 8.9% 10.7% 26.6% 36.7% 62.7% 67.4%
-----------------------------------------------------------------------------------------------------
Employees from continuing
operations 1,396 1,405 1,202 1,235 1,109 1,002 965 923 810 742
Net revenues per employee
from continuing operation $ 205 $ 216 $ 230 $ 212 $ 224 $ 216 $ 183 $ 170 $ 154 $ 155
-----------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On May 1, 1998, the Company adopted a plan to discontinue its Blood
Bank Management Services Business, BBMS. Accordingly, all income and expense
items and assets and liabilities related to BBMS have been excluded from the
following discussion of continuing operations.
Results of Continuing Operations
The table outlines the components of the consolidated statements of
income for continuing operations as a percentage of net revenues:
Percentage of Net Revenues Percentage Increase
---------------------------------------------- -------------------
Year Ended Year Ended Year Ended
March 28, 1998 March 29, 1997 March 30, 1996 1998/97 1997/96
--------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% (5.7)% 9.6%
Cost of goods sold 52.5 47.5 44.3 4.3 17.5
---------------------------------------------------------------
Gross profit 47.5 52.5 55.7 (14.7) 3.4
Operating expenses:
Research and development 6.3 6.1 6.5 (3.5) 2.7
Selling, general and administrative 30.4 29.1 28.4 (1.3) 12.0
Non-recurring restructuring expense 8.6 - - 100.0 -
---------------------------------------------------------------
Total operating expenses 45.3 35.2 35.0 21.3 10.2
---------------------------------------------------------------
Operating income 2.2 17.3 20.7 (87.8) 8.3
Interest expense (1.2) (0.6) (0.8) (96.0) (24.9)
Interest income 1.2 1.0 0.8 14.5 (40.1)
Other income (expense), net (0.6) 0.4 0.4 (279.7) (3.9)
---------------------------------------------------------------
Income before provision for income taxes 1.6 18.1 21.1 (91.9) (5.8)
Provision for income taxes 1.4 6.3 7.4 (79.8) (5.8)
---------------------------------------------------------------
Earnings from continuing operations 0.2% 11.8% 13.7% (98.3%) (5.8)%
===============================================================
1998 compared to 1997
Net revenues in 1998 decreased 5.7% to $285.8 million from $303.0
million in 1997. Worldwide disposable sales decreased approximately 3.6%.
Without the effects of currency, disposable sales increased 6.0%, primarily
in international markets. Sales of disposables products accounted for
approximately 89% and 87% of net revenues for 1998 and 1997, respectively.
Service revenues generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings are included as part of
disposables revenues and accounted for approximately .6% and .7% of the
Company's net revenues for 1998 and 1997, respectively. Equipment revenues
decreased approximately 19.0% with and without the effect of currency. This
decrease was attributable to 1997 non-recurring equipment revenues in the
plasma business. International sales accounted for approximately 67% and 64%
of net revenues for 1998 and 1997, respectively.
Gross profit in 1998 decreased $23.4 million from $159.2 million in
1997. As a percentage of net revenues, gross profit percent decreased by
5.0% to 47.5% in 1998 from 52.5% in 1997. Approximately 44% of the decrease
was due to the unfavorable effects of the strengthening dollar and 56% of
the decrease was due to higher product costs and less favorable product mix.
A portion of higher product costs is attributed to non-recurring charges
approximating $1.8 million.
The Company expended $17.9 million in 1998 on research and development
(6.3% of net revenues) and $18.6 million in 1997 (6.1% of net revenues).
Selling, general and administrative expenses decreased to $86.9
million in 1998 from $88.1 million in 1997 but increased as a percentage of
net revenues to 30.4% from 29.1% due to lower sales. Approximately $1.8
million, or .6% of the 1998 expenses as a percent of sales, related to one-
time charges.
Operating income, as a percentage of net revenues, decreased 15.1% to
2.2% in 1998 from 17.3% in 1997.
During the third quarter of fiscal 1998, the Company recorded a charge
of $24.5 million related to the restructuring plans announced by the Company
on November 12, 1997. The Company made a decision not to undertake certain
rework and to terminate the manufacture of certain products. Additionally,
certain products, which would have required additional investments to
continue their useful lives, will no longer be supported. The Company has
also identified certain operations, which it has closed or partially closed,
resulting in losses associated with the abandonment of certain leases and
fixed assets, and the termination of certain employees.
The $24.5 million charge consists of $8.6 million related to the
write-off of certain disposable and equipment inventories. These inventories
and equipment were scrapped or abandoned in conjunction with decisions to
discontinue a disposable rework program and to exit certain product lines.
An additional $6.2 million relates to the write down of certain property,
plant and equipment, principally older generation commercial plasma
equipment, which the Company no longer intends to support. The Company also
recorded charges of $3.8 million related to the cost of exiting certain long
term supply commitments for products which the Company no longer plans to
sell. Other assets totaling $3.8 million were also written off. These
included certain investments in non-core businesses which the Company no
longer intends to pursue. Finally, $2.1 million relates to reserves for
severance and other contractual obligations with respect to the employee
terminations.
Operating income before the $24.5 million restructure charge, as a
percentage of net revenues, decreased 6.5% to 10.8% in 1998 from 17.3% in
1997. Greater than 100.0% of decrease was due to the gross profit decrease,
offset by a slight decrease in selling, general and administrative expenses.
Interest expense increased in 1998 to $3.4 million from $1.7 million
in 1997 due to an increase in the average level of borrowing through the
year. Interest income increased in 1998 to $3.4 million from $2.9 million in
1997 resulting from an increase in sales-type leases.
Other income (expense) decreased $3.0 million to $1.9 million of
expense in 1998 from $1.1 million of income in 1997. The decrease is largely
attributed to the $2.1 million write-off of a non-strategic initiative the
Company decided not to pursue.
The provision for income taxes, as a percentage of pretax income,
increased 51.5% from 35.0% in 1997 to 86.5% in 1998. The increase was due to
the shift in taxable income from the domestic operations to the higher taxed
foreign operations as a result of the one-time restructure charge of $24.5
million and the $28.0 million pre-tax charge from the discontinuance of
BBMS. Additionally, certain foreign operating losses were not given
financial statement benefit.
1997 compared to 1996
Net revenues in 1997 increased 9.6% to $303.0 million from $276.5
million in 1996. Worldwide disposable sales increased approximately 8.2% due
to growth in the international markets. Worldwide disposable sales increased
2.9% without the effect of currency. Sales of disposables products accounted
for approximately 87% and 88% of net revenues for 1997 and 1996,
respectively. Service revenues, generated from equipment repairs performed
under preventive maintenance contracts or emergency service billings, are
included as part of disposables revenues and accounted for approximately .7%
and 1.1% of the Company's net revenues for 1997 and 1996, respectively.
Equipment sales increased approximately 19.5% due to growth in the domestic
surgical market and shipments to China. International sales accounted for
approximately 64% and 62% of net revenues for 1997 and 1996, respectively.
Gross profit in 1997 increased to $159.2 million from $154.0 million
in 1996. As a percentage of net revenues, gross profit percent decreased by
3.2% to 52.5% in 1997 from 55.7% in 1996. The decrease was due to pressure
on product prices and to less favorable product mix partially offset by a
favorable effect of currency.
The Company expended $18.6 million in 1997 on research and development
(6.1% of net revenues) and $18.1 million in 1996 (6.5% of net revenues).
Selling, general and administrative expenses increased to $88.1
million in 1997 from $78.7 million in 1996 and increased as a percentage of
net revenues to 29.1% from 28.4%. Costs associated with the worldwide
regulatory efforts related to red cell apheresis contributed to the
increase.
Operating income, as a percentage of net revenues, decreased 3.4% to
17.3% in 1997 from 20.7% in 1996. The decrease was due to pressure on
product prices and to less favorable product mix partially offset by a
favorable effect of currency.
Interest expense decreased in 1997 to $1.7 million from $2.3 million
in 1996 due to a decrease in both the average borrowings and borrowing
rates. Interest income increased in 1997 to $2.9 million from $2.1 million
in 1996 resulting from an increase in the Company's investment in sales-type
leases and higher average cash balances during the year.
The provision for income taxes remained at approximately 35% as a
percentage of pretax income for 1997 and 1996.
Results of Discontinued Operations
1998 compared to 1997
Net revenues increased 165.1% in 1998 to $18.0 million from $6.8
million in 1997. Gross profit in 1998 decreased to $(.2) million in 1998
from $.6 million in 1997 and operating losses increased 127.6% to $(10.8)
million in 1998 from $(4.1) million in 1997. The decrease in gross profit
and the increase in operating losses were the result of high manufacturing
and operating costs associated with the acquisition of three blood banks in
the service business: Tri-Counties Blood Bank, Kansas Blood Services and
Gateway Blood Services.
1997 compared to 1996
Net revenues increased 289.9% in 1997 to $6.8 million from $1.7
million in 1996. Gross profit remained relatively unchanged at $.6 million
in both 1997 and 1996 and operating losses increased 41.1% to $(4.1) million
in 1997 from $(2.9) million in 1996. The neutral gross profit performance
and the increase in operating losses was the result of higher manufacturing
and operating costs attributed to the ramp up of the service business in
1997. In years prior to 1997, the service business was limited to one
facility in Arizona, the Arizona Blood Institute, purchased in fiscal year
1994 as both a blood bank and training facility for Haemonetics Corporation.
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, stock
purchases, new business development and working capital.
In 1998, the Company increased cash balances by $13.5 million from
operating, investing and financing activities which represents an increase
of $18.7 million from the $5.1 million utilized by the Company's operating,
investing and financing activities in 1997. The increase was largely a
result of $37.4 million more cash provided by financing activities in 1998
versus 1997 offset by $21.0 million of additional cash utilized by the
Company's discontinued operations in 1998 as compared to 1997.
Operating Activities
The Company generated $32.1 million in cash from operating activities
of continuing operations in 1998 as compared to $48.2 million generated
during 1997. The $16.1 million decrease in operating cash flow from
continuing operations was a result of an increase in inventory investment by
$13.9 million; a $14.4 million swing in accounts payable, accrued expenses
and other current liabilities; an increase in other assets investment of
$10.3 million due to increases in tax deferrals and prepayments; and a
decrease in net income from continuing operations adjusted for non-cash
items, (depreciation and amortization, the 1998 restructuring charge and
deferred tax benefit) of $7.2 million. These increased uses were offset by
additional sources of cash generated in 1998 as compared to 1997 due to
accounts receivable, $25.8 million, and current sales-type leases, $3.9
million.
During 1998, the Company's discontinued operations utilized $11.7
million in operating cash flows, an increase of $10.4 million over the $1.3
million of uses in 1997.
Investing Activities
The Company utilized $31.0 million in cash for investing activities in
1998, a decrease of $15.8 million from 1997. During 1998, the Company
incurred $20.4 million in capital expenditures net of retirements and
disposals. Included in this amount is a $(1.4) million net decrease in long-
term demonstration assets. In 1997, the Company utilized $36.7 million for
capital expenditures net of retirements and disposals, including $6.9
million for net expenditures in long-term demonstration assets. The $16.3
million decrease in expenditures on property, plant and equipment,
commercial plasma machines and other revenue generating assets from 1997 to
1998 is due primarily to lower commercial plasma machine placements.
Finally, the Company utilized $8.9 million for long-term sales-type leases
in 1998, compared with $10.1 million utilized in 1997.
During 1998, the Company invested $16.0 million in discontinued
operations. Capital expenditures relating to discontinued operations were
approximately $10.8 million in 1998 and $5.3 million in 1997.
Financing Activities
During 1998, the need for funds not satisfied by internal sources was
satisfied by an increase in borrowings of $42.5 million. Forty million in
notes were issued during the third quarter of 1998 having a coupon rate of
7.05% and a ten year term.
Net debt increased $29.0 million to $49.3 million in 1998, $27.7
million of which was utilized by the discontinued operations.
The Company used $5.6 million to repurchase 318,700 shares of treasury
stock during 1998. There remains approximately 271,100 shares authorized for
repurchase by the Company at prevailing prices as market conditions warrant.
The Company does not intend to repurchase any shares during the next fiscal
year.
At March 29, 1997, the Company had working capital of $112.8 million.
This reflects an increase of $18.8 million in working capital for the twelve
months ended March 28, 1998. The Company believes its sources of cash are
adequate to meet its projected needs.
Year 2000 Compliance
Based upon information currently available, management does not
anticipate that the Company will incur material costs to update its computer
software programs and applications to be "Year 2000" compliant. The Year
2000 problem which is common to most corporations concerns the inability of
information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000
approaches. The Company has completed an assessment of its internal systems,
has developed a workplan to address this issue and is in the process of
implementing actions which address affected systems in time to minimize any
detrimental effects on operations.
In addition the Company relies on third party providers for some of
its systems support. To the extent that the Company will be relying on its
outside software vendors, Year 2000 compliance matters will not be entirely
within the Company's direct control. Finally, the Company has relationships
with vendors, customers and other third parties who rely on computer
software that may not be Year 2000 compliant. Many of these third parties,
operate outside of the U.S. in countries where compliance programs may be
less further along than in the U.S. There can be no assurance that Year 2000
compliance failures by such third parties will not have a material adverse
effect on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPLLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 28, March 29,
1998 1997
---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,766 $ 8,272
Accounts receivable, less allowance of $818 in 1998
and $961 in 1997 58,886 70,913
Inventories 61,664 54,928
Current investment in sales-type leases, net 11,887 13,559
Deferred tax asset 21,777 14,290
Other prepaid and current assets 15,170 4,229
Current assets net of current liabilities of
discontinued operations - 269
--------------------
Total current assets 191,150 166,460
Property, plant and equipment:
Land, building, and building improvements 23,197 21,737
Machinery and equipment 65,236 74,158
Furniture and fixtures 9,216 5,987
Commercial plasma and rental equipment 72,612 81,375
--------------------
Total property, plant and equipment 170,261 183,257
Less: accumulated depreciation 86,042 85,855
--------------------
Net property, plant and equipment 84,219 97,402
Other assets:
Investment in sales-type leases, net (long-term) 38,596 30,954
Distribution rights, net 10,718 10,266
Other assets, net 5,204 7,978
Property, plant and equipment and other assets net
of long-term liabilities of discontinued operations 6,806 7,414
--------------------
Total other assets 61,324 56,612
--------------------
Total assets $336,693 $320,474
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 17,468 $ 19,511
Accounts payable 21,689 27,465
Accrued payroll and related costs 7,726 6,559
Accrued income taxes 5,750 10,478
Other accrued liabilities 15,132 8,402
Current liabilities and accrued losses net of
current assets of discontinued operations 10,593 -
--------------------
Total current liabilities 78,358 72,415
Deferred income taxes 9,944 12,770
Long-term debt, net of current maturities 53,586 10,015
Other long-term liabilities 150 -
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value; Authorized-80,000,000 shares;
Issued-29,341,648 shares in 1998; 29,238,350 shares in 1997 293 292
Additional paid-in capital 59,142 56,547
Retained earnings 190,757 215,657
Cumulative translation adjustment (9,588) (6,162)
--------------------
Stockholders' equity before treasury stock 240,604 266,334
Less: treasury stock at cost-2,756,969 shares in 1998;
2,478,888 shares in 1997 45,949 41,060
--------------------
Total stockholders' equity 194,655 225,274
--------------------
Total liabilities and stockholders' equity $336,693 $320,474
====================
Supplemental disclosure of balance sheet information:
Net debt $ 49,288 $ 21,254
====================
The accompanying notes are an integral part of these
consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Year Ended
-------------------------------
March 28, March 29, March 30,
1998 1997 1996
-------------------------------
Net revenues $285,762 $303,009 $276,470
Cost of goods sold 150,007 143,846 122,468
-------------------------------
Gross profit 135,755 159,163 154,002
-------------------------------
Operating expenses:
Research and development 17,934 18,586 18,104
Selling, general and administrative 86,909 88,070 78,654
Non-recurring restructuring expense 24,500 - -
-------------------------------
Total operating expenses 129,343 106,656 96,758
-------------------------------
Operating income 6,412 52,507 57,244
Interest expense (3,373) (1,721) (2,290)
Interest income 3,366 2,940 2,098
Other income (expense), net (1,939) 1,079 1,123
-------------------------------
Income from continuing operations before
provision for income taxes 4,466 54,805 58,175
Provision for income taxes 3,865 19,171 20,351
-------------------------------
Earnings from continuing operations 601 35,634 37,824
Discontinued operations:
Loss from operations, net of income tax
benefit of ($3,863) in 1998, ($1,433)
in 1997 and ($1,022) in 1996 (7,173) (2,664) (1,899)
Loss on disposal, net of income tax
benefit of ($9,800) (18,200) - -
-------------------------------
Loss from discontinued operations (25,373) (2,664) (1,899)
Net income (loss) $(24,772) $ 32,970 $ 35,925
===============================
Basic income (loss) per common share
Continued operations $ 0.02 $ 1.31 $ 1.39
Discontinued operations $ (0.96) $ (0.10) $ (0.07)
Net income (loss) $ (0.93) $ 1.21 $ 1.32
Income (loss) per common share assuming dilution
Continued operations $ 0.02 $ 1.30 $ 1.36
Discontinued operations $ (0.95) $ (0.10) $ (0.07)
Net income (loss) $ (0.93) $ 1.20 $ 1.30
Weighted average shares outstanding
Basic 26,537 27,160 27,294
Diluted 26,589 27,451 27,722
The accompanying notes are an integral part of these
consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Additional Cumulative Total
-------------- Paid-in Retained Treasury Translation Stockholders'
Shares $'s Capital Earnings Stock Adjustment Equity
----------------------------------------------------------------------------------
Balance, April 1, 1995 28,403 $284 $50,086 $146,824 $(17,519) $ 13,502 $193,177
Employee stock purchase
plan - - - (42) 633 - 591
Exercise of stock options
and related tax benefit 367 4 2,269 - - - 2,273
Purchase of treasury stock - - - - (8,881) - (8,881)
Net income - - - 35,925 - - 35,925
Translation adjustment - - - - - (6,115) (6,115)
--------------------------------------------------------------------------------
Balance, March 30, 1996 28,770 288 52,355 182,707 (25,767) 7,387 216,970
Employee stock purchase
plan - - - (20) 537 - 517
Exercise of stock options
and related tax benefit 468 4 4,192 - - - 4,196
Purchase of treasury stock - - - - (15,830) - (15,830)
Net income - - - 32,970 - - 32,970
Translation adjustment - - - - - (13,549) (13,549)
--------------------------------------------------------------------------------
Balance, March 29, 1997 29,238 292 56,547 215,657 (41,060) (6,162) 225,274
Employee stock purchase
plan - - - (128) 677 - 549
Exercise of stock options
and related tax benefit 104 1 2,595 - - - 2,596
Purchase of treasury stock - - - - (5,566) - (5,566)
Net loss - - - (24,772) - - (24,772)
Translation adjustment - - - - - (3,426) (3,426)
--------------------------------------------------------------------------------
Balance, March 28, 1998 29,342 $293 $59,142 $190,757 $(45,949) $ (9,588) $194,655
================================================================================
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
---------------------------------
March 28, March 29, March 30,
1998 1997 1996
---------------------------------
Cash Flows from Operating Activities:
Net income (loss) $(24,772) $ 32,970 $ 35,925
Less net loss from discontinued operations (25,373) (2,664) (1,899)
--------------------------------
Net income from continuing operations 601 35,634 37,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Non cash items:
Depreciation and amortization 22,861 19,507 12,682
Restructuring charge 24,500 - -
Deferred tax benefit (338) (300) (907)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable-net 9,668 (16,156) (1,605)
Increase in inventories (14,675) (733) (169)
(Increase) decrease in sales-type leases (current) 967 (3,014) 242
(Increase) decrease in other assets (8,743) 1,564 4,998
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities (2,745) 11,658 6,752
--------------------------------
Net cash provided by operating activities,
continuing operations 32,096 48,160 59,817
--------------------------------
Net cash (used in) operating activities,
discontinued operations (11,697) (1,293) (1,508)
--------------------------------
Net cash provided by operating activities 20,399 46,867 58,309
Cash Flows from Investing Activities:
Capital expenditures on property, plant and equipment,
net of retirements and disposals (20,380) (36,725) (19,073)
Increase in distribution rights (1,717) - -
DHL asset acquisition - - (6,189)
Net increase in sales-type leases (long-term) (8,923) (10,136) (3,501)
--------------------------------
Net cash (used in) investing activities,
continued operations (31,020) (46,861) (28,763)
--------------------------------
Net cash (used in) investing activities,
discontinued operations (15,965) (5,337) (637)
--------------------------------
Net cash (used in) investing activities (46,985) (52,198) (29,400)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage (186) (186) (152)
Net increase (decrease) in short-term revolving
credit agreements (1,038) 17,545 (4,022)
Net increase (decrease) in long-term revolving
credit agreements 3,757 (3,450) (8,798)
Borrowings under long-term senior note
purchases agreements 40,000 - -
Employee stock purchase plan 549 517 591
Exercise of stock options and related tax benefit 2,596 4,161 2,273
Purchase of treasury stock (5,566) (15,830) (8,881)
--------------------------------
Net cash provided by (used in) financing activities 40,112 2,757 (18,989)
Effect of exchange rates on cash and cash equivalents (32) (2,586) (718)
--------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 13,494 (5,160) 9,202
Cash and Cash Equivalents at Beginning of Year 8,272 13,432 4,230
--------------------------------
Cash and Cash Equivalents at End of Year $ 21,766 $ 8,272 $ 13,432
================================
Supplemental disclosures of cash flow information:
Net (decrease) in cash and cash equivalents,
discontinued operations $(27,662) $ (6,630) $ (2,145)
Net increase in cash and cash equivalents,
continuing operations $ 41,156 $ 1,470 $ 11,347
Increase (decrease) in net debt $ 29,039 $ 19,069 $(22,174)
Interest paid $ 2,423 $ 2,834 $ 1,791
Income taxes paid, net of refunds $ 16,792 $ 15,228 $ 22,058
================================
The accompanying notes are an integral part of these
consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Haemonetics Corporation and subsidiaries (the "Company") designs,
manufactures and markets automated systems for the collection, processing
and surgical salvage of blood. Haemonetics will also collect blood products
until the divestiture of the BBMS business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday closest to the last day
of March. Fiscal 1998, Fiscal 1997 and Fiscal 1996 each included 52 weeks.
Fiscal 1999 will include 53 weeks, with 14 weeks in the first quarter. The
first quarter will end on July 4, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include money market funds with a maturity of less
than one week. Cash and cash equivalents are recorded at cost, which
approximates market value.
Net Income (Loss) per Share
In 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) NO. 128, "Earnings per Share," which is effective for
financial statements issued for periods ending after December 15, 1997.
Prior period per share amounts have been restated to comply with this new
statement. SFAS 128 supersedes Accounting Principles Board Opinion No. 15
(APB 15) and establishes new standards for the presentation of earnings per
share under SFAS 128, "Basic Earnings Per Share" excludes dilution and is
computed by dividing income available to common stockholders by weighted
average shares outstanding. "Diluted Earnings Per Share" reflects the effect
of all dilutive outstanding common stock equivalents. The following table
provides a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations, as required by SFAS 128:
Years Ended
------------------------------------------------------
March 28, 1998 March 29, 1997 March 30, 1996
------------------------------------------------------
(Dollars and shares in thousands except share amounts)
Basic EPS
Net Income (Loss) $(24,772) $32,970 $35,925
Weighted Average shares 26,537 27,160 27,294
------------------------------------------------
Basic income (loss) per share $ (0.93) $ 1.21 $ 1.32
Diluted EPS
Net Income (Loss) $(24,772) $32,970 $35,925
Basic Weighted Average shares 26,537 27,160 27,294
Effect of Stock options 52 291 428
------------------------------------------------
Diluted Weighted Average shares 26,589 27,451 27,722
Diluted income (loss) per share $ (0.93) $ 1.20 $ 1.30
================================================
Foreign Currency
Foreign currency transactions and financial statements are translated
into U.S. dollars following the provisions of SFAS No. 52, "Foreign Currency
Translation." Accordingly, assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at exchange rates in effect at year-end.
Net revenues and costs and expenses are translated at average rates in
effect during the year. Included in other income/expense in 1998, 1997 and
1996 are $318,000, $288,000 and $710,000, respectively, in foreign currency
transaction gains.
The Company enters into forward exchange contracts to hedge certain
firm sales commitments to customers, which are denominated in foreign
currencies. The purpose of the Company's foreign currency hedging activities
is to protect the Company from the risk that the eventual dollar cash flows
resulting from the sale of products to international customers will be
adversely affected by changes in exchange rates. Gains and losses realized
on these contracts are recorded in operations, offsetting the related
foreign currency transactions. The cash flows related to the gains and
losses on these foreign currency hedges are classified in the statements of
cash flows as part of cash flows from operating activities.
At March 28, 1998 and March 29, 1997, the Company had forward exchange
contracts, all having maturities of less than one year, to exchange foreign
currencies (major European currencies and Japanese yen) primarily for U.S.
dollars totaling $77,662,000 and $98,200,000, respectively. Gross unrealized
gains and losses from hedging firm sales commitments, based upon current
forward rates, were a $4,093,000 gain and a $11,000 loss at March 28, 1998
and a $7,132,000 gain and a $4,000 loss at March 29, 1997. Deferred gains
and losses are recognized in earnings when the future sales are recognized.
Management anticipates that these deferred amounts at March 28, 1998 will be
offset by the foreign exchange effect on sales of products to international
customers in fiscal 1999.
The Company is exposed to credit loss in the event of nonperformance
by counter-parties on these foreign exchange contracts. The Company does not
anticipate nonperformance by any of these parties.
Financial Instruments
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of an estimate of the fair value of certain financial
instruments. The fair value of certain of the Company's financial
instruments, including cash and cash equivalents, notes payable and long-
term debt, pursuant to SFAS No. 107 approximated their carrying values at
March 28, 1998 and March 29, 1997. Fair values have been determined through
information obtained from market sources and management estimates.
Property, Plant and Equipment
The Company provides for depreciation and amortization by charges to
operations using the straight-line method in amounts estimated to recover
the cost of the building and improvements, equipment, and furniture and
fixtures over their estimated useful lives as follows:
Estimated
Asset Classification Useful Lives
--------------------------------------------------------
Building 30 Years
Building and leasehold improvements 5-25 Years
Machinery and equipment 2-10 Years
Furniture and fixtures 5-8 Years
Commercial plasma and rental equipment 6-8 Years
Leasehold improvements are amortized over the lesser of their useful
lives or the term of the lease. Maintenance and repairs are charged to
operations as incurred. When equipment and improvements are sold or
otherwise disposed of, the asset cost and accumulated depreciation are
removed from the accounts, and the resulting gain or loss, if any, is
included in the results of operations. Fully depreciated assets are removed
from the accounts when they are no longer in use.
Inventories
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out basis.
Inventories consist of the following:
March 28, March 29,
1998 1997
----------------------
(in thousands)
Raw materials $11,532 $12,501
Work-in-process 5,878 5,628
Finished goods 44,254 36,799
--------------------
$61,664 $54,928
====================
Revenue Recognition
Revenues from equipment and disposable product sales and sales-type
leases are recognized upon shipment. Service revenues are recognized ratably
over the contractual periods or as the services are provided. The Company
provides for the cost of warranty based on product shipments.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of the temporary differences between the tax and financial reporting bases
of assets and liabilities.
Distribution Rights
Distribution rights represent the cost to reacquire the right to
directly distribute certain of the Company's products in foreign markets.
These rights were acquired in several different acquisitions. The historical
cost of these acquisitions was approximately $15,610,000 and $13,900,000 as
of March 28, 1998 and March 29, 1997, respectively. The distribution rights
are amortized on a straight-line basis over 20 years. The accumulated
amortization was approximately $4,697,000 and $3,253,000 for the years ended
March 28, 1998 and March 29, 1997.
Accounting for Long-lived assets
The Company periodically reviews its long-lived assets for potential
impairment. The Company assesses the future useful life of these assets,
primarily property, plant, equipment and distribution rights, whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of
these assets in assessing their recoverability. If impairment has occurred,
any excess of carrying value over fair value is recorded as a loss. In the
opinion of management, no impairment in the Company's long-lived assets has
occurred, subsequent to the restructuring charge taken in the third quarter
of the fiscal year 1998.
Accounting for Stock-Based Compensation
In December 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation," which became effective for the Company in fiscal 1997.
SFAS No. 123 requires that employee stock-based compensation be recorded or
disclosed at its fair value. The Company has elected to adopt the disclosure
provision for stock-based compensation in SFAS No. 123 but to continue to
account for stock-based compensation under APB No. 25. No accounting
recognition is given to options granted at fair market value until they are
exercised. Upon exercise, net proceeds, including tax benefits realized, are
credited to equity.
New Pronouncements
In June 1997, The Financial Accounting Standards board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 130 requires the
presentation, by major components and as a single total, the change in the
Company's net assets during a period from non-owner sources. Currently, the
Company's non-owner changes in equity are the foreign currency translation
adjustments, which totaled ($9.6) million, ($6.2) million and $7.4 million
in 1998, 1997 and 1996, respectively. SFAS 131 requires companies to present
segment information using the management approach. The management approach
is based upon the way that management organizes the segments within a
Company for making operating decisions and assessing performance. SFAS 130
is effective for the Company in the first quarter of 1999 and SFAS 131 is
effective for the Company's 1999 annual financial statements. Adoption of
these standards will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the 1998 presentation.
3. INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases. The
components of the Company's net investment in sales-type leases are as
follows:
March 28, March 29,
1998 1997
----------------------
(in thousands)
Total minimum lease payments receivable $64,762 $55,236
Less - Unearned interest 14,279 10,723
--------------------
Net investment in sales-type leases 50,483 44,513
Less - Current portion 11,887 13,559
--------------------
$38,596 $30,954
====================
Future minimum lease payments receivable under noncancelable leases as
of March 28, 1998 are as follows:
Fiscal Year Ending (in thousands)
------------------
1999 $17,661
2000 14,401
2001 11,653
2002 8,125
2003 and thereafter 12,922
-------
$64,762
=======
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
March 28, March 29,
1998 1997
----------------------
(in thousands)
Real estate mortgage $ 8,568 $ 8,754
Borrowings under credit facilities 18,613 20,772
Senior notes 40,000 -
Non-U.S. long-term debt 3,873 -
--------------------
71,054 29,526
Less - Current portion 17,468 19,511
--------------------
$53,586 $10,015
====================
Real Estate Mortgage Agreement
The Company has a $10,000,000 real estate mortgage agreement (the
"Mortgage Agreement") with an insurance company. The Mortgage Agreement
requires principal and interest payments of $91,500 per month for a period
of 120 months, commencing October 1, 1990, with the remaining unpaid
principal balance and interest thereon due and payable on September 1, 2000.
The entire balance of the loan may be repaid, subject to a prepayment
premium equal to the greater of either 1% of the principal balance at
prepayment, or an amount calculated based on the interest rate differential,
the principal balance due and the remaining loan term. The Mortgage
Agreement provides for interest to accrue on the unpaid principal balance at
a rate of 10.5% per annum. Borrowings under the Mortgage Agreement are
secured by the land, building and improvements at the Company's headquarters
and manufacturing facility. The Mortgage Agreement also includes minimum
tangible net worth and current ratio requirements. The terms and conditions
of this agreement remain unchanged for future periods.
Credit Facilities
U.S. borrowings are evidenced by a $20,000,000 committed, unsecured
revolving credit facility and a $10,000,000 uncommitted, unsecured credit
line. The committed facility is under a joint financing agreement dated June
25, 1997, which originally consisted of promissory notes for $40,000,000
(the "Agreement"). On December 26, 1997 and April 30, 1998, the Agreement
was amended and restated. The initial amendment to the Agreement included
the withdrawal of two members of the original bank group eliminating each of
their commitments of $10,000,000. The amendments to the Agreement also
included restatement of among other terms, interest rate options, as well as
revisions to and additions of financial covenants. The current $20,000,000
facility is available through June 25, 2000, on which date all borrowings
become due. The uncommitted line is under a financing agreement dated August
12, 1997, and is available through July 31, 1998. As of March 28, 1998
neither the credit facility nor the uncommitted line had outstanding
borrowings.
At the Company's option, the interest rate per annum applicable to the
revolving credit facility is based on (a) the bank's prime rate, (b) the
Euro-Rate plus the applicable margin or (c) the Federal Funds Rate plus the
applicable margin. The applicable margin ranges from 0.45% to 0.65%. The
Agreement provides for a commitment fee ranging from 0.20% to 0.35% of the
undrawn portion of the commitments based upon the company's ratio of
consolidated total indebtedness to consolidated tangible net worth. Interest
rates on the uncommitted line are a function of rates in effect on the date
of the borrowing.
Non-U.S. borrowings represent the financing arranged by the Company's
subsidiaries with local banks which may be guaranteed by the Company. The
majority of the amounts outstanding as of March 28, 1998 are short-term in
nature.
The weighted average short-term rates for U.S. and non-U.S. borrowings
were 1.77%, 1.69% and 5.47% as of March 28, 1998, March 29, 1997 and March
30, 1996, respectively.
Senior Notes
Haemonetics Corporation privately placed $40,000,000 of 7.05% Senior
Notes due 2007 (the "Senior Notes"). The proceeds were used to repay
outstanding bank debt incurred previously using credit facilities and for
general corporate purposes. The Company is required to make annual
prepayments of principal each year in the amount $5,714,286 beginning on
October 15, 2001 and concluding with the final principal payment on October
15, 2007.
Interest on the Senior Notes is computed on the basis of a 360-day
year of twelve 30-day months on the unpaid balance at the rate of 7.05% per
annum, payable semiannually, on April 15 and October 15 each year. The
Senior Notes contain affirmative and negative covenants and restrictions
similar to those required under the terms of the revolving credit facility.
The Company obtained a limited waiver through April 3, 1999 to a covenant of
the Senior Notes which required the Company to maintain consolidated
stockholders equity of $200 million. The Company expects to be in compliance
with the covenant prior to the expiration of the limited waiver.
Non-U.S. Long Term Debt
On March 27, 1998, Haemonetics Japan Limited secured a term loan in
the amount of JPY 500.0 million. This loan bears interest at a rate of
2.125%, and matures on March 29, 2000. As of March 28, 1998, the U.S. dollar
equivalent for this balance was $3.8 million.
As of March 28, 1998, notes payable and long-term debt mature as
follows:
Fiscal Years Ending (in thousands)
-------------------
1999 $17,468
2000 5,439
2001 8,147
2002 5,714
2003 and thereafter 34,286
-------
$71,054
=======
5. INCOME TAXES
The components of domestic and foreign income from continuing
operations before the provision for income taxes are as follows:
Years Ended
-----------------------------------
March 28, March 29, March 30,
1998 1997 1996
-----------------------------------
(in thousands)
Domestic $1,123 $43,505 $45,941
Foreign 3,343 11,300 12,234
--------------------------------
$4,466 $54,805 $58,175
================================
The provision for income taxes from continuing operations consists of
the following components:
Years Ended
-----------------------------------
March 28, March 29, March 30,
1998 1997 1996
-----------------------------------
(in thousands)
Current
Federal $1,031 $14,856 $16,565
State 125 2,286 2,390
Foreign 3,047 2,329 2,303
---------------------------------
4,203 19,471 21,258
---------------------------------
Deferred
Federal (316) (1,998) (980)
State (50) (137) (154)
Foreign 28 1,835 227
---------------------------------
(338) (300) (907)
---------------------------------
$3,865 $19,171 $20,351
=================================
Included in the federal and state income tax provisions for fiscal
years 1998, 1997 and 1996 are approximately $333,000, $2,247,000 and
$3,209,000, respectively, provided on foreign source income of approximately
$2,375,000 in 1998, $6,419,000 in 1997 and $9,169,000 in 1996, taxes on
which are payable in the United States.
The total provision for income taxes included in the consolidated
financial statements was as follows:
Years Ended
-----------------------------------
March 28, March 29, March 30,
1998 1997 1996
-----------------------------------
(in thousands)
Continuing operations $ 3,865 $19,171 $20,351
Discontinued operations (13,663) (1,433) (1,022)
----------------------------------
$ (9,798) $17,738 $19,329
==================================
The tax effect of significant temporary differences composing the net
deferred tax asset (liability) is as follows:
Years Ended
----------------------
March 28, March 29,
1998 1997
----------------------
(in thousands)
Discontinued operations $ 9,800 $ -
Depreciation (11,594) (9,691)
Amortization (3,348) (3,535)
Inventory 12,079 12,221
Accruals and reserves 5,690 2,138
Other (794) 387
---------------------
Total net deferred taxes $ 11,833 $ 1,520
=====================
The provision for income taxes from continuing operations differs from
the amount computed by applying the statutory U.S. federal income tax rate
of 35% in 1998, 1997 and 1996 due to the following:
Years Ended
-----------------------------------
March 28, March 29, March 30,
1998 1997 1996
-----------------------------------
(in thousands)
Tax at federal statutory rate $1,563 $19,181 $20,362
Difference due to:
Foreign sales corporation - (1,605) (1,268)
Difference between U.S. tax rate and tax
rates used in other tax jurisdictions 1,904 167 147
State taxes, net of federal income tax benefit 49 1,403 1,355
Other, net 349 25 (245)
---------------------------------
$3,865 $19,171 $20,351
=================================
6. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under operating
leases expiring at various dates through fiscal year 2013. Facility leases
require the Company to pay certain insurance expenses, maintenance costs and
real estate taxes.
For continuing operations, approximate future basic rental commitments
under operating leases as of March 28, 1998 are as follows:
Fiscal Year Ending (in thousands)
------------------
1999 $ 3,208
2000 2,822
2001 2,198
2002 1,804
2003 and thereafter 4,055
-------
$14,087
=======
Rent expense for continuing operations in 1998, 1997, and 1996 was
$3,078,000, $2,486,000, and $4,219,000, respectively.
The Company is presently engaged in various legal actions, and
although ultimate liability cannot be determined at the present time, the
Company believes, based on consultation with counsel, that any such
liability will not materially affect the consolidated financial position of
the Company or its results of operations.
7. CAPITAL STOCK
Treasury Stock
During 1998 and 1997, the Company repurchased 318,700 shares and
902,100 shares respectively, of its outstanding common stock at average
prevailing prices of $17.44 and $17.46, respectively. The Company expects
any repurchased shares to be made available for issuance pursuant to its
employee benefit and incentive plans and for other corporate purposes.
Stock Plans
The Company has a long-term incentive stock option plan under which a
maximum of 3,438,231 shares of the Company's common stock may be issued
pursuant to incentive and or non-qualified stock options and stock awards
granted to key employees, consultants and advisers (the "Long-Term Incentive
Plan"). The Long-Term Incentive Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee") consisting of two or
more disinterested members of the Company's Board of Directors. The exercise
price for non-qualified options granted under the Long-Term Incentive Plan
is determined by the Committee, but in no event shall such option price be
less than 50% of the fair market value of the common stock at the time the
option is granted. Incentive options may be granted at a price not less than
fair market value on the date of grant. Options become exercisable in a
manner determined by the Committee, generally between four and seven years,
and incentive options expire not more than ten years from the date of the
grant. There were 753,054 shares available for future grant at March 28,
1998.
The Company also has a non-qualified stock option plan for non-
employee directors for the purchase of common stock (the "Non-employee
Plan"). Under the Non-employee Plan, a maximum of 6,000 shares can be
granted to each director, not to exceed 24,000 shares per calendar year, and
a maximum of 86,000 shares in aggregate. Options are granted at not less
than fair market value on the date of grant, vest over 4 years and expire
not more than ten years from the date of grant. There were no shares
available for future grant at March 28, 1998 under this plan. A new stock
option plan for Non-Employee Directors will be voted on at the shareholder's
meeting on July 22, 1998.
The Company also has a stock option plan which grants options to key
employees for the purchase of common stock (the "Option Plan"). The Option
Plan is administered by the Committee, which is empowered to grant either
non-qualified or incentive stock options. Under the Option Plan, options to
purchase up to 1,468,800 shares may be granted at a price, in the case of
incentive options, not less than fair market value on the date of grant.
Options become exercisable in a manner determined by the Committee,
generally over 4 or 5 years, and incentive options expire not more than ten
years from the date of grant. At the year ended March 28, 1998 there were
1,550 shares available for future grant.
During 1998, the Board of Directors approved a stock option re-pricing
to $18.000 per share. On the date of the repricing, the fair market value of
the Company's common stock was less than the option exercise price;
therefore no compensation expense was recognized. The re-pricing affected
options to purchase 387,876 shares of common stock held by optionees other
than members of the CEO's staff. The options were originally priced between
$18.375 and $24.5625 with a weighted average price of $21.1536.
The Company has an Employee Stock Purchase Plan (the "Purchase Plan")
under which a maximum of 289,200 shares (subject to adjustment for stock
splits and similar changes) of common stock may be purchased by eligible
employees. Substantially all full-time employees of the Company are eligible
to participate in the Purchase Plan.
The Purchase Plan provides for two "purchase periods" within each of
the Company's fiscal years, the first commencing on January 1 of each
calendar year and continuing through June 30 of such calendar year, and the
second commencing on July 1 of each year and continuing through December 31
of such calendar year. Eligible employees may elect to become participants
in the Purchase Plan for a purchase period by completing a stock purchase
agreement prior to the first day of the purchase period for which the
election is made. Shares are purchased through accumulation of payroll
deductions (of not less than 2% nor more than 8% of compensation, as
defined) for the number of whole shares determined by dividing the balance
in the employee's account on the last day of the purchase period by the
purchase price per share for the stock determined under the Purchase Plan.
The purchase price for shares will be the lower of 85% of the fair market
value of the common stock at the beginning of the purchase period, or 85% of
such value at the end of the purchase period.
During the fiscal year ended March 28, 1998, due to limited share
availability, the Company abbreviated the first buying period of fiscal
1999, ending it on February 21, 1998. Consequently, fiscal 1998, has three
buying periods as compared to two. The Plan has been subsequently
terminated. A new Employee Stock Purchase Plan will be voted on at the
shareholders meeting on July 22, 1998.
During 1998, there were 39,082 shares purchased at a range of $11.90
to $15.94 per share under the Purchase Plan. During 1997, there were 33,181
shares purchased at a range of $15.09 to $15.51 per share under the Purchase
Plan.
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized for options granted at fair
market value. Had the compensation cost for these plans been determined
consistent with the SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net income and earnings per share would have been the
following pro forma amounts:
1998 1997
-----------------------------
Net Income: As Reported $(24,772,000) $32,970,000
Pro Forma $(28,071,000) $31,526,000
Basic EPS: As Reported (0.93) 1.21
Pro Forma (1.06) 1.16
Diluted EPS: As Reported (0.93) 1.20
Pro Forma (1.06) 1.15
For purposes of the pro forma disclosure, the fair value of each
option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
1998 1997
---------------
Volatility 28.5% 28.3%
Risk-Free Interest Rate 6.6% 6.5%
Expected Life of Options 7 yrs. 7 yrs.
The weighted average grant date fair value of options granted during
1998 and 1997 was approximately $7.663 and $8.223, respectively.
The fair values of shares purchased under the Employee Stock Purchase
Plan is estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
1998 1997
--------------
Volatility 27.8% 28.3%
Risk-Free Interest Rate 5.5% 5.3%
Expected Life of Options 5 mos. 6 mos.
The weighted average grant-date fair value of options granted under
the Purchase Plan was $4.13 in 1998 and $4.34 in 1997.
The effects of applying SFAS No. 123 for the purposes of providing pro
forma disclosures may not be indicative of the effects on reported net
income per share for future years, as the pro forma disclosures include the
effects of only those awards granted after April 2, 1995.
A summary of stock option activity for the combined plans for the
three years ended March 28, 1998 is as follows:
Weighted
Average
Number of Exercise
Shares Price per Share
-----------------------------
Outstanding at April 1, 1995 2,202,612 $14.464
Granted 652,079 $16.989
Exercised (367,488) $ 6.218
Terminated (142,992) $16.528
-------------------------
Outstanding at March 30, 1996 2,344,211 $16.333
Granted 595,425 $18.018
Exercised (468,004) $ 8.775
Terminated (208,601) $17.239
-------------------------
Outstanding at March 29, 1997 2,263,031 $18.231
Granted 1,918,871 $17.103
Exercised (103,298) $14.959
Terminated (1,184,030) $18.891
-------------------------
Outstanding at March 28, 1998 2,894,574 $17.450
The following table summarizes information about stock options
outstanding at March 28, 1998:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/28/98 Life Price at 3/28/98 Price
---------------------------------------------------------------------------------
$14.4375 to $17.0000 1,177,490 8.13 $16.1634 330,491 $15.8926
$17.4375 to $18.0000 1,267,241 7.79 $17.7665 393,726 $17.9972
$18.3750 to $24.5625 449,843 6.06 $19.9253 327,343 $20.3015
---------------------------------------------------------------
Total 2,894,574 7.66 $17.4499 1,051,560 $18.0531
===============================================================
Shareholders Rights Agreement
In April, 1998, the Board of Directors adopted a shareholder rights
plan (the Plan). The Plan is intended to help ensure that all Haemonetics
shareholders receive fair and equal treatment in the event of any proposed
takeover of Haemonetics and to guard against abusive takeover tactics which
do not offer all stockholders a fair price. The Plan entails a dividend of
one right for each outstanding share of the Company's common stock. These
rights, which expire in 2008, entitle their holders to purchase from the
Company, one share of common stock, par value $0.01 for a cash exercise
price of $90 per share, subject to adjustment. The rights are represented by
and traded with the Company's common stock. There are no separate
certificates or market for the rights. The rights will trade separately from
the common stock and will become exercisable after a person or group has
acquired or announced an intent to make an offer to acquire 15% or more of
the outstanding common stock of the Company. A person or group that acquires
shares of common stock pursuant to a tender or exchange offer which is for
all outstanding shares of common stock at a price and on terms which a
majority of the outside Directors determines to be fair and in the best
interest of the Company and its stockholders will not be deemed to be an
acquiring person and such ownership will not trigger the exercisability of
the rights. The rights are redeemable by the Board of Directors at a price
of $0.01 per right any time before a person or group acquires 15% or more of
the outstanding common stock or before the expiration of the rights.
In the event the rights become exercisible, each holder will have the
right ("flip in right") to receive, upon exercise, the number of shares of
common stock having a value equal to two times the aggregate exercise price
of $90 per right. Additionally, the Board of Directors, at its option, may
exchange each right for one share of common stock in lieu of the flip in
right, provided that no one person is the beneficial owner of more than 50%
or more of the outstanding shares of common stock at the time of such
exchange. In the event the Company is acquired in a merger or other business
combination, whereby more than 50% of the Company's assets or earnings power
is sold, each holder of rights shall have the right ("flip over right") to
receive, upon exercise, shares of common stock of the acquiring Company
having a value equal to two times the aggregate exercise price of $90 per
right.
8. SAVINGS PLUS PLAN
The Company's Savings Plus Plan is a 401k plan which allows employees
to accumulate savings on a pretax basis. In addition, the Company makes
matching contributions to the Plan based upon preestablished rates. The
Company can also make additional discretionary contributions if approved by
the Board of Directors. The Company's matching contributions amounted to
approximately $641,000, $660,000 and $616,000 in 1998, 1997, and 1996,
representing a dollar for dollar match up to $1,000 per participant per Plan
year. On May 1, 1998, the Board of Directors approved a change to the
matching calculation which will take effect during FY99. The new formula is
a dollar for dollar match up to 6% of earnings (capped at $100,000) per
participant per Plan year.
The Board of Directors declared discretionary contributions of
approximately $1,100,000 for the Savings Plan years ended March 28, 1998 and
March 30, 1996. No discretionary contribution was made for the Savings Plan
year ended March 29, 1997.
The Company has no material obligation for postretirement or
postemployment benefits.
9. TRANSACTIONS WITH RELATED PARTIES
The Company advances money to various employees for relocation costs
and incentive purposes. Loans to employees, which are included in other
assets, amounted to approximately $476,000 as of March 28, 1998 and $593,000
as of March 29, 1997, and are payable within five years. Certain loans are
interest-bearing, and the Company records interest income on these loans
when collected. Certain loans have forgiveness provisions based upon
continued service or compliance with various guidelines. The Company
amortizes the outstanding loan balance as a charge to operating expense as
such amounts are forgiven.
10. ACQUISITION OF BLOOD CENTERS
During the second quarter of 1998, the Company purchased substantially
all of the assets of three blood centers; Tri-Counties Blood Bank, Kansas
Blood Services and Gateway Blood Services. Each of these acquisitions was
accounted for using the purchase method of accounting, and accordingly, the
results of operations for each acquisition were included in the consolidated
results of the Company from the respective acquisition dates. The purchase
price for the acquisitions, approximated $10.5 million and exceeded the
underlying fair value of the net assets acquired by $4.9 million which has
been assigned to goodwill. As further discussed in footnote 12, the Company
has decided to discontinue its operations in the blood bank services
business. The assets remaining after recording the loss on disposal are
included on the accompanying consolidated balance sheet.
11. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $24.5 million related
to the restructuring plans announced by the Company during the third quarter
of fiscal 1998. The Company made a decision not to undertake certain rework
and to terminate the manufacture of certain products. Additionally, certain
products, which would have required additional investments to continue their
useful lives, will no longer be supported. The Company also identified
certain operations, which it has closed or partially closed, resulting in
losses associated with the abandonment of certain leases and fixed assets,
and the termination of certain employees.
The $24.5 million charge consists of $8.6 million related to the
write-off of certain disposable and equipment inventories. These inventories
and equipment were scrapped or abandoned in conjunction with decisions to
discontinue a disposable rework program, and to exit certain product lines.
The Company also recorded charges of $3.8 million related to the cost of
exiting certain long term supply commitments for products which the Company
no longer plans to resell or use in its operations. Other assets totaling
$3.8 million were written off which represent certain strategic investments
in non-core businesses which the Company no longer intends to pursue. The
Company charged $2.1 million which was related to reserves for severance and
other contractual obligations. These reserves and other restructuring costs
discussed above were provided in accordance with Emerging Issues Task Force
Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". Finally, an additional $6.2 million related to the write
down of certain property, plant and equipment, principally older generation
commercial plasma equipment, which the Company no longer intends to support.
This write down was computed using management's estimate of future cash
flows to be provided by the equipment, and the costs to service the
equipment, consistent with SFAS No. 121, "Impairment of Long Lived Assets".
12. DISCONTINUED OPERATIONS
On May 1, 1998, the Board of Directors announced a plan to discontinue
the Company's Blood Bank Services Business, ("BBMS"). Accordingly, the
operating results for BBMS have been segregated from the results for the
continuing operations and reported as a separate line on the consolidated
statements of income for all periods presented.
The operating losses for BBMS are detailed as follows:
Years Ended
-----------------------------------
March 28, March 29, March 30,
1998 1997 1996
-----------------------------------
(in thousands)
Net Revenues $ 18,046 $ 6,808 $ 1,746
Gross Profit (189) 598 611
Operating expenses:
Research and Development 364 388 363
Selling, general and administrative 10,228 4,265 3,121
Total operating expenses 10,592 4,653 3,484
Operating loss (10,781) (4,055) (2,873)
Other income(expense), net (255) (42) (48)
Taxes (3,863) (1,433) (1,022)
----------------------------------
Net loss $ (7,173) $(2,664) $(1,899)
==================================
Other income(expense) includes an allocation of corporate interest
expense of approximately $255,000, $42,000 and $48,000, in 1998, 1997 and
1996 respectively. The allocation of corporate interest was calculated based
upon the percentage of net assets of BBMS to total domestic assets.
The net loss on disposal of $18,200,000 million includes a provision
for estimated losses after taxes for BBMS of $5,195,000 from March 30, 1998
through disposal.
The remaining net assets of BBMS included in the consolidated balance
sheet for March 28, 1998 and March 29, 1997 are as follows:
March 28, March 29,
1998 1997
-----------------------
(in thousands)
Current Assets $ 5,167 $ 1,478
Net property, plant and equipment 8,217 8,383
Other assets 39 894
---------------------
Total assets $13,423 $10,755
Current liabilities and accrued losses $15,760 $ 1,209
Other long-term liabilities 1,450 1,863
---------------------
Total liabilities $17,210 $ 3,072
13. GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment consisting of the design,
manufacture, marketing and service of blood processing systems and related
disposable items for use in the collection and processing of blood
components, collection of plasma and salvage of shed blood that would
otherwise be lost during surgical procedures. Geographic area information
for Continuing Operations for 1998, 1997 and 1996 is as follows:
Geographic Area
-------------------------------------------------
Europe & Far East &
Domestic All Other Japan Consolidated
-------------------------------------------------
(in thousands)
Year ended March 28, 1998:
Net revenues $ 93,104 $91,744 $100,914 $285,762
-----------------------------------------------
Income before provision for income taxes $ (9,728) $ 8,178 $ 6,016 $ 4,466
-----------------------------------------------
Identifiable assets $227,207 $67,844 $ 41,642 $336,693
-----------------------------------------------
Year ended March 29, 1997:
Net revenues $110,023 $97,026 $ 95,960 $303,009
-----------------------------------------------
Income before provision for income taxes $ 31,162 $15,206 $ 8,437 $ 54,805
-----------------------------------------------
Identifiable assets $212,338 $71,791 $ 36,345 $320,474
-----------------------------------------------
Year ended March 30, 1996:
Net revenues $106,406 $78,423 $ 91,641 $276,470
-----------------------------------------------
Income before provision for income taxes $ 39,179 $11,063 $ 7,933 $ 58,175
-----------------------------------------------
Identifiable assets $166,494 $82,598 $ 38,449 $287,541
-----------------------------------------------
Intercompany transfers to foreign subsidiaries are transacted at
prices intended to allow the subsidiaries comparable earnings to those of
unaffiliated distributors. Sales to unaffiliated distributors and customers
outside the United States, including U.S. export sales, were approximately
$194,857,000 in 1998, which represented 68% of net revenue; $194,849,000 in
1997, which represented 64% of net revenues and $171,410,000 in 1996, which
represented 62% of net revenues.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Haemonetics Corporation:
We have audited the accompanying consolidated balance sheets of
Haemonetics Corporation (a Massachusetts corporation) and subsidiaries as of
March 28, 1998 and March 29, 1997, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three years
in the period ended March 28, 1998. These consolidated financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Haemonetics
Corporation and subsidiaries as of March 28, 1998 and March 29, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended March 28, 1998, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in
item 14 (a) is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 23, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors and concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934
required by this Item is incorporated by reference to the Company's Proxy
Statement for the Annual Meeting to be held July 22, 1998.
(b) The information concerning the Executive Officers of the Company, who
are elected by and serve at the discretion of the Board of Directors, is as
follows:
JAMES L. PETERSON joined Haemonetics in 1980 as Director of European
Operations. In 1982, he was promoted to Vice President and in 1988, to
Executive Vice President. In 1994, Mr. Peterson was promoted to President,
International Operations. In January, 1998 Mr. Peterson was elected
President and Chief Executive Officer by the Board of Directors. Prior to
joining Haemonetics he was employed by Hewlett-Packard Company in Europe and
was responsible for its medical sales and service operation. Mr. Peterson
has been a member of Haemonetics' Board of Directors since 1985 and was
elected to the position of Vice Chairman of Haemonetics' Board of Directors
in April, 1994.
THOMAS A. ASLAKSON joined Haemonetics in 1986 and has served in many
capacities with increasing responsibility. These positions include Cell
Saver 4 Product Manager, Government Contracts Administrator, National
Accounts Manager, Director of Field Service, Director of Marketing and
Director of Quality Assurance. In 1994, Mr. Aslakson was promoted to Vice
President of Quality Assurance for Pittsburgh and Braintree. In December,
1997, Mr. Aslakson was promoted to President, Surgical Business Division.
Prior to joining Haemonetics Mr. Aslakson was employed with Cobe
Laboratories, Lakewood, Colorado.
BRUNO DEGLAIRE joined Haemonetics' European Operation in 1987 as
Director of Haemonetics International Finance and Administration. In 1993,
Mr. Deglaire was promoted to Director of European Marketing and Product
Development. In 1996, he was named Vice President of European Field
Operations. In February 1998, Mr. Deglaire was appointed to the position of
President, Europe and Asian Field Operations. Prior to joining Haemonetics
Mr. Deglaire held various positions of increasing responsibility at Dupont
de Nemours in Geneva, Switzerland.
MICHAEL P. MATHEWS joined Haemonetics in 1987 as Vice President,
Quality Assurance. In 1990, Mr. Mathews assumed the position of Vice
President of Sales and Marketing. In 1991, Mr. Mathews resumed the position
of Vice President, Quality Assurance. In 1994, Mr. Mathews was promoted to
Senior Vice President, Quality Assurance and Solutions Development. In April
1996, Mr. Mathews was promoted to Executive Vice President. In February
1998, Mr. Mathews was promoted to President, Blood Banks Division. From 1985
until joining Haemonetics Mr. Mathews served in various management positions
with V. Mueller, a Division of Baxter International, Inc., Niles, Illinois.
YUTAKA SAKURADA, Ph.D. joined Haemonetics in 1991 as President of
Haemonetics Japan and Vice President of Haemonetics Corporation. In April
1995, Dr. Sakurada was promoted to Senior Vice President of Haemonetics
Corporation. Prior to joining Haemonetics, Dr. Sakurada was employed by
Kuraray Plastics Co., Ltd. in Japan, where he was responsible for the
planning, development , and establishment of medical products business. Dr.
Sakurada has been a member of the Haemonetics Board of Directors since
joining Haemonetics in 1991.
RONALD J. RYAN joined Haemonetics in February, 1998 as Senior Vice
President and Chief Financial Officer. Prior to joining Haemonetics Mr. Ryan
was employed by Converse Inc., North Reading, Massachusetts, where his most
recent position was Senior Vice President of Operations. Previously, Mr.
Ryan was Senior Vice President of Finance and Administration and Chief
Financial Officer. Prior to Converse, Inc., Mr. Ryan was employed with
Bristol-Myers Squibb as Vice President of Finance and Business Planning for
the Europe, Middle East and Africa Divisions. Prior to Bristol-Myers Squibb
Mr. Ryan was Vice President of Planning and Control, International, at
American Can Company.
ROBERT EBBELING joined Haemonetics in 1987 as Manager of Injection
Molding and in December 1987 he became Manager, Molding and Lapping. In
April 1988, Mr. Ebbeling was promoted to Manager, Bowls, Molding, and
Lapping. In April, 1989 he became Director, Disposables Manufacturing. In
January 1994, Mr. Ebbeling was promoted to Vice President, US Disposables
Manufacturing. In April, 1995 he was named Vice President, Disposables
Manufacturing. In August, 1996, Mr. Ebbeling was promoted to Senior Vice
President, Manufacturing. Prior to joining Haemonetics, Mr. Ebbeling was
Vice President, Manufacturing, for Data Packaging Corporation, Somerset,
Massachusetts.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting to be held July 22,
1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting to be held July 22,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this report:
(a) Financial Statements are included in Part II of this report
Financial Statements required by Item 8 of this Form
Consolidated Balance Sheets 19
Consolidated Statements of Operations 20
Consolidated Statements of Stockholders' Equity 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23
Report of Independent Public Accountants 39
Schedules required by Article 12 of Regulation S-X
II Valuation and Qualifying Accounts 46
All other schedules have been omitted because they are not applicable or
not required.
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index at page 44, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HAEMONETICS CORPORATION
By: /s/ SIR STUART BURGESS
----------------------------------
Sir Stuart Burgess
Chairman
By: /s/ JAMES L. PETERSON
----------------------------------
James L. Peterson, President
and Chief Executive Officer
June 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------------------------------------------------------------------------------------
/s/ SIR STUART BURGESS Chairman of the Board June 12, 1998
- --------------------------
Sir Stuart Burgess
/s/ JAMES L. PETERSON President and Chief Executive Officer June 12, 1998
- -------------------------- Director
James L. Peterson
/s/ RONALD J. RYAN Sr. Vice President of Finance and Chief Financial June 12, 1998
- -------------------------- Officer, (Principal Financial and Accounting Officer)
Ronald J. Ryan
/s/ YUTAKA SAKURADA Sr. Vice President Haemonetics Corp. and June 12, 1998
- -------------------------- President, Haemonetics Japan
Yutaka Sakurada Director
/s/ BENJAMIN L. HOLMES Director June 12, 1998
- --------------------------
Benjamin L. Holmes
/s/ JERRY E. ROBERTSON Director June 12, 1998
- --------------------------
Jerry E. Robertson
/s/ DONNA C. E. WILLIAMSON Director June 12, 1998
- --------------------------
Donna C. E. Williamson
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Number and Description of Exhibit
---------------------------------
3. Articles of Organization
3A* Articles of Organization of the Company effective August 29,
1985, as amended December 12, 1985 and May 21, 1987 (filed as
Exhibit 3A to the Company's Form S-1 No. 33-39490 and
incorporated herein by reference).
3B* Form of Restated Articles of Organization of the Company (filed
as Exhibit 3B to the Company's Form S-1 No. 33-39490 and
incorporated herein by reference).
3C* By-Laws of the Company presently in effect (filed as Exhibit 3C
to the Company's Form 10-K No. 1-10730 for the year ended April
3, 1993 and incorporated herein by reference).
3D* Articles of Amendment to the Articles of Organization of the
Company filed May 8, 1991 with the Secretary of the Commonwealth
of Massachusetts (filed as Exhibit 3E to the Company's Amendment
No. 1 to Form S-1 No. 33-39490 and incorporated herein by
reference).
4. Instruments defining the rights of security holders
4A* Specimen certificate for shares of common stock (filed as
Exhibit 4B to the Company's Amendment No. 1 to Form S-1 No. 33-
39490 and incorporated herein by reference).
10. Material Contracts
10A* The 1990 Stock Option Plan, as amended (filed as Exhibit 4A to
the Company's Form S-8 No. 33-42006 and incorporated herein by
reference).
10B* Form of Option Agreements for Incentive and Non-qualified
Options (filed as Exhibit 10B to the Company's Form S-1 No. 33-
39490 and incorporated herein by reference).
10C* Distribution Agreement dated April 11, 1990 between Baxter
Healthcare Corporation, acting through its Bentley Laboratories
Division, and the Company (filed as Exhibit 10C to the Company's
Form S-1 No. 33-39490 and incorporated herein by reference).
10D* Supply Agreement between the Company and Alpha Therapeutic
Corporation dated December, 1988 (filed as Exhibit 10E to the
Company's Form S-1 No. 33-39490 and incorporated herein by
reference).
10E* Sublease dated October 29, 1992 between Clean Harbors of
Kingston, Inc. and the Company (filed as Exhibit 10F to the
Company's Form 10-K No. 1-10730 for the year ended April 3, 1993
and incorporated herein by reference).
10F* Note and Mortgage dated August 7, 1990 between the Company and
John Hancock Mutual Life Insurance Company relating to the
Braintree facility (filed as Exhibit 10H to the Company's Form
S-1 No. 33-39490 and incorporated herein by reference).
10G* Credit Facility with Swiss Bank Corporation (filed as Exhibit
10J to the Company's Amendment No. 1 to Form S-1 No. 33-39490
and incorporated herein by reference).
10H* Lease dated July 17, 1990 between the Buncher Company and the
Company of property in Pittsburgh, Pennsylvania (filed as
Exhibit 10K to the Company's Form S-1 No. 33-39490 and
incorporated herein by reference).
10I* Lease dated July 3, 1991 between Wood Road Associates II Limited
Partnership and the Company for the property adjacent to the
main facility in Braintree, Massachusetts (filed as Exhibit 10M
to the Company's Form 10-K No. 1-10730 for the year ended March
28, 1992 and incorporated herein by reference).
10J* Amendment No. 1 to Lease dated July 3, 1991 between Wood Road
Associates II Limited Partnership and the Company for the child
care facility (filed as Exhibit 10N to the Company's Form 10-K
No. 1-10730 for the year ended March 28, 1992 and incorporated
herein by reference).
10K* Bank Overdraft Facility between The Sumitomo Bank and the
Company with an annual renewal beginning February 28, 1993
(filed as Exhibit 10O to the Company's Form 10-K No. 1-10730 for
the year ended March 28, 1992 and incorporated herein by
reference).
10L* Bank Overdraft Facility between The Mitsubishi Bank and the
Company with an annual renewal beginning June 30, 1993 (filed as
Exhibit 10P to the Company's Form 10-K, No. 1-10730 for the year
ended March 28, 1992 and incorporated herein by reference).
10M* Short-term Loan Agreement between The Mitsubishi Bank and the
Company renewable every three months (filed as Exhibit 10Q to
the Company's Form 10-K No. 1-10730 for the year ended March 28,
1992 and incorporated herein by reference).
10N* Amendment No. 2 to Lease dated July 3, 1991 between Wood Road
Associates II Limited Partnership and the Company (filed as
Exhibit 10S to the Company's Form 10-K No. 1-10730 for the year
ended April 3, 1993 and incorporated herein by reference).
10O* Real Estate purchase agreement dated May 1, 1994 between 3M UK
Holding PLC and the Company (filed as Exhibit 10AA to the
Company's Form 10-K No. 1-10730 for the year ended April 1, 1995
and incorporated herein by reference).
10P* Real Estate purchase agreement dated September 30, 1994 between
The Midland Mutual Life Insurance Company and the Company (filed
as Exhibit 10AB to the Company's Form 10-K No. 1-10730 for the
year ended April 1, 1995 and incorporated herein by reference).
10Q* Purchase agreement dated October 1, 1994 between Kuraray Co. and
the Company (filed as Exhibit 10AC to the Company's Form 10-K
No. 1-10730 for the year ended April 1, 1995 and incorporated
herein by reference).
10R* Asset Purchase Agreement dated as of July 18, 1995 between DHL
Laboratories and the Company (filed as Exhibit 10AF to the
Company's Form 10-K No. 1-10730 for the year ended March 30,
1996 and incorporated herein by reference).
10S* First Amendment to lease dated July 17, 1990 between Buncher
Company and the Company of property in Pittsburgh, Pennsylvania
(filed as Exhibit 10AI to the Company's Form 10-Q No. 1-10730
for the quarter ended December 28, 1996 and incorporated herein
by reference).
10T* Revolving Credit Agreement among Mellon Bank, N.A., the First
National Bank of Boston and Haemonetics Corporation dated as of
October 1, 1996. (filed as Exhibit 10AE to the Company's Form
10-K No. 1-10730 for the year ended March 29, 1997 and
incorporated herein by reference).
10U* Amendment, dated April 18, 1997 to the 1992 Long-Term Incentive
Plan (filed as Exhibit 10V to the Company's Form 10-K No. 1-
10730 for the year ended March 29, 1997 and incorporated herein
by reference).
10V* $40,000,000 Revolving Credit Facility Among Mellon Bank, N.A.
For Itself and as Agent BankBoston, N.A. and The Sanwa Bank,
Limited to Haemonetics Corporation. (filed as Exhibit 10A to the
Company's Form 10-Q No. 1-10730 for the quarter ended June 28,
1997 and incorporated herein by reference).
10W* Note Purchase agreements, dated October 15, 1997 whereby
Haemonetics Corporation authorized sale of $40,000,000, 7.05%
Senior Notes due October 15, 2007. (filed as Exhibit 10A to the
Company's Form 10-Q No. 1-10730 for the quarter ended September
27, 1997 and incorporated herein by reference).
10X* First Amendment, dated December 26, 1997 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation
and Mellon Bank N.A. (filed as Exhibit 10A to the Company's Form
10-Q No. 1-10730 for the quarter ended December 27, 1997 and
incorporated herein by reference).
10Y Second Amendment, dated April 30, 1998 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation
and Mellon Bank N.A.
10Z 1998 Employee Stock Purchase Plan
10AA 1998 Stock Option Plan for Non-Employee Directors
10AB Lease, dated July 29, 1997 between New Avon Limited Parnership
and the Company for the property in Avon, Massachusetts.
10AC Limited waiver under Note Purchase Agreements, dated April 30,
1998.
21. Subsidiaries of the Company
23. Consent of the Independent Public Accountants
27 Financial Data Schedule
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* Incorporated by reference.
(All other exhibits are inapplicable.)
SCHEDULE II
HAEMONETICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Write-Offs Balance at
Beginning Costs and (Net of End
Allowance for Doubtful Accounts of Period Expenses Recoveries) of Period
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For the Year Ended March 28, 1998 $961 $263 $(406) $818
For the Year Ended March 29, 1997 984 431 (454) 961
For the Year Ended March 30, 1996 681 321 (18) 984