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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 April 3, 1999. Commission file number 1-10730
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
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(State of Incorporation) (I.R.S. Employer Identification No.)
400 Wood Road, Braintree, Massachusetts 02184-9114
(781) 848-7100
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(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price of May 14, 1999 was
approximately $376,000,000.
The number of shares of the registrant's common stock, $ .01 par
value, outstanding as of May 14, 1999 was 26,959,425.
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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 27,
1999.
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TABLE OF CONTENTS
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Page Number
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Item 1. Business 3
(a) New Developments in the Business 3
(b) General History 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 12
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Consolidated Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 25
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 47
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors 47
(b) Identification of Executive Officers 47
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 48
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 48
(a) Financial Statements 48
(b) Reports on Form 8-K 48
(c) Exhibits 48
ITEM 1. BUSINESS
(a) New Developments in the Business
Regulatory Developments
Continuous Filtration Device for Platelet Collection
During fiscal 1999, the Company received regulatory approval for
products related to the collection of platelets. Platelets are used chiefly
for transfusion to cancer patients to prevent bleeding.
In October of 1998, the United States Food and Drug Administration
approved the Company's Continuous Filtration device, a product that
automates the collection of platelets from volunteer blood donors and
separates white blood cells ("leukocytes") from the platelets during the
collection procedure. White blood cells may be harmful to patients who
receive them, with possible side effects being fever, chills, and a medical
condition known as alloimmunization, an antibody reaction to transfusions
that can result in decreased responses to subsequent platelet transfusions.
Continuous Filtration is Haemonetics' second generation white cell
removal technology. Clinical studies of this product established that it
enables the collection of platelets while white blood cell levels remain
well within the guidelines recognized by FDA and European regulations for
designating a platelet as "Leukocyte Reduced."
Larger Capacity Platelet Collection Bag
In fiscal year 1999, Haemonetics was granted FDA approval to market a
platelet collection bag with 40% more storage capacity than its predecessor.
The new collection bag will help blood centers to collect single-donor,
leukocyte-reduced platelet products while controlling costs. The larger
size of the new bag enables blood banks using the Haemonetics MCS +
apheresis aystem to accomplish a two-unit platelet collection with two bags
instead of four. The larger bag saves time for blood bank professionals,
and makes more efficient use of blood bank and hospital storage space.
New Business Developments
Divestiture of Management of Blood Banks
In fiscal 1999, the Company embarked on an initiative to divest itself
of ownership of seven blood banks (which included a total of 17 collection
centers) throughout the United States. Acquired during the mid-nineties,
these centers helped Haemonetics to demonstrate that a hospital's total
requirements for blood components can be satisfied using automated
collection exclusively. However, direct management of the centers placed
Haemonetics in competition with some of its customers, failed to yield
expected returns, and diverted focus from the Company's core strengths.
Effective May 2, 1999, all of the blood bank operations formerly owned
by Haemonetics have been sold. United Blood Services ("UBS"), the second
largest blood collection agency in the United States, purchased nine of the
centers, and, because that sale included a long-term supply agreement for
Haemonetics disposables, UBS is now one of Haemonetics' largest customers.
Direct Selling to the United States Cardiovascular Market
In December of 1998, Haemonetics terminated its distribution agreement
with the Bentley Division of Baxter Healthcare for the United States
surgical open heart business. The Company now utilizes its existing
surgical sales force to sell its Cell Saver(R) autologous blood recovery
systems and related disposables directly to the United States cardiovascular
market.
Cultivation of the Emerging Red Blood Cell Market
The Company continued market introduction of the newest application of
its apheresis procedure, red cell apheresis, a process that enables a donor
to give twice as many red blood cells as is possible using manual collection
methods. Red blood cell transfusions are performed to restore the oxygen-
carrying capacity of the blood in situations involving hemorrhaging, such as
surgery, trauma, and other blood disorders. Red blood cells are the most
frequently transfused of the three main blood components, and their
efficient collection constitutes an emerging market whose value is estimated
at $300 million. The Company feels that its proprietary two-unit red cell
apheresis represents the largest opportunity in its history.
Revitalization of Research and Development
The Company is committed to reorganizing and expanding resources to
get more new products to the market faster. During 1998, the FDA granted
clearance for the Haemonetics Single Donor Platelet and Two-unit Single
Donor Platelet continuous filtration technology, as well as approval for the
Company's larger capacity platelet storage bag. There was forward progress
on the Company's double red cell filtered product, and the Superlite, a
small, light-weight machine for mobile blood collection, was introduced in
Japan for testing. Dr. Peter Tomasulo, who formerly held senior positions
in community blood banking and with the American and International Red
Cross, was promoted to Corporate Medical Director and Senior Vice President,
Red Cell Business Unit.
Haemonetics also moved ahead on its automated red cell washing system,
which has the potential to be the first product to allow red cells to be
washed and then kept for an extended shelf life. This system is now in
clinical trials collecting data for FDA submission. Over 40 million units of
red cells are transfused each year to patients, and there are constant
supply shortages. Many blood banks worldwide cannot meet their customers'
demand for red cells and, therefore, have to import red cells from other
blood banks. Extending the shelf life of red cells will help blood centers
in managing their red cell inventories.
Streamlined Operations
The Company has undertaken a program to re-engineer its manufacturing
and logistics processes to yield a low-cost advantage in the industry. This
initiative - Customer Oriented Redesign for Excellence, or CORE - has three
key goals: 1) improve customer satisfaction through top quality and on-time
deliveries, 2) lower production costs, and 3) optimize inventories. The
CORE Program has already helped Haemonetics to realize significant cost
savings.
(b) General History of the Business
Haemonetics Corporation was incorporated in Massachusetts in 1985.
The terms "Haemonetics" and the "Company" as used herein include its
subsidiaries and its predecessor where the context so requires.
Haemonetics was founded in 1971 and became a publicly owned company
for the first time in 1979. In August 1983, Haemonetics was acquired by
American Hospital Supply Corporation ("AHS"). In connection with the
acquisition of AHS by Baxter Travenol Laboratories, Inc. in 1985, Baxter
Travenol divested Haemonetics in order to address antitrust concerns related
to that acquisition. Haemonetics was purchased in December 1985 by investors
that included James L. Peterson, the Company's present chief executive
officer and president, E. I. du Pont de Nemours and Company ("Du Pont"), and
other present and former employees of the Company. In May 1991, the Company
completed an Initial Public Offering, at which time Du Pont divested its
entire interest in the Company.
Haemonetics is engaged in the manufacture of automated systems for the
collection, processing and surgical salvage of blood. Since the development
of its first proprietary cell washing system in 1971, the Company has
pioneered a family of innovative systems and technologies for blood
processing. The Company's business is focused on surgical blood salvage,
blood component therapy, and automated red cell and plasma collection.
Haemonetics blood processing systems consist of proprietary disposable sets
driven by specialized equipment. The Company's equipment requires the use
of more than 100 different sterile, single-use disposable products. The
Company markets its products to hospitals, independent blood banks,
commercial plasma centers and fractionators, and national health
organizations in more than 50 countries.
(c) Financial Information about Industry Segments
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood processing
systems. Haemonetics' chief operating decision maker uses consolidated
results to make operating and strategic decisions. Manufacturing processes,
as well as the regulatory environment in which the company operates, are
largely the same for all product lines.
The financial information required for the business segment is
included herein in footnote 11 of the financial statements, entitled
SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION.
(d) Narrative Description of Business
Background
All of the Company's products involve the extracorporeal processing of
human blood. Every human body contains approximately ten units (one unit =
one pint) of blood consisting of both cellular and liquid portions. The
cellular portion, which constitutes approximately 45 percent of the body's
blood by volume, is composed of red blood cells, white blood cells, and
platelets. All of these components are derived from stem cells which
originate in the body's bone marrow. The liquid portion, which constitutes
the remaining 55 percent of blood volume, is made up of plasma and soluble
blood proteins.
The practice of modern medicine is based on the availability of a safe
and adequate blood supply and upon the capability of treating a medical
deficiency 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"). Homologous
blood transfusions have major drawbacks. First, they carry the risk of
transfusion reactions, which can range from mild allergic responses to life-
threatening red cell incompatibility. Second, while the vast majority of
blood in the United States and other developed countries is tested for
transfusion-related 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
increased when blood is 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 (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
requires 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,
plasma collection, and automated red cell 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 that patient. This process
normally includes a washing procedure which removes unwanted substances from
the blood prior to its reinfusion.
The need for a blood transfusion during surgery is common with open
heart, trauma, transplant, vascular and orthopedic operations. Surgical
blood salvage reduces or eliminates a patient's dependence on blood donated
from others (homologous blood), which carries the risk of transmission of
diseases, such as AIDS and hepatitis, as well as the risk of severe
transfusion reactions. The decision to transfuse a unit of homologous blood
involves weighing the potential therapeutic benefits of such 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 homologous blood
transfusion risks described above. Moreover, patients are becoming
increasingly aware of the availability and advantages of autologous blood
transfusion. Ongoing shortages of blood and blood components have
reinforced the benefits of this approach.
Haemonetics, which pioneered the first autologous blood transfusion
system, has developed a full line of products to address the needs of the
surgical blood salvage market. The Company's core product line, the Cell
Saver(R) autologous blood recovery system, reduces a patient's dependence on
homologous red cell transfusions and enables more rapid delivery of higher
quality, compatible blood to the surgical patient intra- and post-
operatively. An extension of this product line is the HaemoLite(R)
autologous blood recovery system, an automated portable system requiring
limited operator monitoring that is designed for lower blood loss
procedures.
The Company markets these 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 by using
specific blood components - platelets, red blood cells, peripheral blood
stem cells, or white blood cells - instead of 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 typically used to alleviate the side effects of
bone marrow suppression, a condition in which bone marrow is unable to
produce a sufficient quantity of platelets. Bone marrow suppression can
result from a number of causes, including infection, but it is usually a
side effect of chemotherapy. The demand for platelets is growing in
conjunction with increasingly aggressive cancer therapies.
Platelets for therapeutic use have traditionally been derived from the
manual separation from blood obtained through whole blood donations.
However, platelets constitute a very small portion of the body'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 combination of platelets from multiple donors) to obtain a
volume of platelets sufficient for therapeutic treatment, thus amplifying
the risks of transmission of a blood-borne disease or of an adverse
reaction.
The Company addresses these drawbacks of platelet therapy with its
apheresis systems, such as the Haemonetics MCS(R)+ mobile collection system.
The apheresis process permits the collection of therapeutically useful
quantities of components, such as platelets, from a single donor. The end
products of platelet apheresis are referred to as single donor platelets (as
opposed to pooled or random donor platelets traditionally available from
blood banks or hospital centers).
Apheresis is beneficial to donors as well as to patients. It
conserves the donor pool in that it enables donors to give non-red cell
blood components more often than whole blood. Donors of whole blood are
restricted by regulatory agencies to eight-week intervals between donations,
whereas apheresis donors may donate as often as twice a week. Apheresis
systems offer a purer and safer blood product to the patient who is the
transfusion recipient because of the significant reduction in the number of
donors to which that 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 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 United States 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 will have minimal effect on the demand for
other plasma products such as albumin and gamma globulin. Diagnostic
products derived from source plasma include blood grouping sera, test kit
controls, and quality control reagents.
Historically, plasma had been collected by manual techniques as part
of whole blood collection. As in the case of manual collection of other
blood components, manual techniques for the collection of plasma were very
time-consuming and have produced poor yields.
In the United States, commercial operators account for approximately
95 percent of plasma collection, with the remaining 5 percent collected from
volunteer donors at other blood bank organizations. Outside of the United
States, plasma is collected primarily from volunteer donors.
Commercial plasma collection firms in the United States pay donors for
their plasma and then fractionate the collected plasma and sell the
collected plasma or the resultant protein products worldwide for
fractionation purposes. Outside the United States, virtually every
industrialized nation has expressed the desire to increase access to the
worldwide plasma market. This is due to the ever-growing demand for plasma-
based therapeutic products and the universal need to improve the quality of
blood products. The appeal of efficient, user-friendly automated systems
resulted in almost complete conversion from manual to automated plasma
collection techniques in many countries.
Haemonetics automated plasma collection systems, PCS(R) and PCS(R)2,
shortened the collection procedure to approximately forty minutes, from the
ninety minutes required for manual collection. Donor safety also increased.
The donor is never separated from his or her own blood, thereby eliminating
the possibility of returning the wrong red cells to the donor, a risk that
exists in manual collection. The PCS(R) and PCS(R)2 systems also yield a
higher quality plasma than do manual methods, since a smaller amount of
anticoagulant is needed and the donor is given no intravenous fluids to
dilute his or her native plasma.
Haemonetics aggressively pursued the conversion of commercial plasma
collection firms from manual methods to the Company's automated PCS(r)
systems. Under contracts with Alpha Therapeutics and Bayer, the Company
agreed to install and service its PCS(R) and PCS(R)2 systems free of charge
to certain plasma collection centers operated by these parties. In turn,
these fractionators 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
Traditionally, red blood cells have been derived from a manual
separation process after whole blood is obtained through donations.
However, this manual procedure involves time-consuming secondary handling
and processing. It also produces a red cell transfusion product of variable
therapeutic content because of variations found in donor characteristics and
because of the whole blood donation process itself.
Haemonetics has extended its MCS(R)+ system product line to offer
systems for the apheresis collection of red blood cells. The Company's red
blood cell apheresis systems automate the red blood cell collection process,
thereby 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, blood centers can meet their
collection requirements more efficiently and make better use of a shrinking
donor base.
Revenue Detail
In the year ended April 3, 1999, sales of disposable products
accounted for approximately 88 percent of net revenues. Sales of disposable
products by the Company were 7.6 percent higher in 1999 than in 1998 at
constant currency (2.5 percent higher in 1999 than in 1998 with the effects
of currency) and grew at a compound average annual growth rate of 5.0
percent for the three years ended April 3, 1999 also at constant currency.
Service and other miscellaneous revenues, which are included as part of
disposables revenues, accounted for approximately 4.7% percent of the
Company's net revenues during the year ended April 3, 1999.
Sales of equipment accounted for approximately 7 percent of net
revenues in fiscal 1999 and approximately 11 percent in fiscal 1998.
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. The sales force is composed of full-time sales
representatives and clinical specialists based in the United States, the
United Kingdom, Germany, France, Sweden, The Netherlands, Denmark, Italy,
Australia, Austria, Hong Kong, Canada, Japan, Switzerland, Czech Republic,
China and Belgium. These sales representatives and clinical specialists
interact with physicians, surgeons, and nurses to promote and sell
Haemonetics products and services. The clinical specialists assist the sales
force and Haemonetics customers through demonstrations and training.
Haemonetics field service engineers support equipment sales through
ongoing professional equipment service worldwide. They check the functional
and safety features of the equipment to ensure correct and reliable
operation. All new equipment is covered by a 12-month warranty. Under the
warranty, all service needs are covered at no charge and all equipment
receives a preventive maintenance check. After the initial warranty period,
the Company offers service under preventive maintenance contracts or through
emergency service fees.
The field service engineering group is supported by a headquarters-
based technical support engineering staff which provides 24-hour phone
support 365 days a year. Many hospital customers have their own staffs of
biomedical engineers who rely on the Company's technical training and spare
parts logistic systems.
In December of 1998, Haemonetics ended its distribution agreement with
the Bentley Division of Baxter Healthcare for the United States surgical
open heart business and now utilizes its existing sales force to sell the
Cell Saver(R) systems and related disposables to the United States open
heart and orthopedic markets.
The Company uses various distributors to market its products in South
America, Eastern Europe, the Middle East, and the Far East.
Haemonetics endeavors to minimize the time between receipt of purchase
orders and delivery of products. Accordingly, the Company's backlog as of
the end of any period represents only a portion of actual sales for the
succeeding period.
Research and Development
The development of extracorporeal blood processing systems has
required that Haemonetics maintain technical expertise in various
engineering disciplines, including mechanical, electrical, software,
biomedical, and materials. The Company's mechanical engineers design pumps,
valves, equipment packaging, centrifuge rotors, and disposable plastic
components (e.g., harness sets and processing chambers). Its electrical
engineers design sensors (optical, ultrasonic, pressure, weight, and speed),
motors, control circuits, driver circuits, computers, and display systems.
The software engineers design programs that use input data from sensors to
control the actuation of mechanical components used to collect or manipulate
the blood components. The biomedical engineers monitor products'
biocompatibility and clinical performance and work with major raw materials
and tooling vendors. Innovations resulting from these various engineering
efforts enable the Company to develop systems that are faster, smaller, and
more user-friendly, or that incorporate additional features important to the
Haemonetics customer base.
During fiscal 1999, Haemonetics introduced for testing in Japan its
new Superlite system for mobile collection. The Company believes that this
product represents significant market expansion opportunities for
Haemonetics in that it will help to speed up the widespread adoption of the
red cell apheresis procedure. Half the size of its predecessor and weighing
only 35 pounds, a Superlite can be transported easily to remote collection
sites like schools and businesses. Superlite prototypes are in use in Japan
and initial feedback has been positive.
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 $15.1
million, $17.9 million and $18.6 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 individuals
provides the Company with ideas for new products, ways to improve existing
products, new applications, enhanced protocols, information about potential
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 its product materials for
purity to determine that they are biocompatible and free of contamination.
Assembly is carried out in a clean room environment.
Production begins with injection molding, blow molding, or extrusion
of plastic parts. Molding tools are qualified to ensure specified
tolerances and reproducibility. Each step of the subsequent manufacturing
and assembly processes is qualified and validated. Critical process steps
and materials are documented to ensure that every unit is produced
consistently and meets performance requirements.
All processing chamber and most set assembly work is done in the
Company's Braintree, Massachusetts; Leetsdale, Pennsylvania; or Bothwell,
Scotland facilities. All disposable blood processing products are
sterilized for patient and donor protection and are tested in laboratories
to confirm sterility. Some manufacturing of less proprietary components is
performed for the Company by outside contractors. The Company also
maintains important relationships with two Japanese manufacturers that
provide finished sets in Singapore, Japan and Thailand. These sets are used
primarily by Haemonetics' customers in Japan.
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. Inspection checks are conducted throughout the
manufacturing process to verify proper assembly and functionality. When
mechanical and electronic components are sourced from outside vendors, those
vendors must meet detailed qualification requirements, and the components
are subjected to focused incoming inspection programs. Approximately 99
percent 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, the Company believes that, in most cases, alternative sources of
supply could be identified and developed over a relatively short period of
time. Nevertheless, an interruption in supply could temporarily interfere
with production schedules and affect the Company's operations.
All of the Company's equipment and disposable manufacturing sites are
certified to the ISO 9000 standard and to the medical device directive
allowing placement of the CE mark of conformity.
The CORE Program
During 1998, Haemonetics engaged an independent consulting firm to
conduct a thorough evaluation of key corporate processes and then embarked
on a company-wide program to streamline operations and reduce expenses.
Involving all Haemonetics employees, the Customer Oriented Redesign for
Excellence - or CORE Program - is expected to have far-reaching positive
consequences.
The Program has three goals: 1) improve customer satisfaction through
top quality and on-time deliveries, 2) lower production costs, and 3)
optimize inventories.
Consistent with the tenets of traditional Total Quality Management
("TQM"), CORE is focused heavily on customer satisfaction and addresses what
every Haemonetics employee can do to better meet customer needs. It expands
upon the Company's existing core values of trust, quality, and innovation,
and represents a new way of spotlighting the activities deemed essential to
continuous improvement of corporate processes and procedures.
Early results of the CORE Program show significant reductions in
average quarter-end backlog, air freight costs, late orders, and
distribution expenses. Haemonetics plans to continue and expand upon the
CORE Program. Future goals include additional labor efficiencies and
reductions in material costs and inventory. Quantitative metrics have
already been established to measure progress against these. Additionally,
Haemonetics will assess its systems outside of manufacturing and seek ways
to streamline these.
Competition
The markets for Haemonetics products are developing and are highly
competitive. Although Haemonetics competes directly with others, no one
company competes with Haemonetics across its full line of products. The
Company has established a record of innovation and leadership in each of the
areas in which it competes.
Competition in the surgical blood salvage market, where the underlying
technology among major competitors is similar, is based upon reliability,
ease of use, service, support, and price. Haemonetics competes 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 increasingly 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
technological approach different from that of Haemonetics in the design of
systems for the component therapy market.
In the red cell market, the Company has pioneered automated
collection. Currently the sole provider of automated systems for two-unit
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 quality, ease of use, and technical
features of systems, and on the long-term cost-effectiveness of equipment
and disposables. The Company's automated systems also compete with manual
collection systems, which are less expensive, but are also slower, less
efficient and clinically riskier.
The Company's technical staff is highly skilled, but many of its
competitors have substantially greater financial resources and larger
technical staffs at their disposal. There can be no assurance that such
competitors will not direct substantial efforts and resources toward the
development and marketing of products competitive with those of the Company.
The Company believes that its ability to maintain its competitive
advantage will continue to depend on a combination of factors, including its
reputation; its patents; its unpatented proprietary know-how in several
technological areas; the quality, safety and cost effectiveness of its
products; and continual and rigorous documentation of clinical performance.
Seasonality
Net revenues have historically been higher in the Company's third and
fourth quarters, reflecting principally the seasonal buying patterns of the
Company's customers.
Patents
Haemonetics holds patents in the United States and abroad on 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 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 of Devices and Biologics Evaluation and Research
("CBER") and the Center of Devices and Radiological Health ("CDRH") of the
United States Food and Drug Administration ("FDA"), and other non-US
regulatory bodies.
All medical devices introduced to the United States market since 1976
are required by the FDA, as a condition of marketing, to secure either a
510(k) premarket notification clearance or an approved Premarket Approval
Application ("PMA"). 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 may
take up to 24 months and involves the submission of clinical data and
supporting information, while the PMA process may take even longer typically
takes more than a year and requires the submission of more 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
United States in which it markets its products. Many of the regulations
applicable to the Company's products in such countries are similar to those
of the FDA. However, the national health or social security organizations
of certain countries require the Company's products to be qualified by those
countries before they can be marketed in those countries. Haemonetics has
complied with these regulations and has obtained such qualifications.
Federal, state and foreign regulations regarding the manufacture and
sale of products such as the Company's systems are subject to change. The
Company cannot predict what impact, if any, such changes might have on its
business.
Environmental Matters
The Company does not anticipate that compliance with federal, state,
and local environmental protection laws presently in effect will have a
material adverse impact upon the Company or will require any material
capital expenditures.
Employees
As of April 3, 1999, Haemonetics employed 1,366 persons assigned to
the following functional areas: manufacturing, 611; sales and marketing,
294; general and administrative, 197; research and development, 82; quality
control and field service, 145; and blood bank services, 37. The Company
considers its employee relations to be satisfactory.
(e) Financial Information about Foreign and Domestic Operations
and Export Sales
The financial information required by this item is included herein in
footnote 11 of the financial statements, entitled SEGMENT, GEOGRAPHIC AND
CUSTOMER INFORMATION.
ITEM 2. PROPERTIES
The Company owns its main facility, which is located on 14 acres in
Braintree, Massachusetts. This facility is located in a light industrial
park and was constructed in the 1970s. The building is approximately
180,000 square feet, of which 70,000 square feet are devoted to
manufacturing and quality control operations, 35,000 square feet to
warehousing, 61,000 square feet for administrative and research and
development activities and 14,000 square feet available for expansion.
The Company leases an 81,850 square foot facility in Pittsburgh,
Pennsylvania. This facility is used for warehousing, distribution of the
products and, as of November of 1991, manufacturing operations. Annual
lease expense is $280,000 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 is used for the manufacture of sterile solutions to
support the Company's component therapy and plasma businesses. The facility
and land were acquired for a cost of $2,423,000. The facility is
approximately 57,700 square feet and is currently under renovation to add
another 11,600 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
$260,696.
The Company also leases sales, service and distribution facilities
overseas in the United Kingdom, France, Sweden, Switzerland, The
Netherlands, Germany, Japan, Hong Kong, Italy, Belgium, Austria, Taiwan,
China and the Czech Republic to support the international business.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently engaged in various legal actions, and
although ultimate liability cannot be determined at the present time, the
Company believes that any such liability will not materially affect the
consolidated financial position of the Company or its results of operations.
The Company's products are relied upon by medical personnel in
connection with the treatment of patients and the collection of blood from
donors. In the event that patients or donors sustain injury or death in
connection with their condition or treatment, the Company, along with
others, may be sued, and whether or not the Company is ultimately determined
to be liable, it may incur significant legal expenses. In addition, such
litigation could damage the Company's reputation and, therefore, impair its
ability to market its products and impair its ability to obtain professional
or product liability insurance or cause the premiums for such insurances to
increase. The Company carries product liability and professional liability
(malpractice) coverage. While management of the Company believes that the
aggregate current coverage is sufficient, there can be no assurance that
such coverage will be adequate to cover liabilities which may be incurred.
Moreover, the Company may in the future be unable to obtain product and
professional liability coverages in amounts and on terms that it finds
acceptable, if at all.
In order to aggressively protect its intellectual property throughout
the world, the Company has a program of patent disclosures and filings in
markets where the Company does significant business. While management
believes that its program is reasonable and adequate, the risk of loss is
inherent in litigation as different legal systems offer different levels of
protection to intellectual property, and it is still possible that even
patented technologies may not be protected absolutely from infringement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Executive Officers of the Registrant
The information concerning the Company's Executive Officers required
by this item is incorporated by reference to the section in Part III hereof
entitled "Directors and Executive Officers of the Registrant."
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Summary of Quarterly Data
(unaudited)
(in thousands, except share data)
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
Fiscal year ended April 3, 1999:
Net revenues $71,996 $67,787 $67,958 $74,404
Gross profit 35,970 31,764 31,228 34,540
Non-recurring restructuring expense -- -- -- --
Operating income 7,303 7,907 7,221 9,197
Earnings from continuing operations 4,957 5,325 4,793 6,104
Loss from discontinued operations (57) (30) (8) (7)
Net income(loss) 4,900 5,295 4,785 6,097
Share data:
Net Income (loss)
Basic $ 0.184 $ 0.199 $ 0.178 $ 0.227
Diluted $ 0.184 $ 0.197 $ 0.175 $ 0.225
Fiscal year ended March 28,1998:
Net revenues $79,485 $72,520 $70,479 $63,278
Gross profit 37,088 34,734 35,402 28,531
Non-recurring restructuring expense -- -- 24,500 --
Operating income 11,448 8,694 (14,252) 522
Earnings from continuing operations 7,717 5,736 (9,281) (3,571)
Loss from discontinued operations (1,236) (1,705) (2,396) (20,036)
Net income(loss) 6,481 4,031 (11,677) (23,607)
Share data:
Net Income (loss):
Basic $ 0.244 $ 0.152 $(0.440) $(0.889)
Diluted $ 0.243 $ 0.151 $(0.440) $(0.889)
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.
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
Fiscal year ended April 3, 1999:
Market price of Common Stock
High 18 13/16 19 5/16 23 1/8 24
Low 14 3/8 14 11/16 17 1/2 14 5/8
Fiscal year ended March 28,1998:
Market price of Common Stock
High 19 5/8 21 1/16 20 15/16 17 3/4
Low 16 1/4 16 1/16 13 11/16 13 3/8
There were approximately 528 holders of record of the Company's common stock
as of May 14, 1999.
The Company has never paid cash dividends on shares of its common stock and
does not expect to pay cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Haemonetics Corporation and Subsidiaries
Five-Year Review
(in thousands, except share data)
Summary of Operations 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Net revenues $282,145 $285,762 $303,009 $276,470 $261,287
Cost of goods sold 148,643 150,007 143,846 122,468 116,723
------------------------------------------------------------
Gross profit 133,502 135,755 159,163 154,002 144,564
------------------------------------------------------------
Operating expenses:
Research and development 15,140 17,934 18,586 18,104 16,607
Selling, general and administrative 86,734 86,909 88,070 78,654 74,650
Non-recurring restructuring expense -- 24,500 -- -- --
------------------------------------------------------------
Total operating expenses 101,874 129,343 106,656 96,758 91,257
Operating income 31,628 6,412 52,507 57,244 53,307
Other income (expense), net 956 (1,946) 2,298 931 192
------------------------------------------------------------
Income from continuing operations
before provision for income taxes 32,584 4,466 54,805 58,175 53,499
Provision for income taxes 11,405 3,865 19,171 20,351 19,250
------------------------------------------------------------
Income from continuing operations 21,179 601 35,634 37,824 34,249
------------------------------------------------------------
Loss from discontinued operations (102) (25,373) (2,664) (1,899) (604)
------------------------------------------------------------
Net Income(loss) $ 21,077 $(24,772) $ 32,970 $ 35,925 $ 33,645
============================================================
Income(loss) per share:
Basic $ 0.788 $ (0.933) $ 1.214 $ 1.316 $ 1.206
Diluted $ 0.784 $ (0.932) $ 1.201 $ 1.296 $ 1.183
Weighted average number of shares 26,744 26,537 27,160 27,294 27,896
Common Stock Equivalents 142 52 291 428 547
------------------------------------------------------------
Weighted average number of common
and common equivalent shares 26,886 26,589 27,451 27,722 28,443
============================================================
Financial and Statistical Data: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Working capital $162,188 $112,792 $ 94,045 $112,440 $108,459
------------------------------------------------------------
Current ratio 3.3 2.4 2.3 3.4 3.2
Property, plant and equipment, net $ 83,016 $ 84,219 $ 97,402 $ 82,869 $ 82,059
------------------------------------------------------------
Capital expenditures $ 22,466 $ 20,380 $ 36,725 $ 19,073 $ 21,642
Depreciation and amortization $ 24,573 $ 22,861 $ 19,507 $ 12,682 $ 13,480
------------------------------------------------------------
Total assets $356,359 $336,693 $320,474 $287,541 $280,509
Total debt $ 59,171 $ 71,054 $ 29,526 $ 18,534 $ 33,392
------------------------------------------------------------
Stockholders' equity $221,861 $194,655 $225,274 $216,970 $193,177
Return on average equity 10.1% (11.8)% 14.9% 17.5% 19.0%
Debt as a % of stockholders' equity 26.7% 36.5% 13.1% 8.5% 17.3%
------------------------------------------------------------
Employees from continuing operations 1,329 1,396 1,405 1,202 1,235
Net revenues per employee
from continuing operations $ 212 $ 205 $ 216 $ 230 $ 212
------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Continuing Operations
The table outlines the components of the consolidated statements of
operations for continuing operations as a percentage of net revenues:
Percentage of Net Revenues Percentage
-------------------------------- ------------------
April 3, March March Increase(Decrease)
Years Ended 1999 28, 1998 29, 1997 1999/98
- ----------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% (1.3)% (5.7)%
Cost of goods sold 52.7 52.5 47.5 (0.9) 4.3
- ----------------------------------------------------------------------------------------------------
Gross profit 47.3 47.5 52.5 (1.7) (14.7)
Operating expenses:
Research and development 5.4 6.3 6.1 (15.6) (3.5)
Selling, general and administrative 30.7 30.4 29.1 (0.2) (1.3)
Non-recurring restructuring expense -- 8.6 -- (100.00) 100.0
- ----------------------------------------------------------------------------------------------------
Total operating expenses 36.1 45.3 35.2 (21.2) 21.3
- ----------------------------------------------------------------------------------------------------
Operating income 11.2 2.2 17.3 393.3 (87.8)
Interest expense (1.5) (1.2) (0.6) 22.1 96.0
Interest income 1.7 1.2 1.0 43.2 14.5
Other income (expense), net .1 (.6) 0.4 -- (279.7)
- ----------------------------------------------------------------------------------------------------
Income before continuing operations before
provision for income taxes 11.6 1.6 18.1 629.6 (91.9)
Provision for income taxes 4.0 1.4 6.3 195.1 (79.8)
- ----------------------------------------------------------------------------------------------------
Earnings from continuing operations 7.5% 0.2% 11.8% 3,424.0% (98.3)%
====================================================================================================
1999 compared to 1998
Net Revenue Summary
- -------------------
Percent Increase / (Decrease)
--------------------------------
By location: 1999 1998 Constant currency As reported
- ------------ ------------------------------------------------------
Domestic 89,568 93,104 (3.8)% (3.8)%
International 192,577 192,658 7.0 --
--------------------------------------------------
Net revenues 282,145 285,762 3.3% (1.3)%
Percent Increase / (Decrease)
--------------------------------
By product type: 1999 1998 Constant currency As reported
- ---------------- ------------------------------------------------------
Disposables 247,941 241,987 7.6% 2.5%
Misc & service 13,246 11,129 31.6 19.0
--------------------------------------------------
Subtotal disposables 261,187 253,116 8.6% 3.2%
Equipment 20,958 32,646 (36.0) (35.8)
--------------------------------------------------
Net revenues 282,145 285,762 3.3% (1.3)%
Percent Increase / (Decrease)
--------------------------------
By product line: 1999 1998 Constant currency As reported
- ---------------- ------------------------------------------------------
Surgical 62,117 61,170 5.8% 1.5%
Blood bank* 121,401 122,290 5.1 (0.7)
Plasma 85,381 91,173 (3.9) (6.4)
Misc & service 13,246 11,129 31.6 19.0
--------------------------------------------------
Net revenues 282,145 285,762 3.3% (1.3)%
Includes sales of the Company's red cell collection sets.
Net Revenues
Net revenues in 1999 decreased 1.3% to $282.1 million from $285.8
million in 1998. With currency rates held constant, net revenues increased
3.3%. Disposable sales increased approximately 2.5%. With currency rates
held constant, disposable sales increased 7.6%. The 7.6% increase was a
result of growth in all three product lines, worldwide surgical 10.3%,
worldwide blood bank 5.9% and worldwide plasma 8.1%. Constant currency
sales of disposable products, excluding service and other miscellaneous
revenue, accounted for approximately 88% and 84% of net revenues for 1999
and 1998, respectively. Service revenues generated from equipment repairs
performed under preventive maintenance contracts or emergency service
billings and miscellaneous revenues accounted for approximately 4.7% and
3.7% of the Company's net revenues, at constant currency, for 1999 and 1998,
respectively. Equipment revenues decreased approximately 36.0% year over
year, both at actual dollars and at constant currency rates. The 36.0%
decrease was partially the result of a policy change toward placing
equipment versus selling it under long-term sales contracts. In addition,
in the worldwide plasma business, 1998 revenues included $6.0 million of
plasma equipment shipments to China and equipment sales to a U.S. plasma
customer that were not repeated in 1999. International sales accounted for
approximately 68% and 67% of net revenues for 1999 and 1998, respectively.
Gross profit
Gross profit of $133.5 million in 1999 decreased $2.3 million from
$135.8 million 1998. At constant currency rates, gross profit as a percent
of sales increased 2.7% or $11.3 million from 1998. The improvement in gross
profit at constant currency was largely the result of lower product costs
from cost saving initiatives undertaken during the third quarter of last
year and labor cost savings generated by the CORE Program.
Expenses
The Company expended $15.1 million (5.4% of net revenues) on research
and development in 1999 and $17.9 million (6.3% of net revenues) in 1998.
Currency had a minimal effect on research and development expenses year over
year.
Selling, general and administrative expenses decreased to $86.7
million in 1999 from $86.9 million in 1998. At constant currency, selling,
general and administrative expenses increased $3.3 million year over year,
representing 31% of constant currency sales in both periods. Adjusting for
the Q1 FY99 impact of settling certain litigation ($2.6 million), and the
additional week in that quarter, constant currency S,G&A decreased $1.6
million in 1999 as compared to 1998. During 1999, the Company experienced
approximately $4.1 million in distribution savings from the CORE program.
These savings were partially offset by consulting fees related to CORE of
$2.5 million which will not recur in FY00.
Operating Income
Operating income before the fiscal 1998 $24.5 million restructure
charge, as a percentage of net revenues, increased 0.4 percentage points to
11.2% in 1999 from 10.8% in 1998. At constant currency rates, operating
income before the restructuring charge, increased 54.5% from 1998 or $10.4
million. The $10.4 million increase in operating income resulted largely
from the year over year gross profit improvements.
Other Income and Expense
Interest expense increased in 1999 to $4.1 million from $3.4 million
in 1998 due to a higher average level of borrowings in the U.S., resulting
from the $40.0 million in fixed rate notes with a coupon rate of 7.05%
issued by the Company during the third quarter of 1998. Interest income
increased $1.4 million in 1999 to $4.8 million as a result of interest
earned on increased US cash balances.
Other income (expense) increased by $2.2 million of income from 1998
to 1999 due to lower amortization expense and a $2.1 million write-off in
1998 of a non-strategic initiative, which was non-recurring in 1999. These
increases in income were partially offset by increased transaction losses in
1999.
Taxes
The provision for income taxes, as a percentage of pretax income, was
35.0% for 1999, down from 86.5% in 1998. The 1998 income tax rate of 86.5%
was due to the shift in taxable income from the domestic operations to the
higher taxed foreign operations and as a result of the one-time
restructuring charge of $24.5 million. The annualized rate for fiscal 2000
is expected to decrease to 32% of pretax income from the current 35% rate
due to a decrease in the Japanese statutory tax rate, the allocation of
income between jurisdictions and greater utilization of foreign sales
corporation benefits.
1998 compared to 1997
Net Revenues
Net revenues in 1998 decreased 5.7% to $285.8 million from $303.0
million in 1997. Worldwide disposable sales decreased approximately 2.0%.
At constant currency rates, disposable sales increased 3.0%, primarily in
international markets. Constant currency sales of disposables products,
excluding service and other miscellaneous revenue accounted for
approximately 84% and 81% of net revenues for 1998 and 1997, respectively.
Service revenues generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 3.7% and 5.2% of the Company's net
revenues, at constant currency, for 1998 and 1997, respectively. Equipment
revenues decreased 18.5% year over year at actual rates and 15.2% at
constant currency rates. 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
Gross profit in 1998 decreased $23.4 million from $159.2 million in
1997. With currency rates held constant, gross profit as a percent of sales
decreased 3.1% or $9.9 million from 1997. The decrease was due to higher
product costs and mix. A portion of higher product costs is attributed to
non-recurring charges approximating $1.8 million.
Expenses
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%. Approximately $1.8 million, or 0.6% of
the 1998 expenses as a percent of sales, related to one-time charges.
Operating Income
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. The decrease was due to the gross profit decrease, offset by a slight
decrease in the selling, general and administrative expenses.
Restructuring
During the third quarter of fiscal 1998, the Company recorded a charge
of $24.5 million related to the restructuring plans announced November 12,
1997. The Company made a decision not to undertake certain rework and to
terminate the manufacture of certain products. Additionally, the Company
discontinued support for products which would have required additional
investment to continue their useful lives. 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 consisted 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 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.
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
related to reserves for severance and other contractual obligations with
respect to employee terminations.
Other Income and Expense
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 was
largely attributed to the $2.1 million write-off of a strategic initiative
the Company decided not to pursue.
Taxes
The provision for income taxes, as a percentage of pretax income
increased 51.5 percentage points 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 and as a result of the one-time
restructure charge of $24.5 million. Additionally, certain foreign
operating losses were not given financial statement benefit.
Results of Discontinued Operations (Blood Bank Management Services, "BBMS")
1999 compared to 1998
Net revenues decreased 11.3% to $16.0 million in 1999. Gross profit
increased to $0.2 million in 1999 from $(0.2) million in 1998 and operating
losses decreased 22.9% to $(8.3) million in 1999.
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5,325,000. Additionally, on May
2, 1999, the Company sold its one remaining center completing the
divestiture of its BBMS business.
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 $0.2) million in 1998
from $0.6 million in 1997 and operating losses increased 165.9% 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:
Tri-Counties Blood Bank, Kansas Blood Services and Gateway Community Blood
Program.
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, working capital and
discontinued operations.
During the twelve months ended April 3, 1999, the Company increased
its cash balances by $34.9 million from operating, investing and financing
activities. This $34.9 million represents an improvement of $21.4 million
over the $13.5 million generated by the Company's operating, investing and
financing activities during the twelve months ended March 28, 1998. The
$21.4 million increase was largely a result of $67.0 million more cash
provided by the Company's operating and investing activities offset by $45.6
million more cash utilized by the Company's financing activities.
Operating Activities:
The Company generated $51.1 million in cash from operating activities
of continuing operations in 1999 as compared to $32.1 million generated
during 1998. The $19.0 million increase year over year in operating cash
flow from continuing operations was a result of a $22.3 million increase in
net income adjusted for depreciation and amortization, a $17.1 million
decrease in inventory investment; a $17.2 million increase in prepaid income
tax benefits as a result of a $7.7 refund received this year and recorded in
1998, and a $12.0 million increase in and other current liabilities due to
increased tax provisions. These increased sources of cash were partially
offset by a $28.9 million decrease in non cash items, including the non-
recurring restructuring charge in 1998, an increase in account receivable
investment of $13.8 million and other asset increases of $6.9 million.
Investing Activities:
The Company utilized $10.2 million in cash for investing activities
from continuing operations in 1999, a decrease of $20.8 million from 1998.
During the twelve months ended April 3, 1999, the Company incurred $22.5
million in capital expenditures net of retirements and disposals. Included
in this amount is a $0.2 million net increase in long-term demonstration
assets. During the twelve months ended March 28, 1998, the Company utilized
$20.4 million for capital expenditures net of retirements and disposals,
including $3.3 million net decrease in long-term demonstration assets.
Finally, the Company's investment in long-term sales-type leases decreased
by $12.3 million in 1999, compared with an increased investment of $8.9
million in 1998.
Financing Activities:
During the twelve months ended April 3, 1999 the Company's continuing
operations generated $39.8 million more cash from operating and investing
activities as compared to the twelve months ended March 28, 1998. In
addition, the discontinued operations utilized $27.2 million less cash year
over year. As a result, the Company paid down a portion of debt and
increased cash balances.
During the twelve months ended April 3, 1999, the Company's decision
not to pay down certain debt was influenced by a make-whole provision in the
Company's $40.0 million senior note agreement. At April 3, 1999 the make-
whole amount was approximately $2.7 million.
Net debt decreased $46.4 million to $2.9 million in 1999.
The Company did not repurchase any shares during the fiscal year 1999.
During 1998, the Company used $5.6 million to repurchase shares of treasury
stock.
At April 3, 1999, the Company had working capital of $162.2 million.
This reflects an increase of $49.4 million in working capital for the twelve
months ended April 3, 1999. The Company believes its sources of cash are
adequate to meet its projected needs.
Discontinued Operation (BBMS):
During the twelve months ended April 3, 1999, BBMS utilized $0.5
million from operating and investing activities; a decrease in cash
utilization of $27.2 million from the $27.7 million utilized during the
twelve months ended March 28, 1999. The decrease in cash utilized was a
result of the divestiture of BBMS during the year. The Company received
total cash proceeds of $5,325,000 from the sale of BBMS operations.
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The SFAS No. 133 requires that changes in the derivatives
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, or in the case of a hedge of a
forecasted probable transaction, a derivative's gains and losses are
included in other comprehensive income until the transaction is consummated.
Additionally, a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000. A company may
implement SFAS No. 133 as of the beginning of any fiscal quarter after
issuance (that is fiscal quarters beginning June 16, 1999 and thereafter).
SFAS No. 133 cannot be applied retroactively. The impacts of adopting SFAS
No. 133 on the Company's financial statements or the timing of adoption of
SFAS No. 133 have not been determined. However, it is expected that the
derivative financial instruments acquired in connection with the Company's
hedging program will continue to qualify for hedge accounting.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made
by the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward looking statements
regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of
operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further,
any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made. As it is not possible to predict every new
factor that may emerge, forward-looking statements should not be relied upon
as a prediction of actual future financial condition or results. These
forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or unanticipated. Such risks and uncertainties include
technological advances in the medical field and the Company's ability to
successfully implement products that incorporate such advances, product
demand and market acceptance of the Company's products, regulatory
uncertainties, the effect of economic conditions, the impact of competitive
products and pricing, foreign currency exchange rates, changes in customers'
ordering patterns, the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which the Company operates, and the
implications of Year 2000 including but not limited to the cost and expense
of updating software and hardware and any potential system interruptions.
The foregoing list should not be construed as exhaustive.
Year 2000 Compliance Update
Haemonetics is aware of the potential for industry wide business
disruption that could occur due to problems related the "Year 2000" issue.
It is the belief of Haemonetics Management that the Company has a prudent
plan in place to address these issues within the Company and its supply
chain. The components of its plan include: an assessment of internal
systems for modification and/or replacement; communication with external
vendors to determine their state of readiness and their ability to maintain
an uninterrupted supply of goods and services to Haemonetics; an evaluation
of equipment sold by Haemonetics to customers as to the ability of the
equipment to work properly after the turn of the century; an evaluation of
production equipment as to its ability to function properly after the turn
of the century; an evaluation of facility related issues; the retention of
technical and advisory expertise to ensure that prudent action steps are
being taken; and the development of a contingency plan.
State of Readiness
Haemonetics has developed a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 related failures.
While there is still a significant amount of work to do, the Company
believes that it is on track towards a timely completion. Overall,
Haemonetics estimates that it has completed the inventory of systems related
Year 2000 exposures and is continually updating an inventory of potential
non-systems exposures. The Company continues to make progress in
remediating known Year 2000 systems exposures and is addressing exposures
which exist in non-systems areas such as its supply chain. The Company
continues to develop remediation approaches as additional issues are
identified.
Internal IT Systems
The process Haemonetics is following to achieve Year 2000
compliance for internal IT systems is as follows:
1. Develop an inventory of all IT components (hardware,
software)
2. Determine the Year 2000 compliance status of each
3. Determine the importance of Year 2000 compliance for each
component (implications of failure)
4. Prioritize non-compliant components based on importance
5. Determine method to be used to achieved compliance for each
component (modify, replace, cease use)
6. Complete the planned action
7. Test the component
The initial inventory of all IT components in use throughout the
Company has been completed. The initial assessment of Year 2000
status for all components has been completed. Fourteen systems, all
commercial packages, are used company-wide for business transaction
processing and accounting. Thirteen of these fourteen systems are Year
2000 compliant. The Company is on schedule to have the remaining
system compliant by June 30, 1999. There are 322 other business
applications in use by the Company that are less critical. Of these
systems 283 are currently Year 2000 compliant. Through a combination
of modification, replacement and decommissioning, Year 2000 compliance
of 37 of the 39 remaining applications is expected by June 30, 1999.
Compliance of the remaining two applications is expected by July 31,
1999. The Company has completed an assessment of its IT infrastructure
(servers, networks, phone systems, system software) and plans to have
all items remediated, replaced, or decommissioned by June 30, 1999.
In addition, the Company is in the process of testing critical
components of IT infrastructure and applications that have been
assessed as compliant.
Suppliers
The Company is in the process of communicating with its external
vendors of goods and services to gain an understanding of their state
of Year 2000 readiness and their ability to maintain an uninterrupted
supply to Haemonetics. The Company has sent letters to over 1,000
vendors outlining its approach towards the Year 2000 issue and asking
for the vendors' commitment to resolve any issues they may have. They
have also been asked to complete a short questionnaire and to inform
the Company of any known compliance issues. The Company has received
many responses to the questionnaire and is in the process of reviewing
them. The Company has sent a detailed questionnaire to vendors it
views as critical to its business. A critical vendor is one whose
inability to continue to provide goods and services would have a
serious adverse impact on the Company's ability to produce, deliver,
and collect payment for Haemonetics goods and/or services. Senior
management members are coordinating the identification of these
vendors for their respective business units. Many of these vendors
have been contacted and requested to complete the detailed
questionnaire on Year 2000. The Company anticipates contacting the
remaining critical vendors as part of its contingency planning
process. Haemonetics may also request the right to visit and/or audit
one or more of these critical vendors to validate their Year 2000
readiness.
Production Equipment
The Company has completed an inventory of production equipment
currently used at Haemonetics. The Year 2000 readiness of this
equipment is being determined through communication with the equipment
manufacturers and testing where appropriate. Through this inventory
and assessment process the Company has identified fewer than 10 pieces
of equipment with Year 2000 issues. All production equipment which
has been identified as not Year 2000 compliant has either been
repaired, replaced, or is scheduled for such action. At this time the
Company is not aware of any production equipment whose current or
anticipated use is affected by the Year 2000 issue and which is not
expected to be made compliant. In the event that any Year 2000 issues
are identified in the future, it is the Company's intention to
continue to repair or replace non-compliant production equipment prior
to operating difficulties, or develop alternative means of operation.
Haemonetics remains aware of the potential for imbedded logic within
microchips to cause equipment failure. The Company believes that its
action plan provides a sound approach towards evaluating production
equipment, however, it may be impracticable or impossible to test
certain items of production equipment for Year 2000 readiness. To the
extent such untested equipment is not Year 2000 ready, it may fail to
operate on January 1, 2000, resulting in possible production delays.
Facility Related Issues
The Company is in the process of completing an inventory and
evaluating facilities related equipment such as security, heating,
elevator, telephone and other service equipment with the potential for
Year 2000 related failures. The Year 2000 readiness of this equipment
will be determined through communication with the equipment
manufacturers and testing where appropriate. At this time the Company
is not aware of any facilities related equipment which is affected by
the Year 2000 issue. The Company's objective is to complete its
inventory and evaluation of facilities related equipment in
conjunction with its contingency planning program. The Company intends
to repair or replace non-compliant facilities related equipment prior
to operating difficulties. Haemonetics remains aware of the potential
for imbedded logic within microchips to cause equipment failure. The
Company believes that its action plan provides a thorough approach
towards evaluating facilities related equipment, however, it may be
impracticable or impossible to test certain items of facilities
related equipment for Year 2000 readiness. To the extent such
untested equipment is not Year 2000 ready, it may fail to operate on
or after January 1, 2000, resulting in possible interruptions of
security, heating, elevator, telephone and other services.
Technical and Advisory Expertise
Haemonetics has engaged a leading professional services and
consulting firm experienced in Year 2000 compliance to assist in
project planning, testing methodologies, and evaluating Year 2000
remediation activities. This firm will also contribute to the
development and documentation of the Company's Year 2000 contingency
plan.
Haemonetics Products
The Company makes products in two major categories: blood
processing equipment and the single use disposables that are used in
this equipment for each procedure. The disposables have no date
related functions aside from lot numbering and expiry dating printed
on the packaging. The equipment itself does not rely on date related
data for its mechanical function. There is no calendar-related logic
in the Haemonetics software that controls the function of the machine.
The Company has undertaken a detailed review of hardware components
and software code for the current revisions of all products. At this
time the Company is not aware of any issues related to equipment it
sells which would prevent its customers from continuing their
operations or which would impact the safety of patients or donors in
any way.
Costs
Haemonetics is evaluating the total cost of Year 2000 compliance. At
this time the Company estimates that the total cost of completing Year 2000
related activities will be between $2.5 million and $3.3 million. This
amount includes both IT and non-IT related expenses. Of this amount,
approximately 80% has already been spent representing 30% of the total IT
budget during the spending period. Approximately 30% of the spending to
date has been on capital investments. The Company anticipates capital
expenditures to total between $1 million and $1.3 million and expense to
total $1.5 million to $2.0 million. This amount includes the replacement of
hardware and applications that are outdated and were due for replacement
regardless of Year 2000 issues.
Contingency Plan
Although the Company believes it is taking appropriate action related
to the identification and resolution of issues related to the Year 2000, its
assessment is still in progress. The Company may never know with certainty
whether third parties in the Company's supply chain are compliant. Failure
of such third parties to achieve Year 2000 compliance could result in
delayed deliveries to, or shipments by, the Company. If such delays are
extended, they could have a material adverse effect on the Company's
business, financial condition, and results of operations.
As the Company continues to assess the state of readiness within its
unique set of business partners, production processes, and internal systems,
the Company will develop its formal contingency plan in an effort to
alleviate high potential or serious failures. The framework for this
contingency plan has been completed and includes a matrix of factors which
will permit the Company to identify key portions of its supply chain and
consider the potential impact of Year 2000 failures and amount of time the
Company's operations could be subjected to a potential failure. The Company
is integrating the ongoing critical vendor identification and communication
process with the development of its contingency plan. At this time, the
Company plans to increase its inventory of raw materials and finished goods
by increasing purchases and production through the third quarter of 1999.
The company recognizes the importance of an appropriate contingency plan and
is working closely with external consultants in its development.
Risks
The Company continues to evaluate the risks associated with potential
Year 2000 related failures. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and
adversely affect the Company's business, financial condition, and results of
operations. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness
of third-parties, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's business, financial condition, and results of operations. The
Company's Year 2000 project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its critical
vendors. The Company believes that, with the implementation of new business
systems and completion of the Company's Year 2000 project as scheduled, the
possibility of significant interruptions of normal operations should be
reduced.
Euro Currency
Effective January 1, 1999, the 11 countries of the European Union
(Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain) adopted a single currency known as the Euro.
For the next three years, these countries will be allowed to transact
business in both the Euro and in their own currencies at fixed exchange
rates. Then, on January 1, 2002, the Euro will become the only currency for
these 11 countries.
Although the effect of the conversion on the Company's results of
operation may be significant, the Company is unable to quantify the effect
at this time. The Company however, is committed to developing a plan to
prepare for the introduction of the Euro. The plan will include preparation
procedures for every area of the Company expected to be affected by the Euro
conversion including but not limited to information systems, finance and
tax. This review will also include a plan to assess the Company's business
and financial systems, to evaluate currency risk and to assess the
conversion's impact on the Company's financial instruments as well as on the
pricing and the distribution of the its products.
The Company does not expect the cost of this effort to have a material
impact on its business, results of operations, financial position or cash
flows. However, the Company can not guarantee that all problems will be
foreseen and corrected, or that no material disruption of its business will
occur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures relative to market risk are due to foreign
exchange risk and interest rate risk.
Foreign exchange risk
Over two-thirds of the Company's revenues are generated outside the
U.S. yet the Company's reporting currency is the U.S. dollar. Foreign
exchange risk arises because the Company engages in business in foreign
countries in local currency. Exposure is partially mitigated by producing
and sourcing product in local currency. Accordingly, whenever the US dollar
strengthens relative to the other major currencies, there is an adverse
affect on the Company's results of operations and alternatively, whenever
the U.S. dollar weakness relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time, the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the majority of its firm sales commitments to customers
that are denominated in foreign currencies. The Company also enters into
forward contracts that settle within 35 days to hedge certain intercompany
receivables denominated in foreign currencies. Actual gains and losses on
all forward contracts are recorded in operations, offsetting the gains and
losses on the underlying transactions being hedged. These derivative
financial instruments are not used for trading purposes. The Company's
primary foreign currency exposures in relation to the U.S. dollar are the
Japanese Yen and the Euro equivalent of the French Franc, Deutsche Mark and
Italian Lire.
At April 3, 1999, the Company had the following significant foreign
exchange contracts to hedge certain firm sales commitments denominated in
foreign currency outstanding:
Hedged (BUY) / SELL Weighted Forward US$ @ Unrealized
Currency Local Currency Contract Rate Forward Rate Gain / (Loss) Maturity
- ------------------------------------------------------------------------------------------------------
Euro Equivalent 8,033,888 $1.111 $ 8,681,110 $ 245,750 Apr-Jun 1999
Euro Equivalent 7,943,508 $1.205 $ 8,627,756 $ 940,370 Jul-Sep 1999
Euro Equivalent 8,620,513 $1.213 $ 9,416,705 $ 1,038,693 Oct-Dec 1999
Euro Equivalent 7,500,000 $1.146 $ 8,241,050 $ 350,200 Jan-Mar 2000
Japanese Yen 1,500,000,000 133.1 per US$ $12,685,836 $(1,414,977) Apr-Jun 1999
Japanese Yen 1,750,000,000 137.9 per US$ $14,975,363 $(2,282,728) Jul-Sep 1999
Japanese Yen 1,970,000,000 126.9 per US$ $17,069,937 $(1,542,159) Oct-Dec 1999
Japanese Yen 1,670,000,000 125.4 per US$ $14,655,755 $(1,341,941) Jan-Mar 2000
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S. dollar
relative to all other major currencies. In the event of a 10% strengthening
of the U.S. dollar, the fair value of all forward contracts would increase
by $8.3 million. Assuming a 10% weakening of the U.S. dollar relative to
all other major currencies, the fair value of all forward contracts would
decrease by $9.9 million.
Interest Rate Risk
Approximately 92%, of the Company's long-term debt is at fixed rates.
Accordingly, a change in interest rates has an insignificant effect on the
Company's interest expense amounts. The fair value of the Company's long-
term debt however would change in response to interest rates movements due
to its fixed rate nature. At April 3,1999, the fair value of the Company's
long-term debt was approximately $2.9 million higher than the value of the
debt reflected on the Company's financial statements. This higher fair
market is primarily related to the $40 million, 7.05% fixed rate senior
notes the Company holds. These notes represent approximately 76% of the
Company's outstanding long-term borrowings at April 3, 1999.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at April 3,
1999. The effect was a change in the fair value of the Company's long-term
debt, of approximately $1.4 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
Net revenues $282,145 $285,762 $303,009
Cost of goods sold 148,643 150,007 143,846
---------------------------------
Gross profit 133,502 135,755 159,163
---------------------------------
Operating expenses:
Research and development 15,140 17,934 18,586
Selling, general and administrative 86,734 86,909 88,070
Non-recurring restructuring expense -- 24,500 --
---------------------------------
Total operating expenses 101,874 129,343 106,656
---------------------------------
Operating income 31,628 6,412 52,507
Interest expense (4,117) (3,373) (1,721)
Interest income 4,821 3,366 2,940
Other income (expense), net 252 (1,939) 1,079
---------------------------------
Income from continuing operations
before provision for income taxes 32,584 4,466 54,805
Provision for income taxes 11,405 3,865 19,171
---------------------------------
Earnings from continuing operations 21,179 601 35,634
Discontinued operations:
Loss from operations, net of income tax benefit of
($56) in 1999, ($3,863) in 1998 and
($1,433) in 1997 (102) (7,173) (2,664)
Loss on disposal, net of income tax benefit of ($9,800) -- (18,200) --
---------------------------------
Loss from discontinued operations (102) (25,373) (2,664)
Net income (loss) $ 21,077 $(24,772) $ 32,970
=================================
Basic income (loss) per common share
Continuing operations $ 0.792 $ 0.023 $ 1.312
Discontinued operations $ (0.004) $ (0.956) $ (0.098)
Net income (loss) $ 0.788 $ (0.933) $ 1.214
Income (loss) per common share assuming dilution
Continuing operations $ 0.788 $ 0.023 $ 1.298
Discontinued operations $ (0.004) $ (0.954) $ (0.097)
Net income (loss) $ 0.784 $ (0.932) $ 1.201
Weighted average shares outstanding
Basic 26,744 26,537 27,160
Diluted 26,886 26,589 27,451
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
April 3, 1999 March 28, 1998
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 56,319 $ 21,766
Accounts receivable, less allowance of $747 in 1999 and $818 in 1998 62,975 58,886
Inventories 59,773 61,664
Current investment in sales-type leases, net 12,303 11,887
Deferred tax asset 29,741 21,777
Other prepaid and current assets 10,211 15,170
-------------------------
Total current assets 231,322 191,150
Property, plant and equipment:
Land, building, and building improvements 24,199 23,197
Machinery and equipment 73,386 65,236
Furniture and fixtures 7,250 9,216
Commercial plasma and rental equipment 73,231 72,612
-------------------------
Total property, plant and equipment 178,066 170,261
Less: accumulated depreciation 95,050 86,042
-------------------------
Net property, plant and equipment 83,016 84,219
Other assets:
Investment in sales-type leases, net (long-term) 24,716 38,596
Distribution rights, net 10,518 10,718
Other assets, net 6,787 5,204
Property, plant and equipment and other assets net of long term
liabilities of discontinued operations -- 6,806
-------------------------
Total other assets 42,021 61,324
-------------------------
Total assets $356,359 $336,693
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 6,645 $ 17,468
Accounts payable 10,666 21,689
Accrued payroll and related costs 9,229 7,726
Accrued income taxes 21,850 5,750
Other accrued liabilities 17,476 15,132
Current liabilities and accrued losses net of current
assets of discontinued operations 3,268 10,593
-------------------------
Total current liabilities 69,134 78,358
Deferred income taxes 11,684 9,944
Long-term debt, net of current maturities 52,526 53,586
Other long-term liabilities 1,008 150
Long-term liabilities, net of long-term assets of discontinued operations 146 --
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value; Authorized - 80,000,000 shares;
Issued - 29,702,623 shares in 1999; 29,341,648 shares in 1998 297 293
Additional paid-in capital 65,504 59,142
Retained earnings 211,834 190,757
Cumulative translation adjustment (9,825) (9,588)
-------------------------
Stockholders' equity before treasury stock 267,810 240,604
Less: treasury stock at cost- 2,756,969 shares in 1999
and 1998 45,949 45,949
-------------------------
Total stockholders' equity 221,861 194,655
-------------------------
Total liabilities and stockholders' equity $356,359 $336,693
=========================
Supplemental disclosure of balance sheet information:
Net Debt $ 2,852 $ 49,288
=========================
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Cumulative Total
------------ Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Income
----------------------------------------------------------------------------------------------
Balance, March 30, 1996 28,770 288 $52,355 $(25,767) $182,707 $ 7,387 $216,970
Employee stock purchase plan -- -- -- 537 (20) -- 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 $ 32,970
Foreign currency translation
adjustment -- -- -- -- -- (13,549) (13,549) (13,549)
--------
Comprehensive income -- -- -- -- -- -- -- $ 19,421
--------------------------------------------------------------------------------------------
Balance, March 29, 1997 29,238 $292 $56,547 $(41,060) $215,657 $(6,162) $225,274
Employee stock purchase plan -- -- -- 677 (128) -- 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) $(24,772)
Foreign currency translation
adjustment -- -- -- -- -- (3,426) (3,426) (3,426)
--------
Comprehensive income -- -- -- -- -- -- -- $(28,198)
--------------------------------------------------------------------------------------------
Balance, March 28, 1998 29,342 $293 $59,142 $(45,949) $190,757 $(9,588) $194,655
Employee stock purchase plan -- -- -- -- -- -- 0
Exercise of stock options
and related tax benefit 361 4 6,362 -- -- -- 6,366
Net income -- -- -- -- 21,077 -- 21,077 $ 21,077
Foreign currency translation
adjustment -- -- -- -- -- (237) (237) (237)
--------
Comprehensive income -- -- -- -- -- -- -- $ 20,840
--------------------------------------------------------------------------------------------
Balance, April 3, 1999 29,703 $297 $65,504 $(45,949) $211,834 $(9,825) $221,861
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
Cash Flows from Operating Activities:
Net income (loss) $ 21,077 $(24,772) $32,970
Less net loss from discontinued operations (102) (25,373) (2,664)
---------------------------------
Net income from continuing operations 21,179 601 35,634
Adjustments to reconcile net income to net cash provided by operating activities:
Non cash items:
Depreciation and amortization 24,573 22,861 19,507
Restructuring charge -- 24,500 --
Deferred tax benefit (7,329) (338) (300)
Other 2,621 -- --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (4,098) 9,668 (16,156)
(Increase) decrease in inventories 2,499 (14,675) (733)
(Increase) decrease in sales-type leases (current) (1,301) 967 (3,014)
(Increase) decrease in prepaid income taxes 8,234 (8,842) (1,730)
(Increase) decrease in other assets (4,474) 99 3,294
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities 9,197 (2,745) 11,658
---------------------------------
Net cash provided by operating activities, continuing operations 51,101 32,096 48,160
---------------------------------
Net cash used in operating activities, discontinued operations (17,387) (11,697) (1,293)
---------------------------------
Net cash provided by operating activities 33,714 20,399 46,867
Cash Flows from Investing Activities:
Capital expenditures on property, plant and equipment, net of
retirements and disposals (22,466) (20,380) (36,725)
Increase in distribution rights -- (1,717) --
Net (increase) decrease in sales-type leases (long-term) 12,280 (8,923) (10,136)
---------------------------------
Net cash used in investing activities, continued operations (10,186) (31,020) (46,861)
---------------------------------
Net cash provided by (used in) investing activities, discontinued operations 16,910 (15,965) (5,337)
---------------------------------
Net cash provided by (used in) investing activities 6,724 (46,985) (52,198)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage (208) (186) (186)
Net increase (decrease) in short-term revolving
credit agreements (10,813) (1,038) 17,545
Net increase (decrease) in long-term credit agreements (850) 3,757 (3,450)
Borrowings under long term senior note purchases agreements -- 40,000 --
Employee stock purchase plan -- 549 517
Exercise of stock options and related tax benefit 6,366 2,596 4,161
Purchase of treasury stock -- (5,566) (15,830)
---------------------------------
Net cash provided by (used in) financing activities (5,505) 40,112 2,757
Effect of exchange rates on cash and cash equivalents (380) (32) (2,586)
---------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 34,553 13,494 (5,160)
Cash and Cash Equivalents at Beginning of Year 21,766 8,272 13,432
---------------------------------
Cash and Cash Equivalents at End of Year $ 56,319 $ 21,766 $ 8,272
=================================
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents, discontinued operations $ (477) $(27,662) $(6,630)
Net increase in cash and cash equivalents, continuing operations $ 35,030 $ 41,156 $ 1,470
Increase (decrease) in net debt $(46,424) $ 29,039 $19,069
Interest paid $ 4,038 $ 2,423 $ 2,834
Income taxes paid (refunded) $ (5,327) $ 16,792 $15,228
=================================
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.
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 1999 included 53 weeks, with 14 weeks in the first
quarter. Fiscal 1998 and Fiscal 1997 each included 52 weeks.
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 offering daily liquidity.
Cash and cash equivalents are recorded at cost, which approximates market
value.
Net Income (Loss) per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by Statement of Financial Accounting Standards, "SFAS" No. 128,
"Earnings Per Share." Basic EPS is computed by dividing reported earnings
available to stockholders by weighted average shares outstanding. Diluted
EPS includes the effect of other common stock equivalents.
Years Ended
------------------------------------------------------
April 3, 1999 March 28, 1998 March 29, 1997
------------------------------------------------------
(Dollars and shares in thousands except share amounts)
Basic EPS
Net income (loss) $21,077 $(24,772) $32,970
Weighted average shares 26,744 26,537 27,160
------------------------------------------------
Basic income (loss) per share $ 0.788 $ (0.933) $ 1.214
Diluted EPS
Net income (loss) $21,077 $(24,772) $32,970
Basic weighted average shares 26,744 26,537 27,160
Effect of stock options 142 52 291
------------------------------------------------
Diluted weighted average shares 26,886 26,589 27,451
Diluted income (loss) per share $ .784 $ (0.932) $ 1.201
================================================
The diluted weighted average shares do not include the effect of
options that were anti-dilutive. Anti-dilutive options were approximately
420,000, 2,414,000 and 792,000 for 1999, 1998 and 1997, respectively.
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. The effects of exchange rate changes on the
Company's assets and liabilities are included in the cumulative translation
adjustment account. Included in other income (expense) in the consolidated
statement of operations in 1999, 1998 and 1997 are ($1,166,000), $318,000
and $288,000, respectively, in foreign currency transaction gains (losses).
The Company enters into forward exchange contracts to hedge certain
firm sales commitments to customers that are denominated in foreign
currencies. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The Company
also enters into forward contracts that settle within 35 days to hedge
certain intercompany receivables denominated in foreign currencies. Actual
gains and losses on all forward contracts are recorded in operations,
offsetting the gains and losses on the underlying transactions being hedged.
These derivative financial instruments are not used for trading purposes.
The cash flows related to the gains and losses on these foreign currency
hedges are classified in the consolidated statements of cash flows as part
of cash flows from operating activities.
At April 3, 1999 and March 28, 1998, the Company had forward exchange
contracts, all maturing in less than twelve months, to exchange foreign
currencies (major European currencies and Japanese yen) primarily for U.S.
dollars totaling $143,791,000 and $77,662,000, respectively. Of the
respective balances, $50,151,000 and $22,003,000 represented contracts
related to intercompany receivables that settled within 35 days. The
balance of the contracts relate to firm sales commitments. Gross unrealized
gains and losses from hedging firm sales commitments, based upon current
forward rates, were a $3,197,000 gain and a $4,516,000 loss at April 3, 1999
and a $4,093,000 gain and a $11,000 loss at March 28, 1998. Deferred gains
and losses are recognized in earnings when the transactions being hedged are
recognized. Management anticipates that these deferred amounts at April 3,
1999 will be offset by the foreign exchange effect on sales of products to
international customers in future periods.
The Company is exposed to credit loss in the event of nonperformance
by counter-parties on these foreign exchange contracts. The Company does
not anticipate nonperformance by any of these parties.
Financial Instruments
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 and notes payable pursuant
to SFAS No. 107 approximated their carrying values at April 3, 1999 and
March 28, 1998
At April 3,1999, the fair value of the Company's long-term debt was
approximately $2.9 million higher than the value of the debt reflected on
the Company's financial statements. This higher fair market is primarily
related to the $40 million, 7.05% fixed rate senior notes the Company holds.
Fair values have been determined through information obtained from market
sources and management estimates.
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:
April 3, March 28,
1999 1998
----------------------
(in thousands)
Raw materials $14,497 $11,532
Work-in-process 5,106 5,878
Finished goods 40,170 44,254
---------------------
$59,773 $61,664
=====================
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.
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 warranty costs based on product shipments.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. The liability method 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 acquire 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 as of
both April 3, 1999 and March 28, 1998. The distribution rights are
amortized on a straight-line basis over 20 years. The accumulated
amortization was approximately $5,092,000 and $4,697,000 for the years ended
April 3, 1999 and March 28, 1998, respectively.
Accounting for Long-lived Assets
The Company accounts for long-lived assets in accordance with SFAS No.
121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of. The Company periodically reviews its long-lived
assets for 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.
Accounting for Stock-Based Compensation
In December 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation," which became effective for the Company in fiscal year
1998. SFAS No. 123 requires that employee stock-based compensation be
recorded or disclosed at its fair value. The Company has elected to adopt
the disclosure provision for stock-based compensation in SFAS No. 123 but to
continue to account for stock-based compensation under Accounting
Pronouncement Board No. 25. No accounting recognition is given to options
granted to employees and directors at fair market value until they are
recognized. Upon exercise, net proceeds, including tax benefits realized,
are credited to equity. The compensation cost for options granted to
consultants is recorded at fair value in accordance with Emerging Issues
Task Force, "EITF" issue 96-18, "Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
Comprehensive Income
In the first quarter of fiscal year 1999, the Company adopted the
provisions of SFAS No. 130, reporting Comprehensive Income, which
established standards for reporting and display of comprehensive income and
its components. Comprehensive income is the total of net income and all
other nonowner changes in stockholders' equity, which for the Company, is
foreign currency translation.
New Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The SFAS No. 133 requires that changes in the derivatives
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, or in the case of a hedge of a
forecasted probable transaction, a derivative's gains and losses are
included in other comprehensive income until the transaction is consummated.
Additionally, a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000. A company may
implement SFAS No. 133 as of the beginning of any fiscal quarter after
issuance, (that is fiscal quarters beginning June 16, 1999 and thereafter).
SFAS No. 133 cannot be applied retroactively. The impacts of adopting SFAS
No. 133 on the Company's financial statements or the timing of adoption of
SFAS No. 133 have not been determined. However, it is expected that the
derivative financial instruments acquired in connection with the Company's
hedging program will continue to qualify for hedge accounting.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the 1999 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:
April 3, March 28,
1999 1998
-------- ---------
(in thousands)
Total minimum lease payments receivable $50,211 $64,762
Less -- Unearned interest 13,192 14,279
--------------------
Net investment in sales-type leases 37,019 50,483
Less -- Current portion 12,303 11,887
--------------------
$24,716 $38,596
====================
Future minimum lease payments receivable under noncancelable leases as
of April 3, 1999 are as follows:
Fiscal Year Ending (in thousands)
------------------ --------------
2000 $14,759
2001 11,291
2002 8,695
2003 5,365
2004 and thereafter 10,101
-------
$50,211
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
April 3, March 28,
1999 1998
-------- ---------
(in thousands)
Real estate mortgage $ 8,360 $ 8,568
U.S. borrowings under credit facilities -- --
Senior notes 40,000 40,000
Haemonetics Japan Co. Ltd. 9,484 20,059
Other non-U.S. borrowings 1,327 2,427
-------------------
59,171 71,054
Less -- Current portion 6,645 17,468
-------------------
$52,526 $53,586
===================
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
The U.S. credit facilities are evidenced by a $20,000,000 committed,
unsecured revolving credit facility. As of April 3, 1999 the credit
facility had no outstanding borrowings. 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, if any, become due.
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.
Senior Notes
The Company 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 payments 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. At April 3, 1999, the Company was in
compliance with the original covenant.
A make-whole provision exists in the Company's $40.0 million senior
note agreement. At April 3, 1999 the make-whole amount was approximately
$2.7 million.
Haemonetics Japan Co. Ltd.
On March 27, 1998, Haemonetics Japan Co. Ltd. secured a term loan in
the amount of JPY 500.0 million. This loan bears interest at a rate of
2.125% per annum, and matures on March 29, 2000. As of April 3, 1999, the
outstanding borrowing against this line was JPY 250.0 million (U.S. dollar
equivalent $2.1 million).
On March 31, 1999, Haemonetics Japan Co. Ltd. secured an additional
term loan in the amount of JPY 400.0 million, guaranteed by Haemonetics
Corporation. This loan bears interest based on the Euro-yen rate for the
first year, currently 1.03%, and at a fixed rate of 2.58% from March 31,
2000 through the maturity date of March 31, 2001. At April 3, 1999, the US
dollar equivalent of this borrowing was $3.3 million.
OTHER NON-U.S. BORROWINGS
Other 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 April 3, 1999 are
short-term in nature.
The weighted average short-term rates were 1.45%, 1.77% and 1.69% as
of April 3, 1999, March 28, 1998 and March 29, 1997, respectively. All of
the Company's short-term borrowings were non-U.S. denominated.
As of April 3, 1999, notes payable and long-term debt mature as
follows:
Fiscal Years Ending (in thousands)
------------------------------------------
2000 $ 6,645
2001 12,527
2002 5,715
2003 5,715
2004 and thereafter 28,569
-------
$59,717
=======
5. INCOME TAXES
The components of domestic and foreign income from continuing
operations before the provision for income taxes are as follows:
Years Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
(in thousands)
Domestic $13,707 $1,123 $43,505
Foreign 18,877 3,343 11,300
---------------------------------
$32,584 $4,466 $54,805
The provision for income taxes from continuing operations consists of
the following components:
Years Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
(in thousands)
Current
Federal $ 7,107 $1,031 $14,856
State 2,780 125 2,286
Foreign 8,847 3,047 2,329
---------------------------------
Total current 18,734 4,203 19,471
---------------------------------
Deferred
Federal (3,656) (316) (1,998)
State (1,542) (50) (137)
Foreign (2,131) 28 1,835
---------------------------------
Total deferred (7,329) (338) (300)
---------------------------------
Total tax expense $11,405 $3,865 $19,171
=================================
Included in the federal income tax provisions for fiscal years 1999,
1998 and 1997 are approximately $1,480,000, $333,000 and $2,247,000
respectively, provided on foreign source income of approximately $9,451,000,
$2,375,000, and $6,419,000 in 1999, 1998 and 1997, respectively for taxes
which are payable in the United States.
The total provision for income taxes included in the consolidated
financial statements was as follows:
Years Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
(in thousands)
Continuing operations $11,405 $ 3,865 $19,171
Discontinued operations (56) (13,663) (1,433)
---------------------------------
$11,349 $(9,798) $17,738
=================================
The tax effect of significant temporary differences composing the net
deferred tax asset (liability) is as follows:
Years Ended
---------------------
April 3, March 28,
1999 1998
---------------------
(in thousands)
Discontinued operations $ 2,170 $ 9,800
Depreciation (8,398) (11,594)
Amortization (3,285) (3,348)
Inventory 10,292 12,079
Accruals and reserves 6,601 5,690
Other 0 (794)
Net operating loss carryforward 4,966 0
Foreign tax credits 6,816 0
--------------------
Total net deferred taxes $19,162 $ 11,833
====================
At April 3, 1999, the company had U.S. net operating loss
carryforwards of approximately $11,900,000 and foreign tax credits available
of approximately $6,800,000. The tax attributes begin to expire in the year
2013 and the year 2003 respectively.
The provision for income taxes from continuing operations differs from
the amount computed by applying the 35% U.S. federal statutory income tax
rate in 1999, 1998 and 1997, due to the following:
Years Ended
----------------------------------
April 3, March 28, March 29,
1999 1998 1997
----------------------------------
(in thousands)
Tax at federal statutory rate $11,405 $1,563 $19,181
Difference due to:
Foreign sales corporation -- -- (1,605)
Difference between U.S. tax and
Foreign statutory rates 109 1,904 167
State taxes, net of federal income
tax benefit 805 49 1,403
Other, net (914) 349 25
---------------------------------
Total $11,405 $3,865 $19,171
=================================
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 April 3, 1999 are as follows:
Fiscal Year Ending (in thousands)
------------------
2000 $ 4,727
2001 3,472
2002 2,294
2003 1,164
2004 and thereafter 669
-------
$12,326
=======
Rent expense for continuing operations in 1999, 1998, and 1997 was
$4,456,000, $3,078,000, and $2,486,000, 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 1999, the company did not repurchase any shares of its common
stock. During 1998, the Company repurchased 318,700 shares of its
outstanding common stock at an average prevailing price of $17.47. 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 (the "Long-
term Incentive Plan") under which a maximum of 4,025,064 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 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 919,534 shares
available for future grant at April 3, 1999.
The Company also has a non-qualified stock option plan under which a
maximum of 500,000 shares of the Company's common stock may be issued to
non-employee directors (the "Non-employee Plan"). The Non-employee Plan is
administered by the Board of Directors. Options are granted at not less
than the fair market value of the common stock on the date of grant, and
expire not more than ten years from the date of grant. There were 414,000
shares available for future grant at April 3, 1999 under this plan. The Non-
employee Plan was adopted by the Board of Directors in May of 1998 and
subsequently approved by the shareholders at the 1998 annual 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 April 3, 1999 there were
39,550 shares available for future grant.
During fiscal year 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 387,876 outstanding, and un-excercised stock options 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 375,000 shares 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 Plan, which was
effective November 1, 1998, was adopted by the Board of Directors in May of
1998 and subsequently approved by the shareholders at the 1998 annual
meeting on July 22, 1998.
The Purchase Plan provides for two "purchase periods" within each of
the Company's fiscal years, the first commencing on November 1 of each
calendar year and continuing through April 30 of such calendar year, and the
second commencing on May 1 of each year and continuing through October 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) with the number of whole shares determined by dividing the balance
in the employee's account on the last day of the purchase period by the
purchase price per share for the stock determined under the Purchase Plan.
The purchase price for shares is the lower of 85% of the fair market value
of the common stock at the beginning of the purchase period, or 85% of such
value at the end of the purchase period.
During fiscal year 1999, there were no shares purchased under the
Purchase Plan. During 1998, there were 39,082 shares purchased at a range
of $11.90 to $15.94 per share under the Purchase Plan.
The Company accounts for grants to employees and directors under these
plans using APB Opinion No. 25, under which no compensation cost has been
recognized for options granted at fair market value or for stock purchases
made at a 15 percent discount. 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:
1999 1998 1997
---- ---- ----
Net Income: As Reported $21,077,000 ($24,772,000) $32,970,000
Pro Forma $18,200,000 ($28,071,000) $31,526,000
Basic EPS: As Reported $0.79 $(0.93) $1.21
Pro Forma $0.68 $(1.06) $1.16
Diluted EPS: As Reported $0.78 $(0.93) $1.20
Pro Forma $0.68 $(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:
1999 1998 1997
---- ---- ----
Volatility 33.6% 28.5% 28.3%
Risk-Free Interest Rate 5.5% 6.6% 6.5%
Expected Life of Options 7 yrs. 7 yrs. 7 yrs.
The weighted average grant date fair value of options granted during
1999 and 1998 was approximately $7.857 and $7.663, 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.
There were no shares granted under the Purchase Plan in 1999. The
weighted average grant-date fair value of the look-back option granted under
the Purchase Plan was $4.13 in 1998.
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 April 3, 1999 is as follows:
Weighted-
Average
Number of Exercise
Shares Price per Share
- ----------------------------------------------------------------
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
Granted 1,004,158 $16.731
Exercised (360,975) $17.418
Terminated (541,805) $17.552
Outstanding at April 3, 1999 2,995,952 $17.196
The following table summarizes information about stock options
outstanding at April 3, 1999
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 4/3/99 Life Price At 4/3/99 Price
- ---------------------------------------------------------------------------------------------
$14.4375 - $15.6250 793,144 8.25 $15.3733 239,214 $15.3906
$15.6563 - $17.4375 872,114 7.83 $16.8065 398,796 $16.8155
$17.5625 - $18.0000 871,164 7.11 $17.8509 367,025 $17.9955
$18.3750 - $24.5625 459,530 6.60 $19.8396 276,530 $20.4261
--------------------------------------------------------------------
Total 2,995,952 7.54 $17.1960 1,281,565 $17.6665
========= =========
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 $1,387,000, $641,000 and $660,000 in 1999, 1998, and 1997,
respectively. On May 12, 1998, the Board of Directors approved a change to
the matching calculation which took effect during fiscal year 1999. The new
formula is a dollar for dollar match up to 6% of earnings (capped at
$100,000 of earnings) per participant, per Plan year. The match for 1998
and 1997 represented the prior method of a dollar for dollar match up to
$1,000 per participant, per Plan year.
The Board of Directors declared discretionary contributions of
approximately $1,100,000 for the Savings Plan year ended March 28, 1998. No
discretionary contribution was made for the Savings Plan years ended April
3, 1999 and March 29, 1997.
The Company has no material obligation for postretirement or
postemployment benefits.
9. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $24.5 million related
to the restructuring plans announced during the third quarter of fiscal
1998. The Company decided not to undertake certain rework and to terminate
the manufacture of certain products. Additionally, the Company discontinued
support for products which would have required additional investment to
continue their useful lives. The Company also identified certain
operations, which it 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 consisted 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 represented certain
strategic investments in non-core businesses, which the Company no longer
intends to pursue. The Company charged $2.1 million related to reserves for
severance and other contractual obligations. These reserves and other
restructuring costs were provided in accordance with EITF 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, $6.2 million was 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".
In fiscal year 1999, the Company made payments in connection with the
termination of certain long-term supply agreements. There were no remaining
restructuring reserves at April 3, 1999.
10. DISCONTINUED OPERATIONS ("BBMS")
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5,325,000. Additionally, on May
2, 1999, the Company sold its one remaining center completing the
divestiture of its BBMS business.
The operating results for BBMS have been segregated from the results
for the continuing operations and reported as a separate line on the
consolidated statements of operations for all periods presented.
The operating losses for BBMS are detailed as follows, in thousands:
Years Ended
------------------------------------
April 3, March 28, March 29,
1999 1998 1997
-------- --------- ---------
Net Revenues $16,003 $ 18,046 $ 6,808
Gross Profit 188 (189) 598
Operating expenses:
Research and Development -- 364 388
Selling, general and administrative 8,496 10,228 4,265
Total operating expenses 8,496 10,592 4,653
-----------------------------------
Operating loss (8,308) (10,781) (4,055)
-----------------------------------
Other expense (158) (255) (42)
Tax benefit (2,963) (3,863) (1,433)
-----------------------------------
Net loss $(5,503) $ (7,173) $(2,664)
===================================
Operating loss (net of taxes) charged to reserve $ 5,401 -- --
Reflected on consolidated statement of operations $ 102 $ 7,173 $ 2,664
Other expense includes an allocation of corporate interest expense of
approximately $158,000, $255,000 and $42,000, in the years ended 1999, 1998
and 1997, 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 includes a provision for
estimated losses after taxes for BBMS of $5,195,000 from March 30, 1998
through disposal. With the divestiture complete, the Company anticipates
that the remaining reserve is adequate.
The remaining net assets of BBMS included in the consolidated balance
sheet for April 3, 1999 and March 28, 1998 is as follows:
April 3, March 28,
1999 1998
-------- ---------
(in thousands)
Current assets $1,128 $ 5,167
Net property, plant and equipment 1,075 8,217
Other assets 129 39
--------------------
Total assets $2,332 $13,423
Current liabilities and accrued losses $4,396 $15,760
Other long-term liabilities 1,350 1,450
--------------------
Total liabilities $5,746 $17,210
11. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood processing
systems. Haemonetics chief operating decision-maker uses consolidated
results to make operating and strategic decisions. Manufacturing processes,
as well as the regulatory environment in which the company operates, are
largely the same for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank, surgical
and plasma products.
The blood bank products comprise machines and single use disposables
that perform "apheresis," the separation of whole blood into its components
and subsequent collection of certain components. The device used for blood
component therapy is the MCS(R)+, mobile collection system.
Surgical products comprise machines and single use disposables that
perform intraoperative autologous transfusion ("IAT") or surgical blood
salvage as it is more commonly known. Surgical blood salvage is a procedure
whereby shed blood is cleansed and then returned back to a patient. The
devices used to perform this are a full line of Cell Saver(R) autologous
blood recovery systems.
Plasma collection products are machines and disposables that, like
blood bank, perform apheresis for the separation of whole blood components
and subsequent collection of plasma. The device used in automated plasma
collection is the PCS(R)2.
Years ended (in thousands)
Blood Bank Surgical Plasma Other Total
April 3, 1999
-------------
Revenues from external customers $121,401 $62,117 $85,381 $13,246 $282,145
March 28, 1998
--------------
Revenues from external customers 122,290 61,170 91,173 11,129 285,762
March 27, 1997
--------------
Revenues from external customers 122,317 67,691 99,797 13,204 303,009
Geographical Segmentation
Years ended (in thousands)
April 3, 1999
- -------------
Other Total
United North North Other Total
States America America Japan Asia Asia
Sales $ 87,931 $1,636 $ 89,567 $87,817 $16,044 $103,861
Total Assets 233,570 475 234,045 38,332 17,831 56,163
Long-Lived
Assets 83,277 475 $83,752 8,867 14,675 23,542
Mar 28, 1998
- ------------
Other Total
United North North Other Total
States America America Japan Asia Asia
Sales $ 90,905 $2,199 $ 93,104 $82,860 $18,054 $100,914
Total Assets 212,707 558 213,265 37,265 18,424 55,689
Long-Lived
Assets 98,717 558 99,275 5,613 16,432 22,045
Mar 27, 1997
- ------------
Other Total
United North North Other Total
States America America Japan Asia Asia
Sales $108,157 $1,866 $110,023 $83,333 $17,513 $100,846
Total Assets 211,551 508 212,059 35,966 656 36,622
Long-Lived
Assets 122,951 508 123,459 8,502 656 9,158
Years ended (in thousands)
April 3, 1999
- -------------
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
Sales $23,724 $21,852 $10,043 $8,291 $5,777 $19,030 $88,717 $282,145
Total Assets 11,063 14,037 4,389 9,767 2,865 24,030 66,151 356,359
Long-Lived
Assets 2,980 1,131 600 1,987 614 7,407 14,719 122,013
Mar 28, 1998
- ------------
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
Sales $24,066 $22,426 $ 9,310 $7,795 $6,666 $21,481 $91,744 $285,762
Total Assets 10,806 14,177 4,638 8,559 2,581 26,978 67,739 336,693
Long-Lived
Assets 3,010 1,561 389 1,973 763 10,398 18,094 139,414
Mar 27, 1997
- ------------
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
Sales $24,515 $21,902 $10,039 $8,006 $6,535 $21,143 $92,140 $303,009
Total Assets 14,320 16,900 5,535 9,317 2,453 23,268 71,793 320,474
Long-Lived
Assets 4,883 2,315 409 1,975 831 9,265 19,678 152,295
Information about major customers
Sales to one, unaffiliated Japanese customer amounted to $72,942,000,
$65,644,000 and $62,359,000 for 1999, 1998 and 1997, respectively. As a
percentage of total Company sales, this single customer's sales represented
20.6%, 23.0% and 25.9% of total sales for 1999, 1998 and 1997, respectively.
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 April 3, 1999 and March 28, 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended April 3, 1999. 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 April 3, 1999 and March 28, 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended April 3, 1999, 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 26, 1999
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 27, 1999.
(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 various
management positions. Mr. Peterson has been a member of Haemonetics'
Board of Directors since 1985 and was elected to the position of Vice
Chairman of Haemonetics' Board of Directors in April 1994.
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 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 Division. 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 27,
1999.
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 27,
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this report:
(a) Financial Statements are included in Part II of this report
Financial Statements required by Item 8 of this Form
Consolidated Statements of Operations 27
Consolidated Balance Sheets 28
Consolidated Statements of Stockholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 31
Report of Independent Public Accountants 46
Schedules required by Article 12 of Regulation S-X
II Valuation and Qualifying Accounts 52
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 50, 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 7, 1999
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 7, 1999
- ---------------------------
Sir Stuart Burgess
/s/ James L. Peterson President and Chief Executive Officer June 7, 1999
- ---------------------------
James L. Peterson Director
/s/ Ronald J. Ryan Sr. Vice President of Finance June 7, 1999
- ---------------------------
Ronald J. Ryan and Chief Financial Officer,
(Principal Financial and Accounting Officer)
/s/ Yutaka Sakurada Sr. Vice President Haemonetics Corp. June 7, 1999
- ---------------------------
Yutaka Sakurada and President, Haemonetics Japan
Director
/s/ Benjamin L. Holmes Director June 7, 1999
- ---------------------------
Benjamin L. Holmes
/s/ Jerry E. Robertson Director June 7, 1999
- ---------------------------
Jerry E. Robertson
/s/ Donna C. E. Williamson Director June 7, 1999
- ---------------------------
Donna C. E. Williamson
/s/ Colin Lind Director June 7, 1999
- ---------------------------
Colin Lind
/s/ Harvey G. Klein Director June 7, 1999
- ---------------------------
Harvey G. Klein
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* 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).
10D* 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).
10E* 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).
10F* Lease dated July 3, 1991 between Trinet Property Management
Inc. and the Company for the property adjacent to the main
facility in Braintree, Massachusetts (filed as Exhibit 10M to
the Company's Form 10-K No. 1-10730 for the year ended March
28, 1992 and incorporated herein by reference).
10G* Amendment No. 1 to Lease dated July 3, 1991 between Trinet
Property Management Inc. and the Company for the child care
facility (filed as Exhibit 10N to the Company's Form 10-K No.
1-10730 for the year ended March 28, 1992 and incorporated
herein by reference).
10H* 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).
10I* 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).
10J* 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).
10K* 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).
10L* 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).
10M* 1992 Long-Term incentive Plan (filed as Exhibit 10V to the
Company's Form 10-K No. 1-10730 for the year ended April 3,
1993 and incorporated herein by reference).
10N* 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).
10O* 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).
10P* 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).
10Q* 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).
10R* 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 10E to the Company's Form
10-K No. 1-10730 for the year ended March 29, 1997 and
incorporated herein by reference).
10S* Amendment, dated April 18, 1997 to the 1992 Long-Term Incentive
Plan (filed as Exhibit 10V to the Company's Form 10-K No. 1-
10730 for the year ended April 3, 1993 and incorporated herein
by reference).
10T* $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).
10U* Note Purchase agreement whereby Haemonetics Corporation
authorized sale of $40,000,000, 7.05% Senior Notes due October
15, 2007. (filed as Exhibit 10A to the Company's Form 10-Q No.
1-10730 for the quarter ended September 27, 1997 and
incorporated herein by reference).
10V* 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).
10W* Second Amendment, dated April 30, 1998 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation
and Mellon Bank N.A. . (filed as Exhibit 10Y to the Company's
Form 10-K No. 1-10730 for the year ended March 28, 1998 and
incorporated herein by reference).
10X* 1998 Employee Stock Purchase Plan. (filed as Exhibit 10Z to
the Company's Form 10-K No. 1-10730 for the year ended March
28, 1998 and incorporated herein by reference).
10Y* 1998 Stock Option Plan for Non-Employee Directors. (filed as
Exhibit 10AA to the Company's Form 10-K No. 1-10730 for the
year ended March 28, 1998 and incorporated herein by
reference).
10Z* Lease, dated July 29, 1997 between New Avon Limited Parnership
and the Company for the property in Avon, Massachusetts. .
(filed as Exhibit 10AB to the Company's Form 10-K No. 1-10730
for the year ended March 28, 1998 and incorporated herein by
reference).
10AA Agreement on Bank Transactions between Haemonetics Corporation
and the Bank of Tokyo-Mitsubishi, Ltd. dated February 14, 1985.
21. Subsidiaries of the Company
23. Consent of the Independent Public Accountants
27 Financial Data Schedule
[FN]
- --------------------
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
of Period Expenses Recoveries) of Period
---------- ---------- ----------- ----------
For the Year Ended April 3, 1999
Allowance for Doubtful Accounts $ 818 $ 687 ($ 758) $ 747
Restructuring Reserve 1,706 0 (1,706) 0
Discontinued Operations Reserve 28,000 0 (22,384) 5,616
For the Year Ended March 28, 1998
Allowance for Doubtful Accounts 961 263 (406) 818
Restructurring Reserve 0 24,500 (22,794) 1,706
Discontinued Operations Reserve 0 28,000 0 28,000
For the Year Ended March 29, 1997
Allowance for Doubtful Accounts 984 431 (454) 961