FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarter ended: December 30, 2000 Commission File Number: 1-10730
----------------- -------
HAEMONETICS CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Wood Road, Braintree, MA 02184
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(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 848-7100
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Indicate by check mark whether the registrant (1.) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) (2.) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
25,332,958 shares of Common Stock, $ .01 par value, as of
---------------------------------------------------------
December 30, 2000
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Unaudited Consolidated Statements of Operations - 2
Three and Nine Months Ended December 30, 2000
and December 25, 1999
Unaudited Consolidated Balance Sheets - December 30, 2000 3
and April 1, 2000
Unaudited Consolidated Statements of Stockholders' Equity - 4
Nine Months Ended December 30, 2000
Unaudited Consolidated Statements of Cash Flows - 5
Nine Months Ended December 30, 2000 and December 25, 1999
Notes to Unaudited Consolidated Financial Statements 6-13
Management's Discussion and Analysis of Financial Condition and 14-28
Results of Operations
Quantitative and Qualitative Disclosures about Market Risk 29-30
PART II. Other Information 31
Signatures 32
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
Three Months Ended Nine Months Ended
-------------------- -------------------
Dec. 30, Dec. 25 Dec. 30, Dec. 25
2000 1999 2000 1999
-------------------------------------------
Net revenues $75,899 $70,778 $216,162 $208,094
Cost of goods sold 36,903 37,601 110,364 110,461
--------------------------------------------
Gross profit 38,996 33,177 105,798 97,633
Operating expenses:
Research and development 5,204 3,796 13,644 11,209
Selling, general and administrative 22,825 20,546 64,613 61,818
In process research and development (Note 11) - 2,871 18,606 2,871
Other unusual charges relating to
acquisition (Note 10) - 343 4,613 343
--------------------------------------------
Total operating expenses 28,029 27,556 101,476 76,241
--------------------------------------------
Operating income 10,967 5,621 4,322 21,392
Interest expense (859) (1,229) (2,728) (3,296)
Interest income 999 1,349 3,307 3,714
Other income, net 959 652 2,609 1,584
--------------------------------------------
Income from continuing operations
before provision for income taxes 12,066 6,393 7,510 23,394
Provision for income taxes 3,103 3,074 7,441 8,514
--------------------------------------------
Income from continuing operations 8,963 $ 3,319 69 14,880
============================================
Discontinued operations: (Note 8)
Income from discontinued operations, net
of income tax expense of $68 in FY 00 - - - 144
--------------------------------------------
Net income $ 8,963 $ 3,319 $ 69 $ 15,024
============================================
Basic income per common share
Continuing operations $ 0.355 $ 0.129 $ 0.003 $ 0.566
Discontinued operations - - - 0.005
Net income 0.355 0.129 0.003 0.572
Income per common share assuming dilution
Continuing operations $ 0.345 $ 0.127 $ 0.003 $ 0.561
Discontinued operations - - - 0.005
Net income 0.345 0.127 0.003 0.566
Weighted average shares outstanding
Basic 25,259 25,696 25,213 26,278
Diluted 25,991 26,097 25,820 26,530
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
December 30, April 1,
ASSETS 2000 2000
------------------------
(Note 10)
Current assets:
Cash and short term investments $ 59,212 $ 61,328
Accounts receivable, less allowance of
$ 1,079 at December 30, 2000 and $1,149
at April 1, 2000 60,253 59,140
Inventories 52,768 59,817
Current investment in sales-type
leases, net 6,355 8,036
Deferred tax asset 19,434 16,360
Other prepaid and current assets 4,976 5,237
----------------------
Total current assets 202,998 209,918
----------------------
Property, plant and equipment 199,428 185,432
Less accumulated depreciation 117,172 103,824
----------------------
Net property, plant and equipment 82,256 81,608
Other assets:
Investment in sales-type leases, net
(long-term) 5,880 10,775
Distribution rights, net 10,000 11,356
Goodwill, less accumulated amortization of
$855 at December 30, 2000 and $662
at April 1, 2000 4,739 1,832
Deferred tax asset 20,806 14,806
Other assets, net 15,764 15,187
----------------------
Total other assets 57,189 53,956
----------------------
Total assets $342,443 $345,482
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 19,172 $ 32,896
Accounts payable 9,726 17,224
Accrued payroll and related costs 9,641 8,456
Accrued income taxes 18,788 15,700
Other accrued liabilities 14,765 14,199
----------------------
Total current liabilities 72,092 88,475
----------------------
Deferred income taxes 16,290 10,722
Long-term debt, net of current maturities 50,720 41,306
Other long-term liabilities 2,136 2,164
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 30,273,348 shares at December 30, 2000;
30,004,811 shares at April 1, 2000 303 300
Additional paid-in capital 78,648 73,662
Retained earnings (Note 10) 227,158 227,104
Cumulative translation adjustments (15,448) (13,078)
----------------------
Stockholders' equity before treasury stock. 290,661 287,988
Less: treasury stock 4,940,390 shares at
cost at December 30, 2000 and 4,728,762 shares
at cost at April 1, 2000 89,456 85,173
----------------------
Total stockholders' equity 201,205 202,815
----------------------
Total liabilities and stockholders' equity $342,443 $345,482
======================
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited in thousands)
Common Stock Additional Cumulative Total
------------ Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Loss
---------------------------------------------------------------------------------------------
Balance, April 1, 2000
Restated 30,005 $300 $73,662 $(85,173) $227,104 $(13,078) $202,815
Employee stock purchase
plan --- --- --- 446 --- 446
Exercise of stock options
and related tax benefit 269 3 4,986 --- (15) --- 4,974
Purchase of treasury stock --- --- --- (4,729) --- --- (4,729)
Net Income --- --- --- --- 69 --- 69 $ 69
Foreign currency
translation adjustment --- --- --- --- --- (2,370) (2,370) (2,370)
Comprehensive loss --- --- --- --- --- --- --- $(2,301)
------------------------------------------------------------------------------------------
Balance, December 30, 2000 30,274 $303 $78,648 $(89,456) $227,158 $(15,448) $201,205
===========================================================================
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Nine Months Ended
--------------------
Dec 30, Dec 25,
2000 1999
--------------------
Cash Flows from Operating Activities:
Net income $ 69 $ 15,024
Less net income from discontinued operations - 144
--------------------
Net income from continuing operations 69 14,880
Adjustments to reconcile net income to net
cash provided by operating activities:
Non cash items:
Depreciation and amortization 18,006 21,586
Deferred tax (expense) benefit (161) 64
In process research and development (note 11) 18,606 2,871
Equity in losses of investment (note 10) 1,353 343
Other unusual non-cash charges 1,282 2,015
Change in operating assets and liabilities:
(Increase) in accounts receivable - net (1,821) (7,772)
Decrease (increase) in inventories 1,662 (4,763)
Decrease in sales-type leases (current) 1,681 2,431
(Increase) decrease in prepaid income taxes (1,224) 356
Decrease in other assets 212 1,047
(Decrease) in accounts payable, accrued
expenses and other current liabilities (5,496) (4,058)
--------------------
Net cash provided by operating
activities, continuing operations 34,169 29,000
--------------------
Net cash used in operating
activities, discontinued operations 0 (4,932)
--------------------
Net cash provided by operating
activities 34,169 24,068
Cash Flows from Investing Activities:
Capital expenditures on property, plant
and equipment, net of retirements
and disposals (9,620) (16,548)
Acquisition of Transfusion Technologies
Corporation, net of cash acquired (26,572) (15,000)
Net decrease in sales-type leases (long-term) 4,108 4,774
--------------------
Net cash used in investing activities,
continuing operations (32,084) (26,774)
--------------------
Net cash provided by investing activities,
discontinued operations 0 3,562
--------------------
Net cash used in investing activities (32,084) (23,212)
Cash Flows from Financing Activities:
Proceeds (payments) on long-term
real estate mortgage 9,652 (8,191)
Net (decrease) increase in short-term revolving
credit agreements (14,138) 24,267
Net (decrease) increase in long-term
credit agreements (261) 415
Employee stock purchase plan purchases 434 379
Exercise of stock options and related
tax benefit 4,986 2,184
Purchase of treasury stock (4,729) (29,437)
--------------------
Net cash used in financing activities (4,056) (10,383)
Effect of exchange rates on cash and
cash equivalents (145) (267)
--------------------
Net decrease in cash and cash equivalents (2,116) (9,794)
Cash and cash equivalents at beginning of period 61,328 56,319
--------------------
Cash and cash equivalents at end of period $ 59,212 $ 46,525
====================
Non-cash investing and financing activities:
Transfers from inventory to fixed assets for
placements of Haemonetics equipment $ 5,348 $ 4,650
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents,
discontinued operations $ 0 $ (1,370)
Net decrease in cash and cash equivalents,
continuing operations $ (2,116) $ (8,424)
Interest paid $ 3,206 $ 3,606
Income taxes paid $ 5,092 $ 11,345
====================
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this
report are not necessarily indicative of results for any future interim
period or for the entire fiscal year. The Company believes that the
quarterly information presented includes all adjustments (consisting only
of normal, recurring adjustments) that the Company considers necessary for
a fair presentation in accordance with generally accepted accounting
principles. Certain reclassifications were made to prior year balances to
conform with the presentation of the financial statements for the nine
months ended December 30, 2000. The accompanying consolidated financial
statements and notes should be read in conjunction with the Company's
audited annual financial statements.
2. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last
day of March. Both fiscal years 2001 and 2000 include 52 weeks with the
third quarter of fiscal year 2000 including 12 weeks and the third quarter
of fiscal year 2001 including 13 weeks.
3. COMPREHENSIVE INCOME
In the first quarter of fiscal year 1999, the Company adopted the
provisions of Statement of Financial Accounting Standard (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 non-owner changes in
stockholders' equity, which for the Company, is foreign currency
translation. At December 30, 2000 and April 1, 2000, the cumulative foreign
currency translation adjustment totaled ($15.4) million and ($13.1)
million, respectively. For the three and nine months ended December 30,
2000, the Comprehensive income (loss) was $9.2 million and ($ 2.3) million,
respectively. For the three and nine months ended December 25, 1999, the
Comprehensive income was $5.1 million and $17.1 million, respectively.
4. NEW PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt by the end of the
fourth quarter of fiscal year 2001. SAB 101 provides additional guidance on
the accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement 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. SFAS No. 133 as amended requires that
changes in the derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Additionally, a company
must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The Company is in
the process of assessing the impact of the implementation of SFAS No. 133
as amended on its financial statements. It expects that the derivative
financial instruments acquired in connection with the Company's hedge
program will qualify for hedge accounting under SFAF No. 133 as amended.
The Company will adopt SFAF No. 133 as amended in the first quarter of
fiscal year 2002.
5. 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 period end. Net revenues and costs and expenses are translated at
average rates in effect during the period. The effect of exchange rate
changes on the Company's assets and liabilities are included in the
cumulative translation adjustment account. Included in other income in the
consolidated statement of operations for the nine months of fiscal year
2001 and fiscal year 2000 are ($776,400) and ($19,400) respectively, in
foreign currency transaction losses.
The Company enters into forward exchange contracts to hedge certain
firm sales commitments by 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 inter-company 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 December 30, 2000 and December 25, 1999, 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 $131.7 million and $151.5 million, respectively.
Of the respective balances, $27.6 million and $51.0 million represented
contracts related to inter-company receivables that settled within 35 days.
The balance of the contracts relate to firm sales commitments. The fair
value of the contracts related to hedging firm sales commitments, was a
$2.9 million gain at December 30, 2000, and a $2.1 million gain and a
($8.7) million loss at December 25, 1999. Deferred gains and losses are
recognized in earnings when the transactions being hedged are recognized.
Management anticipates that these deferred amounts at December 30, 2000
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.
6. INVENTORIES
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out method.
Inventories consist of the following:
Dec. 30, April 1,
2000 2000
--------------------
(In thousands)
Raw materials $16,225 $14,081
Work-in-process 4,297 7,199
Finished goods 32,246 38,537
-------------------
$52,768 $59,817
===================
7. Net Income Per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by SFAS No. 128, "Earnings Per Share." Basic EPS is computed by
dividing reported earnings available to stockholders by weighted average
shares outstanding. Diluted EPS includes the effect of other common stock
equivalents.
For the three months ended
----------------------------
December 30, December 25,
2000 1999
----------------------------
Basic EPS
- ---------
Net income $ 8,963 $ 3,319
Weighted Average Shares 25,259 25,696
-----------------------
Basic income per share $ .355 $ .129
-----------------------
Diluted EPS
- -----------
Net income $ 8,963 $ 3,319
Basic Weighted Average shares 25,259 25,696
Effect of Stock options 732 401
-----------------------
Diluted Weighted Average shares 25,991 26,097
-----------------------
Diluted income per share $ .345 $ .127
-----------------------
For the nine months ended
----------------------------
December 30, December 25,
2000 1999
----------------------------
Basic EPS
- ---------
Net income $ 69 $15,024
Weighted Average Shares 25,213 26,278
-----------------------
Basic income per share $ .003 $ .572
-----------------------
Diluted EPS
- -----------
Net income $ 69 $15,024
Basic Weighted Average shares 25,213 26,278
Effect of Stock options 607 252
-----------------------
Diluted Weighted Average shares 25,820 26,530
-----------------------
Diluted income per share $ .003 $ .566
-----------------------
8. DISCONTINUED OPERATIONS
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 Company completed its accounting for
the divestiture as of October 2, 1999 with the reversal of the excess
reserve of $144,000, net of taxes of $68,000.
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. For the
nine months ended December 25, 1999, the operating loss for BBMS of
$403,000 was charged to the discontinued operations provision established
in the fourth quarter of fiscal year 1998.
The operating losses, in thousands, for BBMS are detailed as follows
for nine months ending:
December 25,
1999
------------
(in thousands)
Net Revenues $ 413
Gross Profit (24)
Operating expense
Research and Development -
Selling, general and administrative 569
-----
Total operating expenses 569
Operating loss (593)
Other expense --
Tax benefit (190)
-----
Net loss (403)
Operating loss (net of taxes)
charged to reserve 403
Recovery of remaining reserve 144
-----
Reflected on Consolidated Statement of Operations $ 144
=====
No interest was allocated for the nine months ended December 25,
1999, as all blood centers have been divested effective May 1999. The
allocation of corporate interest was calculated based upon the percentage
of net assets of BBMS to total domestic assets.
9. SEGMENT INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood
processing systems. Haemonetics chief operating decision-maker uses
consolidated results to make operating and strategic decisions.
Manufacturing processes, as well as the regulatory environment in which the
Company operates, are largely the same for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank,
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.
Three months ended (in thousands)
December 30, 2000 Blood Bank Surgical Plasma Other Total
----------------- ---------- -------- ------ ----- -----
Revenues from external customers 31,807 17,626 22,740 3,726 75,899
December 25, 1999
-----------------
Revenues from external customers 29,851 16,514 21,391 3,022 70,778
Nine months ended (in thousands)
December 30, 2000 Blood Bank Surgical Plasma Other Total
----------------- ---------- -------- ------ ----- -----
Revenues from external customers 91,356 49,203 64,193 11,410 216,162
December 25, 1999
-----------------
Revenues from external customers 87,347 47,489 64,691 8,567 208,094
10. ACQUISITION
On September 18, 2000, Haemonetics Corporation, ("Haemonetics")
completed the acquisition of Transfusion Technologies Corporation, a
Delaware Corporation ("Transfusion") pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated September 4, 2000 among Haemonetics,
Transfusion, Transfusion Merger Co., the holders of a majority of
outstanding shares of Preferred and Common Stock of Transfusion and certain
principals of Transfusion. The acquisition was effected in the form of a
merger (the "Merger") of Transfusion Merger Co., a wholly owned subsidiary
of Haemonetics, with and into Transfusion. Transfusion was the surviving
corporation in the merger.
Transfusion Technologies designs, develops and markets systems for
the processing of human blood for transfusion to patients. Its systems are
based on centrifuge technology called the Dynamic Disk (tm) and consist of
sterile, single-use disposable sets and computer controlled
electromechanical devices that control the blood processing procedure. The
systems have applications in both autotransfusion and blood component
collection technologies.
The aggregate purchase price, before transaction costs and cash
acquired, of approximately $50.1 million is comprised of $36.5 million to
Transfusion's common and preferred stockholders, and warrant and option
holders, and $13.6 million, representing the economic value of Haemonetics'
19.8% preferred stock investment in Transfusion made in November 1999. The
cash required to purchase the remaining 80.2% interest in Transfusion, was
$26.6 million, net of cash acquired.
The Transfusion merger was accounted for using the purchase method of
accounting for business combinations. Accordingly, the accompanying
Consolidated Statement of Operations includes Transfusion Technologies'
results of operations commencing on the date of acquisition. The purchase
price was allocated to the net assets acquired based on the Company's
estimates of fair value at the acquisition date. For certain assets
acquired in property, plant and equipment, representing Transfusion's
equipment placed at customer locations, net book value was used as a proxy
for fair market value. The allocation of the purchase price continues to be
subject to adjustment upon final valuation of certain acquired assets and
liabilities. The excess of the purchase price over the fair market value of
the net assets acquired has been recorded as goodwill in the amount of $3.1
million. The goodwill is being amortized over 20 years.
The present allocation of the purchase price over the fair market
value of the assets acquired is as follows:
Consideration Paid $45,305,375
Plus other estimated transaction costs 1,606,969 (i)
Total estimated purchase price 46,912,344
Less: estimated fair value of Transfusion'
identifiable net assets on December 30, 2000 43,832,084
Total estimated goodwill due to acquisition 3,080,260
<FN>
(i) Transaction costs primarily include professional fees, costs to close
down the Transfusion Technologies' facility and severance costs.
</FN>
Subsequent to the third fiscal quarter ended December 30, 2000,
additional consideration due to common and preferred stockholders resulting
from the finalization of actual cash balances at the effective time was
determined. The amount of the adjustment to the estimate made in the
original accounting is $259,652, reflecting less consideration to be paid
than originally estimated. The effect of this adjustment will be accounted
for in the Company's fourth quarter financial statements.
The following unaudited pro forma summary combines the consolidated
results of operations of Haemonetics Corporation and Transfusion
Technologies as if the acquisition had occurred as of the beginning of the
fiscal year presented after giving effect to certain adjustments including
adjustments to reflect reductions in depreciation expense, increases in
intangible and goodwill amortization expense and lost interest income. This
pro forma summary is not necessarily indicative of the results of
operations that would have occurred if Haemonetics and Transfusion
Technologies had been combined during such periods. Moreover, the pro forma
summary is not intended to be indicative of the results of operations to be
attained in the future.
Nine Months Ended
December 30,
---------------------
2000 1999
---------------------
(In thousands, except
per share amounts)
Net revenues $217,538 $208,901
Operating income 17,359 16,852
Income from continuing operations 14,514 10,991
Basic and diluted income per common share
from continuing operations:
Basic $ 0.576 $ 0.418
Diluted $ 0.562 $ 0.414
Weighted average number of common shares outstanding:
Basic 25,213 26,278
Diluted 25,820 26,530
Unusual charges expensed as a result of the acquisition of
Transfusion Technologies amounted to $4.6 million for the nine months ended
December 30, 2000. Included in the unusual charges were $2.8 million in
bonuses paid to key Transfusion executives hired by Haemonetics and
severance to employees laid off due to overlaps created by the merger, a
$0.5 million write-off of an investment in a technology which the Company
decided not to pursue in lieu of the technologies acquired in the merger,
and the adjustment required to modify the 19.8% investment of Transfusion
by Haemonetics in November of fiscal year 2000 from the cost method to the
equity method of accounting as required by generally accepted accounting
principles. To effect this change, the historic cost of the 19.8%
investment made by Haemonetics' was written down by its 19.8% share of the
monthly losses incurred by Transfusion Technologies from November of fiscal
year 2000. For fiscal year 2001, the charge to the statement of operations
related to this cost to equity adjustment was $1.3 million for the nine
months ended December 30, 2000. In addition the Company restated its
investment in Transfusion Technologies on the balance sheet for losses
incurred through April 1, 2000 of $3.6 million. Retained earnings at April
1, 2000 were also reduced by $3.6 million. Reflected in the Statement of
Operations for the nine months ended December 25, 1999 was $3.1 million of
the $3.6 million, $0.3 million of the charge related to the cost to equity
method of accounting adjustment and $2.9 million related to the in-process
research and development charges.
11 IN-PROCESS RESEARCH AND DEVELOPMENT
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations.
An independent valuation was performed to assess and allocate a value
to the purchased IPR&D. The value represents the estimated fair market
value based on risk-adjusted future cash flows generated by the products
employing the in-process projects over a ten-year period. Estimated future
after-tax cash flows for each product were based on Transfusion
Technologies' and Haemonetics' estimates of revenue, operating expenses,
income taxes, and charges for the use of contributory assets. Additionally,
these cash flows were adjusted to compensate for the existence of any core
technology and development efforts that were to be completed post-
acquisition.
Revenues were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, and the
estimated life of each product's underlying technology. Estimated operating
expenses include cost of goods sold, selling, general and administrative,
and research and development ("R&D") expenses. The estimated R&D expenses
include only those costs needed to maintain the products once they have
been introduced into the market. Operating expense estimates were
consistent with expense levels for similar products.
The discount rates used to present-value the projected cash flows
were based on a weighted average cost of capital relative to Transfusion
Technologies and it's industry adjusted for the product-specific risk
associated with the purchased IPR&D projects. Product-specific risk
includes such factors as: the stage of completion of each project, the
complexity of the development work completed to date, the likelihood of
achieving technological feasibility, and market acceptance.
The forecast data employed in the valuation were based upon
projections created by Transfusion Technologies' management and Haemonetics
management's estimate of the future performance of the business. The inputs
used in valuing the purchased IPR&D were based on assumptions that
management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events or circumstances will not
occur. Accordingly, actual results may vary from the forecasted results.
While management believes that all of the development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results, may
result in a material adverse effect on Haemonetics' financial condition and
results of operations.
A brief description of the IPR&D projects related to the acquisition
of Transfusion Technologies, including their estimated stage of completion
and associated discount rates, is outlined below.
Chairside Separator ("CSS"). The CSS is a portable, automated device
used for the donor-side collection and processing of a single unit of whole
blood into a unit of red cell concentrate and plasma. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95 percent complete and that product sales would
commence by the fourth quarter 2001. The IPR&D value assigned to the CSS
was $17.6 million. A discount rate of 33 percent was employed in the
analysis.
Red Cell Collector ("RCC"). The RCC is a portable, automated device
used for the collection and processing of two units of red blood cells from
donors. The system collects and automatically anticoagulates the whole
blood while separating it into red blood cells and plasma. The plasma and
500ml of saline is then re-infused back to the donor. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the RCC project was 65 percent complete and that product sales would
commence by the second quarter 2003. The IPR&D value assigned to the RCC
was $3.9 million. A discount rate of 33 percent was employed in the
analysis.
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
income for continuing operations as a percentage of net revenues:
Percentage of Net Revenues Percentage Incr/(Decr)
Three Months Ended Three Months Ended
Dec 30, 2000 Dec 25, 1999 2000/1999
- ---------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 7.2%
Cost of goods sold 48.6 53.1 (1.9)
------------------------------------------
Gross Profit 51.4 46.9 17.5
Operating Expenses:
Research and development 6.9 5.4 37.1
Selling, general and administrative 30.1 29.0 11.1
In process research and development - 4.1 (100.0)
Other unusual charges relating to acquisition - 0.5 (100.0)
------------------------------------------
Total operating expenses 36.9 38.9 1.7
Operating income 14.5 7.9 95.1
Interest expense (1.3) (1.7) (30.1)
Interest income 1.3 1.9 (25.9)
Other income, net 1.3 0.9 47.0
------------------------------------------
Income from continuing operations before
provision for income taxes 15.9 9.0 88.7
Provision for income taxes 4.1 4.3 0.9
------------------------------------------
Earnings from continuing operations 11.8% 4.7% 170.1%
==========================================
Three Months Ended December 30, 2000 Compared to Three Months Ended
December 25, 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- ---------------------------------------------------
United States $24,453 $21,840 12.0 12.0
International 51,446 48,938 5.1 (0.2)
-----------------------------------------------
Net revenues $75,899 $70,778 7.2 3.6
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- ---------------------------------------------------
Disposables $68,940 $64,685 6.6 1.7
Misc. & service 3,726 3,022 23.3 31.6
Equipment 3,233 3,071 5.3 16.5
-----------------------------------------------
Net revenues $75,899 $70,778 7.2 3.6
Percent Increase / (Decrease)
Disposables -----------------------------
- ----------- Actual dollars At constant
by product line: 2000 1999 as reported Currency
- ---------------- ---------------------------------------------------
Surgical $16,478 $15,420 6.9 6.8
Blood bank* 30,132 28,250 6.7 (0.3)
Plasma 22,330 21,015 6.3 1.3
-----------------------------------------------
Disposable revenues $68,940 $64,685 6.6 1.7
<FN>
* Includes red cell disposables
</FN>
Three months ended December 30, 2000 compared to three months ended
December 25, 1999
Net Revenues
Net revenues in 2000 increased 7.2% to $75.9 million from $70.8
million in 1999. With currency rates held constant, net revenues increased
3.6% from 1999 to 2000.
Disposable sales increased 6.6% year over year at actual rates. With
currency rates held constant, disposable sales increased 1.7%. Year over
year constant currency disposable sales growth was a result of growth in
worldwide Red Cells (which is included in Blood Bank and was up 39.7%),
worldwide Surgical (up 6.8%) and worldwide Plasma (up 1.3%). The increase
in worldwide red cell sales is attributable to volume increases in both the
US and Europe as the rollout of this new technology in these markets
continues to gain strength. The growth in the worldwide surgical disposable
sales is mainly attributed to volume increase and the mix effect of
products sold in the US, Asia and Japan markets. The Company views the
increasing prices of red cells around the world, and the favorable
autotransfusion economics its Surgical product offerings deliver, as
factors contributing to the volume increases. The growth in worldwide
Plasma disposables sales is mainly attributed to volume increases of
products sold in the US due to an upturn in plasma collections. Offsetting
these increases were decreases in Platelets disposables sales volumes in
Europe and the U.S.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 90% and 91% of net
revenues for 2000 and 1999, respectively.
Service revenue generated from equipment repairs performed under
preventive maintenance contracts or emergency service billings and
miscellaneous revenues accounted for approximately 5.1% and 4.0% of the
Company's net revenues, at constant currency, for 2000 and 1999,
respectively.
Equipment revenues increased approximately 5.3% from $3.1 million in
1999. With currency rates held constant, equipment revenues increased 16.5%
from 1999 to 2000. The 16.5% increase was a result of regular fluctuations
in equipment sales with the most significant increase year over year in
Europe for platelet and plasma equipment. Offsetting those sales increases
were decreases in equipment revenues in the blood bank and surgical product
lines, mainly in the US. The decrease in revenue recognized on equipment
shipments represents a continuing trend of customer preference for, and the
Company's policy of, moving toward placing on loan Company-owned equipment
versus selling it under long-term sales-type leases. Reasons for customer
preference vary significantly but included the customers' preference to be
relieved from certain risks of ownership, particularly the equipment's
economic useful life and technological feasibility. From the Company's
point of view, placing company owned equipment versus selling it, allows
the Company to better track the location and the utilization of the
equipment.
International sales as reported accounted for approximately 67.8% and
69.1% of net revenues for 2000 and 1999, respectively. As in the US, the
sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic
conditions, the impact of competitive products and pricing and changes in
health care policy.
Gross profit
Gross profit of $39.0 million in fiscal year 2001 increased $5.8
million or 4.5% as a percent of sales from $33.2 million in fiscal year
2000. At constant currency, gross profit as a percent of sales increased by
0.1% and increased in dollars by $1.3 million from 1999 to 2000. The $1.3
million gross profit increase from 1999 was a result of higher sales and
cost savings of approximately $0.6 million from the Company's Customer
Oriented Redesign for Excellence ("CORE") Program. In 1998, the Company
initiated the CORE Program to increase operational effectiveness and
improve all aspects of customer service. The CORE Program is based on Total
Quality of Management, ("TQM"), principals, and the Program aims to
increase the efficiency and the quality of, processes and products, and to
improve the quality of management at Haemonetics. The $0.6 million in CORE
savings in the third quarter resulted from savings in material and labor
costs as a result of redesigning the way products are made and by
negotiating lower material prices with vendors.
Expenses
The Company expended $5.2 million (6.9% of net revenues) on research
and development in 2000 and $3.8 million (5.4% of net revenues) in 1999. At
constant currency rates, research and development as a percent of sales
increased by 1.6% and increased in dollars by $1.3 million from 1999 to
2000. The increase in research and development was a result of the
Company's objective to reinvest available funds into new product
development in order to fuel future top line growth.
Selling, general and administrative expenses increased $2.3 million
from $20.5 million in 1999. At constant currency, selling, general and
administrative expenses increased $2.0 million from 1999 to 2000 and
increased 1.7% as a percent of sales from 1999 to 2000. Increased spending
behind the Company's new product selling and marketing activities
contributed to the increase. The CORE Program contributed approximately
$0.3 million to reductions in distribution related selling, general and
administrative expenses. More specifically, the distribution savings were
generated by lowering freight costs with the move of the Company's European
distribution center from the Netherlands to Germany, by renegotiating lower
freight rates with vendors and by increasing local sourcing of raw
materials abroad.
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition
a) In Process Research and Development (IPR&D)
On September 15, 2000, the Company completed the acquisition of
Transfusion Technologies Corporation, a Delaware Corporation
("Transfusion") pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated September 4, 2000 among Haemonetics, Transfusion,
Transfusion Merger Co., the holders of a majority of outstanding shares of
Preferred and Common Stock of Transfusion and certain principals of
Transfusion. The acquisition was effected in the form of a merger (the
"Merger") of Transfusion Merger Co., a wholly owned subsidiary of
Haemonetics, with and into Transfusion. Transfusion was the surviving
corporation in the merger.
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations. (See Notes 10 and 11 to the
unaudited condensed consolidated financial statements and M, D&A for nine
months ended December 30,2000 for further discussion of the acquisition and
IPR&D charges.)
b) Other Unusual Charges Relating to the Acquisition
The Consolidated Statement of Operations for the three months ended
December 25, 1999 include an adjustment required to modify the 19.8%
investment of Transfusion by Haemonetics in November of fiscal year 2000
from the cost method to the equity method of accounting as required by
generally accepted accounting principles. To effect this change, the
historic cost of the 19.8% investment made by Haemonetics' was written down
by its 19.8% share of the monthly losses incurred by Transfusion
Technologies from November of fiscal year 2000. For fiscal year 2000, the
charge to the statement of operations related to this cost to equity
adjustment was $0.3 million for the three months ended December 25, 1999.
Operating Income
Operating income, as a percentage of net revenues, increased 6.6
percentage points to 14.5% in the third quarter of fiscal 2001 from 7.9% in
fiscal 2000. At constant currency, operating income, as a percent of sales,
increased 1.3 percentage points from fiscal 2000 or $1.2 million. The $1.2
million increase in operating income year over year is largely the result
of the cost to equity accounting adjustments relating to the acquisition of
Transfusion Technologies included in the prior year totaling $3.2 million.
Higher fiscal 2001 third quarter sales, and cost savings realized related
to the Company's Core program were invested back into R&D and S,G&A
spending yielding a $2.0 million decrease in operating income at constant
currency excluding the prior year purchase price accounting adjustments.
Other Income and Expense
Interest expense for the third quarter decreased $0.4 million from
fiscal 2000 to fiscal 2001 due to a reduction in the average outstanding
borrowings and lower interest rates. Interest income decreased $0.4
million from 1999 to 2000. Other income net increased $0.3 million due to
increases in income earned from points on forward contracts, which was
partially offset by increases in foreign exchange transaction losses.
Points on forward contracts are amounts, either paid or earned, based on
the interest rate differential between two foreign currencies in a forward
hedge contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% in the third quarter of fiscal year 2000 before the effect of the
Transfusion Technologies acquisition and 25.7% in the third quarter of
fiscal year 2001. The 25.7% rate in the third quarter of fiscal year 2001
reflects a year to date adjustment decreasing the Company's year to date
tax provision from 28% to 27%. The decrease in the effective tax rate from
32% for fiscal year 2000 to 27% for fiscal year 2001 was primarily
attributable to an increase in export benefits generated by the Company's
Foreign Sales Corporation, benefits associated with repatriating funds and
modifying the geographic distribution of income. The Company expects its
tax rate for its next fiscal year to be approximately 28%.
Nine Months Ended December 30, 2000 Compared to Nine Months Ended December
25, 1999
Percentage of Net Revenues Percentage Incr/(Decr)
Nine Months Ended Nine Months Ended
Dec 30, 2000 Dec 25, 1999 2000/1999
- ---------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 3.9%
Cost of goods sold 51.1 53.1 (0.1)
------------------------------------------
Gross Profit 48.9 46.9 8.4
Operating Expenses:
Research and development 6.3 5.4 21.7
Selling, general and administrative 29.9 29.7 4.5
In process research and development 8.6 1.4 548.1
Other unusual items 2.1 0.2 1,245.0
------------------------------------------
Total operating expenses 46.9 36.6 33.1
Operating income 2.0 10.3 (79.8)
Interest expense (1.3) (1.6) (17.2)
Interest income 1.5 1.8 (11.0)
Other income 1.2 0.8 64.7
------------------------------------------
Income from continuing operations before
provision for income taxes 3.5 11.2 (67.9)
Provision for income taxes 3.4 4.1 (12.6)
------------------------------------------
Earnings from continuing operations (0.0)% 7.2% (99.5)%
==========================================
Nine Months Ended December 30, 2000 Compared to Nine Months Ended December
25, 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- -----------------------------------------------------
United States $ 68,761 $ 66,386 3.6 3.6
International 147,401 141,708 4.0 0.7
-------------------------------------------------
Net revenues $216,162 $208,094 3.9 1.6
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- -----------------------------------------------------
Disposables $195,851 $188,789 3.7 0.8
Misc. & service 11,409 8,561 33.2 41.4
Equipment 8,902 10,744 (17.1) (14.2)
-------------------------------------------------
Net revenues $216,162 $208,094 3.9 1.6
Percent Increase / (Decrease)
-----------------------------
Disposables Actual dollars At constant
by product line: 2000 1999 as reported currency
- --------------- -----------------------------------------------------
Surgical $ 45,536 $ 43,633 4.4 5.0
Blood bank* 86,769 82,128 5.7 1.5
Plasma 63,546 63,028 0.8 (2.4)
-------------------------------------------------
Disposable revenues $195,851 $188,789 3.7 0.8
<FN>
* Includes red cell disposables
</FN>
Net Revenues
Net revenues in fiscal 2001 increased 3.9% to $216.2 million from
$208.1 million in fiscal 2000. With currency rates held constant, net
revenues increased 1.6%.
Disposable sales increased 3.7% year over year at actual rates. With
currency rates held constant, disposable sales increased 0.8%. Year over
year constant currency disposable sales growth for the nine months was a
result of growth in worldwide Red Cell sales (which is included in Blood
Bank and was up 30.7%) and worldwide Surgical sales (up 5.0%) which were
offset by a decrease in worldwide Plasma sales (down 2.4%). The increase in
worldwide Red Cell sales is attributable to volume increases in both the US
and Europe as the rollout of this new technology in these markets continues
to gain strength. The growth in the worldwide surgical disposable sales is
mainly attributed to volume increase and the mix effect of products sold in
the US, Asia and Japan markets. The Company views the increasing prices of
red cells around the world, and the favorable autotransfusion economics its
Surgical product offerings deliver, as factors contributing to the volume
increases.
The decrease in Plasma sales is attributable most significantly to
volume decreases due to reduced demand resulting from various market
factors in the U.S., Japan, Asia and Europe.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 90% and 91% of net
revenues for the nine months of fiscal 2001 and fiscal 2000, respectively.
Service generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 5.4% and 3.9% of the Company's net
revenues, at constant currency, for fiscal 2001 and 2000, respectively.
Equipment revenues decreased 17.1% from $10.7 million in fiscal 2000
at actual rates and decreased 14.2% year over year with currency rates held
constant. The 14.2% decrease was a result of lower equipment revenues in
the blood bank, surgical and plasma product lines, mainly in the U.S. and
in Asia due to a large non-recurring equipment sale in the prior year. The
overall decrease in revenue recognized on equipment shipments represents a
continuing trend of customer preference for, and the Company's policy of,
moving toward placing on loan Company-owned equipment versus selling it
under long-term, sales-type leases. Reasons for customer preference vary
significantly but included the customers' preference to be relieved from
certain risks of ownership, particularly the equipment's economic useful
life and technological feasibility. From the Company's point of view,
placing company owned equipment versus selling it, allows the Company to
better track the location and the utilization of the equipment.
International sales as reported accounted for approximately 68.2% and
68.1% of net revenues for fiscal 2001 and 2000, respectively. As in the US,
the sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic
conditions, the impact of competitive products and pricing and changes in
health care policy.
Gross profit
Gross profit of $105.8 million in fiscal 2001 increased $8.2 million
from $97.6 million in fiscal 2000. With currency rates held constant, gross
profit increased by 1.0%, or $1.0 million, but decreased as a percentage of
sales by 0.3%. The $1.0 million constant currency gross profit increase
from fiscal 2000 was a result of higher sales and cost savings of
approximately $1.8 million from the Company's CORE Program, which were
partially offset by higher other product costs. The $1.8 million in savings
for the nine months ended December 30, 2000, resulted primarily from
savings in material costs as a result of redesigning the way products are
made to use less material and by negotiating lower material prices with
vendors.
Expenses
The Company expended $13.6 million (6.3% of net revenues) on research
and development for the first nine months of fiscal 2001 and $11.2 million
(5.4% of net revenues) for the same period in fiscal 2000. With currency
rates held constant, research and development spending increased by 21.5%,
or $2.4 million from fiscal 2000 to 2001. The increase in research and
development spending is a result of the Company's objective to reinvest
available funds into new product development in order to fuel future top
line growth.
Selling, general and administrative expenses increased $2.8 million
from $61.8 million in fiscal 2000. At constant currency rates, selling,
general and administrative expenses increased $2.7 million from fiscal 2000
to 2001 and increased 0.7% as a percent of sales year over year. Offsetting
increases in spending related to the Company's new product selling and
marketing activities, were cost savings of approximately $0.6 million from
the Company's CORE Program. The $0.6 million savings for the nine months
ended December 30, 2000 was due to reductions in distribution related
selling, general and administrative expenses. More specifically, the
distribution savings were generated by lowering freight costs with the move
of Company's European distribution center from the Netherlands to Germany.
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition of Transfusion Technologies Corporation
a) In Process Research and Development (IPR&D)
Upon consummation of the Transfusion Technologies acquisition in the
second quarter of fiscal 2001, the Company incurred a charge of $18.6
million representing the value of the research and development projects.
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations. (See Notes 10 and 11 in the
unaudited condensed consolidated financial statements for further
discussion of the acquisition and IPR&D charges.)
An independent valuation was performed to assess and allocate a value
to the purchased IPR&D. The value represents the estimated fair market
value based on risk-adjusted future cash flows generated by the products
employing the in-process projects over a ten-year period. Estimated future
after-tax cash flows for each product were based on Transfusion
Technologies' and Haemonetics' estimates of revenue, operating expenses,
income taxes, and charges for the use of contributory assets. Additionally,
these cash flows were adjusted to compensate for the existence of any core
technology and development efforts that were to be completed post-
acquisition.
Revenues were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, and the
estimated life of each product's underlying technology. Estimated operating
expenses include cost of goods sold, selling, general and administrative,
and research and development ("R&D") expenses The estimated R&D expenses
include only those costs needed to maintain the products once they have
been introduced into the market. Operating expense estimates were
consistent with expense levels for similar products.
The discount rates used to calculate the present-value of the
projected cash flows were based on a weighted average cost of capital
relative to Transfusion Technologies and it's industry adjusted for the
product-specific risk associated with the purchased IPR&D projects.
Product-specific risk includes such factors as: the stage of completion of
each project, the complexity of the development work completed to date, the
likelihood of achieving technological feasibility, and market acceptance.
The forecast data employed in the valuation were based upon
projections created by Transfusion Technologies' management and Haemonetics
management's estimate of the future performance of the business. The inputs
used in valuing the purchased IPR&D were based on assumptions that
management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events or circumstances will not
occur. Accordingly, actual results may vary from the forecasted results.
While management believes that all of the development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results, may
result in a material adverse effect on Haemonetics' financial condition and
results of operations.
Haemonetics plans to use its existing cash to develop the in-process
technologies related to the Transfusion Technologies acquisition into
commercially viable products. This primarily consists of the completion of
planning, designing, prototyping, manufacturing verification and testing
activities that are necessary to establish that a product can be produced
to meet its design specifications including functions and technical
performance requirements. Bringing the in-process technology to market also
includes completion of clinical trials, submission of a 510K to the Food
and Drug Administration ("FDA") and subsequent approval of the 510K by the
FDA. The approval process timeframe can be lengthy and difficult to
estimate.
A description of the IPR&D projects and the status of them is
discussed below.
Chairside Separator ("CSS"). The CSS is a portable, automated device
used for the donor-side collection and processing of a single unit of whole
blood into a unit of red cell concentrate and plasma. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95 percent complete and that product sales would
commence by the fourth quarter 2001. The IPR&D value assigned to the CSS
was $17.6 million. A discount rate of 33 percent was employed in the
analysis.
As of the third quarter ending December 30, 2000, the Company
estimates that the CSS project is 98% complete with only a clinical safety
study remaining to be done prior to submission of the 510K to the FDA,
which is anticipated in June 2001. Product sales will commence upon
approval by the FDA which could be one year, or greater, from submission
date. The estimated cost of the final clinical trials of $150,000 will be
incurred in the fourth quarter of fiscal 2001 and the first quarter of
fiscal 2002.
Red Cell Collector ("RCC"). The RCC is a portable, automated device
used for the collection and processing of two units of red blood cells from
donors. The system collects and automatically anticoagulates the whole
blood while separating it into red blood cells and plasma. The plasma and
500ml of saline is then re-infused back to the donor. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the RCC project was 65 percent complete and that product sales would
commence by the beginning of fiscal 2004. The IPR&D value assigned to the
RCC was $3.9 million. A discount rate of 33 percent was employed in the
analysis.
As of the third quarter ending December 30, 2000, the Company's
estimate of percent completion remained unchanged from prior estimates. As
such, the expected date that product sales will commence may shift slightly
further into fiscal 2004. All other estimates for cost of sales, S, G&A
costs and income tax rates relative to the RCC project are unchanged with
the exception of timing. Significant design, software programming,
disposable set development and sourcing requirements are still to be
completed. In addition, clinical trials will be conducted prior to
submission of a 510K to the FDA. The estimated cost to be incurred to
develop the purchased in-process RCC technology into a commercially viable
product is approximately $0.4 million in fiscal 2001, $1.8million in fiscal
2002, $1.9million in fiscal 2003 and $2.5 million in fiscal 2004.
b) Other Unusual Charges Relating to the Acquisition
Unusual charges expensed in fiscal year 2001, in the nine months
ended December 30, 2000 as a result of the acquisition of Transfusion
Technologies amounted to $4.6 million and included $2.8 million in bonuses
paid to key Transfusion Executives hired by Haemonetics and severance to
employees laid off due to overlaps created by the merger, a $0.5 million
write-off of an investment in fluid warming technology which Haemonetics
decided not to pursue in lieu of the technologies acquired in the merger,
and the adjustment required to modify the 19.8% investment of Transfusion
by Haemonetics in November of fiscal year 2000 from the cost method to the
equity method of accounting as required by generally accepted accounting
principles. To effect this change, the historic cost of the 19.8%
investment made by Haemonetics' was written down by its 19.8% share of the
monthly losses incurred by Transfusion Technologies from November of fiscal
year 2000. For fiscal year 2001, the charge to the statement of operations
related to this cost to equity adjustment was $1.3 million for the nine
months ended December 30, 2000. The adjustment related to prior year was
$0.3 million for the nine months ended December 25, 1999.
Operating Income
Operating income for the nine months, as a percentage of net
revenues, decreased 8.3 percentage points to 2.0% in fiscal 2001 from 10.3%
in fiscal 2000. At constant currency rates, operating income decreased
100.3% from fiscal 2000 or by $24.1 million. The $24.1 million decrease in
operating income resulted largely from the $20.0.million year over year
increase in combined IPR&D and other unusual items related to the
acquisition of Transfusion Technologies as well as $4.0 million combined
increases in operating expenses for investments in R&D and new product
selling and marketing programs.
Foreign Exchange
The Company generates greater than two-thirds of its revenues outside
the U.S. in foreign currencies. As such, the Company uses a combination of
business and financial tools comprised of various natural hedges,
(offsetting exposures from local production costs and operating expenses),
and forward contracts to hedge its balance sheet and P&L exposures. Hedging
through the use of forward contracts does not eliminate the volatility of
foreign exchange rates, but because the Company generally enters into
forward contracts one year out, rates are fixed for a one-year period,
thereby facilitating financial planning and resource allocation.
The Company computes a composite rate index for purposes of
measuring, comparatively, the change in foreign currency hedge spot rates
from the hedge spot rates of the corresponding period in the prior year.
The relative value of currencies in the index corresponds to the value of
sales in those currencies. The composite was set at 1.00 based upon the
weighted rates at March 31, 1997.
For fiscal year 2000 and 2001, the indexed hedge rates were 3.9% less
favorable and 9.1% more favorable than the respective prior years. For the
first three quarters of fiscal 2001, the indexed hedge spot rates
appreciated 5.4%, 8.2%, and 12.9%, respectively and for the first two
quarters of fiscal 2002, the indexed hedge spot rates appreciated 5.2% and
3.3%, respectively, and depreciated 8.6% for the third quarter over the
corresponding quarters of the preceding years. These indexed hedge rates
represent the change in spot value (value on the day the hedge contract is
undertaken) of the Haemonetics specific hedge rate index. These indexed
hedge rates impact sales, cost of sales and SG&A in the Company's financial
statements.
The final impact of currency fluctuations on the results of
operations is dependent on the local currency amounts hedged and the actual
local currency results.
Composite Index Favorable / (Unfavorable)
Hedge Spot Rates Change vs Prior Year
---------------------------------------------
FY1999 Q1 0.98 (9.4%)
Q2 1.06 (13.4%)
Q3 1.03 (5.9%)
Q4 1.05 (7.4%)
1999 Total 1.03 (9.1%)
FY2000 Q1 1.10 (10.8%)
Q2 1.09 (2.8%)
Q3 1.04 (0.6%)
Q4 1.07 (1.0%)
2000 Total 1.07 (3.9%)
FY2001 Q1 1.04 5.4%
Q2 1.00 8.2%
Q3 0.92 12.9%
Q4 0.97 10.2%
2001 Total 0.98 9.1%
FY2002 Q1 0.99 5.2%
Q2 0.97 3.3%
Q3 1.01 (8.6%)
Other Income and Expense
Interest expense decreased $0.6 million from fiscal 2000 to fiscal
2001 due to a reduction in the average outstanding borrowings and lower
interest rates. Interest income decreased $0.4 million for the nine months
of fiscal 2001 compared to fiscal 2000. Other income net increased $1.0
million due to increases in income earned from points on forward contracts,
which was partially offset by an increase in foreign exchange transaction
losses. Points on forward contracts are amounts, either paid or earned,
based on the interest rate differential between two foreign currencies in a
forward hedge contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% during the first nine months of fiscal year 2000 before the effect of
the Transfusion Technologies acquisition and 27.0% cumulatively for the
first nine months of fiscal year 2001. The 25.7% rate in the third quarter
of fiscal year 2001 reflects a year to date adjustment decreasing the
Company's year to date tax provision from 28% to 27%. The decrease in the
effective tax rate from 32% for fiscal year 2000 to 27% for fiscal year
2001 was primarily attributable to an increase in export benefits generated
by the Company's Foreign Sales Corporation, benefits associated with
repatriating of funds, and modifying the geographic distribution of income.
The Company expects its tax rate for its next fiscal year to be
approximately 28%.
RESULTS OF DISCONTINUED OPERATIONS (BLOOD BANK MANAGEMENT SERVICES, "BBMS")
Accounting for the divestiture of all BBMS centers effective May
1999, was completed during the second quarter of 1999 with the recovery of
the excess reserve amounting to $144,000 (net of $68,000 of taxes).
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's need for funds
is derived primarily from capital expenditures, acquisitions, new business
development and working capital.
During the nine months ended December 30, 2000, the Company decreased
its cash balances, before the effect of exchange rates, by $2.0 million
from operating, investing and financing activities which represents a
decrease in cash utilization of $7.7 million from the $9.5 million utilized
in the Company's operating, investing and financing activities during the
nine months ended December 25, 1999.
Operating Activities:
The Company generated $34.2 million in cash from operating activities
of continuing operations for the nine months in fiscal year 2001 as
compared to $29.0 million generated during fiscal 2000. The $5.2 million
increase in operating cash flow generated from continuing operations from
fiscal year 2000 to fiscal year 2001 was a result of $7.8 million in
additional funds generated by various working capital activities and
operating assets and liabilities, offset by $2.6 million less cash
generated by net income adjusted for non-cash items. Specifically, the $7.8
million in additional cash generated resulted from targeted reductions in
inventory levels and decreases in the investment in accounts receivable.
Increases in prepaid income taxes and decreases in accounts payable,
accrued expenses and other current liabilities nine months to nine months
utilized cash, partially offsetting the funds generated by inventory and
accounts receivable.
The Company measures its performance using an operating cash flow
metric defined as net income adjusted for depreciation, amortization and
other non-cash items; capital expenditures for property, plant and
equipment together with the investment in Haemonetics equipment at customer
sites, including sales-type leases; and the change in operating working
capital, including change in accounts receivable, inventory, accounts
payable and accrued expenses, excluding tax accounts and the effects of
currency translation. This alternative measure of operating cash flows is
a non-GAAP measure that may not be comparable to similarly titled measures
reported by other companies. It is intended to assist readers of the report
who employ "free cash flow" and similar measures that do not include tax
assets and liabilities, equity investments and other sources and uses that
are outside the day-to-day activities of a Company.
As measured by the Company's operating cash flow metric, the Company
generated $33.8 million and $25.5 million of operating cash during the nine
months ended December 30, 2000 and December 25, 1999, respectively. The
$33.8 million of operating cash generated for the nine months ended
December 30, 2000 was calculated excluding the $26.6 of cash spent to
acquire Transfusion Technologies. The $33.8 of operating cash flow resulted
from $25.3 million of net income adjusted for non-cash items, $3.0 million
from reduced working capital investment, primarily due to lower inventories
partly offset by higher accounts receivable and lower accrued payables and
payroll, and $11.5 million from the reduction of the Company's net
investment in property, plant and equipment and sales-type leases. The
$25.5 million of operating cash generated for the nine months ended
December 25, 1999 resulted from $19.3 million of net income adjusted for
non-cash items, a $(6.7) million in higher working capital investment, due
mainly to increased accounts receivable, and $12.9 million from the
reduction of the Company's net investment in property, plant and equipment
and sales-type leases. Non-cash transfers from inventory to property, plant
and equipment have been excluded for purposes of this calculation and
amounted to approximately $5.3 million and $4.7 million in the nine-month
periods for fiscal 2001 and 2000, respectively.
During fiscal 2000, the Company's discontinued operations utilized
$4.9 million in operating cash flows stemming from working capital changes.
Investing Activities
The Company utilized $32.1 million in cash for investing activities
from continuing operations in fiscal year 2001, an increase of $5.3 million
from fiscal year 2000. In fiscal year 2001, the Company acquired the
remaining 80.2% of Transfusion Technologies utilizing $26.6 million of
cash, an increase of $11.6 million from the fiscal year 2000 purchase of
the 19.8% of Transfusion Technologies. This cash utilization was partially
offset by a decrease in capital expenditures for fiscal year 2001 of $6.9
million, net of retirements and disposals.
At the time of the acquisition, the Company estimated that the cash
and non-cash costs of restructuring, integrating and consolidating the
operations of Haemonetics and Transfusion Technologies over a six month
period would be approximately $1.5 million, net of tax of $0.6 million,
which is charged to income as incurred. Further, the Company expects the
cash outlays to be financed by internally generated cash flows. These
estimates remain largely unchanged at December 30, 2000.
During fiscal year 2000, the Company's discontinued operations
provided $3.6 million in operating cash flows as a result of the sale of
capital assets relative to the dissolution of the discontinued operations.
Financing Activities:
During the nine months ended December 30, 2000, the Company utilized
$6.3 million less cash as a result of its financing activities than during
the nine months ended December 25,1999. During fiscal 2001, the Company
refinanced its Braintree headquarters real estate mortgage and paid down
$7.0 million in Japanese short-term debt. During the nine months ended
December 25, 1999, the Company increased Japanese short-term borrowings by
$18.0 million. This increase in cash utilized year over year relative to
debt pay down was partially offset by the fact that the Company repurchased
fewer shares for its treasury during fiscal 2001 as compared to fiscal
2000, representing a $24.7 million offset to increases in cash used in
financing activities.
At December 30, 2000, the Company had working capital of $130.9
million. This reflects an increase of $9.5 million in working capital for
the nine months ended December 30, 2000. The Company has received a $10.0
million mortgage secured by the company owned headquarters and
manufacturing facility in Braintree, Massachusetts. The transaction closed
during the third quarter of fiscal year 2001. The funds received from this
transaction will be used for general corporate purposes. The Company
believes all its anticipated sources of cash are adequate to meet its
projected needs.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt in the fourth
quarter of fiscal year 2001. SAB 101 provides additional guidance on the
accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement 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 as amended requires
that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The Company is in
the process of assessing the impact of the implementation of SFAS No. 133
as amended on its financial statements. It expects that the derivative
financial instruments acquired in connection with the Company's hedge
program will qualify for hedge accounting under SFAF No. 133 as amended.
The Company will adopt SFAF No. 133 as amended in the first quarter of
fiscal year 2002.
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.
EURO CURRENCY
Effective January 1, 1999, 11 of the 15 countries in the European
Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain) adopted a single currency known as the
Euro. For the three years following January 1, 1999, these countries will
be allowed to transact business in both the Euro and in their own
currencies at fixed exchange rates. Beginning on July 1, 2002, the Euro
will become the only currency for these 11 countries.
Operations in Europe
The introduction of the Euro will impact the Company's operations.
The Company has 10 subsidiaries located throughout Europe, that generate
one-third of its sales.
State of Readiness
The Company has formed a Euro Steering Committee (the "Committee") to
address all issues related to the Euro. The Committee has prepared a
detailed action plan which covers all effected areas of concern including
information systems, finance, tax, treasury, legal, marketing and human
resources.
As a part of the detailed action plan, a comprehensive questionnaire
was distributed to the Company's European subsidiaries to gain a better
understanding of the impact of the Euro currency in each location. The
responses to the questionnaires were analyzed and specific action plans
were developed for each subsidiary.
Date of conversion
The target date for conversion of the Company's local and corporate
information systems to the Euro is April 1, 2001, which is the first day of
the Company's fiscal year 2002.
Business activities
The introduction of the Euro will likely result in greater
transparency of pricing throughout Europe and make price comparison easier
between countries. It is anticipated that these changes will have little
impact on Haemonetics in the short-term but could result in some long-term
price harmonization. The Company's products are heavily regulated by
organizations specific to each country and as a result, transactions
between countries are infrequent.
Information systems
The Company is continuing a thorough review of the impact of the Euro
conversion on its information systems. The Committee has identified all
effected systems and determined their state of Euro readiness. The Company
understands the technical requirements to adapt information technology and
other systems to accommodate Euro-denominated transactions. Testing of all
local transactional systems is complete with a high success rate. The
Company's customized programs are now being analyzed and completion with
successful testing is expected in the fourth quarter of fiscal year 2001.
The Company believes the cost of adapting these systems is not significant.
Accounting, Finance & Treasury
At the point the Company adopts the Euro, it expects to experience
the benefits of simplified hedging, banking and financial transaction
systems.
The Corporate local currency bank accounts have been consolidated to
a single Euro account. Each subsidiary will maintain bank accounts, which
are capable of processing transactions in both the local currency and the
Euro. The transactions between the local currency accounts and Euro
accounts throughout Europe do not result in any additional expense for the
Company.
Tax
It is expected that some of the European countries will allow costs
related to the introduction of the Euro to be fully deductible.
Additionally, it is anticipated that most countries will allow tax relief
by means of a one-time depreciation or amortization charge related to
assets utilized in the Euro conversion.
Legal
The EU has adopted regulations precluding a party from using the Euro
conversion as the reason for breaching or changing its contractual
obligations, unless the other parties to the contract are in agreement. The
Company is now in the process of identifying any contracts between the
Company and parties outside the USA, which fall under these regulations. At
this point, the Company is not aware of substantial risk related to such
contracts.
The conversion to Euro on April 1, 2001 will result in the conversion
of the share capital of the 6 subsidiaries within the European Monetary
Union (EMU). The Committee has concluded that if the converted share
capital results in uneven amounts, they will be rounded by increasing or
decreasing the share capital.
The Committee has identified the new amounts of the share capital per
the requested minimum capital requirements issued by the EU. The Committee
is currently in the process of coordinating all activities related to these
changes such as meetings of the subsidiary board of directors, shareholder
meetings, changes in by-laws and defining the appropriate accounting
transactions. The Company anticipates that all required changes will be
completed during the fourth quarter of fiscal year 2001. The Company does
not anticipate material exposure resulting from the share capital
conversion.
Human Resources
The Committee has decided not to rewrite the existing employee
contracts in subsidiaries located in the EMU, but rather, to give a letter
to each employee which will form an integrated part of the existing
employee contract. This letter will indicate the salary amount in Euro, as
well as provide general information about the Euro. The effective date of
this letter will be April 1, 2001.
A Euro contact person responsible for organizing regular employee
updates and for communicating the company-wide progress of the Euro
implementation has been identified at each European subsidiary.
Costs
The Company does not believe that the total cost will be significant
or have a material impact on its business, results of operations, financial
position or cash flows.
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 weakens relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time, the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the 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 December 30, 2000, 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 USS@ Unrealized
Currency Local Currency Contract Rate Current Fwd Gain/(Loss) Maturity
- ----------------------------------------------------------------------------------------------------
Euro Equivalent 8,100,000 $1.004 7,182,560 $ 946,070 Jan-Mar 2001
Euro Equivalent 7,500,000 $0.915 6,674,500 $ 185,875 Apr-Jun 2001
Euro Equivalent 6,500,000 $0.942 5,810,200 $ 313,300 Jul-Sept 2001
Euro Equivalent 7,450,000 $0.860 6,659,360 $ (252,205) Oct-Dec 2001
Japanese Yen 1,900,000,000 100.8 per US$ 17,958,885 $ 892,548 Jan-Mar 2001
Japanese Yen 2,000,000,000 101.2 per US$ 19,185,334 $ 568,595 Apr-Jun 2001
Japanese Yen 1,925,000,000 101.2 per US$ 18,747,394 $ 281,345 Jul-Sept 2001
Japanese Yen 1,950,000,000 102.9 per US$ 18,989,525 $ (46,214) Oct-Dec 2001
---------------------------------------------
Total: 101,207,757 $2,889,314
---------------------------------------------
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S.
dollar relative to all other major currencies. In the event of a 10%
strengthening of the U.S. dollar, the change in fair value of all forward
contracts would result in a $8.5 million unrealized gain; whereas a 10%
weakening of the U.S. dollar would result in a $9.5 million unrealized
loss.
Interest Rate Risk
Approximately 98%, 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 December 30, 2000, the fair value of the
Company's long-term debt was approximately $4.3 million higher than the
value of the debt reflected on the Company's financial statements. This
higher fair market is primarily related to the $40.0 million, 7.05% fixed
rate senior notes and the $10.0 million, 8.41% fixed rate mortgage the
Company holds. These notes represent approximately 98% of the Company's
outstanding long-term borrowings at December 30, 2000. At December 25,
1999, the fair value of the Company's long-term debt was approximately $0.4
million higher than the value of the debt reflected on the Company's
financial statements.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at December
30, 2000. The effect was a change in the fair value of the Company's long-
term debt, of approximately $1.9 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On December 14, 2000 the Company held a special meeting of
stockholders. At the meeting, the stockholders approved the
Haemonetics Corporation 2000 Long-Term Incentive Plan. The vote
was as follows:
For 13,191,522 Against 8,253,098 Abstain 1,076,825
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a). Exhibits
The following exhibits will be filed as part of this form 10-Q:
Exhibit 10A Haemonetics Corporation 2000 Long-Term Incentive Plan
Exhibit 10B Braintree, Massachusetts Note and Mortgage
(b). Reports on Form 8-K.
An amended report on Form 8-K was filed on November 22, 2000
reporting under Item 7 financial information regarding the
Acquisition of Transfusion Technologies Corporation.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAEMONETICS CORPORATION
Date: February 8, 2001 By: /s/ James L. Peterson
---------------------
James L. Peterson, President and
Chief Executive Officer
Date: February 8, 2001 By: /s/ Ronald J. Ryan
------------------
Ronald J. Ryan, Sr. Vice
President and Chief Financial Officer,
(Principal Accounting Officer)