2008 Annual Report
Transforming Blood Management
COMPANY PROFILE
For more than 35 years, Haemonetics has been a global leader in blood processing
technology. We have historically marketed Donor Products to blood and plasma
collection centers. Donor products are automated platelet, red cell and plasma
collection systems and related consumables. We have also marketed Patient Products
to the surgical suite for blood loss management for patients. Patient products include
surgical blood salvage (or “autotransfusion”) systems and related consumables.
But today, Haemonetics is providing more than just devices and consumables to our
customers. Our product portfolio of devices and consumables, information
technology platforms, and consulting services delivers a suite of business solutions
for blood management.
Healthcare systems around the world want to ensure the best patient care at optimal
cost. Blood management is often critical to ensuring best patient care and begins
when the doctor determines if a patient will need a blood transfusion, and, if so, the
best transfusion option for that patient. Eff ective blood management systems 1) help
hospitals improve patient care while operating effi ciently and 2) help blood collectors
ensure that the right blood is available at the right time for the right patient.
Haemonetics provides customers with the tools necessary to understand the demand
for blood, optimize scarce blood resources, ensure regulatory compliance and a safe
blood supply, and improve operational effi ciency.
And we have proven experience. Today, within the plasma industry, Haemonetics is
providing business solutions for the plasma supply chain. We off er products and
information technology platforms that help our customers manage processes from the
time a plasma donor enters the collection facility to when the end-product
biopharmaceutical is given to the patient. We will leverage this expertise to strengthen
our blood management solutions off erings for the blood supply chain.
Haemonetics’ reputation for product innovation, technical expertise, and operational
excellence gives us a highly defensible position in our traditional markets. By focusing
on providing more value to our customers’ critical initiatives, we are expanding into a
broader, diversifi ed blood management solutions company.
Haemonetics is publicly traded as HAE on the New York Stock Exchange. We
employ more than 1,800 people in 16 countries and market in over 50 countries.
About 85% of revenues come from single-use consumables used exclusively with
our devices. Almost half our revenues are derived from the Americas. Th e balance is
derived nearly equally from Europe and Asia.
5 Year Compounded
Growth Rates
e
u
n
e
v
e
R
t
i
f
o
r
P
s
s
o
r
G
e
m
o
c
n
I
g
n
i
t
a
r
e
p
O
e
r
a
h
S
r
e
P
i
s
g
n
n
r
a
E
Gross Margin
Growth
2003
2008
Operating Margin
Growth
2003
2008
30 %
20 %
10 %
0 %
56 %
52 %
48 %
44 %
40 %
16 %
12 %
8 %
4 %
0 %
Our Vision:
Haemonetics is the global leader in
blood management solutions for our customers.
Fiscal 2008
Product Line Revenue
Equipment
$33 M
IT/Services
$39 M
Plasma
$155 M
Patient
Surg/Diagnostic $72 M
OrthoPAT $34 M
Donor
Platelet $136 M
Red Cell $46 M
Percent
Change
15%
13%
1%
15%
10%
7%
11%
2008*
2007*
2006*
2005
2004
2003
$516
$450
$420
$384
$364
$337
258
24
181
77
$56
227
24
158
70
$53
221
27
148
73
$52
198
20
138
60
$40
174
17
126
47
$29
155
20
117
37
$28
$2.10
$1.90
$1.90
$1.52
$1.19
$1.13
78
134
12
84
229
29
86
251
39
71
186
46
77
118
58
47
50
71
Financial Highlights
$ in millions, except per share data
Net revenues
Gross profit
R&D expenses
Operating expenses
Operating income
Net income
Net income per share (diluted)
Cash flow from operations
Cash and short-term investments
Debt
*Adjusted to exclude certain benefits and expenses; results are reconciled to U.S. GAAP on the Company's website.
Table of Contents
2 – Shareholder Letter
8 – Blood Supply
6 – Blood Demand
10 – Leadership
1
2
TO OUR SHAREHOLDERS
In the past year, global capital markets have seen increased volatility. Economies are under
pressure. Th e U.S. banking and real estate markets have been in turmoil. But the healthcare
industry remains positive as healthcare providers identify new ways to provide high quality
patient care at reduced cost and to meet the stringent regulatory guidelines of healthcare
delivery on a global basis. Technology continues to provide rapid advancements in the
practice of medicine. Emerging economies are focusing resources on improved patient care.
All of these factors bode well for your Company.
Five years ago, we began a journey to strengthen your Company’s position as an innovator in
healthcare. We identifi ed two objectives on which we continue to focus. Our fi rst objective is to
create a company that puts shareholders’ interests in clear focus and then execute on strategies
to deliver and sustain shareholder value. Our second objective is to expand on our mission to
meet the changing needs of the transfusion industry.
To meet these objectives, we developed and implemented two fundamental strategies. Th e
fi rst strategy is to leverage the core business to improve profi tability. Th e second strategy is
to expand the business by leveraging our three core competencies.
I am very pleased with the consistency of your management team’s execution to those
two strategies. During the last fi ve years, your team’s leadership has produced outstanding
results. Our fi ve year compounded annual growth rate for revenues is 9%. Our fi ve year
compounded annual growth rate for adjusted operating income is 23%. In fi ve years, our
gross margins have improved from 46% to over 50% and adjusted operating margin has
improved from 11% to 15%. Haemonetics’ market capitalization has increased more
than $1 billion during this time. The consistency of your team’s implementation of
strategy #1, leveraging the core business to improve profi tability, has been a hallmark of
outstanding performance.
We’ve also done a good job executing to strategy #2, expanding our business. During the last
fi ve years, we have completed fi ve acquisitions that built out our product portfolio
substantially. These include the SmartSuction® product line; Arryx and its research
capabilities; Infonalé hospital transfusion consulting services; Information Data Management,
Brad Nutter
Chairman and CEO
New products contributed about
7 percent of incremental
revenue growth
We made two strategic acquisitions that
provide outstanding growth opportunities
information technology platforms for the blood bank; and, most recently, the
TEG® Thrombelastograph® Hemostasis Analyzer business. Today, your
Company has the broadest array of products, information technology platforms
and services of any blood company in the world. Recall that only fi ve years ago,
we were a $337 million company participating in a $900 million market.
Today, we are a $516 million company competing in a much broader global
market that has market potential exceeding $2 billion with our existing portfolio.
In a sea of volatility, the steady progress of sustaining shareholder value has
been achieved. I am pleased to report that fi scal 2008 was another year of
outstanding performance regarding execution of our strategies, and, therefore,
creating shareholder value. Yet, your management team is not satisfi ed. We have
much more to do. So let me share with you the accomplishments of fi scal 2008,
and then articulate a vision for your Company’s future.
FISCAL 08 HIGHLIGHTS:
>
>
>
>
For the fi rst time in more than fi ve years, revenues, operating income and earnings-per-share
all grew double digits simultaneously. In fact, with 15% revenue growth, we saw double digit
revenue growth for the fi rst time since 1994. Even excluding the impact of acquisitions and
foreign exchange, revenues grew almost 10%.
We positioned the company well for long term growth in the plasma business by adding
contracts with Haema AG and Octapharma Europe and by placing more than 2,300 new
plasma devices in the marketplace. Once fully operational, every 2,000 devices contribute
$26 million in annual sales, so our future is very bright in commercial plasma. Today, our
plasma business is our largest business with $155 million in disposable sales. Global sales
grew 22% over prior year.
Our OrthoPAT® and red cell businesses both grew solid double digits. Today, the OrthoPAT
business is a $34 million business and the Red Cell product is a $46 million business. Device
placements and market demands continue to give us a positive outlook for these product lines.
Our Software and Services business, a $39 million business, grew 17% over prior year. We
are clearly utilizing our information technology capabilities to help our customers identify
operational effi ciencies and reduce costs while improving our value proposition and driving
incremental growth for Haemonetics.
3
4
>
>
>
>
>
>
We transformed, or restructured, our operations in Europe, Japan and Asia
during the year. Asia and Europe both grew revenue double digits for the fi rst time
in fi ve years as our transformation eff orts yielded outstanding results.
We continued with the launch of seven new products throughout the year and
new product sales contributed over $4 million of incremental revenue, or about
7 percent of incremental revenue growth.
We made two strategic acquisitions, Infonalé and the TEG business from
Haemoscope. Th e TEG system moves Haemonetics into the diagnostic market.
Both of these organizations provide outstanding growth opportunities and add
strategic value to our portfolio.
We completed Phase I of our ERP transformation. Migrating to one
Oracle-based system for all geographies and sales, service, and fi nancial functions
will support our growth plans for the future. We are on time and on budget
with this critical $35 million project, and Phase II will be completed in the
next 12 months.
We executed a $75 million stock repurchase and invested about $45 million
in acquisitions. We fi nished the year with $134 million in cash and $12 million
in total debt, leaving us with signifi cant cash available for future expansion or
potential stock repurchases.
We continued to strengthen our management team and build upon a strong
succession plan. At no time in your Company’s history has the management
depth and breadth been stronger.
Blood Collection
Donor Center Logistics
While these results are impressive, they are consistent with prior years’ performances.
We continue to focus on serving customers’ needs by diff erentiating Haemonetics
in the marketplace. We have leveraged our three core competencies of service,
manufacturing process management, and innovation to create a company which
provides greater value for our customers. Th e output of these is core competencies
which have created sustained shareholder value.
Transfusion Preparation
Our vision:
> Haemonetics is the global leader in blood
management solutions for our customers <
Point of Care
Hospitals and blood and plasma collectors today operate under stringent regulatory
guidelines, desire to improve operational effi ciency, and want to provide the best patient
care at an optimal cost. Yet as critical as blood is to patient care, there are no centrally
managed blood supply chains (from the blood donor to the patient) nor are there
standardized approaches to patient and hospital blood management. To align our services
with customers’ needs, this year we began to articulate a new vision for Haemonetics. And
that is to be Th e Global Leader in Blood Management Solutions for our customers.
Today, we do not describe ourselves simply as a medical device company.
Haemonetics has repositioned itself beyond a limited niche player in a
limited market. We believe that our products, information technology
platforms, and consulting services combined provide greater value for our
customers than simply selling a good device. Th e acquisitions we have made
and the new products we are launching complement our vision and strengthen
our business solutions portfolio. We now have multiple opportunities to
provide outstanding service to our customers. Th rough this vision, we will
continue to grow market share and expand into new global markets.
We expect that the output of this vision will produce outstanding fi nancial
results and create shareholder value in the future. We also believe that the future can best be
predicted by past performance. Th e consistency of our past performance combined with our core
business strength, new product opportunities, and acquisitions leads us to conclude that the
future is very bright.
Our strategic plan looks over the next fi ve years, and we have high aspirations. We will continue to
focus on our two strategies. As a result, we expect revenues to have a compounded annual growth
rate of 10-12% in the future. We will reinvest into the business to sustain double digit revenue
growth and expect operating income to grow 12-15% on a compounded annual growth rate
over the next five years. To further expand your Company, we are developing premium
technologies that can transform the manual, whole blood collection market and the blood
diagnostic testing market. Th ese products will expand Haemonetics’ market potential from over
$2 billion to over $4 billion.
We believe we can execute to these lofty targets as we leverage our strengths: a well-implemented
strategic plan; the broadest array of products, information technology platforms and services in
our marketplace; strong cash fl ow; and a well disciplined management team.
Let me thank our shareholders for their support during fi scal 2008. Th is was a pivotal year for
growth and a base upon which we can sustain growth well into the future. Let me also thank
Haemonetics’ employees who continue to do an outstanding job of focusing on our customers’
needs and, as a result, delivering the fi nancial results our shareholders expect.
I would also like to thank our Board of Directors, whose guidance and leadership has been
outstanding. I appreciate their confi dence in me and am energized by my new role as Chairman
and its expanded responsibilities. Th is expanded responsibility is part of our succession plans,
and I look forward to serving our shareholders as we guide the Company in implementing our
vision to be Th e Global Leader in Blood Management Solutions for our Customers.
Sincerely,
Brad Nutter
Chairman & CEO
5
6
BLOOD DEMAND
Healthcare providers globally have a universal goal: provide the best patient
care at an optimal cost. But healthcare providers face challenges – including
blood-related challenges – as they strive to meet this goal.
Because of aging worldwide populations and advances in medical treatments, demand
for blood products is increasing. Yet supply is not keeping pace with demand.
Hospitals sometimes cancel or postpone elective surgeries because blood is not
available. And while the blood supply is very safe, there is a growing body of clinical
data linking blood transfusions to complications and adverse reactions, lengthening
hospital stays and increasing hospital costs. Finally, the blood supply chain is
fragmented. Hospitals often do not have robust processes to predict blood demand,
optimize blood resources, or track blood from its source at the blood donor center.
Two years ago, Haemonetics articulated a new vision, to expand beyond niche medical
devices to become the global leader in blood management solutions.
Our definition of blood management is simple:
1. Prevent a blood transfusion to the patient who doesn’t need one, and
2. Provide the right blood product at the right time for the patient who
does need a transfusion.
Th rough internal product development and acquisition, we have signifi cantly expanded
our product off erings to comprise a full suite of business off erings: devices and related
consumables, information technology platforms, and consulting services. Our Patient
Division product portfolio helps hospitals to determine blood demand and individual
patient treatments, and to implement best practices for blood usage.
Patient Division Solutions
Devices
Blood management begins with the patient. Our TEG Th rombelastograph Hemostasis
Analyzer is a diagnostic tool which allows surgeons to determine if a patient will need
a transfusion, permitting the surgeon to choose the best blood-related clinical treatment.
Armed with this information, hospital systems can determine blood demand, plan
more effi ciently, and avoid unnecessary transfusions.
" Haemonetics helped us attach a value to our annual blood
product spending and showed us how to decrease our costs.
With the potential to save over $1,000,000, they developed
new recommendations for our blood management program
that allowed us to avoid unnecessary allogeneic transfusions
and provide the right level of patient care."
Joseph DiPaolo, Atlantic Health
When a surgeon determines that a patient is likely to need a transfusion, the surgeon may prescribe surgical blood salvage as opposed to
a transfusion of donor blood. Our surgical blood salvage systems allow for the recovery, segregation and washing of red cells from blood
lost by a patient during or after surgery, so that the patient’s own blood can be transfused back to the patient if needed. In this way, a
surgical patient receives the safest blood possible, his or her own. Our surgical blood salvage systems include: our Cell Saver® brand
systems for higher blood loss surgeries and trauma; our OrthoPAT brand systems for peri- and post-operative blood salvage in lower,
slower blood loss orthopedic procedures; our cardioPAT® brand system for lower blood loss cardiovascular procedures, including
beating heart surgeries or coronary artery bypass graft (“CABG”) surgeries; and our SmartSuction product which clears blood and
debris from the surgical fi eld in conjunction with surgical blood salvage.
Information Technology
Information technology is critical to managing the fl ow of information required for regulatory compliance, for inventory management,
and for logistics and planning. We currently off er some automated reporting and dashboard capabilities for the hospital. We aim to add
information technology platforms for our Patient customers which are complementary to those provided to our Donor customers,
linking the blood supply chain from donor to patient.
Consulting Services
In July 2007, we acquired Infonalé, a hospital services company focused on peer to peer blood management consulting. Equipped with
a unique database of best practices in transfusion medicine, Haemonetics provides hospitals a baseline view of their blood management
metrics and then monitors and measures improvements resulting from recommended best practice approaches to transfusion therapy and
the avoidance of unnecessary transfusions.
7
8
BLOOD SUPPLY
While donated blood is very safe, surgeons and hospitals avoid transfusing patients
with donated blood because of the risk of transfusion reactions. However, donated
blood is often a critical and life-saving part of patient treatment. Additionally, many
pharmaceutical products are derived from human plasma and significantly enhance
the quality of patients’ lives.
Blood and plasma collectors share the same goal as other healthcare providers: provide
the best patient care at an optimal cost. For blood and plasma collectors, this means
providing the highest quality blood product to the right patient at the right time.
But these groups also face challenges. Th ere is a rising demand for blood for patient
transfusion and for plasma used in pharmaceutical manufacturing. Yet fewer people
are willing or eligible to donate blood. Th e regulatory requirements for blood and
plasma collection become more stringent every year. Testing requirements and costs are
increasing. And while blood and plasma collectors address these challenges, they are
simultaneously trying to improve the economics of their operations.
As with our hospital customers, Haemonetics’ blood management solutions strategy
is aimed at helping customers address their growing demands. Our business solutions
consist of devices and related consumables, information technology platforms, and
consulting services. Our Donor Division product portfolio supports increasing blood
supplies, automating manual business and blood collection processes, and improving
effi ciencies in processes and compliance.
Donor Division Solutions
Devices
Given the shrinking supply of donors, it’s critical to optimize the amount of blood
derived from each donation. Our devices automate the collection and processing of
donated blood. Automation allows customers to collect and process only the blood
component(s) they target – plasma, platelets, or red cells – thereby increasing donor
and patient safety as well as collection effi ciencies. For example, using automation, a
blood collector can obtain two units of red cells from just one donor. Our donor
collection systems include: our PCS®2 brand system for the collection of plasma which
is processed into therapeutic pharmaceuticals; our MCS® brand systems for the
collection of platelets or red cells for patient transfusion; our Cymbal® brand system
for the collection of red cells on mobile blood drives; and our ACP® brand system for
freezing, thawing, and washing of red blood cells.
Information Technology
Information technology is used by blood and plasma collectors to improve the safety, regulatory
compliance and effi ciency of blood collection logistics by eliminating manual functions. Th rough our
Haemonetics Software Solutions division we provide blood and plasma collectors with information
technology platforms and technical support to manage donor recruitment, donor processing, fl oor
operations, and laboratory processing. For plasma customers, we also provide information technology
platforms for managing distribution of plasma to, and within, plasma fractionation facilities. Our information
technology product portfolio includes eQue™ automated interview and assessment, eLynx™ donor fl oor
automation, Symphony blood bank management suite, Surround software, and IT dashboards.
Consulting Services
Th rough our blood bank services group, we off er business solutions to support process excellence, donor
recruitment, and business design. Our Six Sigma, LEAN manufacturing, and InSight Model consulting
services support our customers’ needs for regulatory compliance and operational effi ciency.
With products, information technology platforms, and services, Haemonetics is the only company to
serve customers at both ends of the blood supply chain, from the blood donor to the transfusion
recipient. Our business solutions portfolio is unmatched by our competitors. As we move forward, we will
continue to strengthen our product off erings with a long term goal of providing a full suite of products
that can be used not only as singular, point solutions, but also as integrated systems which support
effi cient operations and link the entire blood supply chain.
50 U.S. blood centers, using a combination of Haemonetics’
business design analysis and automated blood collection
technology, increased type O red cell units by 20%
during summer months
9
10
BOARD OF DIRECTORS
Lawrence Best
Chairman, Oxo Capital LLC
Formerly Executive Vice President and CFO
Boston Scientific
Susan Bartlett Foote
Professor, Division of Health Policy and Management for
the School of Public Health, University of Minnesota
Ronald Gelbman
Lead Director
Formerly Worldwide Chairman of Health Systems and
Diagnostics Group, Johnson and Johnson
Pedro Granadillo
Formerly Senior Vice President, Eli Lilly
Mark Kroll, Ph.D.
Formerly Senior Vice President and Chief Technology
Officer of the Cardiac Rhythm Management Division
St. Jude Medical
Richard Meelia
CEO, Covidien
Ronald Merriman
Formerly Vice Chairman and Managing Partner of
Global Healthcare Business, KPMG
Brad Nutter
Chairman and CEO, Haemonetics
OPERATING COMMITTEE
Peter Allen
Chief Marketing Officer, Global Marketing
and President, Donor Division
Mark Beucler
Vice President and GM, Global Distribution Channel
Brian Concannon
Chief Operating Officer
Janet Conneely
Vice President and GM, Arryx
Remi Corlin
President, Asia Pacific
Robert Ebbeling
Vice President, Technical Operations
Joseph Forish
Vice President, Human Resources
Mikael Gordon
President, Europe
William Granville
Vice President, Worldwide Manufacturing
Keiko Hattori
President, Japan
Christopher Lindop
Chief Financial Officer and Vice President, Business Development
Lisa Lopez
Vice President, Corporate Affairs
James O’Shaughnessy
Vice President and General Counsel
Tony Pare
Vice President and GM, Global Services
Mark Popovsky, M.D.
Vice President and Chief Medical Officer
Stephen Swenson
Vice President and GM, Global Plasma Business
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 2008.
Commission file number 1-10730
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
(State of Incorporation)
400 Wood Road
Braintree, Massachusetts
(Address of principal executive offices)
04-2882273
(I.R.S. Employer Identification No.)
02184-9114
(Zip Code)
Registrant’s telephone number, including area code: (781) 848-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $.01 par value
Name of each exchange
on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes (cid:2) No (cid:3)
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes (cid:3) No (cid:2)
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 (cid:2) No (cid:3)
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. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller
reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:3)
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the
Act) Yes (cid:3) No (cid:2)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant
(assuming for these purposes that all executive officers and Directors are ‘‘affiliates’’ of the Registrant) as of
September 29, 2007, the last business day of the registrant’s most recently completed second fiscal quarter was
$1,159,235,000 (based on the closing sale price of the Registrant’s Common Stock on that date as reported on the New
York Stock Exchange).
The number of shares of the registrant’s common stock, $.01 par value, outstanding as of April 30, 2008 was
25,719,444.
Documents Incorporated By Reference
Portions of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on July 31, 2008,
are incorporated by reference in Part III.
TABLE OF CONTENTS
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(A) General History of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(B) Financial Information about Industry Segments . . . . . . . . . . . . . . . . . . . . . . . . . .
(C) Narrative Description of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(D) Financial Information about Foreign and Domestic Operations and Export Sales .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. Market For The Registrant’s Common Equity, Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
Number
1
1
3
3
14
15
17
17
18
19
21
23
24
48
50
90
90
92
Item 1. Business
(A) General History of the Business
Our Company was founded in 1971 and became publicly owned for the first time in 1979. In 1983,
American Hospital Supply Corporation (‘‘AHS’’) acquired us. When Baxter Travenol Laboratories, Inc.
(‘‘Baxter’’) acquired AHS in 1985, Baxter divested the Haemonetics business to address antitrust
concerns related to the AHS acquisition. As a result, in December 1985, a group of investors that
included E. I. du Pont de Nemours and Company (‘‘Du Pont’’) and present and former Haemonetics
employees purchased us. We were incorporated in Massachusetts in 1985. In May 1991, we completed
an Initial Public Offering.
Historically, we have been a medical device company, a pioneer and market leader in developing
and manufacturing blood processing technology. Our systems help ensure a safe and adequate blood
supply and assist blood banks and hospitals in their efforts to operate efficiently and in compliance with
regulatory requirements. To that end, we have been engaged in manufacturing automated systems and
single use consumables used in blood donation, blood processing, and surgical salvage of blood. We
developed our first automated blood processing system in 1971. Our direct customers are blood and
plasma collectors, hospitals and hospital service providers.
Two years ago, we embarked on a strategy to expand our markets and product portfolio to offer
blood management solutions to our customers. Blood banks, plasma collectors, and hospitals all want to
ensure the best patient care at optimal cost. But each face challenges to improve operational efficiency,
meet stringent regulatory requirements, and offer the highest quality products. As the blood
management company, Haemonetics helps customers address the growing demands on their businesses.
Through internal product development and acquisition, we have significantly expanded our product
offerings. We now market devices and related consumables, information technology platforms, and
consulting services. Our product portfolio helps hospitals determine blood demand and individual
patient treatments, and then implement best practice for blood usage and cost efficiency. For blood and
plasma collectors, our product portfolio supports increasing blood supplies, automating manual business
processes, and improving efficiencies. Over the next several years, we will continue to add to our value
proposition in blood management to ultimately link the blood supply chain from the point of blood and
plasma donation through to the patient point of care.
Based on our broadened product portfolio, we manage the Company as three global product
families: ‘‘Donor’’ markets blood and plasma collection devices, consumables and other business
solutions; ‘‘Patient’’ markets into hospitals surgical blood salvage and blood demand diagnostic devices
and consumables as well as blood management services; and ‘‘Software/Services’’ markets information
technology platforms and consulting services to blood and plasma collectors and hospitals.
Within our product families we offer:
Donor Products and Services
1) Plasma systems: Our PCS(cid:2) brand systems automate the collection of plasma from donors who are
paid a fee for their donation. The collected plasma is then processed into therapeutic
pharmaceuticals.
2) Blood bank systems:
a) Our MCS(cid:2) brand system automates the collection of platelets and other blood components
from volunteer donors. The systems enable the donation of a larger volume of the donor’s
platelets, which are then generally given to cancer patients and others with bleeding disorders.
1
b) Our ACP(cid:2) brand systems automate the process used to freeze, thaw and wash red blood cells.
The ACP systems can also be used to wash other cellular parts from red blood cells units
before transfusion.
c) We also manufacture sterile intravenous solutions for our customers.
3) Red cell systems: Our MCS and Cymbal(cid:2) systems automate the collection of red cells from
volunteer donors. These systems maximize the volume of red cells that can be collected from one
blood donation, thus helping to alleviate blood shortages. The highest sales volume product in the
MCS red cell product line is our double red cell collection technology which allows for two units
of red cells to be collected from one donor. Specialty protocols enabling the simultaneous
collection of a unit of red cells and a unit of plasma or a unit of red cells and a unit of platelets
are also available in various parts of the world.
4)
Services and programs related to blood supply chain efficiency and effectiveness such as LEAN
and Six Sigma consulting as well as InSight a program application supporting blood center
resource allocation and utilization.
Patient Products and Services
1) Blood salvage: Our surgical blood salvage systems allow for the recovery, segregation and washing
of red cells from blood lost by a patient during or after surgery, so that red cells can be made
available to transfuse back to the patient if needed. In this way, a surgical patient can receive
transfusions of the safest blood possible, his or her own. Our surgical blood salvage systems
include:
a) Our Cell Saver(cid:2) brand systems for higher blood loss surgeries and trauma:
b) Our OrthoPAT(cid:2) brand systems for lower, slower blood loss orthopedic procedures; and
c) Our cardioPAT(cid:3) brand system for lower blood loss cardiovascular procedures, like beating
heart surgeries or coronary artery bypass graft (‘‘CABG’’) surgeries. The cardioPAT is our
newest blood salvage system.
2)
Surgical suction: Our SmartSuction product clears blood and debris from the surgical field in
conjunction with surgical blood salvage
3) Blood demand diagnostics: In November 2007, we acquired the TEG(cid:2) Thrombelastograph(cid:2)
Hemostasis Analyzer business from Haemoscope. The TEG system is a diagnostic tool which
allows surgeons to determine if a patient will need a transfusion so the surgeon can then decide
the best blood-related clinical treatment for the individual patient.
4) Blood Management consulting: In July 2007, we acquired Infonale, a hospital services company,
focused on peer to peer blood management consulting primarily in the U.S. Equipped with a
unique database approach, Haemonetics provides hospitals a baseline view of their blood
management metrics and then monitors and measures key improvements associated with
recommended best practice approaches to transfusion therapy and the avoidance of transfusions.
Software and Services
1)
Software: At this time, our software and services business principally provides support to our
plasma and blood collection customers. Our goal in expanding the business is to add
complementary products and services for our Patient Division customers. Through our
Haemonetics Software Solutions division, (formerly 5D(cid:3) Information Management (‘‘5D’’) and
Information Data Management (‘‘IDM’’)), we provide information technology platforms and
technical support for donor recruitment and for efficient and compliant operations of blood and
2
plasma collection centers. For plasma customers, we also provide information technology platforms
for managing back office functions and distribution at plasma fractionation facilities.
2)
Services: Through our services group, we offer business solutions to support process excellence,
donor recruitment, business design, and blood management efforts. For example, we provide Six
Sigma and LEAN manufacturing consulting services to blood banks. We also provide hospital
blood management assessment tools to hospitals through our Infonale subsidiary, acquired in July
2007. Included in our services reporting are equipment repair services under preventive
maintenance contracts or emergency service visits, training programs and spare part sales.
Our principal operations are in the United States, Europe, Japan and other parts of Asia. Our
products are marketed in more than 50 countries around the world via a direct sales force as well as
independent distributors and agents.
In fiscal year 2008, we remained focused on increasing sales of our red cell collection technology
and our software offerings. We also focused on growing business in our U.S. orthopedic market, having
transitioned from a distribution relationship to a direct sales business late in fiscal 2006. We were
successful in retaining a majority of the U.S. business and revenues benefited in the year from
disposable unit growth as we increased penetration at existing customer sites. Additionally, we executed
our plan to supply plasma collection systems to support rapid growth in the U.S. plasma collections
market. We placed approximately 2,300 additional plasma collection systems in the U.S. In the year, we
focused resources on several products launched over the course of fiscal 2006 and fiscal 2007. Finally,
we strengthened our blood management solutions product portfolio through the strategic acquisitions of
the TEG business and Infonale business services.
(B) Financial Information about Industry Segments
Although we address our customer constituents through three global product families (Donor,
Patient and Software/Services), we manage our business as one operating segment: automated blood
processing systems. Our chief operating decision maker uses consolidated financial results to make
operating and strategic decisions. Manufacturing processes, as well as the regulatory environment in
which we operate, are largely the same for all product lines.
The financial information required for the business segment is included herein in Note 16 of the
financial statements, entitled Segment, Geographic and Customer Information.
(C) Narrative Description of the Business
(i) Products and Services
We market a full suite of products, including devices and consumables, information technology
platforms, and consulting services for hospitals and blood collectors to better manage blood supply and
demand. Specifically, we develop and market a variety of automated systems for blood donors and
surgical patients worldwide that collect and process blood. We also market information technology
platforms to promote efficient and compliant operations of blood and plasma collection agencies. And,
we market business services to support best practice in blood management.
All of our blood systems involve the extracorporeal processing of human blood, which is made up
of components including red blood cells, plasma, platelets, and white blood cells. Physicians today
generally treat patients with a transfusion of only the blood component needed, rather than with whole
blood. The different components have different clinical applications. For example, plasma derived
products treat a variety of illnesses and hereditary disorders such as hemophilia; red cells treat trauma
patients or patients undergoing major surgeries involving high blood loss such as open heart surgery or
organ transplant; and platelets treat cancer patients undergoing chemotherapy.
3
With our automated blood collection systems, a blood donation can be targeted to the specific
blood component needed by a blood collector. More of that blood component can be collected during
any one donation event because the blood components not targeted are returned to the donor through
a sterile, closed-circuit disposable set used for the blood donation procedure. (See ‘‘Plasma’’, ‘‘Blood
Bank’’ and ‘‘Red Cell’’ product lines referred to in ‘‘General History of the Business.’’)
With our automated blood processing systems, blood collectors and hospitals can freeze and thaw
red cells so that they can maintain a frozen blood reserve. Blood reserves are often maintained to
enable the blood provider to respond adequately to large-scale emergencies where many people require
blood transfusions or to treat patients who require transfusions of very rare blood types. Our blood
processing systems can also remove plasma from red cells for patients who need specially treated blood.
(See ‘‘ACP’’ product referred to in ‘‘General History of the Business.’’)
Our surgical blood salvage system can collect blood lost by a surgical patient during or after the
surgery, clean it, and make it available for transfusion back to the patient. These systems ensure that
elective surgery will not be cancelled due to lack of available blood, and that a patient receives the
safest blood possible—his or her own. (See ‘‘Cell Saver,’’ ‘‘OrthoPAT,’’ and ‘‘cardioPAT’’ product lines
referred to in ‘‘General History of the Business.’’)
Our surgical suction systems can clear the surgical field of blood and debris to support a safe and
effective operating environment. (See ‘‘SmartSuction’’ product referred to in ‘‘General History of the
Business.’’)
Our TEG Thrombelastograph Hemostasis Analyzer predicts the likelihood a patient will bleed or
clot excessively and analyzes overall blood clotting ability. Armed with this knowledge, surgeons can
plan a patient’s treatment to support the best possible clinical outcome, which can lead to lower
hospital costs through reduced adverse transfusion reactions, shorter ICU and hospital stays, and fewer
needs for exploratory surgery.
We invented the technology that first created the market in plasma, red cell, and platelet collection
as well as in surgical blood salvage. We continue to innovate our product offerings with next generation
technologies.
DONOR FAMILY OF PRODUCTS AND SERVICES
The Plasma Collection Market for Fractionation
Automated plasma collection technology allows for the safe and efficient collection of plasma from
donors who are paid a fee by collection centers for their plasma donation. There are approximately
20 million liters of plasma collected worldwide annually. The plasma collected is further processed
(‘‘fractionated’’) by pharmaceutical companies into therapeutic and diagnostic products that aid in the
treatment of: immune diseases, inherited coagulation disorders (e.g., hemophilia) and blood volume
loss (e.g. from trauma). The collected plasma is also used in the manufacture of vaccines and blood
testing and quality control reagents. Our role in the plasma industry is limited to the supply of plasma
collection and information technology platforms to plasma collectors and fractionators, many of whom
also process the plasma which they collect. Our business does not include the actual collection,
fractionation, or distribution of plasma-derived pharmaceuticals.
Haemonetics’ Automated Plasma Collection Systems (reported as ‘‘plasma’’ product line)
Until automated plasma collection technology was pioneered and introduced by our Company in
the 1980s, plasma for fractionation was collected manually. Manual collection was time-consuming,
labor-intensive, produced relatively poor yields, and posed risk to donors. Currently the vast majority of
plasma collections worldwide are performed using automated collection technology because it is safe
4
and cost-effective. We market our PCS2 automated plasma collection systems to commercial plasma
collectors as well as not-for-profit blood banks and government affiliated plasma collectors worldwide.
We offer ‘‘one stop shopping’’ to our plasma collection customers, enabling them to source from us
the full range of products necessary for their plasma collection operations. To that end, in addition to
providing plasma collection equipment and disposables, we offer plasma collection containers and
intravenous solutions necessary for plasma collection and storage, as well as information technology
platforms through our Haemonetics Software Solutions division to automate plasma collectors’
operations.
The Blood Collection Market for Transfusion
There are millions of blood donations throughout the world every year that produce blood
products for transfusion to surgical, trauma, or chronically ill patients. In the U.S. alone, approximately
15 million units of blood are collected each year.
Patients requiring blood are rarely transfused with whole blood. Instead, a patient typically receives
only the blood component necessary to treat a particular clinical condition: for example, red cells to
surgical or trauma patients, platelets to surgical or cancer patients, and plasma to surgical patients.
Worldwide demand for blood continues to rise as the population ages and more patients have need
for and access to medical therapies that require blood transfusions. Furthermore, highly populated
countries are advancing their healthcare coverage and as greater numbers of people gain access to
more advanced medical treatment additional demand for blood components, plasma derived drugs and
surgical procedures increases directly. At the same time, tighter donor eligibility requirements to
improve blood safety have decreased the number of donors willing or able to donate blood. Thus, this
worldwide market is growing modestly in the low single digits.
Most donations worldwide are non-automated procedures (also referred to as ‘‘manual or whole
blood donations’’). In a manual donation, a person donates about a pint of whole blood, bleeding by
gravity directly into a blood collection bag. After the donation, a laboratory worker manually processes
the blood and separates it into its constituent parts: red cells, platelets and plasma. One pint of whole
blood contains one transfusible dose of red cells, one-half to one transfusible dose of plasma, and
one-fifth to one-eighth transfusible dose of platelets.
We do not sell whole blood collection disposables for the large, non-automated part of the blood
collection market for transfusions. Others supply this market with whole blood collection supplies such
as needles, plastic blood bags, solutions and tubing.
In contrast to manual collections, automated procedures eliminate the need to manually separate
whole blood at a remote laboratory. Instead, the blood separation process is automated and occurs
‘‘real-time’’ while a person is donating blood. In this separation method, only the specific blood
component targeted is collected, and the remaining components are returned to the blood donor.
Among other things, automated blood collection allows significantly more of the targeted blood
component to be collected during a donation event. Importantly, it also allows the blood banker or
plasma operator to collect two transfusable blood components from one donor providing an
optimization opportunity. An automated collection system comprises an electromechanical device which
is fitted for each collection with a single-use, sterile set of chambers and tubing, the latter of which is
commonly referred to as a ‘‘disposable.’’
Today in the U.S., automated collection systems are used annually to collect more than 700,000 red
cell units and about 1 million platelet units (called ‘‘single donor’’ platelets.) One donation from a
single donor can produce enough platelets for a transfusible dose as compared to a pooled platelet that
combines platelet fractions from 5-8 different whole blood donors.
5
Our products address the small part of the blood collection market that uses automation to
enhance blood collection safety and efficiency, as well as regulatory compliance.
Haemonetics’ Automated Red Cell Collection Systems (reported as ‘‘red cell’’ product line)
Automated red cell collection, a technology we created, allows for the safe, efficient collection of
more red cells from a single donor than are collected in a manual, whole blood collection. Most red
cells are derived from manually collected whole blood. This manual procedure involves time-consuming,
error-prone secondary handling and processing in a laboratory. Red cell shortages are a common
problem plaguing many healthcare systems worldwide, particularly those in the U.S.
Our MCS brand systems help blood collectors address their operational challenges. The system
automates the blood separation function, eliminating the need for laboratory processing, and enables
the collection of two transfusible doses of red cells from a single donor thus alleviating blood shortages.
We call this our two unit protocol or double red cell collection.
In addition to the two unit protocol, blood collectors can use the MCS brand system to collect
either one unit of red cells and a ‘‘jumbo’’ (double) unit of plasma or one unit of red cells and one
unit of platelets from a single donor or they may leukoreduce the two-unit red cell collections.
Leukoreduction is the removal of potentially harmful white blood cells from the collected red cells to
prevent or mitigate adverse reactions by the patient who eventually receives the product.
Leukoreduction has been adopted in many countries worldwide, and an estimated 80% of all red cells
in the U.S. are now leukoreduced.
During the most recent fiscal year, blood shortages continued and blood banks continued their
adoption of double red cell collection. Currently approximately 7% of red cells collected in the U.S. are
collected on our technology.
The Cymbal brand red cell collection system is an automated device that collects and processes
two units of red cells from a single donor. The Cymbal system is a second generation red cell collection
system which is smaller, lighter and more portable than previous red cell collection technologies. This
mobility, including battery power, allows our customers to more easily use the device on mobile blood
drives. The system received CE marking in February 2006 and FDA clearance in February 2007. It is
currently sold in Europe and the U.S.
Haemonetics’ Automated Platelet Collection Systems (reported as ‘‘blood bank’’ product line)
Automated platelet collection systems collect one or more therapeutic ‘‘doses’’ of platelets during a
single donation by a volunteer blood donor. Platelets derived from a non-automated donation of whole
blood (also called a manual collection) must be ‘‘pooled’’ together with platelets from 4-7 other manual
donations to make a single therapeutically useful dose because platelets are only a very small portion of
whole blood volume. We invented the automation of platelet collection, resulting in improved platelet
yields and improved patient safety.
Platelet therapy is frequently used to alleviate the effects of bone marrow suppression, a condition
in which bone marrow is unable to produce a sufficient quantity of platelets. Bone marrow suppression
is most commonly a side effect of chemotherapy. Physicians who prescribe platelet therapy increasingly
turn to ‘‘single donor’’ platelet products (i.e., enough platelets collected from one donor, during an
automated collection, to constitute a transfusible dose) to minimize a patient’s exposure to multiple
donors and possible blood-borne diseases.
6
Haemonetics’ Intravenous Solutions (reported as ‘‘blood bank’’ product line)
During an automated blood donation, intravenous solutions and other solutions are used. We
manufacture solutions in our facility in Union, South Carolina.
Automated Blood Cell Processing Systems (reported as ‘‘blood bank’’ product line)
Our cell processing business is based on technology that enables users to add and remove solutions
or other substances to and from blood components. We have several technologies that support this
business.
The most significant technology allows the freezing and thawing of blood to enable blood banks to
better manage their red cell inventory; this allows them to manage collection volumes impacted by
seasonality shifts in supply as well as rare blood demands. Although it has been possible for many years
to freeze red cells for up to ten years, the freezing and thawing processes took place in a manual,
open-circuit system, which exposed red cells to the potential for bacterial contamination. Once the cells
were thawed, they had to be transfused within 24 hours or discarded. The Company’s ACP 215
automated cell processing system extends thawed cells’ shelf life to 14 days by performing the freezing
and thawing processes in an automated, closed-circuit system. We also invented this technology.
LEAN and Six Sigma training services:
Our internal use of these business practice improvement tools spawned the request from our U.S.
customer base to seek our training to their selected staff with the intent to develop expertise in
problem solving and solution creation skills. Multiple week long sessions are scheduled with time
between each session to work the training and advance a real project. Ongoing instruction is provided.
Insight(cid:3) Opportunity Model:
This program supports blood collector management of their operations. It provides data to
quantify the opportunity for increased units, maximize machine utilization for increased ROI and
benchmarking blood center performance.
PATIENT FAMILY OF PRODUCTS AND SERVICES
The Autotransfusion Market
Surgical blood salvage, also known as autotransfusion, involves the collection of a patient’s own
blood during and after surgery, for reinfusion to that patient. In surgical blood salvage, blood is
suctioned from a wound site, processed and washed through a centrifuge-based system which yields
concentrated red cells available for transfusion back to the patient. This process occurs in a sterile,
closed-circuit single-use processing set which is fitted into an electromechanical device. We market our
surgical blood salvage products to hospital-based medical specialists, primarily cardiovascular,
orthopedic, and trauma surgeons or to surgical suite service providers.
Loss of blood is common in open heart, trauma, transplant, vascular, and orthopedic procedures,
and the need for transfusion of oxygen-carrying red cells to make up for lost blood volume is routine.
Prior to the introduction of our technology, patients were transfused with blood from volunteer donors.
Donor blood (also referred to as ‘‘allogeneic blood’’) carries various potential risks including (1) risk of
transfusion with the wrong blood type (the most common cause of transfusion-related death), (2) risk
of transfusion reactions including death, but more commonly chills, fevers or other side effects that can
prolong a patient’s recovery, and (3) risk of transfusion of blood with a blood-borne disease or
infectious agent.
7
As a result of numerous blood safety initiatives, today’s blood transfusions are extremely safe,
especially in developed and resourced health care systems. However, transfusions are not risk free.
Surgical blood salvage reduces or eliminates a patient’s need for blood donated from others and
ensures that the patient receives the safest blood possible—his or her own.
Surgical blood salvage is also a cost effective alternative to transfusing donor blood. Blood
shortages have also reinforced the benefits of surgical blood salvage. As hospitals are forced to consider
canceling elective surgeries due to unavailability of blood, they can turn to surgical blood salvage as a
means of conserving their blood supply for other patients.
Haemonetics’ Surgical Product Line
The Cell Saver brand system is a surgical blood salvage system targeted to procedures that involve
rapid, high volume blood loss such as cardiovascular surgeries. It has become the standard of care for
high blood-loss surgeries. The new cardioPAT system is a surgical blood salvage system targeted to
open heart surgeries when there is less blood loss and the blood loss continues post-surgery. The
system is designed to remain with the patient following surgery to recover blood and produce a washed
red cell product for autotransfusion.
Also included in our surgical product line is the SmartSuction product. This product, an advanced
suction system for removal of blood and debris from the surgical field, was launched in 2006. The
system is used in conjunction with surgical blood salvage.
Haemonetics’ OrthoPAT Product Line
The OrthoPAT system is targeted to orthopedic procedures that involve slower, lower volume
blood loss that often occurs well after surgery. The system is designed to operate both during and after
surgery to recover and wash the patient’s red cells for reinfusion. We have recently introduced the
Quick-Connect OrthoPAT feature which permits customers to utilize the processing set selectively,
depending on the patient’s need.
Haemonetics’ TEG Product Line (reported on the Surgical/Diagnostic line)
In November 2007 we acquired the assets of Haemoscope Corporation, which marketed the TEG(cid:2)
Thromobelastograph(cid:2) Hemostasis Analyzer. The TEG system is used to predict a surgical patient’s
proclivity to either bleed or clot during and after surgery, which helps health care providers plan for
the transfusion of particular blood components or the administration of other therapies. Armed with
this knowledge, surgeons can plan a patient’s treatment to support the best possible clinical outcome,
which can lead to lower hospital costs through reduced adverse transfusion reactions, shorter ICU and
hospital stays, and fewer needs for exploratory surgery. The TEG system is comprised of an
electromechanical device, single use containers and reagents.
Blood Management consulting:
Infonale, a hospital services company, focuses on peer to peer blood management consulting
primarily in the U.S. Equipped with a unique database approach Haemonetics provides hospitals a
baseline view of their blood management metrics and then monitors and measures key improvements
associated with recommended best practice approaches to transfusion therapy and the avoidance of
transfusions.
SOFTWARE/SERVICES
Our Haemonetics Software Solutions division (‘‘HHS’’) offers a range of software products that
enable blood banks and plasma collection centers to automate their operations and comply with
8
regulatory requirements. Its principal products include eQue(cid:3) Automated Interview and Assessment, a
donor registration and assessment tool to assist blood banks and plasma centers in determining a
person’s eligibility to donate blood; eLynx(cid:3) Donor Floor Automation, LOGIC(cid:3) and DMS(cid:3) software
for managing inventories of collected blood product inventories; and Symphony(cid:3) software which
automates blood bank operations. We also offer our customers maintenance and repair service
programs related to our equipment.
(ii) Revenue Detail
We discuss our revenues using the following categories:
(cid:129) Disposables (including the sale of single-use collection sets for blood component collection and
processing and surgical blood salvage, plus the fees for the use of our equipment);
(cid:129) Equipment (the sale of devices);
(cid:129) Software and Service (including HHS software systems and equipment service contracts).
In fiscal year 2008, sales of disposable products accounted for approximately 86.0% of net
revenues. Sales of our disposable products were 12.8% higher in 2008 than in 2007 and grew at a
compound average annual growth rate of 6.69% for the four years ended March 29, 2008. The
favorable effects of foreign exchange contributed 2.0% of the increase in net sales during fiscal year
2008 with the remaining 10.8% increase resulting from increases in disposable revenues across our
plasma, red cell, blood bank and OrthoPAT product lines due to unit increases and pricing
improvements.
Sales of equipment accounted for approximately 6.4% of net revenues in fiscal 2008 and
approximately 4.9% of net revenues in fiscal year 2007. The increase in equipment revenue during
fiscal year 2008 is attributable to high sales of our plasma equipment in Europe, red cell equipment in
the U.S., and platelet equipment in Asia. Equipment sales are opportunistic and fluctuate on an annual
basis.
Software and Service revenues accounted for approximately 7.6% and 7.5% of net revenues in
fiscal 2008 and 2007, respectively. The increase during fiscal year 2008 was largely due to software
revenue growth resulting from the acquisition of IDM in January 2007 and from a software support
contract for a branch of the United States military.
(iii) Marketing/Sales/Distribution
We market and sell our products to commercial plasma collection centers, blood systems and
independent blood banks, hospitals and hospital service providers, and national health organizations
through our own direct sales force (including full-time sales representatives and clinical specialists) as
well as independent distributors. Sales representatives target the primary decision-makers within each
of those organizations.
In fiscal 2008, for the eighth consecutive year, we received the Omega NorthFace ScoreBoard
Award for exemplary service to customers. This award is presented to the highest-ranked organizations
based on customer ratings of performance against customer expectations in areas such as phone
support, on-site operations, technical services, and training.
(iv) United States
In fiscal 2008, approximately 45% of consolidated net revenues were generated in the U.S., where
we use a direct sales force to sell our products.
9
(v) Outside the United States
In fiscal 2008, approximately 55% of consolidated net revenues were generated through sales to
non-U.S. customers. Our direct sales force in Europe and Asia includes full-time sales representatives
and clinical specialists based in the United Kingdom, Germany, France, Sweden, the Netherlands, Italy,
Austria, Hong Kong, Canada, Japan, Switzerland, Czech Republic, China Taiwan, and Belgium. We also
use various distributors to market our products in parts of: Europe, including Russia, South America,
the Middle East, Africa, and the Far East.
(vi) Research, Development and Engineering
We operate research, development and engineering (‘‘RD&E’’) centers in Switzerland and the
United States, so that protocol variations are incorporated to closely match local customer
requirements. In addition to the above RD&E facilities, our Haemonetics Software Solutions subsidiary
maintains development operations in Edmonton, Alberta, Canada and Chicago, IL, USA; our Arryx
subsidiary maintains research laboratories in Chicago, IL, USA and our TEG business maintains
research laboratories in Niles, IL, USA.
Customer collaboration is also an important part of our technical strength and competitive
advantage. These collaboration customers and transfusion experts provide us with ideas for new
products and applications, enhanced protocols, and potential test sites as well as objective evaluations
and expert opinions regarding technical and performance issues.
The development of extracorporeal blood processing systems has required us to maintain technical
expertise in various engineering disciplines, including mechanical, electrical, software, and biomedical
engineering and material science. Innovations resulting from these various engineering efforts enable us
to develop systems that are faster, smaller, and more user-friendly, or that incorporate additional
features important to our customer base.
To further strengthen our research competency; in fiscal 2007, we acquired Arryx, Inc., a privately
held nano-technology company, for $23.2 million in net cash and other consideration. Haemonetics and
Arryx had been collaborating since October 2004 in developing and commercializing proprietary blood
separation and processing technologies. Arryx’s technology uses light to form optical traps to move and
manipulate small objects. Using laser beams and holograms, the systems can independently and in
parallel hold, move, separate, and otherwise manipulate hundreds of microscopic and nanoscopic
objects. Arryx’s first product, the BioRyx 200(cid:2) system, is used to handle cells and other objects in a
laboratory environment. The acquisition is a key component of our strategy to strengthen and diversify
our internal research initiatives and expand the business into new, adjacent markets.
Our expenditures for RD&E were $24.3 million for fiscal 2008 (4.7% of sales), $23.9 million for
fiscal 2007 (5.3% of sales),—exclusive of the Arryx In-process Research and Development costs (see
Footnote #3 Acquisition)—and $26.5 million for fiscal 2006 (6.3% of sales). All RD&E costs are
expensed as incurred. We expect to continue to invest resources in RD&E.
In fiscal year 2008, RD&E resources were allocated to supporting the launch of Cymbal(cid:3), a next
generation, surgical blood salvage device, a blood collection software system (eLynxTM), and a next
generation Donor apheresis platform, as well as several projects to enhance our current product
portfolio. We also allocated resources to our Arryx subsidiary for on-going research into
nanotechnology applications in the blood processing field.
(vii) Manufacturing
Our principal manufacturing operations (equipment, disposables, and solutions) are located in
Braintree, Massachusetts; Leetsdale, Pennsylvania; Union, South Carolina; and Bothwell, Scotland.
10
In general, our production activities occur in a controlled setting or ‘‘clean room’’ environment.
Each step of the manufacturing and assembly process is quality checked, qualified, and validated.
Critical process steps and materials are documented to ensure that every unit is produced consistently
and meets performance requirements.
Some component manufacturing is performed by outside contractors according to our
specifications. We maintain important relationships with two Japanese manufacturers that provide
finished consumables in Singapore, Japan, and Thailand. Certain parts and components are purchased
from various single sources. If necessary, we believe that, in most cases, alternative sources of supply
could be identified and developed within a relatively short period of time. Nevertheless, an interruption
in supply could temporarily interfere with production schedules and affect our operations. All of our
equipment and disposable manufacturing sites are certified to the ISO 13485 standard and to the
Medical Device Directive allowing placement of the CE mark of conformity.
Each blood processing machine is designed in-house and assembled from components that are
either manufactured by us or by others to our specifications. The completed instruments are
programmed, calibrated, and tested to ensure compliance with our 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 and process control requirements. During fiscal
2008, we manufactured approximately 93% of our equipment. The remainder was manufactured for us
by outside contractors.
We have established a Customer Oriented Redesign for Excellence (‘‘CORE’’) program, which is
based on the tenets of Total Quality of Management (‘‘TQM’’) and using Six Sigma Statistic methods.
This program’s goals include: 1) improving customer satisfaction through top quality and on-time
deliveries, 2) lowering production costs, and 3) optimizing inventories.
(viii)
Intellectual Property
We hold patents in the United States and many international jurisdictions on some of our
machines, processes, disposables and related technologies. These patents cover certain elements of our
systems, including protocols employed in our equipment and certain aspects of our processing chambers
and disposables. Our patents may cover current products, products in markets we plan to enter, or
products in markets we plan to license, or the patents may be defensive in that they are directed to
technologies not currently embodied in our current products. We also license patent rights from third
parties that cover technologies that we use or plan to use in our business. We consider our patent
rights to be important to our business. To maintain our competitive position, we rely on the technical
expertise and know-how of our personnel and on our patent rights. We pursue an active and formal
program of invention disclosure and patent application in both the United States and foreign
jurisdictions. We own various trademarks that have been registered in the United States and certain
other countries.
Our policy is to obtain patent and trademark rights in the U.S. and foreign countries where such
rights are available and we believe it is commercially advantageous to do so. However, the standards
for international protection of intellectual property vary widely. We cannot assure that pending patent
and trademark applications will result in issued patents and registered trademarks, that patents issued
to or licensed by us will not be challenged or circumvented by competitors, or that our patents will not
be found to be invalid.
11
(ix) Competition
We created our technologies and have established a record of innovation and market leadership in
each of the areas in which we compete. Although we compete directly with others, no one company
competes with us across our full line of products.
To remain competitive, we must continue to develop and acquire cost-effective new products,
technologies and services. We believe that our ability to maintain a competitive advantage will continue
to depend on a combination of factors, including factors largely within our control (reputation,
regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product
quality, safety and cost effectiveness and continual and rigorous documentation of clinical performance)
as well as factors outside of our control (regulatory standards, medical standards and the practice of
medicine).
In the automated plasma collection markets, we principally compete with Fenwal, Inc. on the basis
of quality, ease of use, services and technical features of systems, and on the long-term
cost-effectiveness of equipment and disposables. (Fenwal, Inc. is an independent company founded in
March 2007 when Texas Pacific Group and Maverick Capital, Ltd. acquired the Transfusion Therapies
division of Baxter Healthcare Group).
In the automated platelet collection business, competition is based on continual performance
improvement, as measured by the time and efficiency of platelet collection and the quality of the
platelets collected. Our product quality is exceptional, as evidenced by our leading market share in
Japan, where quality is the primary purchasing consideration. Our major competitors in automated
platelet collection are Gambro BCT and Fenwal (formerly Baxter’s Transfusion Therapies division).
Each of these companies has taken a different technological approach in designing their systems for
automated platelet collection. In the platelet collection market, we also compete with whole blood
collections from which pooled platelets are derived.
In the Japanese automated plasma and platelet collection markets, we also compete against a local
company, Terumo Medical Corporation.
In the cell processing market, competition is based on level of automation, labor-intensiveness, and
system type (open versus closed). Open systems may be weaker in GMP compliance. Moreover, blood
processed through open systems has a 24 hour shelf life. We have an open system cell processor as well
as a closed system cell processor which gives blood processed through it a 14 day shelf life. We
compete with Gambro BCT’s open systems.
Our automated red cell collection systems were pioneered in the late 1990s. We preceded one
competitor, Gambro BCT, to market by two years, and the other competitor, Fenwal (formerly Baxter’s
Transfusion Therapies division), to market by six years. However, it is important to note that
approximately 1% of the forty million red cells collected worldwide and only about 11% of the
15 million red cells collected in the U.S. annually are collected via automation today by these three
companies combined. So, we more often compete with traditional (manual/whole blood) methods of
deriving red cells by collecting and separating a pint of whole blood on the basis of total cost, process
control, product quality, and inventory management.
In the high blood loss surgical blood salvage market, competition is based on reliability, ease of
use, service, support, and price. Each manufacturer’s technology is similar, and we compete principally
with Medtronic, Fresenius, and Sorin Biomedica. Our newly introduced cardioPAT system is the only
washed surgical blood salvage device designed to recover red cells for transfusion where blood loss
continues post operatively in heart surgery.
In the orthopedic surgical blood salvage market we compete against non-automated processing
systems whose end product is an unwashed red blood cell unit for transfusion to the patient. The
12
OrthoPAT system is the only system that washes the blood and is designed specifically for use in
orthopedic surgeries where a patient often bleeds more slowly, bleeds less, and continues to bleed long
after surgery.
In the software market, we compete with MAK Systems and Wyndgate Technologies. Both
companies provide software to blood collectors and to hospitals for managing donors, collections, and
blood units. Neither company competes in other Haemonetics’ markets.
Our technical staff is highly skilled, but many competitors have substantially greater financial
resources and larger technical staffs at their disposal. There can be no assurance that competitors will
not direct substantial efforts and resources toward the development and marketing of products
competitive with those of Haemonetics.
(x) Seasonality
Net revenues have historically been higher in the second half of our fiscal year, reflecting
principally the seasonal buying patterns of our customers. This has proven true in four of our last five
fiscal years with the exception of fiscal year 2003 where the second half of our fiscal year had slightly
lower revenues due principally to market conditions in plasma.
(xi) Government Regulation
The products we manufacture and market are subject to regulation by the Center of 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-United States 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) pre-market notification clearance or an approved
Pre-market Approval Application (‘‘PMA’’). In the United States, software used to automate blood
center operations and blood collections and to track those components through the system are
considered by FDA to be medical devices, subject to 510(k) pre-market notification. Intravenous (‘‘IV’’)
solutions marketed by us for use with our automated systems (blood anticoagulants and solutions for
storage of red blood cells) require us to obtain from CBER an approved New Drug Application
(‘‘NDA’’) or Abbreviated New Drug Application (‘‘ANDA’’). A 510(k) pre-market clearance indicates
FDA’s agreement with an applicant’s determination that the product for which clearance is sought is
substantially equivalent to another legally marketed medical device. The process of obtaining a 510(k)
clearance may take up to 24 months and involves the submission of clinical data and supporting
information. The process of obtaining NDA approval for solutions is likely to take much longer than
510(k) approvals because the FDA review process is more complicated.
We maintain customer complaint files, record all lot numbers of disposable products, and conduct
periodic audits to assure compliance with FDA regulations. We place special emphasis on customer
training and advise all customers that blood processing procedures should be undertaken only by
qualified personnel.
We are also subject to regulation in the countries outside the United States in which we market
our products. Many of the regulations applicable to our products in such countries are similar to those
of the FDA. However, the national health or social security organizations of certain countries require
our products to be registered by those countries before they can be marketed in those countries. We
have complied with these regulations and have obtained such registrations.
Federal, state and foreign regulations regarding the manufacture and sale of products such as ours
are subject to change. We cannot predict what impact, if any, such changes might have on our business.
13
(xii) Environmental Matters
We do not anticipate that compliance with international, federal and local environmental
protection laws presently in effect will have a material adverse impact upon our business or will require
any material capital expenditures. We continue to monitor changes in U.S. and International
environmental regulations that may have a significant impact on the business. Action plans are
developed to mitigate identified risks.
(xiii) Employees
As of March 29, 2008, we employed the full-time equivalent of 1,875 persons assigned to the
following functional areas: manufacturing, 940; sales and marketing, 239; general and administrative,
391; research, development, and engineering, 87; and quality control and field service, 218. We consider
our employee relations to be satisfactory.
(xiv) Availability of Reports and Other Information
All of our corporate governance materials, including the Principles of Corporate Governance, the
Business Conduct Policy and the charters of the Audit, Compensation, and Nominating and
Governance Committees are published on the Investor Relations section of our website at
http://www.haemonetics.com/site/content/investor/corp_gov.asp. Such information is also available in
print to any shareholder who requests it. All requests should be directed to our Company’s Secretary.
On this web site the public can also access, free of charge, our annual, quarterly and current reports
and other documents filed or furnished to the Securities and Exchange Commission as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
(D) Financial Information about Foreign and Domestic Operations and Export Sales
The financial information required by this item is included herein in Note 16 of the financial
statements, entitled Segment, Geographic and Customer Information. Sales to the Japanese Red Cross
accounted for 14.2% of net revenues in fiscal year 2008. No other customer accounted for more than
10% of our net revenues. For more information concerning significant customers, see subheading of
Note 2 of the financial statements, entitled, Concentration of Credit Risk and Significant Customers.
Cautionary Statement
Statements contained in this report, as well as oral statements we make which are prefaced with
the words ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘continue,’’ ‘‘estimate,’’ ‘‘project,’’ ‘‘intend,’’
‘‘designed,’’ and similar expressions, are intended to identify forward looking statements regarding
events, conditions, and financial trends that may affect our future plans of operations, business strategy,
results of operations, and financial position. These statements are based on our current expectations
and estimates as to prospective events and circumstances about which we can give no firm assurance.
Further, any forward-looking statement speaks only as of the date on which such statement is made,
and we undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made. As it is not possible to predict every
new factor that may emerge, forward-looking statements should not be relied upon as a prediction of
our actual future financial condition or results. These forward-looking statements, like any forward-
looking statements, involve risks and uncertainties that could cause actual results to differ materially
from those projected or anticipated. Such risks and uncertainties include technological advances in the
medical field and our standards for transfusion medicine and our ability to successfully implement
products that incorporate such advances and standards, product demand and market acceptance of our
products, regulatory uncertainties, the effect of economic and political conditions, the impact of
competitive products and pricing, the impact of industry consolidation, foreign currency exchange rates,
14
changes in customers’ ordering patterns, the effect of industry consolidation as seen in the Plasma
market, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which we operate. The foregoing list should not be construed as
exhaustive.
Item 1A. Risk Factors
Set forth below are the risks that we believe are material to our investors. This section contains
forward-looking statements. You should refer to the explanation of the qualifications and limitations on
forward-looking statements beginning on page 14 and 47.
If we are unable to successfully expand our business, through internal research and development,
marketing partnerships and acquisitions, our business may be materially and adversely affected. Promising
partnerships and acquisitions may not be completed for reasons such as competition among prospective
partners or buyers, our inability to reach satisfactory terms, or the need for regulatory approvals. Any
acquisition that we complete may be dilutive to earnings and require that we invest significant
resources. We may not be able to integrate any acquired businesses successfully into our existing
business, make such businesses profitable, or realize anticipated market growth or cost savings. The
current economic environment may constrain the company’s ability to access capital that may be
needed for acquisitions and other capital investments.
If we are unable to successfully keep pace with technological advances in the medical field and the
standards for transfusion medicine, our business, financial condition and results of operation could be
adversely affected. The success of our products will depend upon our ability to anticipate and meet the
needs of the medical field, particularly those who practice transfusion medicine. Additionally, we must
be able to manufacture the products in a cost effective manner, with high quality and obtain permission
to market and sell the products from various regulatory authorities.
As a medical device manufacturer we are subject to a number of existing laws and regulations.
Non-compliance with those laws or regulations could adversely affect our financial condition and results of
operations. The manufacture, distribution and marketing of our products are subject to regulation by
the FDA and other non-United States regulatory bodies. Some regulatory authorities outside the
United States may have a bias in favor of locally produced goods that could delay or prevent our
achieving regulatory approval to market our products in such geographies. We must obtain specific
regulatory clearance prior to selling any new product or service, and our operations are also subject to
continuous review and monitoring by the FDA and other regulatory authorities. The process of
obtaining approval to market and distribute our products is costly and time-consuming. Export of U.S.
technology or goods manufactured in the United States to some jurisdictions requires special U.S.
export authorization that may be influenced by factors, including political dynamics, outside our
control. Changes in privacy regulations and other developments in human subjects’ clinical trials could
make it more difficult and more expensive to conduct clinical trials necessary for product approval.
Regulations about the use of certain materials in the manufacture of health care products could also
require us to identify alternate material(s), which may be at higher costs. The number of eligible blood
donors is influenced by government regulations (including travel restrictions, health history, etc.) and
other economic and sociological factors. Changes in donation related regulations could have significant
immediate effects on the population of eligible donors.
We are subject to various actions by government authorities that regulate medical devices including:
product recalls, orders to cease manufacturing or distribution activities, and other sanctions or penalties.
Compliance with these regulations is costly and additional regulation could adversely affect our results
of operations. Our customers are also subject to these regulations. Our customers’ compliance with
applicable regulations could also affect our results of operations. Our Patient Division product lines are
used in surgical procedures that are the subject of reimbursement to certain of our customers by third
15
party payors, including governmental programs. Marketing practices for these products are strictly
regulated and violations may subject the Company to fines and other penalties.
Many of our competitors have significantly greater financial and other resources. Their greater financial
resources may allow them to more rapidly develop new technologies, and more quickly address changes in
customer requirements. Although no one company competes with us across our full line of products,
we face competition in each of our product lines. Our ability to remain competitive depends on a
combination of factors, including those within our control (reputation, regulatory approvals, patents,
unpatented proprietary know-how in several technological areas, product quality, safety, cost
effectiveness and continued rigorous documentation of clinical performance) as well as factors outside
of our control (regulatory standards, medical standards and the practice of medicine). Also, sales of
unauthorized copies of our products by local competitors in China could affect the demand and price
paid for our products.
As a global corporation, we are exposed to fluctuations in currency exchange rates, which could
adversely affect our cash flows and results of operations.
International revenues account for a substantial
portion of our revenues, and we intend to continue expanding our presence in international markets. In
2008, our international revenues accounted for approximately 54.9% of our total revenues. The
exposure to fluctuations in currency exchange rates takes different forms. Reported revenues for sales
made in foreign currencies by our international businesses, when translated into U.S. dollars for
financial reporting purposes, fluctuate due to exchange rate movement. Fluctuations in exchange rates
could adversely affect our profitability in U.S. dollars of products and services sold by us into
international markets, where payment for our products and services is made in local currencies.
Plastics are the principal component of our Disposables, which are the main source of our revenues.
We have certain contractual mechanisms in place to mitigate some of the short-term effects of price
volatility in petroleum products. Over time, however, increases in the price of petroleum derivatives
could result in corresponding increases in our costs to procure plastic raw materials. Increases in the
costs of other commodities may affect our procurement costs to a lesser degree.
Loss of a significant customer could adversely affect our business. The Japan Red Cross (JRC) is a
significant customer that represented 14.2% of our revenues in FY08. Because of the size of this
relationship we could experience a significant reduction in revenue if the JRC decided to significantly
reduce its purchases from us for any reason including a desire to rebalance its purchases between
vendors, or if we are unable to obtain and maintain necessary regulatory approvals in Japan. We also
have a concentration of credit risk due to our outstanding accounts receivable balances with the JRC.
We are subject to the risks of international economic and political conditions. Our international
operations are subject to risks which are inherent in conducting business overseas and under foreign
laws, regulations and customs. These risks include possible nationalization, expropriation, importation
limitations, violations of U.S. or local laws, pricing restrictions, and other restrictive governmental
actions. Any significant changes in the competitive, political, legal, regulatory, reimbursement or
economic environment where we conduct international operations may have a material impact on our
business, financial condition or results of operations.
We are subject to the risks associated with communicable diseases. A significant outbreak of a disease
could reduce the demand for our products and affect our ability to provide our customers with products and
services. An eligible donor’s willingness to donate is affected by concerns about their personal health
and safety. Concerns about communicable diseases (such as HIV, SARS or pandemic bird flu) could
reduce the number of donors, and accordingly reduce the demand for our products for a period of
time. A significant outbreak of a disease could also affect our employees’ ability to work, which could
limit our ability to produce product and service our customers.
16
We sell our products in certain emerging economies. Emerging economies have less mature product
regulatory systems, and can have more volatile financial markets. Our ability to sell products in these
economies is dependent upon our ability to hire qualified employees or agents to represent our
products locally, and our ability to obtain the necessary regulatory approvals in a less mature regulatory
environment. If we are unable to retain qualified representatives or maintain the necessary regulatory
approvals, we will not be able to continue to sell products in these markets. We are exposed to a higher
degree of financial risk, if we extend credit to customers in these economies.
In many of the international markets in which we do business, including certain parts of Europe,
Russia and Asia, our employees, agents or distributors offer to sell our products in response to public tenders
issued by various governmental agencies. Selling our products through agents or distributors, particularly
in public tenders, can expose the Company to a higher degree of risk. Our agents and distributors are
third parties who we retain to work in developing markets. We retain these agents or distributors after
completing due diligence on their capabilities and background. However, agents and distributors are
independent third parties. If they misrepresent our products, do not provide appropriate service and
delivery, or commit a violation of local or U.S. law, our reputation could be harmed, and we could be
subject to fines, sanctions or both. We also conduct diligent examinations of businesses we have
targeted for acquisition or other business combinations. However, confidentiality obligations and
compressed timeframes for completing these examinations may constrain our ability to fully discover
and resolve all risks attendant to the operation of the target’s business until after closing of the
transaction.
Certain countries, particularly China, do not enforce compliance with laws that protect intellectual
property (‘‘IP’’) rights with the same degree of vigor as is available under the U.S. and European
systems of justice. For this reason, there is a risk that the Company’s IP may be subject to
misappropriation in such countries. Further, certain of the Company’s IP rights are not registered in
China, or if they were, have since expired. This may permit others to produce copies of products in
China that are not covered by currently valid patent registrations. There is also a risk that such
products may be exported from China to other countries.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Our main facility 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, 72,000 square feet for administrative and research, development and
engineering activities and 3,000 square feet available for expansion. See Note 7 to the financial
statements for details of our mortgage on the Braintree facility.
On property adjacent to the Braintree facility the Company leases 43,708 square feet of additional
office space. This facility is used for sales, marketing, finance and other administrative services. Annual
lease expense for this facility is $617,364.
The Company leases an 81,929 square foot facility in Leetsdale, Pennsylvania. This facility is used
for warehousing, distribution and manufacturing operations. Annual lease expense is $343,993 for this
facility. For the next fiscal year, the Company is also leasing a temporary facility of 28,309 square feet
in Leetsdale, Pennsylvania for their distribution space as they complete the installation of a new
automated bowl line. The annual lease expense is $120,313.
17
The Company owns a facility in Bothwell, Scotland used to manufacture disposable components
for European customers. The original facility is approximately 22,200 square feet. An addition of 18,000
square feet was added in early fiscal 2006. This expansion provided additional office space and 13,500
square feet of warehouse replacing space previously leased for this purpose.
The Company owns a facility in Union, South Carolina. This facility is used for manufacture of
sterile solutions to support our blood bank (component therapy) and plasma businesses. Additionally,
this facility is engaged in contract manufacturing of other sterile solutions for veterinary customers. The
facility is approximately 69,300 square feet.
The Company also leases a 55,000 square foot facility in Stoughton, Massachusetts. During the
year the company moved out of space in Avon, Massachusetts and into the new space in Stoughton.
This facility is used for warehousing and distribution of products. The annual lease expense between
these two facilities is $322,775. The on-going lease in the Stoughton facility is $261,250 annually.
Haemonetics Software Solutions, which develops and markets software for the blood bank and
plasma business, retains two leases. The first is 25,856 square feet of office space in Edmonton,
Alberta, Canada. Annual lease expense is $640,950. The second is 17,624 square feet of office space in
Rosemont, Illinois. Annual lease expense is $413,182.
Arryx Inc., which performs research for the Company, leases 10,830 square feet of office and
laboratory space in Chicago, Illinois. Annual lease expense is $168,123.
Haemoscope Inc., which performs research and manufacturing for the Company, leases 16,478
square feet of office and manufacturing space in Niles, Illinois. Annual lease expense is $132,476.
Haemonetics purchased Haemoscope during the fiscal year. The lease payment for the time
Haemoscope was part of Haemonetics is $44,694.
The Company also leases sales, service, and distribution facilities in Japan, Europe (Austria,
Belgium, Czech Republic, France, Germany, Italy, Sweden, Switzerland, the Netherlands, and United
Kingdom) China, Hong Kong and Taiwan to support our international business.
Item 3. Legal Proceedings
We are presently engaged in various legal actions, and although our ultimate liability cannot be
determined at the present time, we believe that any such liability will not materially affect our
consolidated financial position or our results of operations.
Our 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, we, along with others, may be sued, and whether or not
we are ultimately determined to be liable, we may incur significant legal expenses. In addition, such
litigation could damage our reputation and, therefore, impair our ability to market our products or to
obtain professional or product liability insurance or cause the premiums for such insurances to increase.
We carry product liability coverage. While we believe 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, we may in the future be unable to obtain product and professional liability
coverage in amounts and on terms that we find acceptable, if at all.
In order to aggressively protect our intellectual property throughout the world, we have a program
of patent disclosures and filings in markets where we conduct significant business. While we believe this
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.
18
In December 2005, we filed a claim for binding arbitration against Baxter, seeking damages as well
as an arbitrator’s determination of the rights and obligations of Baxter and Haemonetics, under the
Technology Development Agreement between them dated December 2001 concerning platelet pathogen
inactivation. Our arbitration claim arose out of Baxter’s decision to exit the pathogen inactivation
market. On, January 29, 2007, the eve of the scheduled arbitration, the parties settled the claim for a
six million dollar ($6,000,000) payment by Baxter to Haemonetics and termination of the Technology
Development Agreement and Requirements Contract between the Company and the Baxter parties.
In December 2005, we filed a lawsuit against Baxter in the federal district court of Massachusetts,
in Boston, seeking an injunction and damages on account of Baxter’s infringement of a Haemonetics
patent, through the sale of Baxter’s Alyx brand automated red cell collection system which competes
with Haemonetics’ automated red cell collection systems. Discovery has begun. The trial is scheduled
for January 2009. In March, 2007 Baxter sold the Transfusion Technologies Division which markets the
Alyx product to private investors, Texas Pacific Group and Maverick Capital, Ltd. The new company
which resulted from the sale was renamed Fenwal. Fenwal joined Baxter as a defendant in the case.
In January, 2007, a reseller of the Company’s products in Portugal brought suit against
Haemonetics SA in Portugal, alleging improper termination of a distribution relationship, and seeking
damages. Haemonetics intends to defend vigorously the lawsuit. It is early in the litigation process.
In April 2008, our subsidiary Haemonetics Italia, Srl. and two of its employees were found guilty
by a court in Milan, Italy of charges arising from allegedly improper payments made under a consulting
contract with a local physician and in pricing products supplied under a tender from a public hospital.
In parallel proceedings concluded contemporaneously in Genoa, Italy, the same parties were entirely
exonerated of all charges. Both matters involved several other individuals and companies and arose in
2004 and 2005, respectively. When the matters first arose, our Board of Directors commissioned
independent legal counsel to conduct investigations on its behalf. Based upon its evaluation of counsel’s
report, the Board concluded that no disciplinary action was warranted in either case. The Milan
tribunal has yet to release a written opinion supporting its findings. All Haemonetics parties plan to
appeal the guilty verdicts. The Milan ruling did not impact the Company’s business in Italy.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The information concerning our Executive Officers is as follows. Executive officers are elected by
and serve at the discretion of our Board of Directors.
BRIAN CONCANNON joined our Company in 2003 as President, Patient Division. In April 2006,
Mr. Concannon was promoted to President, Global Markets, overseeing the Company’s global entities
and in August 2007 assumed his new role as Chief Operating Officer. Prior to joining Haemonetics,
Mr. Concannon was President, Northeast Region, Cardinal Health Medical Products and Services.
From 1996 to 1999, he was with Allegiance Healthcare, most recently holding the position of Vice
President, Distribution Sales and Operations. Mr. Concannon has also held various sales and marketing
positions at American Hospital Supply Corporation and Baxter Healthcare Corporation.
ROBERT EBBELING joined our Company in 1987 as Manager of Injection Molding. Throughout
his career at our Company, Mr. Ebbeling has held various management and executive positions in
manufacturing and operations. In 1996, he was appointed to Senior Vice President, Manufacturing. In
February 2003, Mr. Ebbeling was promoted to Executive Vice President, Manufacturing; in August
2003, he was promoted to Vice President, Operations; in May 2006, Mr. Ebbeling added the
management of RD&E to his VP Operations role; and in August 2007, Mr. Ebbeling was promoted to
19
Vice President, Technical Operations. Prior to joining Haemonetics, Mr. Ebbeling was Vice President,
Manufacturing, for Data Packaging Corporation.
JOSEPH FORISH joined our Company in 2005 as Vice President, Human Resources. Prior to
joining Haemonetics, Mr. Forish held various global human resources leadership roles, including Vice
President, Corporate Human Resources for Rohm and Haas Company, an $8 billion specialty materials
company. Prior to that, Mr. Forish was Vice President, Human Resources for the ConvaTec Division of
Bristol-Myers Squibb Company.
CHRISTOPHER LINDOP joined our Company in January of 2007 as Vice President and Chief
Financial Officer. In 2007, Mr. Lindop also assumed responsibility for business development. Prior to
joining Haemonetics, Mr. Lindop was Chief Financial Officer at Inverness Medical Innovations, a
rapidly growing global developer of advanced consumer and professional diagnostic products from 2003
to 2006. Prior to this, he was Partner in the Boston offices of Ernst & Young LLP and Arthur
Andersen LLP and was engagement partner to the Haemonetics account at both firms. Mr. Lindop has
no continuing relationship with Ernst & Young that would preclude its continued service as our
independent auditor. Additionally, there was a sufficient interval between Mr. Lindop’s work for the
Company as our engagement partner and his appointment as CFO to comply with all applicable SEC
rules and regulations.
ALICIA R. LOPEZ joined our Company in 1988 as General Counsel and Director of Human
Resources. Throughout her career at Haemonetics, Ms. Lopez has held various executive positions with
responsibilities over legal, human resources, administration, regulatory affairs, investor relations and
external affairs. Since 1990, she has served as Secretary to the Board of Directors. In 2000, Ms. Lopez
was appointed Senior Vice President. In 2003, Ms. Lopez was named Vice President and General
Counsel and in 2004 she was promoted to General Counsel and Vice President of Administration. In
2007, Ms. Lopez was promoted to Vice President, Corporate Affairs, with responsibility for world wide
legal affairs, regulatory and clinical affairs, and public affairs. Prior to joining Haemonetics, Ms. Lopez
was employed by the law firm of Sullivan & Worcester, counsel at the time to Haemonetics.
BRAD NUTTER joined our Company in 2003 as Board Member, President and Chief Executive
Officer. In January 2008 Mr. Nutter was named Chairman of the Board. Prior to joining Haemonetics,
Mr. Nutter was President and Chief Executive Officer of Gambro Healthcare, an international dialysis
provider, a division of Gambro AB. From 1997 to 2000, he was Executive Vice President and Chief
Operating Officer of Syncor International, an international provider of radiopharmaceuticals and
medical imaging. Previously, Mr. Nutter held senior level positions at American Hospital Supply
Corporation and Baxter International, Inc.
20
PART II
Item 5. Market for the Registrant’s Common Equity Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under symbol HAE. The following
table sets forth for the periods indicated the high and low sales prices of such common stock, which
represent actual transactions as reported by the New York Stock Exchange.
First
Fourth
Quarter Quarter Quarter Quarter
Second
Third
Fiscal year ended March 29, 2008:
Market price of Common Stock:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53.93
$45.22
$54.60
$47.13
$64.25
$48.33
$63.76
$53.60
Fiscal year ended March 31, 2007:
Market price of Common Stock:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55.69
$42.92
$48.26
$40.66
$49.21
$43.48
$50.25
$43.13
There were approximately 393 holders of record of the Company’s common stock as of April 30,
2008. 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.
21
The following graph compares the cumulative 5-year total return attained by shareholders on
Haemonetics Corporation’s common stock relative to the cumulative total returns of the S & P 500
index and the S & P Health Care Equipment index. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common stock and in each of the indexes on 3/31/2003
and its relative performance is tracked through 3/31/2008.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Haemonetics Corporation, The S&P 500 Index
And The S&P Health Care Equipment Index
$300
$250
$200
$150
$100
$50
$0
3/03
3/04
3/05
3/06
3/07
3/08
Haemonetics Corporation
S & P 500
S & P Health Care Equipment
*
$100 invested on 3/31/03 in stock or index-including reinvestment of dividends. Fiscal year ending
March 31.
Copyright (cid:4) 2008, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights
reserved. www.researchdatagroup.com/S&P.htm
3/03
3/04
3/05
3/06
3/07
3/08
Haemonetics Corporation . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P Health Care Equipment . . . . . . . . . . . . . . .
100.00
100.00
100.00
143.94
135.12
140.05
192.95
144.16
142.25
232.36
161.07
146.26
213.96
180.13
158.85
272.68
170.98
164.37
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
22
Item 6. Selected Consolidated Financial Data
Haemonetics Corporation and Subsidiaries Five-Year Review
(in thousands, except share and employee data)
2008
2007
2006(a)
2005(a)
2004
Summary of Operations
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .
Cost to Equity . . . . . . . . . . . . . . . . . . . . . . . .
In process research and development
. . . . . . .
Arbitration & Settlement Income . . . . . . . . . .
$516,440
$258,715
$257,725
$449,607
$222,307
$227,300
$419,733
$199,198
$220,535
$383,598
$185,722
$197,876
$364,229
$190,693
$173,536
$ 24,322
$163,116
$ 23,884
$137,073
225
— $
— $
9,073
— ($ 5,700)
$ 26,516
$121,351
680
$
—
($ 26,350)
$ 19,994
$118,039
406
$
—
—
$ 17,398
$108,845
—
—
—
Total operating expenses . . . . . . . . . . . . . . . . .
$187,438
$164,555
$122,197
$138,439
$126,243
Operating income . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . .
$ 70,287
7,015
$
$ 62,745
9,591
$
$ 98,338
7,864
$
$ 59,437
2)
($
$ 47,293
($ 1,481)
Income before provision for income taxes . . . .
Provision for income taxes . . . . . . . . . . . . . . .
$ 77,302
$ 25,322
$ 72,336
$ 23,227
$106,202
$ 37,806
$ 59,435
$ 20,202
$ 45,812
$ 16,492
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,980
$ 49,109
$ 68,396
$ 39,233
$ 29,320
Income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares . . . . . . . .
Common stock equivalents . . . . . . . . . . . . . . .
Weighted average number of common and
$
$
2.01
1.94
$
$
1.84
1.78
$
$
2.58
2.49
$
$
1.54
1.50
$
$
1.20
1.19
25,824
922
26,746
903
26,478
996
25,523
622
24,435
260
common equivalent shares . . . . . . . . . . . . . .
26,746
27,649
27,474
26,145
24,695
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods
prior to the acquisition. See Footnote #3
23
2008
2007
2006
2005
2004
Financial and Statistical Data:
Working capital . . . . . . . . . . . . . . . . . . . . . . .
$261,757
$321,654
$330,288
$255,689
$185,606
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . .
3.7
$116,484
4.9
$ 90,775
4.7
$ 75,266
3.9
$ 69,337
2.9
$ 78,030
Capital expenditures . . . . . . . . . . . . . . . . . . . .
$ 57,790
$ 40,438
$ 33,774
$ 17,530
$ 13,862
Depreciation and amortization . . . . . . . . . . . .
$ 31,197
$ 27,504
$ 25,150
$ 27,756
$ 30,149
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
$608,950
$ 12,363
$572,735
$ 28,876
$545,457
$ 39,153
$467,757
$ 45,843
$407,394
$ 58,260
Stockholders’ equity . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . .
Debt as a % of stockholders’ equity . . . . . . . .
$494,188
$479,648
$440,564
$355,135
$279,749
10.67% 10.67% 17.19% 12.50% 11.70%
8.89% 12.90% 20.80%
2.50%
6.02%
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenues per employee . . . . . . . . . . . . . . .
1,875
276
$
1,826
246
1,661
254
$
1,546
248
1,438
253
$
$
$
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(A) Our Business
Haemonetics is a blood management solutions company for our customers. Anchored by our
reputable medical devices systems, we also provide information technology platforms and value added
services to provide customers with business solutions which support improved clinical outcomes for
patients and efficiency in the blood supply chain.
Our systems automate the collection and processing of donated blood; assess likelihood for blood
loss; and salvage and process surgical patient blood. These systems include devices and single-use,
proprietary disposable sets that operate only our specialized equipment. Our systems allow users to
collect and process only the blood component(s) they target, plasma, platelets, or red blood cells,
increasing donor and patient safety as well as collection efficiencies. Our information technology
platforms are used by blood and plasma collectors to improve the safety and efficiency of blood
collection logistics by eliminating previously manual functions at not-for-profit blood banks and
commercial plasma centers. Our business services products include consulting, Six Sigma, LEAN
manufacturing and Insight Opportunity Model offerings that support our customers’ needs for
regulatory compliance and operational efficiency in the blood supply chain.
We either sell our devices to customers (resulting in equipment revenue) or place our devices with
customers subject to certain conditions. When the device remains our property, the customer has the
right to use it for a period of time as long as the customer meets certain conditions we have
established, which among other things, generally include one or more of the following:
(cid:129) Purchase and consumption of a minimum level of disposable products;
(cid:129) Payment of monthly rental fees;
(cid:129) An asset utilization performance metric, such as performing a minimum level of procedures per
month per device.
Our disposable revenue stream (including sales of disposables and fees for the use of our
equipment) accounted for approximately 86% of our total revenues for fiscal year 2008, 88% of our
total revenues for fiscal year 2007 and 87% of our total revenues for fiscal year 2006.
24
(B) Product Families
Although we manage our business as one operating segment, we address our customer constituents
through three global product families: Donor, Patient and Software/Services.
Our donor products include systems to collect plasma, platelets and red cells from blood donors.
We market our donor products primarily to blood collectors which include both for-profit plasma
collectors and not-for-profit blood banks.
Our patient products include systems to collect blood during and after surgery, wash and filter
unwanted substances from the blood, and prepare the blood for reinfusion to the surgical patient. Our
patient products also include a surgical diagnostic system that measures a patient’s likelihood to bleed
during surgery. We market these patient products to hospitals and hospital service providers.
Software and service revenue includes revenue generated from Haemonetics Software Solutions
and our business services contracts, as well as revenue from equipment repairs performed under
preventive maintenance contracts or emergency service billings, training programs and spare part sales.
Donor Products and Services
1) Plasma systems: Our PCS brand systems automate the collection of plasma from donors who are
paid a fee for their donation. The collected plasma is then processed into therapeutic
pharmaceuticals. Automated plasma collection is a safe and cost-effective improvement to manual
(non-automated) plasma collection which is time-consuming, labor-intensive, produces relatively
poor yields, and poses risks to donors. Currently the majority of plasma collections worldwide are
automated collections.
2) Blood bank systems:
a) Our MCS brand system automates the collection of platelets and other blood components
from volunteer donors. The systems enable the donation of a larger volume of the donor’s
platelets, which are then generally given to cancer patients and others with bleeding disorders.
Before the advent of our platelet collections technology, the ‘‘pooling’’ or combination of
platelets from 5 to 8 different donors was the only alternative to prepare a single therapeutic
dose for transfusion to a patient. Our MCS line of products allows the collection of a
sufficient number of platelets from only one donor to produce one or two therapeutic doses.
b) Our ACP brand systems automate the process used to freeze, thaw and wash red blood cells
which enables blood collectors and the military to better manage blood inventories. The ACP
systems can also be used to wash other cellular parts from red blood cells units before
transfusion to patients with special transfusion requirements.
3) Red cell systems: Our MCS and Cymbal systems automate the collection of red cells from
volunteer donors. The systems improve the blood collector’s operational efficiency by increasing
the volume of blood components collected per donation event and number of red cells than the
traditional (non-automated) collection method. It helps blood systems address red cell shortages
that commonly plague health care systems. The Cymbal system received CE marking in February
2006 and received FDA clearance in February 2007. The highest sales volume product in the MCS
red cell product line is our double red cell collection technology which allows for two units of red
cells to be collected from one donor. Specialty protocols enabling the simultaneous collection of a
unit of red cells and a unit of plasma or a unit of red cells and a unit of platelets are also available
in various parts of the world.
4)
Services and programs related to blood supply chain efficiency and effectiveness such as LEAN
and Six Sigma consulting as well as InSight a program application supporting blood center
resource allocation and utilization.
25
Patient Products and Services
1) Blood salvage: Our surgical blood salvage systems allow for the recovery, segregation and washing
of red cells from blood lost by a patient during or after surgery, so that red cells can be made
available to transfuse back to the patient if needed. In this way, a surgical patient can receive
transfusions of the safest blood possible, his or her own. Our surgical blood salvage systems
include:
a) Our Cell Saver brand systems for higher blood loss surgeries and trauma;
b) Our OrthoPAT brand systems for lower, slower blood loss orthopedic procedures; and
c) Our cardioPAT brand system for lower blood loss cardiovascular procedures, like beating heart
surgeries or coronary artery bypass graft (CABG) surgeries. The cardioPAT is our newest
blood salvage system.
2)
Surgical suction: Our SmartSuction product clears blood and debris from the surgical field in
conjunction with surgical blood salvage
3) Blood demand assessment: In November 2007 we acquired the TEG Thrombelastograph
Hemostasis Analyzer business from Haemoscope. The TEG system is a diagnostic tool which
allows surgeons to determine if a patient will need a transfusion so the surgeon can then decide
the best blood-related clinical treatment for the individual patient.
4) Blood Management consulting: In July 2007 we acquired Infonale, a hospital services company,
focused on peer to peer blood management consulting primarily in the US. Equipped with a
unique database approach Haemonetics provides hospitals a baseline view of their blood
management metrics and then monitors and measures key improvements associated with
recommended best practice approaches to transfusion therapy and the avoidance of transfusions.
Software and Services
1)
2)
Software: At this time, our software and services business principally provides support to our
plasma and blood collection customers. Our goal in expanding the business is to add
complementary products and services for our Patient Division customers. Through our
Haemonetics Software Solutions division, (formerly 5D(cid:3) Information Management (‘‘5D’’) and
Information Data Management (‘‘IDM’’)), we provide information technology platforms and
technical support for donor recruitment that facilitate the efficient and compliant operations of
blood and plasma collection centers. For plasma customers, we also provide information
technology platforms for managing distribution of plasma units to, and within, plasma fractionation
facilities. This division also provides data maintenance services that include hosting of these
applications.
Services: Through our services group, we offer business solutions to support process excellence,
donor recruitment, business design, and blood management efforts. For example, we provide Six
Sigma and LEAN manufacturing consulting services to blood banks. We also provide hospital
blood management assessment tools to hospitals through our Infonale subsidiary, acquired in July
2007. Included in our services reporting are equipment repair services under preventive
maintenance contracts or emergency service visits, training programs and spare part sales.
26
Financial Summary
Net revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . . . .
For the years ended
March 29, March 31,
2008
2007
April 1,
2006(a)
$516,440
$257,725
(in thousands)
$449,607
$227,300
$419,733
$220,535
49.9%
50.6%
52.5%
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
14.9%
13.4%
7.1%
3.1%
$ 70,287
$ 62,745
$ 98,338
12.0%
(36.2)%
13.6%
14.0%
23.4%
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . .
Other income / (expense), net . . . . . . . . . . . .
$
$
$
(377) $ (1,256) $ (1,917)
6,963
7,864
5,418
2,818
2,983
1,974
$
$
$
$
Income before taxes . . . . . . . . . . . . . . . . . . .
$ 77,302
$ 72,336
$106,202
Provision for income tax . . . . . . . . . . . . . . . .
% of pre-tax income . . . . . . . . . . . . . . . . .
$ 25,322
$ 23,227
$ 37,806
32.8%
32.1%
35.6%
(70.0)% (34.5)%
12.9%
(31.1)%
5.9%
(33.8)%
6.9%
9.0%
(31.9)%
(38.6)%
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . . . .
$ 51,980
$ 49,109
$ 68,396
5.8%
(28.2)%
10.1%
10.9%
16.3%
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods
prior to the acquisition. See Note #3
Net revenues for fiscal year 2008 increased 14.9% over fiscal year 2007. The effects of foreign
exchange accounted for an increase of 2.2% over fiscal year 2007. The remaining increase of 12.7% is
mainly due to increases in our disposables revenue, software revenues and equipment sales. The
increase in disposable revenue resulted primarily from disposable unit increases across all of our Donor
and Patient product lines, and reflects the acquired TEG business which took place in fiscal 2008. The
software growth was due to organic growth and the acquisition of IDM, Inc. which took place in fiscal
2007.
Gross profit increased 13.4% over fiscal year 2007. The favorable effects of foreign exchange
accounted for an increase of 1.5% over fiscal year 2007. The remaining increase of 11.9% was due
primarily to increased sales offset partly by changes in product mix.
Operating income increased 12.0% over fiscal year 2007. The effects of foreign exchange
accounted for a decrease in operating income of 2.1%. Without the effects of foreign exchange
operating income increased 14.1% over fiscal 2007. The increase in operating income was a result of
several factors, including:
(cid:129) The increases in gross profit
(cid:129) A reduction in in-process research and development expenses that were incurred during fiscal
2007 in connection with the acquisition of Arryx, Inc.
These increases were partly offset by an increase in Selling, General and Administrative expenses
of 19.0% which were largely related to the acquisitions of IDM and Haemoscope and to increases in
ERP spending as we implemented a new global system for automated services, filed services and
finance and a reduction in settlement income.
Net income increased 5.8% over fiscal year 2007. The effects of foreign exchange accounted for a
decrease of 2.3%, over fiscal year 2007. Without the effects of foreign exchange net income increased
27
8.1% over the comparable period of fiscal year 2007. The main factors that affected net income were
the increases in operating income due to the reasons mentioned above, partly offset by lower interest
income and other income, and an increase in the income tax rate.
Net revenues for fiscal year 2007 increased 7.1% over fiscal year 2006. The effects of foreign
exchange accounted for a decrease of 0.4% over fiscal year 2006. The remaining increase of 7.5% was
mainly due to increases in our disposable and software support revenues. The increase in disposable
revenue resulted primarily from disposable unit increases in the U.S. in our plasma, and red cell
product lines, and price improvements in the OrthoPat product line. These disposable revenue
increases were partly offset by lower unit volume of our bloodbank and plasma product lines in Japan.
Gross profit increased 3.1% over fiscal year 2006. The unfavorable effects of foreign exchange
accounted for a decrease of 2.3% over fiscal year 2006. The remaining increase of 5.4% was due
primarily to increased sales and to cost reductions, offset partly by changes in product mix.
Operating income decreased 36.2% over fiscal year 2006. Five significant items affect the
comparability of operating income as follows:
(cid:129) Arbitration award income of $26.4 million was recorded in the third quarter of fiscal year 2006
following a successful outcome of a legal claim in fiscal 2006 and receipt of the award proceeds
in October of 2005. This award represented 26.8% of operating income of fiscal year 2006.
(cid:129) An in process research and development charge of $9.1 million was taken in the second quarter
of fiscal year 2007 in connection with the acquisition of Arryx, Inc. This charge reduced
operating income by 9.2% compared to the comparable period of fiscal year 2006.
(cid:129) Stock compensation expense of $10.2 million related to the adoption of SFAS 123(R), ‘‘Share-
Based Payment’’, accounted for a reduction in operating income of 10.4%, in fiscal year 2007.
We adopted SFAS 123(R) using the modified prospective transition method, accordingly prior
periods results do not include stock compensation expense.
(cid:129) A settlement income award of $6.0 million was recorded in the third quarter of fiscal year 2007
following a successful outcome of a legal claim. The $5.7 million settlement, net of legal costs,
increased operating income by 5.8% in fiscal year 2007.
(cid:129) Restructuring costs of $3.5 million, principally in our international operations, reduced operating
income by 3.6% in fiscal 2007.
Excluding these five items operating income increased by 10.2% in fiscal year 2007 over fiscal year
2006. The unfavorable effects of foreign exchange accounted for a decrease in operating income,
excluding the aforementioned five items, of 7.7%. Without the unfavorable effects of foreign exchange
and the five items that significantly affect comparability, operating income increased 18.8% over fiscal
year 2006. This increase resulted from the gross profit changes described above, and a reduction in
research and development expenses associated with an impairment charge of $3.8 million recorded in
the third quarter of fiscal 2006.
Net income decreased 28.2% over fiscal year 2006. Net income increased by $4.0 million, or 5.8%,
due to the favorable completion of an Internal Revenue Service tax examination. The unfavorable
effects of foreign exchange accounted for decreases of 5.2%, over fiscal year 2006. Without the
unfavorable effects of foreign exchange and the five items that significantly affect the comparability of
operating income, and the tax benefit noted above, net income increased 22.9% over the comparable
period of fiscal year 2006. The additional factors that affected net income were the other increases in
operating income due to the reasons mentioned above and increased interest income.
28
Market Trends
Plasma Market
The continued increase in demand for plasma derived pharmaceuticals, particularly intravenous
immunoglobulin (‘‘IVIG’’), is a key driver of increased plasma collections in the worldwide commercial
plasma collection markets. Various factors related to the supply of plasma and the production of
plasma derived pharmaceuticals also affect the demand, including the following:
(cid:129) There has been significant industry consolidation among plasma collectors and fractionators.
Industry consolidation impacts us when a collector changes the total number of its collection
centers, the total number of collections performed per center or changes the plasma collection
system (Haemonetics or competitive technology) used to perform some or all of those
collections.
(cid:129) The supply of source plasma also affects demand for additional collections of source plasma. In
the U.S. and Europe, the demand for plasma exceeds supply. In Asia, supply and demand is
balanced.
(cid:129) The newer plasma fractionation facilities are more efficient in their production processes,
utilizing less plasma to make similar quantities of pharmaceuticals and vaccines.
(cid:129) Reimbursement guidelines affect the demand for end product pharmaceuticals.
(cid:129) Diagnosis of new patients requiring plasma derived therapies increase the demand for plasma.
At the end of fiscal year 2006, we completed the conversion of all ZLB Plasma Services (‘‘ZLB’’)
collection sites to Haemonetics collection technology based on the supply agreement signed with ZLB
Plasma Services (‘‘ZLB’’) in fiscal year 2005 to be its exclusive supplier of plasma collection technology
in the United States.
Blood Bank Market
Despite modest increases in the demand for platelets in our major markets, improved collection
efficiencies that increase the yield of platelets per collection and more efficient use of collected
platelets have resulted in a flat market for disposables.
During 2008 we discontinued the sale of intravenous solutions that we produced under contract for
pharmaceutical companies.
Red Cell Market
Red cell demands, a general shortage of donors, a need for greater operating efficiency, and a
stringent regulatory environment continue to drive demand for our red cell products. Our business
continues to grow as we gain new customers and expand penetration at existing customer sites.
Additionally, sales increase with new and current customers with the introduction of Cymbal, our next
generation dedicated red cell collection device which meets our customer’s mobile collection needs.
Patient Market
Our Cell Saver brand system is aimed at higher blood loss cardiovascular procedures. This part of
the surgical blood salvage market is declining and will probably continue to decline due to improved
surgical techniques minimizing blood loss and a decrease in the number of open-heart (bypass)
surgeries performed. The cardioPAT system, a surgical blood salvage system targeted at open heart
surgeries when there is less blood loss, is designed to meet the market needs created by these improved
surgical techniques. The CardioPAT is used post-operatively while patient is in recovery.
29
The main driver of growth in the Patient market is the lower blood loss orthopedic procedures,
including hip and knee replacement surgeries, served by our OrthoPAT system. The OrthoPAT is the
only system on the market designed to collect a patient’s blood lost during and after surgery. Cell
salvage is not yet a standard of care for U.S. orthopedic procedures. We are positioning this device as
an effective alternative to patient pre-donation or non-washed autotransfusion systems.
RESULTS OF OPERATIONS
Net Revenues by Geography
United States . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
International
$232,812
283,628
$193,620
255,987
$161,679
258,054
Net revenues . . . . . . . . . . . . . . . . . . . . . . . .
$516,440
$449,607
$419,733
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
20.2%
10.8%
14.9%
19.8%
(0.8)%
7.1%
International Operations and the Impact of Foreign Exchange
Our principal operations are in the U.S., Europe, Japan and other parts of Asia. Our products are
marketed in more than 50 countries around the world via a direct sales force as well as independent
distributors.
Approximately 55%, 57% and 61% of our revenues were generated outside the U.S. during fiscal
year 2008, 2007 and 2006, respectively. During fiscal years 2008, 2007 and 2006 revenues from Japan
accounted for approximately 17%, 20% and 24% of our total revenues, respectively and revenues from
Europe comprised approximately 30%, 28% and 29% of our total revenues, respectively. These sales
are primarily conducted in local currencies, specifically the Japanese Yen and the Euro. Accordingly,
our results of operations are significantly affected by changes in the value of the Yen and the Euro
relative to the U.S. dollar. The favorable effects of foreign exchange resulted in a 2.3% increase in
sales. From fiscal year 2006 to fiscal year 2007, the unfavorable effects of foreign exchange accounted
for 0.4% decrease in sales.
Please see section entitled ‘‘Foreign Exchange’’ in management’s discussion for a more complete
discussion of how foreign currency affects our business and our strategy to manage this exposure.
Net Revenues by Product Type
March 29, March 31,
2008
2007
April 1,
2006
Disposables . . . . . . . . . . . . . . . . . . . . . . . . .
Software & Service . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
$444,130
39,498
32,812
$393,660
33,718
22,229
$367,094
26,880
25,759
Net revenues . . . . . . . . . . . . . . . . . . . . . . . .
$516,440
$449,607
$419,733
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
12.8%
17.1%
47.6%
14.9%
7.2%
25.4%
(13.7)%
7.1%
30
Disposables Revenue by Product Line
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
Donor:
Plasma . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Blood Bank . . . . . . . . . . . . . . . . . . . . . . . . .
Red Cell . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Patient:
Surgical . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OrthoPat . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total disposables revenue . . . . . . . . . . . . . . .
$155,219
136,148
46,377
$337,744
$126,971
126,216
43,406
$296,593
$109,100
132,407
37,830
$279,337
$ 72,085
$ 34,301
$106,386
$444,130
$ 66,552
$ 30,515
$ 97,067
$393,660
$ 65,893
$ 21,864
$ 87,757
$367,094
22.2%
7.9%
6.8%
13.9%
8.3%
12.4%
9.6%
12.8%
16.4%
(4.7)%
14.7%
6.2%
1.0%
39.6%
10.6%
7.2%
Donor
Donor products include the Plasma, Blood Bank and Red Cell product lines. Disposable revenue
for donor products increased 13.9% over the comparable period in fiscal year 2007. Foreign exchange
resulted in a 1.9% increase over fiscal year 2007. The remaining increase of 12.0% was the result of
increases across all of our Donor product lines, as discussed below.
Disposable revenue for donor products increased 6.2% over the comparable period in fiscal year
2006. Foreign exchange resulted in a 0.6% decrease over fiscal year 2006. The remaining increase of
6.8% was the result of increases in the Plasma and Red Cell product lines partially offset by the
decreased Blood Bank product line, as discussed below.
Plasma
During fiscal year 2008, plasma disposable revenue increased 22.2%. Foreign exchange resulted in
a 2.7% increase over fiscal year 2007. The remaining increase of 19.5% was driven by increased plasma
disposable sales in the U.S. and Europe. The U.S. increase was due to market growth including the
implementation of new customer relationships. Growth in Europe also reflected the market trends and
the implementation of expanded business with Haema AG and Octapharma. The market growth is the
result of increases in collections by our customers as the demand for source plasma continues to
strengthen.
During fiscal year 2007, plasma disposable revenue increased 16.4%. Foreign exchange had no
impact on plasma disposable revenue. U.S. plasma sales contributed almost 100% of the increase. The
U.S. increase was due to market share growth over fiscal year 2006 that relates largely to the
conversion to Haemonetics systems by one very large customer, ZLB Plasma services (‘‘ZLB’’) that
took place during fiscal year 2006 and is in full operation in fiscal year 2007. Plasma growth is also the
result of increases in collections by our customers as the demand for source plasma continues to
strengthen. These increases were partly offset by lower sales in Japan of $1.9 million. The automated
collection of Plasma has declined in Japan as more of Japan’s need for plasma is being met through
whole blood derived plasma.
Blood Bank
During fiscal year 2008, blood bank disposable revenue for donor products increased 7.9%.
Foreign exchange resulted in a 1.4% increase in blood bank disposable revenue over fiscal year 2007.
Without the effect of currency, blood bank revenue increased 6.5%. This increase was due to increased
31
sales in Asia and our European distribution markets. These increases were a result of market growth in
these emerging markets and increases in market share.
During fiscal year 2007, blood bank disposable revenue for donor products decreased 4.7%.
Foreign exchange resulted in a 1.3% decrease in blood bank disposable revenue over fiscal year 2006.
Without the effect of currency, blood bank revenue decreased 3.4%. Japan accounts for $3.1 million or
approximately 70% of the decrease. The Japan decrease is the result of a rebalancing of the mix of
market share among suppliers, following a temporary increase in market share due to quality issues of
a competitor in early fiscal year 2006. The pace of this rebalancing was also impacted by a third quarter
platelet quality issue.
Red Cell
During fiscal year 2008, red cell disposable revenue increased 6.8% compared to fiscal year 2007.
Foreign exchange accounted for an increase of 1.0%. This increase was due to increased sales in the
U.S. due to increased penetration at existing customer sites and the introduction, through a Limited
Market Release of our new Cymbal(cid:2) brand red cell collection system.
During fiscal year 2007, red cell disposable revenue increased 14.7% compared to fiscal year 2006.
Foreign exchange accounted for an increase of 0.4%. Of the remaining increase of 14.3%, the U.S.
contributed over 90% of the increase, due to penetration at existing customer sites and a shift to higher
priced filtered sets, which include a filter to remove white blood cells from the collected blood.
Patient
The patient product line includes the following brand platforms: the Cell Saver(cid:2) brand, the newly
acquired Haemoscope products and the OrthoPAT(cid:2) brand. During fiscal 2008, Patient disposables
revenue increased 9.6% compared to fiscal year 2007. Foreign exchange resulted in a 2.4% increase
over fiscal 2007. The remaining increase of 7.2% was the result of increases in OrthoPAT product lines
as well as the acquisition of the Haemoscope products, as discussed below.
Surgical
During fiscal year 2008, surgical disposables revenue increased 8.3%. Foreign exchange resulted in
a 2.7% increase in surgical disposable revenue. Surgical disposable revenue principally consists of Cell
Saver products and the newly acquired Haemoscope products. Without the effect of currency, surgical
disposable revenue increased 5.6%. The acquisition of the Haemoscope products resulted in an
increase of 8.7%. Reduced revenue of our Cell Saver brand products in Japan and the U.S. partially
offset this increase.
During fiscal year 2007, surgical disposables revenue increased 1.0%. Foreign exchange resulted in
a 0.2% increase in surgical disposable revenue. Surgical disposable revenue principally consists of Cell
Saver products. Without the effect of currency, surgical disposables revenue increased 1.2%. The
revenue growth came from Japan and Asia.
OrthoPAT
During fiscal year 2008, OrthoPAT disposables revenue increased 12.4% over fiscal year 2007.
Foreign exchange resulted in a 1.9% increase in OrthoPAT revenue. Without the effect of currency,
OrthoPAT disposables revenue increased 10.5%. The increase was primarily due to volume growth in
the U.S. and Europe, as we have introduced a sales approach that enables us to demonstrate a total
value proposition to our customers.
During fiscal year 2007, OrthoPAT disposables revenue increased 39.6% over fiscal year 2006.
Foreign exchange resulted in a de minimus impact in OrthoPAT revenue. The increase was largely due
32
to the U.S. region. The sales increase in the U.S. is attributable to higher prices realized as we
transitioned from employing a distributor to direct selling through our Patient sales force.
Other Revenues
Software & service . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,498
32,812
$33,718
22,229
$26,880
25,759
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
$72,310
$55,947
$52,639
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
17.1%
47.6%
29.2%
25.4%
(13.7)%
6.3%
Our software and services revenues include revenue from software sales and services revenues
from repairs performed under preventive maintenance contracts or emergency service visits, spare part
sales, and various services and training programs.
During fiscal year 2008, software and service revenue increased 17.1% as compared to fiscal year
2007. Foreign exchange resulted in a 2.1% increase over fiscal year 2007. Without the effect of
currency, software and service revenue increased 15.0%. Software revenues which were $23.6 in fiscal
2008 increased 61%. The increase is due to the acquisition of IDM, which was only included in our Q4
fiscal 2007 results, and organic growth of 20% in our software business. Our services revenue which was
$15.9 in fiscal year 2008 declined 17% due to reductions in certain Six Sigma consulting revenues and
sales of other non-core products.
During fiscal year 2007, software and service revenue increased 25.4% as compared to fiscal year
2006. Foreign exchange resulted in a 0.5% decrease over fiscal year 2006. The 25.9% increase is largely
due to increased revenues from 5D which are principally the result of a software support contract for a
military customer and the acquisition of the assets of IDM in fiscal Q4.
During fiscal year 2008, revenue from equipment sales increased 47.6% over fiscal year 2007.
Foreign exchange resulted in a 6.7% increase in equipment revenue. Without the effect of currency,
equipment revenue increased 40.9%. The increase over fiscal year 2007 is principally the result of
increased sales of Plasma equipment, in connection with the implementation of the Haema AG and
Octapharma agreements in Europe, and sales of our new Cymbal(cid:2) brand red cell collection system.
Equipment sales fluctuate from period to period.
During fiscal year 2007, revenue from equipment sales decreased 13.7% over fiscal year 2006.
Foreign exchange resulted in a 1.0% increase in equipment revenue. The remaining decrease of 14.7%
over fiscal year 2006 is the result of decreased cell saver equipment sales in the U.S., and Japan, lower
platelet equipment sales in Japan, and reduced red cell and cell processing equipment sales in U.S.
offset slightly by plasma equipment sales in Europe. Equipment sales fluctuate from period to period.
Gross Profit
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
$257,725
$227,300
$220,535
13.4%
3.1%
During fiscal year 2008, gross profit increased 13.4%. Foreign exchange resulted in a 1.5% increase
from fiscal year 2007. The remaining increase of 11.9% was due primarily to the net increase in sales.
Our gross profit margin decreased due to product mix. A greater proportion of our sales resulted from
products with lower gross margins: relatively more commercial plasma disposables, equipment and
software.
33
During fiscal year 2007, gross profit increased 3.1%. Foreign exchange resulted in a 2.3% decrease
from fiscal year 2006. The remaining increase of 5.4% was due primarily to i) the net increase in sales,
and ii) improved manufacturing efficiencies as a result of more product being produced in our plants
partly offset by (iii) product mix as we sold more commercial plasma product with lower gross margins
and less product in Japan with relatively higher gross margins and (iv) an increase in equipment
depreciation expense primarily as a result of additional machines placed at our U.S. commercial plasma
customers due to the Company’s market share gains and collection growth by plasma customers.
Operating Expenses
Research, development and engineering . . .
% of net revenues . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . .
% of net revenues . . . . . . . . . . . . . . . . .
Cost to equity . . . . . . . . . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . .
In Process R&D . . . . . . . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . .
Arbitration & Settlement Income . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . .
Total Operating Expense . . . . . . . . . . . . .
% of net revenues . . . . . . . . . . . . . . . . .
March 29,
2008
March 31,
2007
April 1,
2006(a)
% Increase/
(Decrease)
% Increase/
(Decrease)
07 vs. 06
$ 24,322
$ 23,884
$ 26,516
1.8%
(9.9)%
4.7%
5.3%
6.3%
$163,116
$137,073
$121,351
19.0%
13.0%
31.6%
30.5%
225
0.1%
9,073
— $
—
— $
—
— $ (5,700)
—
$187,438
$164,555
2.0%
(1.3)%
$
$
28.9%
680
0.2%
0
0.0%
(100.0)%
(66.9)%
(100.0)%
—
$ (26,350)
(100.0)%
(78.4)%
(6.3)%
$122,197
13.9%
34.7%
36.3%
36.6%
29.1%
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods
prior to the acquisition. See Note #3 of Notes to Consolidated Financial Statements
Research, Development and Engineering
During fiscal year 2008, research, development and engineering expenses increased 1.8%. Foreign
exchange resulted in a 0.2% increase in research, development and engineering during the year.
Increased spending on new products research was the primary factor in the increase. The significant
factors in the increase during fiscal 2008 related to Arryx and IDM, acquisitions that took place during
fiscal year 2007.
During fiscal year 2007, research, development and engineering expenses decreased 9.9% as
compared to fiscal year 2006. Foreign exchange resulted in a 0.1% increase in research and
development during the year. The significant factors in the remaining decrease of 10.0% are described
below:
(cid:129) $3.8 million impairment charge taken for an intangible asset related to pathogen reduction in
the third quarter of fiscal year 2006
(cid:129) Lower research, development and engineering expenses related to software development costs
that were expensed in the first and second quarters of fiscal year 2006 prior to reaching
technological feasibility, (since the third quarter of fiscal year 2006 these costs have been
capitalized)
Selling, General and Administrative
During fiscal year 2008, selling, general and administrative expenses increased 19.0%. The effect of
foreign exchange accounted for an increase of 3.4%. Excluding the impact of foreign exchange, selling,
34
general and administrative expense increased 15.6% as compared to fiscal year 2007. The increase was
due largely to several actors identified below:
(cid:129) Total Enterprise Resource Planning (ERP) expense of $7.5 million relating to certain internal
personnel and third party consulting and training costs, an increase of $3.4 million from fiscal
year 2007.
(cid:129) Selling, general and administrative costs of $3.2 million and $2.7 million relating to the
acquisition of IDM and Haemoscope, respectively.
(cid:129) Restructuring costs of $6.3 million in fiscal year 2008 compared to $3.5 million in fiscal year
2007 relating to the reorganization of our international sales and service organizations. These
costs include employee related costs and certain other employee benefits and lease termination
and related facility closure costs.
(cid:129) General selling, marketing and handling costs necessary to support the 14.9% increase in sales.
During fiscal year 2007, selling, general and administrative expenses increased 13.0%. Foreign
exchange resulted in a 0.5% increase in selling, general and administrative. Excluding the impact of
foreign exchange, selling, general and administrative expense increased 12.5% as compared to fiscal
year 2006. The increase was largely due to several factors as described below:
(cid:129) Stock compensation expense related to the adoption of FAS 123R which accounted for
approximately $10.3 million of the increase for the year.
(cid:129) Enterprise Resource Planning (ERP) expense of $4.1 million relating to certain internal
personnel and third party consulting and training costs.
(cid:129) Restructuring costs of $3.5 million relating to the reorganization of our international sales and
service organizations. These costs include employee related costs and certain other employee
benefits and lease termination and related facility closure costs.
(cid:129) Expansion of sales and marketing staff, specifically $3.1 million associated with our U.S. Patient
sales force.
(cid:129) Partly offset by a $3.7 million reduction in the expense associated with cash bonus compensation.
The cash bonus expense declined as the Company’s financial results were lower than the
financial targets established for funding cash bonuses.
In Process Research and Development
The $9.1 million purchased in process research and development that was charged to operating
expenses in the second quarter of fiscal 2007 consists of a project for the advancement and
development of the technology in blood diagnostics applications, and for the purpose of licensing the
technology outside of the blood marketplace. The project includes work to reduce the size of systems
which apply the technology, including reducing the size of the laser, and developing mechanisms to
label samples and collections.
For purposes of valuing the acquired purchased research development, the Company estimated
total costs to complete the current development of the platform of approximately $11 million. For the
in-process project the Company acquired in connection with the acquisition of Arryx, Inc., it used a
risk-adjusted discount rate of 29% to discount the projected cash flows. The Company believes that the
estimated purchased research and development amounts so determined represented the fair value at
the date of acquisition and did not exceed the amount a third party would pay for the projects.
35
Arbitration & Settlement Income
During fiscal year 2007 we recorded settlement income of $5.7 million. In December 2005, we filed
a claim for binding arbitration against Baxter, seeking damages as well as an arbitrator’s determination
of the rights and obligations of Baxter and Haemonetics, under the Technology Development
Agreement between them dated December 2001 concerning platelet pathogen inactivation. Our
arbitration claim arose out of Baxter’s decision to exit the pathogen inactivation market. The parties
settled the claim in January 2007 for $6.0 million. We incurred $0.3 million in external legal fees to
bring this action.
During fiscal year 2006, we recorded $26.4 million of arbitration award income. We had brought a
claim against Baxter, seeking an arbitration award to compel Baxter to honor numerous supply
contracts it assumed when Baxter purchased the plasma collection operations of Alpha Therapeutic
Corporation, our largest plasma customer at the time, or to pay us damages. The matter was tried
before an arbitration panel for three weeks ending April 1, 2005. The arbitration panel issued its
decision on May 20, 2005 and awarded the Company $30.8 million including damages, legal fees and
interest. We collected the full award on October 13, 2005.
Operating Income
Operating Income . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . .
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
$70,287
$62,745
$98,338
12.0%
(36.2)%
13.6%
14.0%
23.4%
During fiscal year 2008, operating income increased 12.0% compared to fiscal year 2007. Foreign
exchange resulted in a 2.1% decrease in operating income during the fiscal year. Without the effects of
foreign currency, operating income increased 14.1% over fiscal year 2007. The increase is due primarily
to sales and gross profit growth, the reduction in the in-process research and development charge as
described above, partially offset by increases in operating expenses.
During fiscal year 2007, operating income decreased 36.2% compared to fiscal year 2006 Foreign
exchange resulted in a 5.7% decrease in operating income during the fiscal year. Without the effects of
foreign currency, operating income decreased 31.5% over fiscal year 2006. The decrease was primarily
due to increases in operating expenses that exceeded increases in gross profit. The primary contributors
of higher expenses were stock compensation costs, ERP program costs, restructuring expenses related
to the reorganization of our international sales and service organizations and expansion of our sales
and marketing staff to primarily support the growth of our OrthoPAT business. Additionally we
recorded arbitration award income of $26.4 million in fiscal 2006. These items giving rise to increased
operating expenses were partly offset by a reduction in expenses associated with cash bonus
compensation and a net settlement income from Baxter Inc. of $5.7 million related to certain platelet
pathogen contracts.
Other Income (Expense), Net
March 29, March 31,
2008
2007
April 1,
2006
% Increase/ % Increase/
(Decrease)
(Decrease)
07 vs. 06
08 vs. 07
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . .
$ (377)
$5,418
$1,974
$(1,256)
$ 7,864
$ 2,983
$(1,917)
$ 6,963
$ 2,818
(70.0)% (34.5)%
12.9%
(31.1)%
5.9%
(33.8)%
Total other income (expense), net . . . . . . . . . . .
$7,015
$ 9,591
$ 7,864
(26.9)%
22.0%
36
During fiscal year 2008, total other income, net decreased 26.9% as compared to fiscal year 2007
due (i) the decrease in interest income due to lower invested cash resulting from the Company’s share
repurchase programs in fiscal years 2007 and 2008 and the acquisition of Haemoscope’s TEG(cid:2)
Thrombelastograph(cid:2) Hemostasis Analyzer business, and (ii) a decrease in other income associated with
hedge points and an increase in foreign exchange transaction losses offset by (iii) a decrease in interest
expense due to lower average fixed rate debt outstanding and an increase in interest expense
capitalized on in-process software development projects and the ERP system.
During fiscal year 2007, total other income, increased due to (i) a decrease in interest expense due
to lower average debt outstanding as compared to fiscal year 2006, (ii) an increase in interest income
due to higher average cash balances and higher interest rates on these balances and (iii) an increase in
other income, net, as a result of increases in hedge-points on forward contracts over fiscal year 2006.
Points on forward contracts are amounts, either expensed or earned, based on the interest rate
differential between two foreign currencies in a forward hedge contract.
Taxes
March 29, March 31,
2008
2007
April 1,
2006
Tax Rate
Increase/
(Decrease)
08 vs. 07
Tax Rate
Increase/
(Decrease)
07 vs. 06
Reported Tax Rate . . . . . . . . . . . . . . . . . . . . . . .
32.8%
32.1% 35.4%
0.7%
(3.3)%
Our reported tax rate includes two principal components: an expected annual tax rate and discrete
items resulting in additional provisions or benefits that are recorded in the quarter that an event arises,
Events or items that give rise to discrete recognition include finalizing audit examinations for open tax
years, a statute of limitation’s expiration, or a stock acquisition.
The reported tax rate was 32.8% for the current fiscal year. The reported tax rate includes:
(cid:129) A 34.25% expected annual tax rate which reflects tax benefits from foreign taxes, reduced tax
exempt income than in prior periods and stock compensation expenses that are not deductible in
all jurisdictions.
(cid:129) A $2.1 million reversal of previously accrued income taxes because of the expiration of foreign
and domestic statute of limitations.
(cid:129) A $0.7 million increase in U.S. deferred tax provided on the portion of unremitted earnings of a
foreign subsidiary that are not permanently reinvested.
(cid:129) A $0.4 million increase in tax expense due to finalizing our prior year income tax return.
The reported tax rate was 32.1% for fiscal year 2007, incorporating:
(cid:129) A 34.4% expected annual tax rate which reflects higher tax exempt income than in prior periods
and stock compensation expenses that are not deductible in all jurisdictions.
(cid:129) A $9.1million non-deductible In Process Research and Development charge and the adjustment
to convert our investment in Arryx, Inc. to the equity method.
(cid:129) A $4.0 million reversal of previously accrued income taxes due to favorably completing an
Internal Revenue Service tax return examination for fiscal years 2001 through 2003.
(cid:129) A $0.8 million net revision in the estimated income tax expense for fiscal year 2006 and certain
international tax matters.
We expect our reported tax rate to be approximately 34.5% to 35.0% for fiscal year 2009 although
future adjustments may increase or decrease the reported tax rate.
37
Critical Accounting Policies
Our significant accounting policies are summarized in Note 2 of our consolidated financial
statements. While all of these significant accounting policies impact our financial condition and results
of operations, we view certain of these policies as critical. Policies determined to be critical are those
policies that have the most significant impact on our financial statements and require management to
use a greater degree of judgment and/or estimates. Actual results may differ from those estimates.
The accounting policies identified as critical are as follows:
Revenue Recognition
Our revenue recognition policy is to recognize revenues from product sales, software and services
in accordance with SAB No. 104, ‘‘Revenue Recognition’’, EITF 00-21, ‘‘Revenue Arrangements with
Multiple Deliverables’’ and Statement of Position (‘‘SOP’’) 97-2, ‘‘Software Revenue Recognition, as
amended’’. These standards require that revenues are recognized when persuasive evidence of an
arrangement exists, product delivery, including customer acceptance, has occurred or services have been
rendered, the price is fixed or determinable and collectibility is reasonably assured. When more than
one element such as equipment, disposables and services are contained in a single arrangement, we
allocate revenue between the elements based on each element’s relative fair value, provided that each
element meets the criteria for treatment as a separate unit of accounting. An item is considered a
separate unit of accounting if it has value to the customer on a stand alone basis and there is objective
and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered
elements is determined by the price charged when the element is sold separately, or in cases when the
item is not sold separately, by the using other objective evidence as defined in EITF 00-21, or vendor
specific objective evidenced under SOP 97-2.
We generally do not allow our customers to return products. We offer sales rebates and discounts
to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the
corresponding liability as current. We estimate rebates for products where there is sufficient historical
information available to predict the volume of expected future rebates. If we are unable to estimate the
expected rebates reasonably, we record a liability for the maximum potential rebate or discount that
could be earned.
Inventories
Inventories are stated at the lower of the actual cost to purchase and/or manufacture or the
current estimated market value of the inventory. On a quarterly basis, inventory quantities on hand are
reviewed and an analysis of the provision for excess and obsolete inventory is performed based
primarily on our estimates of product demand and production requirements for the next twenty-four
months. A change in the estimated timing or amount of demand for our products could result in
additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in
demand could have a significant impact on the value of our inventory and reported operating results.
Goodwill and Other Intangible Assets
Purchase accounting requires extensive use of accounting estimates and judgments to allocate the
purchase price to the fair market value of the assets and liabilities purchased, with the excess value, if
any, being classified as goodwill. In addition, as described in Notes 3 and 6 of our consolidated
financial statements, as a result of our acquisitions, values were assigned to intangible assets for
patented and unpatented technologies and customer contracts and related relationships. For those
assets with finite lives, useful lives were assigned to these intangibles and they will be amortized over
their remaining life. We review our intangible assets and their related useful lives at least once a year
to determine if any adverse conditions exist that would indicate the carrying value of these assets may
38
not be recoverable. We conduct more frequent impairment assessments if certain conditions exist,
including: a change in the competitive landscape, any internal decisions to pursue new or different
technology strategies, a loss of a significant customer, or a significant change in the market place
including changes in the prices paid for our products or changes in the size of the market for our
products.
An impairment results if the carrying value of the asset exceeds the sum of the future
undiscounted cash flows expected to result from the use and disposition of the asset. The amount of
the impairment would be determined by comparing the carrying value to the fair value of the asset.
Fair value is generally determined by calculating the present value of the estimated future cash flows
using an appropriate discount rate. The projection of the future cash flows and the selection of a
discount rate require significant management judgment. The key variables that management must
estimate include sales volume, prices, inflation, product costs, capital expenditures and sales and
marketing costs. For developed technology (patents and other technology) that have not been deployed
we also must estimate the likelihood of both pursuing a particular strategy and the level of expected
market adoption.
Significant judgment is involved in making these estimates. Future write-downs may be required if
the recorded value of the assets become impaired.
We recognized an impairment charge in research and development expenses of $3.8 million for
fiscal year 2006 related to the excess of the carrying value over the fair market value of an intangible
asset, related to platelet pathogen reduction technology. The impairment was triggered by our
re-evaluation of our plans to deploy such technology.
If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying
amount of the intangible asset is amortized prospectively over the revised remaining useful life.
Property, Plant and Equipment
Property, plant and equipment are depreciated over their useful lives. Useful lives are based on
our estimate of the period that the assets will generate revenue. Any change in conditions that would
cause us to change our estimate as to the useful lives of a group or class of assets may significantly
impact our depreciation expense on a prospective basis. Haemonetics equipment includes devices that
we have placed at our customers under contractual arrangements that allow them to use the device in
exchange for rental payments or the purchase of disposables. In addition to periodically reviewing the
useful lives of these devices, we also periodically perform reviews to determine if a group of these
devices is impaired. To conduct these reviews we must estimate the future amount and timing of
demand for these devices. Changes in expected demand can result in additional depreciation expense,
which is classified as cost of goods sold. Any significant unanticipated changes in demand could have a
significant impact on the value of equipment and our reported operating results.
Change in Depreciable Lives of Property and Equipment
In accordance with our policy, the Company reviews the estimated useful lives of our property,
plant and equipment on an ongoing basis. During fiscal year 2007 we increased the estimated useful life
of our PCS2 device, used by our commercial plasma customers.
As we had signed several long term contracts for the use of this device, we increased the useful
life of these devices from 4 years to 6 years to reflect the estimated periods during which these assets
will remain in service. The effect of this change in estimate was to reduce 2008 and 2007 depreciation
expense by $2.7 million and $0.5 million, respectively, increase 2008 and 2007 net income by
$1.8 million and $0.3 million, respectively and increase 2008 and 2007 basic and diluted earnings per
share by $0.07 and $0.01, respectively.
39
Income Taxes
In preparing our consolidated financial statements, income tax expense is calculated for all
jurisdictions in which we operate. This process involves estimating actual current taxes due plus
assessing temporary differences arising from differing treatment for tax and accounting purposes that
are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to
determine their recoverability. A valuation allowance is established and a corresponding additional
income tax expense is recorded in our consolidated statement of income if their recovery is not likely.
The provision for income taxes could also be materially impacted if actual taxes due differ from our
earlier estimates. As of March 29, 2008, a valuation allowance of $0.4 million existed on our balance
sheet. The total net deferred tax asset as of March 29, 2008 was $21.8 million.
We file income tax returns in all jurisdictions in which we operate. We established reserves in
accordance with FIN48 to provide for additional income taxes that may be due in future years as these
previously filed tax returns are audited. These reserves have been established based on management’s
assessment as to the potential exposure attributable to permanent differences and interest applicable to
both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments
made as events occur that warrant modification.
Stock-Based Compensation
On April 2, 2006, we adopted FASB Statement No. 123(R), Share-Based Payment, which requires
all share-based payments to employees, including grants of employee stock options, to be recognized in
the consolidated statements of operations based on their fair values. We adopted Statement No. 123(R)
using the ‘‘modified-prospective method’’ and have not restated prior period results of operations and
financial position to reflect the impact of stock-based compensation expense under Statement
No. 123(R). We use the Black-Scholes option-pricing model to calculate the grant-date fair value of our
stock options. The following assumptions, which involve the use of judgment by management, are used
in the computation of the grant-date fair value of our stock options:
Expected Volatility—We have principally used our historical volatility as a basis to estimate expected
volatility in our valuation of stock options.
Expected Term—We estimate the expected term of our options using historical exercise and
forfeiture data. We believe that this historical data is currently the best estimate of the expected term
of our new option grants.
Additionally, after determining the fair value of our stock options, we use judgment in establishing
an estimated forfeiture rate, to determine the amount of stock based compensation to record each
period:
Estimated Forfeiture Rate—We have applied, based on an analysis of our historical forfeitures, an
annual forfeiture rate of 8% to all unvested stock options as of March 29, 2008, which represents the
portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis
periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for
those shares that vest.
Valuation of Acquisitions
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we
assume based on their fair values at the dates of acquisition, including acquired identifiable intangible
assets, and purchased research and development. We base the fair value of identifiable intangible assets
on detailed valuations that use information and assumptions provided by management. We allocate any
excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
The use of alternative valuation assumptions, including estimated cash flows and discount rates, and
alternative estimated useful life assumptions could result in different purchase price allocations,
purchased research and development charges, and intangible asset amortization expense in current and
future periods.
40
The valuation of purchased research and development represents the estimated fair value at the
dates of acquisition related to in-process projects. Our purchased research and development represents
the value of an in-process project that has not yet reached technological feasibility and has no
alternative future use as of the date of acquisition. We expensed the value attributable to the in-process
project at the time of the acquisition. If the project is not successful or completed in a timely manner,
we may not realize the financial benefits expected from this project or for the acquisition as a whole.
We use the income approach to determine the fair values of our purchased research and
development. This approach determines fair value by estimating the after-tax cash flows attributable to
an in-process project over its useful life and then discounting these after-tax cash flows back to a
present value. We base our revenue assumptions on estimates of relevant market sizes, expected market
growth rates, expected trends in technology and expected product introductions by competitors. In
arriving at the value of the in-process projects, we consider, among other factors: the in-process
projects’ stage of completion; the complexity of the work completed as of the acquisition date; the costs
already incurred; the projected costs to complete; the contribution of core technologies and other
acquired assets; the expected introduction date; and the estimated useful life of the technology. We
base the discount rate used to arrive at a present value as of the date of acquisition on the time value
of money and medical technology investment risk factors. For the in-process project we acquired in
FY07, we used a 26% risk-adjusted discount rate to discount our projected cash flows. We believe that
the estimated purchased research and development amounts so determined represent the fair value at
the date of acquisition and do not exceed the amount a third party would pay for the project.
Liquidity and Capital Resources
The following table contains certain key performance indicators that depict our liquidity and cash
flow position:
(dollars in thousands)
March 29, March 31,
2008
2007
April 1,
2006
Cash & cash equivalents . . . . . . . . . . . . . . . . . . . .
Working capital
. . . . . . . . . . . . . . . . . . . . . . . . . .
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash position(1) . . . . . . . . . . . . . . . . . . . . . . .
Days sales outstanding (DSO) . . . . . . . . . . . . . . . .
Disposables finished goods inventory turnover . . . .
$133,553
$261,757
3.7
$121,190
78
6.9
$229,227
$321,654
4.9
$200,351
68
5.1
$250,667
$330,288
4.7
$211,514
71
6.0
(1) Net cash position is the sum of cash and cash equivalents less total debt.
Our primary sources of capital include cash and cash equivalents, internally generated cash flows
and bank borrowings. We believe these sources to be sufficient to fund our requirements, which are
primarily capital expenditures (including enterprise resource planning systems and devices), share
repurchases, acquisitions, new business and product development and working capital for at least the
next twelve months. The Board of Directors authorized a $60.0 million share repurchase program in
April of 2008. Repurchases under this program commence in May of 2008.
Net cash provided by (used in):
For the years ended
March 29, March 31,
2008
2007
April 1,
2006
$ Increase/
(Decrease)
08 vs 07
$ Increase/
(Decrease)
07 vs 06
(In thousands)
Operating activities . . . . . . . . . . . . . . . . . . . . . . $ 77,669 $ 83,563 $ 85,616 $ (5,894) $ (2,053)
(39,011)
Investing activities . . . . . . . . . . . . . . . . . . . . . . .
(47,648)
Financing activities . . . . . . . . . . . . . . . . . . . . . .
2,420
Effect of exchange rate changes on cash(1) . . . . .
(102,847) (71,116) (32,105)
12,094
(73,228) (35,554)
(753)
1,667
(31,731)
(37,674)
1,065
2,732
Net decrease in cash and cash equivalents: . . . . . . . $ (95,674) $(21,440) $ 64,852 $(74,234) $(86,292)
41
Cash Flow Overview:
(1) The balance sheet is affected by spot exchange rates used to translate local currency amounts
into U.S. dollars. In comparing spot exchange rates at March 29, 2008 versus March 31, 2007
and at March 31, 2007 versus April 1, 2006, the European currencies, primarily the Euro, and
the Yen have strengthened and weakened, respectively, against the U.S. dollar. In accordance
with GAAP, we have removed the effect of changes in foreign currency exchange rates
throughout our cash flow statement, except for its effect on our cash and cash equivalents.
In May 2007, the Board of Directors authorized a $75.0 million share repurchase. Through
August 17, 2007, the Company repurchased approximately 1.46 million shares of its common stock for
an aggregate purchase price of $75.0 million. The Company reflects stock repurchases in its financial
statements on a ‘‘trade date’’ basis and as Authorized Unissued shares (Haemonetics is a Massachusetts
company and Massachusetts Law mandates that repurchased shares are to be treated as authorized but
unissued).
In August 2006, the Board of Directors authorized a $40.0 million share repurchase. Through
November 7, 2006, the Company repurchased approximately 0.9 million shares of its common stock for
an aggregate purchase price of $40.0 million. The Company reflects stock repurchases in our financial
statements on a ‘‘trade date’’ basis and as Authorized Unissued. (Haemonetics is a Massachusetts
company and under Massachusetts law repurchased shares are treated as authorized but unissued).
As discussed in our Earning Release on May 1, 2008, the Company announced plans to initiate a
new $60 million share repurchase program. Repurchases commenced on May 5, 2008.
FISCAL 2008 AS COMPARED TO FISCAL 2007
Operating Activities:
Net cash provided by operating activities decreased $5.9 million in 2008 as compared to 2007 due
primarily to:
(cid:129) $2.9 million increase in cash provided by net income adjusted for non-cash items.
(cid:129) $18.3 million increased investment in Accounts Receivable due to an increase in sales of
$66.8 million compared to 2007 (sales of $516.4 million in 2008 versus $449.6 million in 2007)
and an increase in DSO from 68 days in 2007 to 78 days in 2008.
(cid:129) $5.6 million decrease in Inventory due to the higher level of sales. We plan to increase our
investment in inventory in the near term.
(cid:129) The payment of refundable VAT associated with the formation of our European shared services
center of $3.0 million.
Investing Activities:
Net cash used in investing activities increased $31.7 million in 2008 as compared to 2007 due
primarily to:
(cid:129) $46.9 million in cash used for acquisitions during the fiscal year 2008 compared to $32.5 million
used in the same period in fiscal 2007.
(cid:129) $17.3 million of increased capital expenditures predominantly related to the increase in the
installed base of devices and investments in our ERP system.
Financing Activities:
Net cash used by financing activities increased by $37.7 million, primarily due to share repurchases.
42
(cid:129) $75 million used to repurchase shares of Company common stock during fiscal year 2008 as
compared to the $40.0 million used in fiscal 2007.
FISCAL 2007 AS COMPARED TO FISCAL 2006
Operating Activities:
Net cash provided by operating activities decreased $2.1 million in fiscal year 2007 as compared to
2006 due primarily to:
(cid:129) $10.7 million reduction in net income adjusted for non-cash items due primarily to the
arbitration award income received in the third quarter of fiscal 2006. (see Footnote #9
Commitments and Contingencies)
(cid:129) $10.4 million less cash used by accounts receivables due to reduced days sales outstanding partly
offset by increased sales
(cid:129) $3.0 million increase in inventory to support our higher level of sales.
Investing Activities:
Net cash used in investing activities increased $39.0 million principally as a result of:
(cid:129) $23.3 million investment in the acquisition of Arryx, Inc. (see Note #3 Acquisition)
(cid:129) $9.3 million investment in the acquisition of Information Data Management, Inc. (‘‘IDM’’) (see
Note #3 Acquisition)
(cid:129) $2.8 million less proceeds from the sale of property, plant and equipment
(cid:129) $6.6 million increase in capital expenditures due to the placement of more new devices with
customers, notably US Plasma, and an investment in ERP software license and related
development costs.
Financing Activities:
Net cash used by financing activities increased by $47.6 million due primarily to:
Increases from:
(cid:129) $40.0 million used to repurchase shares of Company common stock in Q2 and Q3 FY07.
(cid:129) $5.5 million which reflects net repayments made in Fiscal 2007 on the short-term revolving credit
facility in our Japanese subsidiary.
(cid:129) $2.2 million decrease in the exercise of stock options.
43
Contractual Obligations and Contingencies
A summary of our contractual and commercial commitments as of March 29, 2008, is as follows
(for more information concerning our debt see Note 7 to the consolidated financial statements and for
our operating lease obligations see Note 9):
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
After 5 years
(in thousands)
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Leases . . . . . . . . . . . . . . . . . . .
Purchase commitments* . . . . . . . . . . . . . .
$ 12,363
$ 29,328
$ 71,873
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$113,564
$ 6,326
$ 8,469
$71,873
$86,668
$ 1,449
$11,282
—
$1,713
$7,457
—
$12,731
$9,170
$2,875
$2,120
—
$4,995
Payments Due by Period
*
Includes amounts we are committed to spend on purchase orders entered in the normal course of
business for capital equipment and for the purpose of manufacturing our products including
contract manufacturers, specifically Nova Biomedical, for the purchase of devices and
JMS Co. LTD, and Kawasumi Laboratories for the manufacture of certain disposable products.
The majority of our operating expense spending does not require any advance commitment.
Contingent Commitments
As a result of our acquisition of 5D we were contingently obligated to make payments of up to
$4.1 million. The fourth and final payment of $1.0 million was made in fiscal 2007. (see Footnote #15)
On January 29, 2007 the Company received $6 million in full satisfaction of its claims against
Baxter Healthcare Corporation, Baxter International Inc. and Baxter Healthcare SA (together
‘‘Baxter’’) related to certain platelet pathogen reduction contracts. In connection with the settlement of
these claims, the Technology Development Agreement and Requirements Contract between the
Company and Baxter are terminated, and Haemonetics no longer retains any rights to distribute the
INTERSOL product (note INTERSOL is a registered trademark of Baxter). Haemonetics recorded the
receipt of this settlement in the fourth quarter ending March 31, 2007.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the
periods presented. Historically, we believe we have been able to mitigate the effects of inflation by
improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by
adjusting the selling prices of products. We continue to monitor inflation pressures generally and raw
materials indices that may affect our procurement and production costs.
Foreign Exchange
Approximately 55% of our sales are generated outside the U.S. in local currencies, yet our
reporting currency is the U.S. dollar. Our primary foreign currency exposures in relation to the U.S.
dollar are the Japanese Yen and the Euro. Foreign exchange risk arises because we engage in business
in foreign countries in local currency. Exposure is partially mitigated by producing and sourcing product
in local currency and expenses incurred by local sales offices. However, whenever the U.S. dollar
strengthens relative to the other major currencies, there is an adverse effect on our results of
operations and alternatively, whenever the U.S. dollar weakens relative to the other major currencies
there is a positive effect on our results of operations.
44
It is our policy to minimize for a period of time, the unforeseen impact on our financial results of
fluctuations in foreign exchange rates by using derivative financial instruments known as forward
contracts to hedge the anticipated cash flows from forecasted foreign currency denominated sales.
Hedging through the use of forward contracts does not eliminate the volatility of foreign exchange
rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year
period, thereby facilitating financial planning and resource allocation. We enter into forward contracts
that mature one month prior to the anticipated timing of the forecasted foreign currency denominated
sales. These contracts are designated as cash flow hedges and are intended to lock in the expected cash
flows of forecasted foreign currency denominated sales at the available spot rate. Actual spot rate gains
and losses on these contracts are recorded in sales, at the same time the underlying transactions being
hedged are recorded.
We compute a composite rate index for purposes of measuring, comparatively, the change in
foreign currency hedge spot rates from the hedge spot rates of the corresponding period in the prior
year. The relative value of currencies in the index is weighted by sales in those currencies. The
composite was set at 1.00 based upon the weighted rates at March 31, 1997. The composite rate is
presented in the period corresponding to the maturity of the underlying forward contracts.
The favorable or (unfavorable) changes are in comparison to the same period of the prior year. A
favorable change is presented when we will obtain relatively more U.S. dollars for each of the
underlying foreign currencies than we did in the prior period. An unfavorable change is presented
when we obtain relatively fewer U.S. dollars for each of the underlying foreign currencies than we did
in the prior period. These indexed hedge rates impact sales, and as a result also gross profit, operating
income and net income, in our consolidated 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.
45
Composite Index
Hedge Spot
Rates
Favorable/
Unfavorable
Change versus
Prior Year
FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
FY2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*
NOTE: Represents hedges for April FY10.
Recent Accounting Pronouncements
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
1.13
1.05
1.06
1.01
1.06
0.97
0.99
0.92
0.89
0.94
0.92
0.91
0.87
0.86
0.89
0.89
0.92
0.96
0.95
0.93
0.92
0.93
0.93
0.93
0.93
0.92
0.90
0.86
0.82
0.87
0.77
(3.6)%
3.6%
3.2%
15.9%
4.9%
15.7%
5.1%
15.5%
14.1%
12.7%
5.2%
9.1%
5.7%
2.8%
5.1%
3.6%
(1.1)%
(9.4)%
(9.3)%
(4.2)%
(3.1)%
(1.0)%
3.3%
2.4%
0.4%
0.5%
3.4%
8.3%
13.9%
6.3%
19.5%
In March 2008, the FASB issued FASB No. 161, ‘‘Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB No. 133’’. FASB No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring enhanced disclosures to
enable investors to better understand their effects on an entity’s financial position, financial
performance, and cash flows. FASB No. 161 is effective for annual periods beginning on or after
November 15, 2008. We are currently evaluating the potential impact of FASB No. 161 on our financial
position and results of operations. This statement is effective for our fiscal year 2010.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), ‘‘Business Combinations’’
(‘‘SFAS 141(R)’’). In SFAS 141(R), the FASB retained the fundamental requirements of Statement
No. 141 to account for all business combinations using the acquisition method (formerly the purchase
46
method) and for an acquiring entity to be identified in all business combinations. However, the new
standard requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to
disclose to investors and other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. SFAS 141(R) is effective for annual periods
beginning on or after December 15, 2008. We are currently evaluating the potential impact of FASB
No. 141(R) on our financial position and results of operations. This statement is effective for our fiscal
year 2010.
In December 2007, the FASB issued FASB No. 160 ‘‘Noncontrolling Interests in Consolidated
Financial Statements—an amendment of ARB No. 51’’ of which the objective is to improve the
relevance, comparability, and transparency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing accounting and reporting standards by requiring
all entities to report noncontrolling (minority) interests in subsidiaries in the same way—as equity in
the consolidated financial statements. Moreover, Statement 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. FASB No. 160 is effective for annual periods beginning on or after
December 15, 2008. We are currently evaluating the potential impact of FASB No. 160 on our financial
position and results of operations. This statement is effective for our fiscal year 2010.
In February 2007, the FASB issued FASB No. 159, ‘‘The Fair Value Option for Financial Assets
and Financial Liabilities-Including an amendment of FASB Statement No. 115’’ (‘‘FASB No. 159’’). The
new statement allows entities to choose, at specified election dates, to measure eligible financial assets
and liabilities at fair value that are not otherwise required to be measured at fair value. If a company
elects the fair value option for an eligible item, changes in that item’s fair value in subsequent
reporting periods must be recognized in current earnings. FASB No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the potential impact of FASB No. 159
on our financial position and results of operations. This statement is effective for our fiscal year 2009.
In September 2006, the FASB issued FASB No. 157, ‘‘Fair Value Measurements’’ (‘‘FASB
No. 157’’), which addresses how companies should measure fair value when they are required to use a
fair value measure for recognition or disclosure purposes under generally accepted accounting
principles. FASB No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements. FASB
No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007
and should be applied prospectively, except in the case of a limited number of financial instruments
that require retrospective application. We are currently evaluating the potential impact of FASB
No. 157 on our financial position and results of operations. This statement is effective for our fiscal
year 2009.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements we make which are prefaced with
the words ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘continue,’’ ‘‘estimate,’’ ‘‘project,’’ ‘‘intend,’’
‘‘designed,’’ and similar expressions, are intended to identify forward looking statements regarding
events, conditions, and financial trends that may affect our future plans of operations, business strategy,
results of operations, and financial position. These statements are based on our current expectations
and estimates as to prospective events and circumstances about which we can give no firm assurance.
Further, any forward-looking statement speaks only as of the date on which such statement is made,
and we undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made. As it is not possible to predict every
new factor that may emerge, forward-looking statements should not be relied upon as a prediction of
47
our actual future financial condition or results. These forward-looking statements, like any forward-
looking statements, involve risks and uncertainties that could cause actual results to differ materially
from those projected or anticipated. Such risks and uncertainties include technological advances in the
medical field and our standards for transfusion medicine and our ability to successfully implement
products that incorporate such advances and standards, product demand and market acceptance of our
products, regulatory uncertainties, the effect of economic and political conditions, the impact of
competitive products and pricing, the impact of industry consolidation, foreign currency exchange rates,
changes in customers’ ordering patterns, the effect of industry consolidation as seen in the Plasma
market, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which we operate. The foregoing list should not be construed as
exhaustive.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company’s exposures relative to market risk are due principally to foreign exchange risk and
interest rate risk.
Foreign Exchange Risk
See the section entitled Foreign Exchange for a discussion of how foreign currency affects our
business. It is our policy to minimize for a period of time, the unforeseen impact on our financial
results of fluctuations in foreign exchange rates by using derivative financial instruments known as
forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales.
We do not use the financial instruments for speculative or trading activities. At March 29, 2008, we
held the following significant foreign exchange contracts to hedge the anticipated cash flows from
forecasted foreign currency denominated sales outstanding:
Hedged Currency
Euro . . . . . . . . .
Euro . . . . . . . . .
Euro . . . . . . . . .
Euro . . . . . . . . .
Japanese Yen . . .
Japanese Yen . . .
Japanese Yen . . .
Japanese Yen . . .
(BUY) / SELL
Local Currency
6,285,000
7,871,000
8,000,000
9,400,000
922,000,000
1,370,000,000
1,220,000,000
1,200,000,000
Weighted
Spot
Contract Rate
Weighted
Forward
Contract Rate
Fair Value
Maturity
$1.341
$1.370
$1.440
$1.491
1.3527
1.3780
1.4400
1.4724
$(1,420,829)
$(1,510,980)
$ (979,575)
$ (780,315) Dec 2008-Feb 2009
Apr-May 2008
Jun-Aug 2008
Sep-Nov 2008
121.5 per US$ 116.5283 per US$ $(1,391,291)
116.7 per US$ 112.3845 per US$ $(1,668,075)
112.9 per US$ 109.2483 per US$ $(1,209,384)
106.3 per US$ 104.3415 per US$ $ (729,800) Dec 2008-Feb 2009
Apr-May 2008
Jun-Aug 2008
Sep-Nov 2008
$(9,690,250)
We estimate the change in the fair value of all forward contracts assuming both a 10%
strengthening and weakening of the U.S. dollar relative to all other major currencies. In the event of a
10% strengthening of the U.S. dollar, the change in fair value of all forward contracts would result in a
$16.7 million increase in the fair value of the forward contracts; whereas a 10% weakening of the U.S.
dollar would result in a $17.8 million decrease in the fair value of the forward contracts.
Interest Rate Risk
All of our long-term debt is at fixed interest rates. Accordingly, a change in interest rates has an
insignificant effect on our interest expense amounts. The fair value of our long-term debt, however,
does change in response to interest rates movements due to its fixed rate nature. At March 29, 2008,
the fair value of our long-term debt was approximately $1.0 million higher than the value of the debt
48
reflected on our financial statements. This higher fair market is entirely related to our $6.7 million,
8.41% real estate mortgage.
At March 31, 2007, the fair value of our long-term debt was approximately $0.8 million higher than
the value of the debt reflected on our financial statements. This higher fair market is entirely related to
our $6.7 million, 8.41% real estate mortgage.
Using scenario analysis, if we changed the interest rate on all long-term maturities by 10% from
the rate levels that existed at March 29, 2008 the fair value of our long-term debt would change by
approximately $0.1 million.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash equivalents, accounts receivable and investment in sales type lease receivables. Sales
to one unaffiliated Japanese customer, the Japanese Red Cross Society, amounted to $73.3 million,
$70.3 million and $79.0 million in 2008, 2007 and 2006, respectively. Accounts receivable balances
attributable to this customer accounted for 15.9%, 15.8% and 15.7%of our consolidated accounts
receivable at fiscal year 2008, 2007 and 2006, respectively. While the accounts receivable related to the
Japanese Red Cross Society may be significant, we do not believe the credit loss risk to be significant
given the consistent payment history by this customer.
Certain other markets and industries can expose us to concentrations of credit risk. For example,
in our commercial plasma business, we tend to have only a few customers in total but they are large in
size. As a result, our accounts receivable extended to any one of these commercial plasma customers
can be somewhat significant at any point in time.
49
Item 8. Financial Statements and Supplementary Data
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended
March 29, March 31,
2008
2007
April 1,
2006
Net revenues
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$516,440
258,715
$449,607
222,307
$419,733
199,198
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
257,725
227,300
220,535
Operating expenses:
Research, development and engineering . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost to Equity(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In process research & development . . . . . . . . . . . . . . . . . . . . . . . . .
Arbitration & Settlement Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,322
163,116
—
—
—
23,884
137,073
225
9,073
(5,700)
26,516
121,351
680
—
(26,350)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187,438
164,555
122,197
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,287
(377)
5,418
1,974
77,302
25,322
62,745
(1,256)
7,864
2,983
72,336
23,227
98,338
(1,917)
6,963
2,818
106,202
37,806
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,980
$ 49,109
$ 68,396
Basic income per common share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income per common share assuming dilution
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.01
1.94
$
$
1.84
1.78
$
$
2.58
2.49
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,824
26,746
26,746
27,649
26,478
27,474
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods
prior to the acquisition. See Footnote #3
The accompanying notes are an integral part of these consolidated financial statements.
50
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 29, 2008 March 31, 2007
ASSETS
Current assets:
Cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance of $2,365 in 2008 and $1,440 in 2007 . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment:
Land, building and building & leasehold improvements . . . . . . . . . . . . . . . . .
Plant equipment and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and information technology . . . . . . . . . . . . . . . . . . . . . . .
Haemonetics equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets:
Other intangibles, less amortization of $19,821 in 2008 and $17,284 in 2007 . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset, long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$133,553
120,252
65,388
15,832
24,409
359,434
43,873
88,811
52,787
178,827
364,298
247,814
116,484
64,333
54,222
9,244
5,233
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,032
$229,227
91,832
61,797
11,748
9,067
403,671
41,649
85,140
34,320
149,745
310,854
220,079
90,775
33,857
34,958
4,513
4,961
78,289
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$608,950
$572,735
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current maturities
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.01 par value; Authorized—150,000,000 shares;
Issued—25,694,769 shares in 2008 and 26,516,979 shares in 2007 . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,326
19,724
19,824
5,285
46,518
97,677
6,037
3,253
7,795
256
186,933
302,196
4,803
494,188
$608,950
$ 22,201
17,187
14,522
1,163
26,944
82,017
6,675
—
4,395
265
163,815
315,767
(199)
479,648
$572,735
The accompanying notes are an integral part of these consolidated financial statements.
51
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
$’s
Additional
Paid-in
Capital
Accumulated
Other
Total
Retained Comprehensive Stockholders’ Comprehensive
Earnings
Income
Equity
Loss
Balance, April 2, 2005(a)
. . . . . . . . . . . .
26,177
$262
$121,803
$233,363
$ (699)
$354,729
Employee stock purchase plan . . . . . . . .
Exercise of stock options and related tax
benefit
. . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Net change in minimum pension liability .
Foreign currency translation adjustment . .
Unrealized gain on derivatives, net of tax .
Comprehensive income . . . . . . . . . . . .
48
604
—
—
—
—
—
—
6
—
—
—
—
—
1,496
—
—
1,496
18,072
—
—
—
—
—
—
68,396
—
—
—
—
—
—
260
(5,346)
2,951
—
18,078
68,396
260
(5,346)
2,951
—
68,396
260
(5,346)
2,951
66,261
Balance, April 1, 2006 (a) . . . . . . . . . . . .
26,829
$268
$141,371
$301,759
$ (2,834)
$440,564
Employee stock purchase plan . . . . . . . .
Exercise of stock options and related tax
benefit
. . . . . . . . . . . . . . . . . . . . .
Shares repurchaed— Authorized Unissued
Stock Compensation expense . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Initial impact upon adoption of SFAS
No. 158, net of taxes . . . . . . . . . . . .
Foreign currency translation adjustment . .
Unrealized loss on derivatives, net of tax .
Comprehensive income . . . . . . . . . . . .
48
493
(853)
—
—
—
—
—
—
—
5
(8)
—
—
—
—
—
—
1,929
—
15,155
(4,891)
10,251
—
—
(35,101)
—
49,109
—
—
—
—
—
—
—
—
—
—
—
—
(90)
6,096
(3,371)
—
1,929
15,160
(40,000)
10,251
49,109
(90)
6,096
(3,371)
—
Balance, March 31, 2007 . . . . . . . . . . . . .
26,517
$265
$163,815
$315,767
$ (199)
$479,648
Employee stock purchase plan . . . . . . . .
Exercise of stock options and related tax
56
benefit
. . . . . . . . . . . . . . . . . . . . .
575
1
5
2,208
20,488
—
—
—
—
Shares repurchased— Authorized
Unissued . . . . . . . . . . . . . . . . . . . .
(1,463)
(15)
(9,430)
(65,551)
Issuance of restricted stock, net of
cancellations
. . . . . . . . . . . . . . . . .
Stock Compensation expense . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Impact of defined benefit plans, net of tax
Foreign currency translation adjustment . .
Unrealized loss on derivatives, net of tax .
Comprehensive income . . . . . . . . . . . .
10
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,852
—
—
—
—
—
—
—
51,980
—
—
—
—
—
—
—
276
11,748
(7,022)
—
2,209
20,493
(74,996)
—
9,852
51,980
276
11,748
(7,022)
—
Balance, March 29, 2008 . . . . . . . . . . . . .
25,695
$256
$186,933
$302,196
$ 4,803
$494,188
49,109
6,096
(3,371)
51,834
51,980
276
11,748
(7,022)
56,982
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods prior to the acquisition.
See Footnote #3
The accompanying notes are an integral part of these consolidated financial statements.
52
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
March 29, March 31,
2008
2007
April 1,
2006(a)
Cash Flows from Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,980
$ 49,109
$ 68,396
Adjustments to reconcile net income to net cash provided by operating activities:
Non cash items:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development and Cost to equity . . . . . . . . . . . . . . . . . . . .
Stock Compensation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax (Income) / Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss / (Gain) on sales of plant, property and equipment
. . . . . . . . . . . . . . . . . . . .
Tax benefit related to exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (gain) / loss from hedging activities
Change in operating assets and liabilities:
(Increase) / Decrease in accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) / Decrease in prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) in other assets and other long-term liabilities . . . . . . . . . . . . . . . . . . . . .
Tax benefit of exercise of stock options
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) / Increase in accounts payable and accrued expenses . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows from Investing Activities:
. . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment
Proceeds from sale of property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . .
Acquisition of HaemoScope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Infonale, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Information Data Management (‘‘IDM’’) . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Arryx, Inc.
Acquisition of licensing rights
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software development company milestone payments . . . . . . . . . . . . . . . . . . . . . . .
31,197
—
—
9,852
(882)
222
—
(3,995)
(18,229)
(2,874)
(8,082)
6,439
1,586
10,455
77,669
(57,790)
1,834
(45,591)
(1,300)
—
—
—
$
27,504
—
9,298
10,251
927
(1,073)
—
(3,109)
77
(8,520)
3,775
(2,755)
2,213
(4,134)
$
25,150
3,750
680
—
(290)
(2,588)
2,964
1,996
(10,305)
(5,501)
187
(1,373)
—
2,550
83,563
85,616
(40,438)
2,843
—
—
(9,274)
(23,227)
—
(1,020)
(33,774)
5,689
—
—
—
—
(3,000)
(1,020)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102,847)
(71,116)
(32,105)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase / (decrease) in short-term revolving credit agreements . . . . . . . . . . . . . .
Payments on long-term credit agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit on exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant monies received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) / provided by financing activities . . . . . . . . . . . . . . . . . . . . . .
Effect of Exchange Rates on Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . .
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . .
(638)
(18,709)
—
2,209
17,245
1,661
(74,996)
—
(73,228)
2,732
(95,674)
229,227
(588)
(4,127)
(5,715)
1,929
10,747
2,200
(40,000)
—
(35,554)
1,667
(21,440)
250,667
(540)
1,342
(5,714)
1,496
15,114
—
—
396
12,094
(753)
64,852
185,815
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 133,553
$229,227
$250,667
Non-cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placements of Haemonetics equipment
. . . . .
Supplemental Disclosures of Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,672
991
$
$
2,820
$ 2,086
1,460
$ 1,904
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,851
$ 27,504
$ 38,089
(a) Reflects the adjustment to convert our investment in Arryx, Inc. to the equity method for periods prior to the acquisition.
See Footnote #3
The accompanying notes are an integral part of these consolidated financial statements.
53
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Haemonetics is a blood management solutions company for our customers. Anchored by our
reputable medical devices systems, we also provide information technology platforms and valued added
services to provide customers with business solutions which support improved clinical outcomes for
patients and efficiency in the blood supply chain.
Our systems automate the collection and processing of donated blood; assess likelihood for blood
loss; and salvage and process surgical patient blood. These systems include devices and single-use,
proprietary disposable sets that operate only on our specialized equipment. Our systems allow users to
collect and process only the blood component(s) they target, plasma, platelets, or red blood cells,
increasing donor and patient safety as well as collection efficiencies. Our information technology
platforms are used by blood and plasma collectors to improve the safety and efficiency of blood
collection logistics by eliminating previously manual functions at not-for-profit blood banks and
commercial plasma centers. Our business services products include consulting, Six Sigma, and LEAN
manufacturing offerings that support our customers’ needs for regulatory compliance and operational
efficiency in the blood supply chain.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Our fiscal year ends on the Saturday closest to the last day in March. Fiscal years 2008, 2007, and
2006 all included 52 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include all accounts including those of our
subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us 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 vary from the amounts derived from our
estimates and assumptions.
Reclassifications
Certain reclassifications have been made to prior years’ amounts to conform to the current year’s
presentation.
Revenue Recognition
Our revenue recognition policy is to recognize revenues from product sales, software and services
in accordance with SAB No. 104, ‘‘Revenue Recognition’’, EITF 00-21, ‘‘Revenue Arrangements with
Multiple Deliverables’’ and Statement of Position (‘‘SOP’’) 97-2, ‘‘Software Revenue Recognition, as
amended’’. These standards require that revenues are recognized when persuasive evidence of an
arrangement exists, product delivery, including customer acceptance, has occurred or services have been
rendered, the price is fixed or determinable and collectibility is reasonably assured. When more than
54
one element such as equipment, disposables and services are contained in a single arrangement, we
allocate revenue between the elements based on each element’s relative fair value, provided that each
element meets the criteria for treatment as a separate unit of accounting. An item is considered a
separate unit of accounting if it has value to the customer on a stand alone basis and there is objective
and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered
elements is determined by the price charged when the element is sold separately, or in cases when the
item is not sold separately, by the using other objective evidence as defined in EITF 00-21, or vendor
specific objective evidenced under SOP 97-2.
Product Revenues
Product sales consist of the sale of our equipment devices, the related disposables used in these
devices and intravenous solutions manufactured for pharmaceutical companies. On product sales to
customers, revenue is recognized when both the title and risk of loss have transferred to the customer
as determined by the shipping terms and all obligations have been completed. Examples of common
post delivery obligations are installation and training. For product sales to distributors, we recognize
revenue for both equipment and disposables upon shipment of these products to our distributors. Our
standard contracts with our distributors state that title to the equipment passes to the distributors at
point of shipment to a distributor’s location. The distributors are responsible for shipment to the end
customer along with installation, training and acceptance of the equipment by the end customer. All
shipments to distributors are at contract prices and payment is not contingent upon resale of the
product.
Software and Service Revenues
At this time, our software and services business principally provides support to our plasma and
blood collection customers. Through our Haemonetics Software Solutions division, (formerly 5D(cid:3)
Information Management (‘‘5D’’) and Information Data Management (‘‘IDM’’), we provide
information technology platforms and technical support for donor recruitment and for efficient and
compliant operations of blood and plasma collection centers. For plasma customers, we also provide
information technology platforms for managing back office functions and distribution at plasma
fractionation facilities. Software license revenues are generally billed periodically, monthly or quarterly
and recognized for the period for which the service is provided. Our software and service business
model includes the provision of services, including in some instances hosting, technical support, and
maintenance, for the payment of periodic, monthly or quarterly fees. We recognize these fees and
charges as earned, typically as these services are provided during the contract period.
Translation of Foreign Currencies
All assets and liabilities of foreign subsidiaries are translated at the rate of exchange at year-end
while sales and expenses are translated at an average rate in effect during the year. The net effect of
these translation adjustments is shown in the accompanying financial statements as a component of
stockholders’ equity. Foreign currency transaction gains and losses, including those resulting from inter
company transactions, are included in other income, net on the consolidated statements of income.
Cash and Cash Equivalents
Cash equivalents include various instruments such as money market funds, U.S. government
obligations and commercial paper with maturities of three months or less at date of acquisition. Cash
and cash equivalents are recorded at cost, which approximates fair market value. As of March 29, 2008,
Haemonetics’ Cash and Cash Equivalents consisted solely of investments in money market funds
invested in United States Government Agency securities.
55
Allowance for Doubtful Accounts
We establish a specific allowance for customers when it is probable that they will not be able to
meet their financial obligation. Customer accounts are reviewed individually on a regular basis and
appropriate reserves are established as deemed appropriate. We also maintain a general reserve using a
percentage based upon an aging method. We establish percentages for balances not yet due and past
due accounts based on past experience.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash equivalents and accounts receivable. Sales to one unaffiliated Japanese customer, the
Japanese Red Cross Society, amounted to $73.3 million, $70.3 million and $79.0 million for 2008, 2007
and 2006, respectively. Accounts receivable balances attributable to this customer accounted for 15.9%,
15.8% and 15.7% of our consolidated accounts receivable at fiscal year end 2008, 2007 and 2006. While
the accounts receivable related to the Japanese Red Cross Society may be significant, we do not believe
the credit loss risk to be significant given the consistent payment history by this customer.
Certain other markets and industries can expose us to concentrations of credit risk. For example,
in our commercial plasma business, we tend to have only a few customers in total but they are large in
size. As a result, our accounts receivable extended to any one of these commercial plasma customers
can be somewhat significant at any point in time.
Property, Plant and Equipment
Property, Plant and Equipment is recorded at historical cost. We provide 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:
Asset Classification
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plant equipment and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and information technology . . . . . . . . . . . . . . . . . . . .
Haemonetics equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Useful Lives
30 Years
5-20 Years
5 Years
3-10 Years
3-9 Years
2-6 Years
Depreciation expense was $27.2 million, $24.4 million and $22.9 million for fiscal years 2008, 2007
and 2006, respectively.
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 statements of
income. Fully depreciated assets are removed from the accounts when they are no longer in use.
Haemonetics equipment is comprised of medical devices installed at customer sites. These devices
remain our property. Generally the customer has the right to use it for a period of time as long as they
meet the conditions we have established, which among other things, generally include one or both of
the following:
(cid:129) Purchase and consumption of a certain level of disposable products
(cid:129) Payment of monthly rental fees
56
Periodically we review the useful lives of our devices and perform reviews to determine if a group
of these devices is impaired. To conduct these reviews we estimate the future amount and timing of
demand for these devices. Changes in expected demand can result in additional depreciation expense,
which is classified as cost of goods sold. Any significant unanticipated changes in demand could impact
the value of our devices and our reported operating results. Expenditures for normal maintenance and
repairs are charged to expense as incurred.
Change in Depreciable Lives of Property and Equipment
In accordance with our policy, the Company reviews the estimated useful lives of our property,
plant and equipment on an ongoing basis. During fiscal year 2007 we increased the estimated useful life
of our PCS2 device, used by our commercial plasma customers.
As we had signed several long term contracts for the use of this device, we increased the useful
life of these devices from 4 years to 6 years to reflect the estimated periods during which these assets
will remain in service. The effect of this change in estimate was to reduce 2008 and 2007 depreciation
expense by $2.7 million and $0.5 million, respectively, increase 2008 and 2007 net income by
$1.8 million and $0.3 million, respectively and increase 2008 and 2007 basic and diluted earnings per
share by $0.07 and $0.01, respectively.
Accounting for Long-Lived Assets: Goodwill and Other Intangible Assets
Intangible assets acquired in a business combination, including licensed technology, are recorded
under the purchase method of accounting at their estimated fair values at the date of acquisition.
Goodwill represents the excess purchase price over the fair value of the net tangible and other
identifiable intangible assets acquired. We amortize our other intangible assets over their useful lives
using the estimated economic benefit method, as applicable.
Goodwill and certain other intangible assets, determined to have an indefinite life, are not
amortized. Instead these assets are reviewed for impairment at least annually in accordance with SFAS
No. 142, ‘‘Goodwill and Other Intangible Assets.’’ We perform our annual impairment test on
January 1st (or the first business day immediately following that date). As we only have one reporting
unit, the test is based on a fair value approach, which uses our market capitalization as the basis
reduced by the excess of the fair market value of our long-term debt over its carrying value, as
identified in our assessment of interest rate risk of the entity as a whole. The test showed no evidence
of impairment to our goodwill and other indefinite lived assets for fiscal 2008 or 2007.
We review our intangible assets and their related useful lives at least once a year to determine if
any adverse conditions exist that would indicate the carrying value of these assets may not be
recoverable. We conduct more frequent impairment assessments if certain conditions exist, including: a
change in the competitive landscape, any internal decisions to pursue new or different technology
strategies, a loss of a significant customer, or a significant change in the market place including changes
in the prices paid for our products or changes in the size of the market for our products.
An impairment results if the carrying value of the asset exceeds the estimated fair value of the
asset based on the sum of the future undiscounted cash flows expected to result from the use and
disposition of the asset. The amount of the impairment would be determined by comparing the carrying
value to the fair value of the asset. Fair value is generally determined by calculating the present value
of the estimated future cash flows using an appropriate discount rate. The projection of the future cash
flows and the selection of a discount rate require significant management judgment. The key variables
that management must estimate include sales volume, prices, inflation, product costs, capital
expenditures and sales and marketing costs. For developed technology that has not been deployed we
also must estimate the likelihood of both pursuing a particular strategy and the level of expected
market adoption.
57
If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying
amount of the intangible asset is amortized prospectively over the revised remaining useful life.
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
SFAS No. 86, ‘‘Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed’’, specifies that costs incurred internally in researching and developing a computer software
product should be charged to expense until technological feasibility has been established for the
product. Once technological feasibility is established, all software costs should be capitalized until the
product is available for general release to customers. Technological feasibility is established when we
have a detailed design of the software and when research and development activities on the underlying
device, if applicable, are completed. In connection with the development of our next generation Donor
apheresis platform, the Company capitalized $5.1 million and $5.9 million in software development
costs in fiscal 2008 and fiscal 2007, respectively, for a total of $11 million in total software development
costs. All costs capitalized were incurred after a detailed design of the software was developed and
research and development activities on the underlying device were completed. We will begin to
amortize these costs when the device is released for sale.
Additionally, the Company capitalized $2.5 million in other software development costs for
ongoing initiatives. We will begin to amortize these costs when the products are released for sale.
Other Accrued Liabilities
Other accrued liabilities represent costs incurred within the current year and payable within the
next twelve months. Other accrued liabilities were $46.5 million for fiscal year 2008 and $26.9 million
for fiscal year 2007.
The significant items in fiscal year 2008 and fiscal year 2007 were:
VAT Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Contract Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,377
$ 9,690
$ 7,645
$18,806
$ 5,040
$ —
$ 1,789
$20,115
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$46,518
$26,944
March 29, March 31,
2008
2007
Research, Development and Engineering Expenses
All research, development and engineering costs are expensed as incurred. Research, development
and engineering expense was $24.3 million for fiscal year 2008, $23.9 million for fiscal year 2007,
exclusive of the Arryx In-process Research and Development costs (see Footnote #3 Acquisitions) and
$26.5 million for fiscal year 2006. During fiscal year 2006, we recognized impairment charges in
research and development expenses of $3.8 million, due to the excess of the carrying value over the fair
market value of intangible assets.
Accounting for Shipping and Handling Costs
Shipping and handling costs are included in costs of goods sold with the exception of $9.8 million
for fiscal year 2008, $7.0 million for fiscal year 2007 and $5.6 million for fiscal year 2006 that are
included in selling, general and administrative expenses.
58
Income Taxes
The income tax provision is calculated for all jurisdictions in which we operate. This process
involves estimating actual current taxes due plus assessing temporary differences arising from differing
treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities.
Deferred tax assets are periodically evaluated to determine their recoverability and a valuation
allowance is established with a corresponding additional income tax provision recorded in our
consolidated statements of income if their recovery is not considered likely. The provision for income
taxes could also be materially impacted if actual taxes due differ from our earlier estimates. As of
March 29, 2008, a $0.4 million valuation allowance existed on our balance sheet. The total net deferred
tax asset as of March 29, 2008 was $21.8 million.
We adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income
Taxes’’—an Interpretation of FASB Statement 109, (FIN 48) effective April 1, 2007. FIN 48 provides a
comprehensive model for the financial statement recognition, measurement, presentation and disclosure
of uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax
benefits represent tax positions for which reserves have been established. Under FIN 48 the financial
statements reflect expected future tax consequences of such positions presuming the taxing authorities’
full knowledge of the position and all relevant facts. FIN 48 also revised disclosure requirements and
introduced an annual rollforward of unrecognized tax benefits. See footnote 8 for information about
the adoption of FIN 48.
We file income tax returns in all jurisdictions in which we operate. We establish reserves in
accordance with FIN 48 to provide for additional income taxes that may be due in future years as these
previously filed tax returns are audited. These reserves have been established based on management’s
assessment as to the potential exposure attributable to permanent differences and interest applicable to
both permanent and temporary differences. All tax reserves are analyzed periodically and adjustments
are made as events occur that warrant modification.
Our revenues are presented net of taxes collected from customers and remitted to government
authorities.
Foreign Currency
We enter into forward exchange contracts to hedge the probable cash flows from forecasted inter-
company foreign currency denominated revenues, principally Japanese Yen and Euro. The purpose of
our hedging strategy is to lock in foreign exchange rates for 12 months to minimize, for this period of
time, the unforeseen impact on our results of operations of fluctuations in foreign exchange rates. We
also enter into forward contracts that settle within 35 days to hedge certain inter-company receivables
denominated in foreign currencies. These derivative financial instruments are not used for trading
purposes. The forward exchange contracts are recorded at fair value and are included in other current
assets or other current liabilities on our consolidated balance sheets. The gains or losses on the forward
exchange contracts designated as hedges are recorded in net revenues on our consolidated statements
of income when the underlying hedge transaction affects earnings. 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. In the event the hedged forecasted transaction does not
occur, or it becomes probable that it will not occur, the Company would reclassify any gain or loss on
the related cash flow hedge from other comprehensive income to earnings at that time. The ineffective
portion of a derivative’s change in fair value is recognized currently in other income, net on our
consolidated statements of income.
59
Stock-Based Compensation
On April 2, 2006, we adopted FASB Statement No. 123(R), ‘‘Share-Based Payment’’, which
requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the consolidated statements of operations based on their fair values. We adopted
Statement No. 123(R) using the ‘‘modified-prospective method’’ and have not restated prior period
results of operations and financial position to reflect the impact of stock-based compensation expense
under Statement No. 123(R). We use the Black-Scholes option-pricing model to calculate the
grant-date fair value of our stock options. The following assumptions, which involve the use of
judgment by management, are used in the computation of the grant-date fair value of our stock
options:
Expected Volatility—We have principally used our historical volatility as a basis to estimate expected
volatility in our valuation of stock options.
Expected Term—We estimate the expected term of our options using historical exercise and
forfeiture data. We believe that this historical data is currently the best estimate of the expected term
of our new option grants.
Additionally, after determining the fair value of our stock options, we use judgment in establishing
an estimated forfeiture rate, to determine the amount of stock based compensation to record each
period:
Estimated Forfeiture Rate—We have applied, based on an analysis of our historical forfeitures, an
annual forfeiture rate of 8% to all unvested stock options as of March 29, 2008, which represents the
portion that we expect will be forfeited each year over the vesting period. We reevaluate this analysis
periodically and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for
those shares that vest.
Valuation of Acquisitions
We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we
assume based on their fair values at the dates of acquisition, including acquired identifiable intangible
assets, and purchased research and development. We base the fair value of identifiable intangible assets
on detailed valuations that use information and assumptions provided by management. We allocate any
excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
The use of alternative valuation assumptions, including estimated cash flows and discount rates, and
alternative estimated useful life assumptions could result in different purchase price allocations,
purchased research and development charges, and intangible asset amortization expense in current and
future periods.
The valuation of purchased research and development represents the estimated fair value at the
dates of acquisition related to in-process projects. Our purchased research and development represents
the value of an in-process project that has not yet reached technological feasibility and has no
alternative future use as of the date of acquisition. We expensed the value attributable to the in-process
project at the time of the acquisition. If the project is not successful or completed in a timely manner,
we may not realize the financial benefits expected from this project or for the acquisition as a whole.
60
We use the income approach to determine the fair values of our purchased research and
development. This approach determines fair value by estimating the after-tax cash flows attributable to
an in-process project over its useful life and then discounting these after-tax cash flows back to a
present value. We base our revenue assumptions on estimates of relevant market sizes, expected market
growth rates, expected trends in technology and expected product introductions by competitors. In
arriving at the value of the in-process projects, we consider, among other factors: the in-process
projects’ stage of completion; the complexity of the work completed as of the acquisition date; the costs
already incurred; the projected costs to complete; the contribution of core technologies and other
acquired assets; the expected introduction date; and the estimated useful life of the technology. We
base the discount rate used to arrive at a present value as of the date of acquisition on the time value
of money and medical technology investment risk factors. For the in-process project we acquired in
FY 07, we used a 26% risk-adjusted discount rate to discount our projected cash flows. We believe that
the estimated purchased research and development amounts so determined represent the fair value at
the date of acquisition and do not exceed the amount a third party would pay for the project.
Recent Accounting Pronouncements
In March 2008, the FASB issued FASB No. 161, ‘‘Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB No. 133’’. FASB No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring enhanced disclosures to
enable investors to better understand their effects on an entity’s financial position, financial
performance, and cash flows. FASB No. 161 is effective for annual periods beginning on or after
November 15, 2008. We are currently evaluating the potential impact of FASB No. 161 on our financial
position and results of operations. This statement is effective for our fiscal year 2010.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), ‘‘Business Combinations’’
(‘‘SFAS 141(R)’’). In SFAS 141(R), the FASB retained the fundamental requirements of Statement
No. 141 to account for all business combinations using the acquisition method (formerly the purchase
method) and for an acquiring entity to be identified in all business combinations. However, the new
standard requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to
disclose to investors and other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. SFAS 141(R) is effective for annual periods
beginning on or after December 15, 2008. We are currently evaluating the potential impact of FASB
No. 141(R) on our financial position and results of operations. This statement is effective for our fiscal
year 2010.
In December 2007, the FASB issued FASB No. 160 ‘‘Noncontrolling Interests in Consolidated
Financial Statements—an amendment of ARB No. 51’’ of which the objective is to improve the
relevance, comparability, and transparency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing accounting and reporting standards by requiring
all entities to report noncontrolling (minority) interests in subsidiaries in the same way—as equity in
the consolidated financial statements. Moreover, Statement 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. FASB No. 160 is effective for annual periods beginning on or after
December 15, 2008. We are currently evaluating the potential impact of FASB No. 160 on our financial
position and results of operations. This statement is effective for our fiscal year 2010.
In February 2007, the FASB issued FASB No. 159, ‘‘The Fair Value Option for Financial Assets
and Financial Liabilities-Including an amendment of FASB Statement No. 115’’ (‘‘FASB No. 159’’). The
new statement allows entities to choose, at specified election dates, to measure eligible financial assets
and liabilities at fair value that are not otherwise required to be measured at fair value. If a company
61
elects the fair value option for an eligible item, changes in that item’s fair value in subsequent
reporting periods must be recognized in current earnings. FASB No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the potential impact of FASB No. 159
on our financial position and results of operations. This statement is effective for our fiscal year 2009.
In September 2006, the FASB issued FASB No. 157, ‘‘Fair Value Measurements’’ (‘‘FASB
No. 157’’), which addresses how companies should measure fair value when they are required to use a
fair value measure for recognition or disclosure purposes under generally accepted accounting
principles. FASB No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements. FASB
No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007
and should be applied prospectively, except in the case of a limited number of financial instruments
that require retrospective application. We are currently evaluating the potential impact of FASB
No. 157 on our financial position and results of operations. This statement is effective for our fiscal
year 2009.
3. ACQUISITIONS
Haemoscope Corporation Acquisition
On November 20, 2007 the Company acquired Haemoscope Corporation’s TEG(cid:2)
Thrombelastograph(cid:2) Hemostasis Analyzer business for approximately $45.6 million in cash.
Haemoscope Corporation is a provider of whole blood hemostasis monitoring systems. The TEG
system can predict a patient’s risk of bleeding and therefore required blood management as well as
potential thrombotic complications which facilitates individualized therapy. The results of Haemoscope’s
operations have been included in our consolidated financial statements for periods after the acquisition
date.
Purchase Price
The Company has accounted for the acquisition of Haemoscope Corporation as the purchase of a
business under U.S. Generally Accepted Accounting Principles. Under the purchase method of
accounting, the assets and liabilities of Haemoscope Corporation were recorded as of the acquisition
date, at their respective fair values, and consolidated with those of Haemonetics. The purchase price is
based upon estimates of the fair value of assets acquired and liabilities assumed. The purchase price
allocation will be finalized no later than one year from the acquisition date. The preparation of the
valuation requires the use of significant assumptions and estimates. Critical estimates included, but
were not limited to, future expected cash flows, including product revenues, costs and operating
expenses and the applicable discount rates. These estimates were based on assumptions that the
Company believes to be reasonable. However, actual results may differ from these estimates.
The preliminary purchase price allocation, including the valuation of intangible assets, is as follows:
Consideration for Haemoscope Corporation
Cash portion of consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,080
Other acquisition-related costs
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquisition related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
511
$45,591
(in thousands)
62
Purchase Price Allocation
The following chart summarizes the preliminary purchase price allocation:
Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,060
17,530
2,876
(875)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,591
(in thousands)
The excess of the purchase price over the fair value of net tangible assets acquired was allocated
to specific intangible asset categories as follows:
(in thousands)
Amount
Assigned
Weighted Average
Amortization
Period
Risk-Adjusted
Discount Rate used
in Purchase Price
Allocation
Amortizable intangible assets
Technology—developed . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer Relationships . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,500
$15,960
$
600
$17,530
12.0 years
11.0 years
12.0 years
23.0%
23.0%
23.0%
30.8%
The Company believes that the estimated intangible assets represent the fair value at the date of
acquisition and do not exceed the amount a third party would pay for the assets. The Company used
the income approach to determine the fair value of the amortizable intangible assets.
Various factors contributed to the establishment of goodwill, including: the value of Haemoscope
Corporation’s highly trained work force as of the acquisition date, the expected business plans and
associated revenue from future products. The goodwill acquired is deductible for tax purposes.
The developed technology acquired represents the value associated with currently marketed
product, the TEG system. This system includes a patented device, application software and assays. The
system is used by hospitals and laboratories to predict a patient’s risk of bleeding. We also acquired the
customer relationships that Haemoscope developed. Haemoscope conducted the majority of its business
on the basis of purchase orders and repeat purchases of consumables. These customer relationships are
predicated on the technology that the customer has invested in, both through the initial purchase of the
TEG device, but also the investment in the training and staff development associated with using a
technology like TEG. The Company used the income approach to estimate the fair value of the
developed technology and customer relationships as of the acquisition date. The Company determined
that the estimated useful life of the intangible assets ranges from 11-12 years and are amortized using
the estimated economic benefit method.
Arryx, Inc. Acquisition
On July 18, 2006, the Company acquired the remaining outstanding shares of Arryx, Inc. for
$26 million. We previously had a $5 million cost method investment in Arryx, Inc. as well as a license
agreement for the use of its technology in a defined field of use with a carrying value of approximately
$3 million. The results of Arryx, Inc. have been included in our consolidated financial statements for
periods after the acquisition date, and we have restated our prior period financial results to record our
cost method investment on the equity method of accounting in accordance with Accounting Principles
Board, Opinion No. 18, ‘‘The Equity Method of Accounting for Investments in Common Stock’’ which
resulted in recognizing our 18.6% proportionate share of Arryx, Inc. losses in periods prior to the
63
current acquisition. We recorded cumulative equity method losses of $1.3 million for periods prior to
the acquisition date. We recorded an in-process research and development charge of $9.1 million in
connection with this acquisition.
Purchase Price
The Company has accounted for the acquisition of Arryx, Inc. as the purchase of a business under
U.S. Generally Accepted Accounting Principles. Under the purchase method of accounting, the assets
and liabilities of Arryx, Inc. were recorded as of the acquisition date, at their respective fair values, and
consolidated with those of Haemonetics. The purchase price is based upon estimates of the fair value
of assets acquired and liabilities assumed. The preparation of the valuation required the use of
significant assumptions and estimates. Critical estimates included, but were not limited to, future
expected cash flows, including product and license revenues, and the applicable discount rates. These
estimates were based on assumptions that the Company believes to be reasonable. However, actual
results may differ from these estimates.
The purchase price is as follows:
Consideration for Arryx, Inc.
Cash portion of consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License agreement with Arryx, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost Method Investment, representing 18.6% of outstanding Arryx, Inc. Shares .
Adjust Cost Method Investment to Equity Method in accordance with
Accounting Principles
Board Opinion No. 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other acquisition-related costs
(in thousands)
$26,521
3,298
5,000
(1,311)
33,508
Other estimated acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
447
Total acquisition related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,955
We applied the guidance under EITF 04-1, ‘‘Accounting for Preexisting Relationships between the
Parties to a Business Combination’’, to determine if any gain or loss was inherent in our existing license
agreement with Arryx, Inc. We determined that no loss was inherent in this existing contractual
relationship with Arryx, Inc., and accordingly included it at its net book value at the acquisition date in
the purchase price determination.
64
Purchase Price Allocation
The following chart summarizes the purchase price allocation:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset, Long Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$ 3,900
7,427
10,743
565
5,776
9,073
(785)
(2,744)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,955
The deferred tax asset relates to an acquired federal net operating loss of $15.6 million.
The deferred tax liability primarily relates to the tax impact of future amortization associated with
the identified intangible assets acquired, which are not deductible for tax purposes.
The excess of the purchase price over the fair value of net tangible assets acquired was allocated
to specific intangible asset categories as follows:
Weighted
Average
Amortization
Period
Risk-Adjusted
Discount Rate used in
Purchase Price
Allocation
Amount
Assigned
$ 4,134
3,293
12.0 years
10.0 years
$ 7,427
11.1 years
26%
25%
29%
(in thousands)
Amortizable intangible assets
Technology—developed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,743
In-process research and development . . . . . . . . . . . . . . . . .
$ 9,073
The Company believes that the estimated intangible assets represent the fair value at the date of
acquisition and do not exceed the amount a third party would pay for the assets. The Company used
the income approach to determine the fair value of the amortizable intangible assets and purchased
research and development.
Various factors contributed to the establishment of goodwill, including: the value of Arryx, Inc.’s
highly trained work force as of the acquisition date, the expected business plans and associated revenue
from future products and license opportunities. The goodwill acquired is not deductible for tax
purposes.
The developed technology acquired represents the value associated with currently marketed
product, the BioRx device. This device employs holographic optical trapping (‘‘HOT’’) technology, and
is currently used by large research and educational institutions. The Company used the income
approach to estimate the fair value of the developed technology as of the acquisition date. The
Company determined that the estimated useful life of the developed technology is 12 years.
The estimated fair value of the patents was determined by using the income approach. The
estimated revenues and associated cash flows attributable to the patent portfolio were discounted. The
estimated useful life of the patent asset is estimated to be 10 years.
65
In-process Research and Development
The $9.1 million purchased research and development that was charged to operating expenses in
fiscal year 2007 consists of a project for the advancement and development of the technology in the
blood collection and processing applications and for the purposes of licensing the technology outside of
the blood collection and processing marketplace. The project includes work to reduce the size of the
technology, including reducing the size of the laser, and developing mechanisms to label samples and
collections.
For purposes of valuing the acquired purchased research and development, the Company estimated
total costs to complete the current development of the platform of approximately $11 million. For the
in-process project the Company acquired in connection with the acquisition of Arryx, Inc., it used a
risk-adjusted discount rate of 29% to discount the projected cash flows. The Company believes that the
estimated purchased research and development amounts so determined represented the fair value at
the date of acquisition and did not exceed the amount a third party would pay for the projects.
The major risks and uncertainties associated with the timely and successful completion of the
in-process research and development project include the ability to both complete the development of
the platform and to establish its effectiveness for different applications for the purposes of licensing the
technology outside of the blood collection and processing marketplace.
IDM Acquisition
On January 30, 2007 Haemonetics Corporation acquired the assets of Information Data
Management, Inc. (‘‘IDM’’), a leading developer of software for blood collection agencies for about
$9 million in cash. IDM’s software applications for blood collection, blood laboratory operations, and
services complement Haemonetics’ 5D suite of software products and services. The purchase price will
be principally allocated to intangible assets including customer contractual relationships, completed
technology and goodwill. The results of IDM have been included in our consolidated financial
statements for periods after the acquisition date.
Purchase Price
The Company has accounted for the acquisition of IDM as the purchase of a business under U.S.
Generally Accepted Accounting Principles. Under the purchase method of accounting, the assets and
liabilities of IDM were recorded as of the acquisition date, at their respective fair values, and
consolidated with those of Haemonetics. The purchase price is based upon estimates of the fair value
of assets acquired and liabilities assumed. The preparation of the valuation required the use of
significant assumptions and estimates. Critical estimates included, but were not limited to, future
expected cash flows, including projected revenues and expenses, and the applicable discount rates.
These estimates were based on assumptions that the Company believes to be reasonable. However,
actual results may differ from these estimates.
The purchase price is as follows:
Consideration for IDM
(in thousands)
Cash portion of consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other estimated acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,850
374
$9,224
66
Purchase Price Allocation
The following chart summarizes the purchase price allocation:
Accounts Receivable and Unbilled . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 186
(898)
5,300
4,559
77
$9,224
(in thousands)
The excess of the purchase price over the fair value of net tangible assets acquired was allocated
to specific intangible asset categories as follows:
Amortizable intangible assets
Technology—developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Amortization
Period
Amount
Assigned
(in thousands)
$1,400
3,900
$5,300
7.0 years
11.0 years
9.2 years
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,559
The Company believes that the estimated intangible assets represent the fair value at the date of
acquisition and do not exceed the amount a third party would pay for the assets. The Company used
the income approach to determine the fair value of the amortizable intangible assets and purchased
research and development.
Various factors contributed to the establishment of goodwill, including: the value of IDM’s highly
trained work force as of the acquisition date, the expected business plans and opportunities to
introduce future products to their customer base.
Blood collection centers have found that information technology can maximize staff productivity,
assist with regulatory compliance, optimize donor resource management and provide management tools
to continually improve operations. IDM markets software products which meet the unique needs of
blood collectors and which aid customers in blood donor recruitment and management, blood
component manufacturing, distribution, and laboratory testing.
4.
PRODUCT WARRANTIES
We provide a warranty on parts and labor for one year after the sale and installation of each
device. We also warrant our disposable products through their use or expiration. We estimate our
potential warranty expense based on our historical warranty experience, and we periodically assess the
adequacy of our warranty accrual and make adjustments as necessary.
March 29, 2008 March 31, 2007
Warranty accrual as of the beginning of the period . . .
Warranty Provision . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty Spending . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty accrual as of the end of the period . . . . . . . .
$
$
67
(in thousands)
$
734
2,416
(2,221)
929
676
1,698
(1,640)
734
$
5.
INVENTORIES, NET
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:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 29, 2008 March 31, 2007
(in thousands)
$16,107
14,430
34,851
$65,388
$15,190
7,681
38,927
$61,797
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for fiscal year 2008, 2007 and 2006 are as follows
(in thousands):
Carrying amount as of April 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,483
Earn-out payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arryx, Inc(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IDM, Inc.(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of change in rates used for translation . . . . . . . . . . . . . . . . . . . . . .
1,020
10,743
4,818
(106)
Carrying amount as of March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,958
Arryx, Inc(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IDM, Inc.(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Haemoscope(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of change in rates used for translation . . . . . . . . . . . . . . . . . . . . . .
16
81
17,530
1,637
Carrying amount as of March 29, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$54,222
(a) See Note #3 Acquisition for a full description of the acquisition of Arryx, Inc. which occurred on
July 18, 2006.
(b) See Note #3 Acquisition for a full description of the acquisition of Information Data
Management, Inc. (‘‘IDM’’), which occurred on January 30, 2007.
(c) See Note #3, Acquisitions for a full description of the acquisition of Haemoscope Corporation
(‘‘Haemoscope’’), which occurred on November 20, 2007.
Other Intangible Assets
Other intangible assets include the value assigned to license rights and other technology, patents,
customer contracts and relationships, software technology, and a trade name. The estimated useful lives
for all of these intangible assets, excluding the trade name as it is considered to have an indefinite life,
are 6 to 20 years. During fiscal year 2006, we recognized an impairment charge in research and
development expenses of $3.8 million related to the excess of the carrying value over the fair market
value of an intangible asset, related to platelet pathogen reduction technology. Fair market value was
determined based on discounted cash flows analysis. The carrying value of the other technology was
reduced to zero. The impairment was triggered by near term plans by most of the European market to
adopt an alternate technology, bacterial detection.
Aggregate amortization expense for amortized other intangible assets for fiscal year 2008 is
$4.1 million. Additionally, expected future amortization expenses on other intangible assets
68
approximates $5.8 million per year for fiscal year 2009, $5.9 million per year for both fiscal years 2010
and 2011, $5.5 million per year for fiscal years 2012 and 2013.
As of March 29, 2008
Gross Carrying Amount
(in thousands)
Accumulated
Amortization
(in thousands)
Weighted Average
Useful Life (in years)
Amortized Intangibles
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized Software . . . . . . . . . . . . . . . . . . . .
Other technology . . . . . . . . . . . . . . . . . . . . . .
Customer contracts and related relationships . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite Life Intangibles Trade name . . . . . .
Total Intangibles . . . . . . . . . . . . . . . . . . . . . . .
$11,725
13,638
28,327
29,342
83,032
1,122
$84,154
$ 4,073
296
10,013
5,439
19,821
n/a
$19,821
12
6
11
8
11
Indefinite (cid:5)12
As of March 31, 2007
Gross Carrying Amount
(in thousands)
Accumulated
Amortization
(in thousands)
Weighted Average
Useful Life (in years)
Amortized Intangibles
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized Software . . . . . . . . . . . . . . . . . . . .
Other technology . . . . . . . . . . . . . . . . . . . . . .
Customer contracts and related relationships . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite Life Intangibles Trade name . . . . . .
Total Intangibles . . . . . . . . . . . . . . . . . . . . . . .
$13,834
6,367
17,298
13,138
50,637
504
$51,141
$ 4,679
36
8,797
3,771
17,284
n/a
$17,284
13
6
14
14
14
Indefinite
On November 20, 2007 the Company acquired Haemoscope Corporation’s TEG(cid:2)
Thrombelastograph(cid:2) Hemostasis Analyzer business for approximately $45.6 million cash. Haemoscope
Corporation is a provider of whole blood hemostasis monitoring systems. The TEG system can predict
a patient’s risk of bleeding and thrombotic complications and enable personalized therapy. The
purchase price was principally allocated to intangible assets including other technology, customer
relationships and goodwill. This purchase price allocation is preliminary and has not been finalized. The
results of the Haemoscope’s operations have been included in our consolidated financial statements for
periods after the acquisition date.
On July 9, 2007, the Company acquired the assets of Infonal´e, Inc. (‘‘Infonal´e’’) for approximately
$1.3 million in cash plus contingent consideration based upon future operating performance. Infonal´e is
a leading developer of IT software and consulting services for optimizing hospital blood use and
management. The purchase price was principally allocated to intangible assets including other
technology and goodwill. The results of the Infonal´e operations are included in our consolidated results
for periods after the acquisition date.
Other changes to the net carrying value of our intangible assets from March 31, 2007 to March 29,
2008, reflect the capitalization of software costs associated with our next generation Donor apheresis
platform (see Footnote #18), amortization expense and the effect of exchange rate changes in the
translation of our intangible assets held by our international subsidiaries, and the sale of certain patents
that had historical cost of $2.7 million and a carrying value of $1.0 million.
69
7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Haemonetics Japan Co. Ltd.
Less—Current portion . . . . . . . . . . . . . . . . . . . . . . . .
March 29, 2008 March 31, 2007
(in thousands)
$ 6,676
—
5,687
12,363
$ 6,326
$ 6,037
$ 7,263
5,714
15,899
28,876
$22,201
$ 6,675
Real Estate Mortgage Agreement
In December 2000 we entered into a $10.0 million real estate mortgage agreement (the ‘‘Mortgage
Agreement’’) with an investment firm. The Mortgage Agreement requires principal and interest
payments of $0.1 million per month for a period of 180 months, commencing February 1, 2001. The
entire balance of the loan may be repaid at any time after February 1, 2006, subject to a prepayment
premium, which is calculated based upon the change in the current weekly average yield of Ten
(10)-year U.S. Treasury Constant Maturities, 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
8.41% per annum. Borrowings under the Mortgage Agreement are secured by the land, building and
building improvements at our headquarters and manufacturing facility in the U.S. with a collective
carrying value of approximately $5.5 million and $6.3 million as of March 29, 2008 and March 31, 2007,
respectively. There are no financial covenants in the terms and conditions of this agreement.
Senior Notes
On October 15, 2007, the Company made its final payment of $5.7 million on the 7.05% Senior
Notes.
Haemonetics Japan Co. Ltd.
At March 29, 2008, Haemonetics Japan Co. Ltd. had 564 million Japanese Yen, equivalent to U.S.
$5.7 million, in unsecured debt outstanding. All of this debt is short term, maturing in less than
12 months.
The weighted average short-term rates for U.S. and non-U.S. borrowings were 2.23%, 2.41% and
1.99%, as of March 29, 2008, March 31, 2007, and April 1, 2006, respectively.
As of March 29, 2008, notes payable and long-term debt, which consists of short term borrowings
by Haemonetics Japan Co Ltd. and our real estate mortgage agreement, matures as follows:
Fiscal Year Ending
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$ 6,326
694
755
821
892
2,875
$12,363
70
8.
INCOME TAXES
Domestic and foreign income before provision for income tax is as follows:
Domestic . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,365
23,937
$77,302
(in thousands)
$58,969
13,367
$72,336
$ 93,541
12,661
$106,202
March 29, 2008 March 31, 2007
April 1, 2006
The income tax provision contains the following components:
Years Ended
March 29, 2008 March 31, 2007
April 1, 2006
(in thousands)
Current
Federal
. . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . .
Total current
. . . . . . . . . . . . . . . . . . . . .
Deferred
Federal
. . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . .
$18,763
1,586
5,855
26,204
(1,314)
(304)
736
(882)
$17,440
1,787
3,073
22,300
(6)
(4)
937
927
$32,165
2,569
3,362
38,096
(2,177)
745
1,142
(290)
Total tax expense . . . . . . . . . . . . . . . . . .
$25,322
$23,227
$37,806
Included in the federal income tax provisions for fiscal years 2008, 2007 and 2006 are
approximately $1.7 million, $0.3 million and $0.7 million, respectively, provided on foreign source
income of approximately $6.0 million, $1.4 million and $1.9 million for fiscal year 2008, 2007 and 2006,
respectively, for taxes which are payable in the United States.
Tax affected, significant temporary differences comprising the net deferred tax asset are as follows:
March 29, 2008 March 31, 2007
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . .
Stock Based Compensation . . . . . . . . . . . . . . . . . . . .
Tax credit carryforward, net . . . . . . . . . . . . . . . . . . . .
Gross Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . .
$ 2,729
(6,363)
6,662
3,816
3,511
5,675
3,731
2,440
22,201
(378)
$
(19)
(6,498)
7,241
330
2,920
7,543
2,945
2,177
16,639
(378)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . .
$21,823
$16,261
At March 29, 2008, we have approximately $15.6 million in U.S. acquisition related net operating
loss carry forwards subject to separate limitations that will expire beginning in 2020. We have
$3.3 million in gross federal and state tax credits available to offset future tax.
71
We do not provide U.S. taxes on our foreign subsidiaries’ undistributed earnings, which totaled
$72.2 million on March 29, 2008, as they are deemed to be permanently reinvested outside the U.S.
Non-US income taxes are, however, provided on these foreign subsidiaries’ undistributed earnings. In
FY08 we did provide $0.7 million on the portion of unremitted earnings of a foreign subsidiary that
was not permanently reinvested. Furthermore, upon repatriation, we provide the appropriate U.S.
income taxes on these earnings. In FY08 we did repatriate dividends from Europe of approximately
$6.2 million in anticipation of our European reorganization. We provided the appropriate U.S. taxes on
these distributions.
In October 2004, the American Jobs Creation Act of 2004 (‘‘AJCA’’) was enacted. The AJCA
provides a deduction from income for qualified domestic production activities that will be phased in
beginning in 2006 and fully implemented in 2010. Pursuant to the AJCA, we have phased-out the
existing extra-territorial income exclusion on foreign sales at the end of FY07. In December 2004, the
FASB issued FASB Staff Position (‘‘FSP’’) No. 109-1, ‘‘Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities by the American
Jobs Creation Act of 2004.’’ We have incorporated this benefit in our consolidated financial statements.
The income tax provision from operations differs from tax provision computed at the 35% U.S.
federal statutory income tax rate due to the following:
Tax at federal statutory rate . . . . . . . . . . . . . .
Extraterritorial Income Exclusion and
Domestic Manufacturing Deduction . . . . . . .
Difference between U.S. and foreign tax . . . . .
State income taxes net of federal benefit . . . . .
Tax exempt interest
. . . . . . . . . . . . . . . . . . . .
Tax Audit Settlement . . . . . . . . . . . . . . . . . . .
In Process Research and Development . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
March 29, 2008
March 31, 2007
April 1, 2006
(in thousands)
$27,044
35.0% $25,318
35.0% $37,171
35.0%
392
1.5% $ 1,402
$ (987) (cid:5)1.3% $ (1,410) (cid:5)1.9% $ (936) (cid:5)0.9%
$ (1,099) (cid:5)1.4% $
0.4%
$ 1,192
1.9%
$ (1,432) (cid:5)1.9% $ (2,456) (cid:5)3.4% $ (1,413) (cid:5)1.3%
$ (3,967) (cid:5)5.5% $ (399) (cid:5)0.4%
$ 3,254
694
397
0.5% $
1.9% $ 2,065
4.5%
1.0% $
—
—
604
0.8% $
0.9%
921
$
Income tax provision . . . . . . . . . . . . . . . . . . .
$25,322
32.8% $23,227
32.1% $37,806
35.6%
Adoption of FIN 48
We adopted the provision of FASB Interpretation No. 48 ‘‘accounting for Uncertainty in Income
Taxes’’—an Interpretation of FASB Statement No. 109, (FIN 48) effective April 1, 2007. FIN 48
provides a comprehensive model for the financial statement recognition, measurement, presentation
and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.
Unrecognized tax benefits represent tax positions for which reserves have been established.
As of April 1, 2007, our unrecognized tax benefits totaled approximately $6.5 million which, if
recognized, would favorably affect our effective tax rate in future periods. No adjustment was made to
the liability for unrecognized tax benefits as of April 1, 2007 or March 29, 2008 or our current year’s
tax provision in connection with the adoption of FIN 48. Each year the statute of limitations for
income tax returns filed in various jurisdictions closes, sometimes without adjustments. During the year
ended March 29, 2008 our unrecognized tax benefits were reduced by $2.1 million as a result of the
expiration of the statute of limitations in several jurisdictions. This was offset in part by the
establishment of reserves of $0.8 million for various matters including interest. Total unrecognized tax
benefits on March 29, 2008 were $5.2 million.
72
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at March 31, 2007 (adoption date) . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of current year . . . . . . . . . . . . . . . . . . . . .
Closure of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,544
764
$
$(2,059)
Balance at March 29, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,249
(in thousands)
Our historic practice has been and continues to be to recognize interest and penalties related to
Federal, state and foreign income tax matters in income tax expense. Approximately $0.8 million and
$0.7 million is accrued for interest at March 29, 2008 and March 31, 2007, respectively.
We conduct business globally and, as a result, file consolidated and separate Federal, state and
foreign income tax returns in multiple jurisdictions. In the normal course of business, we are subject to
examination by taxing authorities throughout the world in jurisdictions including the U.S., Japan,
Germany, France, the United Kingdom, and Switzerland. With a few exceptions overseas, we are no
longer subject to U.S. federal, state and local, or foreign income tax examinations for years before
2005.
9. COMMITMENTS AND CONTINGENCIES
We lease facilities and certain equipment under operating leases expiring at various dates through
fiscal year 2013. Facility leases require us to pay certain insurance expenses, maintenance costs and real
estate taxes.
Approximate future basic rental commitments under operating leases as of March 29, 2008 are as
follows:
Fiscal Year Ending
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
8,469
6,270
5,012
4,447
3,010
2,120
$29,328
Rent expense in fiscal year 2008, 2007 and 2006 was $8.8 million, $7.7 million and $6.6 million,
respectively.
We are presently engaged in various legal actions, and although ultimate liability cannot be
determined at the present time, we believe, based on consultation with counsel, that any such liability
will not materially affect our consolidated financial position or our results of operations.
On January 29, 2007 the Company received $6 million in full satisfaction of its claims against
Baxter Healthcare Corporation, Baxter International Inc. and Baxter Healthcare SA (together
‘‘Baxter’’) related to certain platelet pathogen reduction contracts. In connection with the settlement of
these claims, the Technology Development Agreement and Requirements Contract between the
Company and Baxter are terminated, and Haemonetics no longer retains any rights to distribute the
INTERSOL product (note INTERSOL is a registered trademark of Baxter). Haemonetics recorded the
receipt of this settlement in fiscal year 2007.
73
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, receivables and short-term debt approximate their
carrying value due to their short term maturities. The carrying value and estimated fair values of our
other significant financial instruments are as follows:
Liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts
March 29, 2008
March 31, 2007
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(in thousands)
$ 6,037
9,690
$ 7,081
9,690
$6,675
169
$7,500
169
$15,727
$16,771
$6,844
$7,669
The fair value of long term debt was calculated based upon the current market interest rates for
debt of similar maturity and credit rating. The fair value of our foreign exchange contracts was based
upon the market rates at the fiscal year end for the remaining life of the contract. The estimates
provided are not necessarily indicative of the amounts we would realize in a current market exchange.
11. CAPITAL STOCK
Stock Plans
The Company has an Incentive compensation plan, (the ‘‘2005 Incentive Compensation Plan’’).
The 2005 Incentive Compensation Plan permits the award of nonqualified stock options, incentive stock
options, stock appreciation rights, restricted stock, deferred stock/restricted stock units, other stock
units and performance shares to the Company’s key employees, officers and directors. The 2005
Incentive Compensation Plan is administered by the Compensation Committee of the Board of
Directors (the ‘‘Committee’’) consisting of two or more independent members of our Board of
Directors. The maximum number of shares available for award under the 2005 Incentive Compensation
Plan is 3,100,000. The maximum number of shares that may be issued pursuant to incentive stock
options may not exceed 500,000. Any shares that are subject to the award of stock options shall be
counted against this limit as one (1) share for every one (1) share issued. Any shares that are subject to
awards other than stock options shall be counted against this limit as 2.1 shares for every one (1) share
granted. The exercise price for the nonqualified stock options, incentive stock options, stock
appreciation rights, restricted stock, deferred stock/restricted stock units, other stock units and
performance shares granted under the 2005 Incentive Compensation Plan is determined by the
Committee, but in no event shall such option price be less than the fair market value of the common
stock at the time of the grant. Options, Restricted Stock Awards and Restricted Stock Units become
exercisable, or in the case of restricted stock the resale restrictions are released in a manner
determined by the Committee, generally over a four year period for employees and one year from
grant for non-employee directors, and all options expire not more than 7 years from the date of the
grant. At March 29, 2008, there were 1,871,698 options and 143,497 restricted stock units outstanding
under this plan and 1,002,962 shares available for future grant.
The Company had a long-term incentive stock option plan, (the ‘‘2000 Long-term Incentive Plan’’)
which permitted the issuance of a maximum of 3,500,000 shares of our common stock pursuant to
incentive and non-qualified stock options granted to key employees, officers and directors. The plan
was terminated in connection with the adoption of the 2005 Incentive Compensation Plan. At
March 29, 2008, there were 1,577,757 options outstanding under this plan and no further options will
be granted under this plan.
74
The Company had a non-qualified stock option plan under which options were granted to
non-employee directors and two previous plans under which options were granted to key employees. At
March 29, 2008, there were 208,111 options outstanding related to these plans. No further options will
be granted under these plans.
The Company has an Employee Stock Purchase Plan (the ‘‘Purchase Plan’’) under which a
maximum of 700,000 shares (subject to adjustment for stock splits and similar changes) of common
stock may be purchased by eligible employees. Substantially all of our full-time employees are eligible
to participate in the Purchase Plan.
The Purchase Plan provides for two ‘‘purchase periods’’ within each of our fiscal years, the first
commencing on November 1 of each year and continuing through April 30 of the next calendar year,
and the second commencing on May 1 of each year and continuing through October 31 of such year.
Shares are purchased through an accumulation of payroll deductions (of not less than 2% nor more
than 15% of compensation, as defined) for the number of whole shares determined by dividing the
balance in the employee’s account on the last day of the purchase period by the purchase price per
share for the stock determined under the Purchase Plan. The purchase price for shares 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.
We had a similar Stock Purchase Plan (‘‘Prior Plan’’) in effect through November 2007. The Prior
Plans terms were identical to the current purchase plan. During fiscal year 2008, there were 55,766
shares purchased at prices ranging from $38.63 to $ 40.66 per share under the Prior Plan. During fiscal
year 2007, there were 48,043 shares purchased at prices ranging from $38.76 to $41.52 per share under
the Prior Plan. During fiscal year 2006, there were 47,700 shares purchased at prices ranging from
$27.20 to $35.88 per share under the Prior Plan.
On April 2, 2006, we adopted SFAS No. 123(R), ‘‘Share-Based Payment’’, which requires that the
cost resulting from all share-based payment transactions be recognized as compensation cost over the
vesting period based on the fair value of the instrument on the date of grant. SFAS No. 123(R) revises
SFAS No. 123, ‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS No. 123’’), which previously
allowed pro forma disclosure of certain share-based compensation expense. Further, SFAS No. 123(R)
supercedes Accounting Principles Board Opinion No. 25, ‘‘Accounting for Stock Issued to Employees,’’
which previously allowed the intrinsic value method of accounting for stock options. Previously, we
accounted for stock option grants using the intrinsic value method, and accordingly our reported net
income did not include recognition of stock-based compensation expense prior to our adoption of SFAS
No. 123(R) on April 2, 2006.
We adopted SFAS No. 123(R) as of April 2, 2006, using the modified prospective transition
method. In accordance with the modified prospective transition method, our consolidated financial
statements for the prior periods have not been restated to reflect, and do not include, the impact of
SFAS No. 123(R). Stock-based compensation expense of $9.8 million and $10.2 million was recognized
under SFAS No. 123(R) for the twelve months ended March 29, 2008 and March 31, 2007, respectively.
The related income tax benefit recognized was $2.8 million and $2.9 for the twelve months ended
March 29, 2008 and March 31, 2007, respectively. We recognize stock-based compensation on a straight
line basis. The following table illustrates the pro forma effect on net income and earnings per share if
75
we had applied the fair value recognition provisions of SFAS No. 123 during the twelve months ended
April 1, 2006:
Net income (as reported): . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma Net Income: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
Basic
As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted
As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 1, 2006
(in thousands, except
per share amounts)
$68,396
(5,974)
$62,422
$
$
$
$
2.58
2.36
2.49
2.27
SFAS No. 123(R) requires that cash flows relating to the benefits of tax deductions in excess of
compensation cost recognized (in our reported or proforma results) be reported as a financing cash
flow, rather than as an operating cash flow, as previously required. This excess tax benefit was
$1.6 million and $2.2 million for the twelve months ended March 29, 2008 and March 31, 2007,
respectively.
A summary of stock option activity for the three years ended March 29, 2008 is as follows:
Outstanding at April 2, 2005 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at April 1, 2006 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Options
Outstanding
3,465,829
937,692
(604,036)
(90,227)
3,709,258
969,733
(492,633)
(121,880)
Outstanding at March 31, 2007 . . . . . . . . . . .
4,064,478
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . .
299,650
(575,072)
(131,490)
Outstanding at March 29, 2008 . . . . . . . . . . .
3,657,566
Exercisable at March 29, 2008 . . . . . . . . . . . .
2,321,761
Expected to Vest at March 29, 2008 . . . . . . .
3,386,772
76
Weighted
Average
Exercise Price
per Share
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Life
(Years)
Aggregate
Intrinsic
Value
($000’s)
$25.54
$42.23
$25.02
$30.96
$29.71
$51.41
$23.10
$42.82
$35.30
$51.18
$29.99
$45.88
$37.05
$31.37
$36.23
4.61
4.18
4.56
$79,183
$63,459
$76,088
The total intrinsic value of options exercised during fiscal years 2008, 2007 and 2006 was
$16.5 million, $11.6 million and $15.5 million, respectively.
As of March 29, 2008 and March 31, 2007, there was $14.2 million and $18.6 million, respectively,
of total unrecognized compensation cost related to non vested stock options. These costs are expected
to be recognized over a weighted average period of 2.1 years and 2.6 years, respectively. The total fair
value of shares fully vested during the twelve months ended March 29, 2008 and March 31, 2007 was
$34.2 million and $30.2 million, respectively.
The fair value was estimated using the Black-Scholes option-pricing model based on the weighted
average of the high and low stock prices at the grant date and the weighted average assumptions
specific to the underlying options. Expected volatility assumptions are based on the historical volatility
of our common stock. The risk-free interest rate was selected based upon yields of US Treasury issues
with a term equal to the expected life of the option being valued. The expected life of the option was
estimated with reference to historical exercise patterns, the contractual term of the option and the
vesting period. The assumptions utilized for option grants during the periods presented are as follows:
March 29, March 31,
2008
2007
April 1,
2006
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-Free Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected Life of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.6%
4.0%
31.2% 31.3%
4.1%
5.0%
5 yrs.
5 yrs.
5 yrs.
The weighted average grant date fair value of options granted during 2008, 2007 and 2006 was
approximately $17.19, $18.93, and $14.82 respectively.
We have applied, based on an analysis of our historical forfeitures, an annual forfeiture rate of 8%
to all unvested stock options as of both March 29, 2008 and March 31, 2007, which represents the
portion that we expect will be forfeited each year over the vesting period.
The fair values of shares purchased under the Employee Stock Purchase Plan are estimated using
the Black-Scholes single option-pricing model with the following weighted average assumptions:
March 29, March 31,
2008
2007
April 1,
2006
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-Free Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected Life of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.3%
4.6%
27.9% 22.4%
4.0%
5.0%
6 mos.
6 mos.
6 mos.
The weighted average grant date fair value of the six-month option inherent in the Purchase Plan
was $10.81, $12.00, and $9.97 in fiscal year 2008, 2007, and 2006, respectively.
The following table summarizes information about stock options outstanding at March 29, 2008:
Range of Exercise Prices
$15.16-$21.91 . . . . . . . . . . . .
$22.27-$26.11 . . . . . . . . . . . .
$27.13-$31.66 . . . . . . . . . . . .
$32.01-$38.27 . . . . . . . . . . . .
$41.15-$41.15 . . . . . . . . . . . .
$42.12-$49.92 . . . . . . . . . . . .
$51.07-$51.07 . . . . . . . . . . . .
$51.25-$51.25 . . . . . . . . . . . .
$52.76-$52.76 . . . . . . . . . . . .
$55.14-$55.14 . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
Options Outstanding
Options Exercisable
Number
Outstanding at
March 29, 2008
Weighted
Average
Outstanding
Contractual Life
Weighted
Average
Number
Exercisable at
Exercise Price March 29, 2008
Weighted
Average
Exercise Price
521,341
662,082
408,265
182,680
618,108
370,807
241,525
2,000
631,778
18,980
3,657,566
4.26
4.34
4.08
3.34
4.27
5.30
6.57
4.7
5.01
6.82
4.61
77
$20.72
$24.41
$30.93
$33.34
$41.15
$47.42
$51.07
$51.25
$52.76
$55.14
$37.05
521,341
563,294
402,515
178,305
322,468
143,341
—
1,000
189,497
—
2,321,761
$20.72
$24.12
$30.93
$33.25
$41.15
$47.06
—
$51.25
$52.76
—
$31.37
Restricted Stock Awards
As of March 29, 2008, there was $0.3 million of total unrecognized compensation cost related to
non vested stock awards. That cost is expected to be recognized over a weighted average period of
3.1 years. The total fair value of shares fully vested during the twelve months ended March 29, 2008
was zero.
A summary of restricted stock awards activity for the year ended March 29, 2008 is as follows:
Outstanding at March 31, 2007 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at March 29, 2008 . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average Grant
Date Fair Value
—
$48.09
—
—
$48.09
Shares
—
10,000
—
—
10,000
Restricted Stock Units
As of March 29, 2008, there was $2.1 million of total unrecognized compensation cost related to
non vested restricted stock units. That cost is expected to be recognized over a weighted average period
of 3.4 years. The total fair value of shares fully vested during the twelve months ended March 29, 2008
was zero.
A summary of restricted stock units activity for the year ended March 29, 2008 is as follows:
Outstanding at March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at March 29, 2008 . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Market Value
at Grant Date
—
$51.51
—
$51.33
$51.52
Shares
—
60,074
—
(1,742)
58,332
12. EARNINGS PER SHARE (‘‘EPS’’)
The following table provides a reconciliation of the numerators and denominators reflected in the
basic and diluted earnings per share computations, as required by SFAS No. 128, ‘‘Earnings Per Share,’’
(‘‘EPS’’).
Basic EPS is computed by dividing reported earnings available to stockholders by the weighted
average shares outstanding. Diluted EPS also includes the effect of dilutive potential common shares.
Basic EPS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic weighted average shares
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Years Ended
March 29, March 31,
2008
2007
April 1,
2006
(Dollars and shares in thousands
except per share amounts)
$51,980
25,824
$ 2.01
$49,109
26,746
1.84
$
$68,396
26,478
2.58
$
$51,980
25,824
922
26,746
$ 1.94
$49,109
26,746
903
27,649
1.78
$
$68,396
26,478
996
27,474
2.49
$
During 2008, 2007 and 2006 approximately 1.0 million, 1.58 million and 0.04 million potentially
dilutive common shares, respectively, were not included in the computation of diluted earnings per
share because exercise prices were greater than the average market price of the common shares.
13. COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner changes in stockholders’
equity. For us, all other non-owner changes are primarily foreign currency translation; the change in
our net minimum pension liability and the changes in fair value of the effective portion of our
outstanding cash flow hedge contracts.
The reconciliation of the components of accumulated other comprehensive loss is as follows:
Foreign
Currency
Translation,
net of tax
Unrealized
(loss) gain on
derivatives
(net of tax)
Minimum
pension liability,
net of tax
Balance as of April 1, 2006 . . . . . . . . . . . . . . . . . .
$ (5,127)
(in thousands)
$
$ 2,293
0
Changes during the year . . . . . . . . . . . . . . . . . . . .
$ 6,096
Balance as of March 31, 2007 . . . . . . . . . . . . . . . .
$
969
Changes during the year . . . . . . . . . . . . . . . . . . . .
$11,748
Balance as of March 29, 2008 . . . . . . . . . . . . . . . .
$12,717
$(3,371)
$(1,078)
$(7,022)
$(8,100)
$ (90)
$ (90)
$276
$186
A summary of the components of other comprehensive income is as follows:
Total
$(2,834)
$ 2,635
$ (199)
$ 5,002
$ 4,803
Years Ended
March 29, 2008 March 31, 2007
April 1, 2006
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,980
(In thousands)
$49,109
$68,396
Other comprehensive income:
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) / gain on cash flow hedges, net of tax . . . .
Reclassifications into earnings of cash flow hedge (gains) /
losses, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liabilities adjustment, net of tax . . . . . . .
11,748
(10,055)
3,033
276
6,096
(3,300)
(71)
(5,346)
5,225
(2,274)
260
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . .
$ 56,982
$51,834
$66,261
14. RETIREMENT PLANS
Defined Contribution Plans
We have a Savings Plus Plan that is a 401(k) plan that allows our U.S. employees to accumulate
savings on a pre-tax basis. In addition, matching contributions are made to the Plan based upon
pre-established rates. Our matching contributions amounted to approximately $2.4 million in 2008,
$2.2 million in 2007 and $1.9 million in 2006. Upon Board approval, additional discretionary
contributions can also be made. No discretionary contributions were made for the Savings Plan in fiscal
year 2008, 2007 or 2006.
One of our subsidiaries also has a defined contribution plan. Both the employee and the employer
make contributions to the plan. The employer contributions to this plan were $0.9 million, $0.4 million
and $0.3 million in fiscal year 2008, 2007 and 2006, respectively.
79
Defined Benefit Plans
In September 2006, the FASB issued FASB Statement No. 158, ‘‘Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’’, (‘‘FAS 158’’), which requires an employer to: (a) recognize in its statement of
financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status;
(b) measure a plan’s assets and its obligations that determine its funded status as of the end of the
employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a
defined benefit postretirement plan in the year in which the changes occur. The Company adopted
FAS 158 as of March 31, 2007 and accordingly is required to report changes in its funded status in
comprehensive income on its Statement of Stockholders’ Equity. The adoption of FAS 158 did not have
a material effect on the Company’s financial position at March 29, 2008 or March 31, 2007.
Benefits under these plans are generally based on either career average or final average salaries
and creditable years of service as defined in the plans. The annual cost for these plans is determined
using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates
which are subject to change. The measurement date for the plans is March 29, 2008.
Some of the Company’s foreign subsidiaries have defined benefit pension plans covering
substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the
aggregate include the following components:
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on benefit obligation . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Amortization of unrecognized prior service cost . . . . . . . . .
Amortization of unrecognized gain . . . . . . . . . . . . . . . . . . .
Amortization of unrecognized initial obligation . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 29, 2008 March 31, 2007
April 1, 2006
$594
$217
$ (74)
$ (35)
—
$ 22
$724
(in thousands)
$ 654
$ 195
$(179)
$ (34)
$ 19
$ 21
$ 676
$ 765
$ 180
$ (64)
$ 192
38
$
22
$
$1,133
80
The activity under those defined benefit plans are as follows:
March 29, 2008 March 31, 2007
April 1, 2006
Change in Benefit Obligation:
Benefit Obligation, beginning of year . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation, end of year . . . . . . . . . . . . . . . . . . . . . .
Change in Plan Assets:
Fair value of plan assets, beginning of year . . . . . . . . . . .
Company contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(6,690)
(594)
(217)
203
829
(463)
$(6,932)
$ 3,669
373
(175)
(454)
438
Fair value of Plan Assets, end of year . . . . . . . . . . . . . . . . .
$ 3,851
Funded Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net actuarial (gain) loss . . . . . . . . . . . . . . . .
Unrecognized initial obligation . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized on the balance sheet:
Prepaid pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive items pre-tax . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,141)
(235)
209
(182)
$(3,349)
$
498
(3,638)
(209)
$(3,349)
$(6,664)
(654)
(196)
948
257
(381)
$(6,690)
$ 3,994
391
(924)
179
29
$ 3,669
$(3,020)
71
207
(196)
$(2,938)
$
647
(3,667)
82
$(2,938)
$(6,288)
(765)
(180)
308
(259)
520
$(6,664)
$ 3,355
456
(284)
800
(333)
$ 3,994
$(2,177)
(175)
226
(229)
$(2,355)
$
331
(2,686)
—
$(2,355)
One of the benefit plans is funded through assets of the Company. Accordingly that plan has no
assets included in the information presented above. The assets of the other plan were greater than the
accumulated benefit obligation in fiscal years 2008, 2007 and 2006, respectively.
The weighted average rates used to determine the net periodic benefit costs were as follows:
March 29, 2008 March 31, 2007
April 1, 2006
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of increased salary levels . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on assets . . . . . . . . . . . .
3.7%
2.0%
0.0%
3.5%
1.3%
0.0%
3.1%
1.8%
2.0%
We have no other material obligation for post-retirement or post-employment benefits.
The Company’s investment policy for its pension plans is to balance risk and return through a
diversified portfolio to reduce interest rate and market risk. Maturities are managed so that sufficient
liquidity exists to meet immediate and future benefit payment requirements.
81
For the Company’s plan with assets, the asset allocation at the end March 29, 2008 year end by
asset category is presented in the following table:
Plan Assets
March 29, 2008 March 31, 2007
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59.0%
38.5%
0.0%
2.5%
66.5%
31.5%
0.0%
2.0%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
Expected benefit payments for both plans are estimated using the same assumptions used in
determining the company’s benefit obligation at March 29, 2008. Benefit payments will depend on
future employment and compensation levels, average years employed and average life spans, among
other factors, and changes in any of these factors could significantly affect these estimated future
benefit payments. Estimated future benefit payments during the next five years and in the aggregate for
the five fiscal years thereafter, are as follows:
Expected Benefit Payments
(in thousands)
Fiscal Year 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2014(cid:5)2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 243
$ 250
$ 251
$ 252
$ 271
$1,554
The Company contributions for fiscal year 2009 are expected to be consistent with our recent
historical experience.
15. TRANSACTIONS WITH RELATED PARTIES
We occasionally issue loans to employees for relocation costs and other personal purposes. The
amount of these loans, which is included in other assets, amounted to approximately zero million in
fiscal years 2008 and 2007, and $0.1 million in fiscal year 2006, respectively. These loans are payable
within five years. Certain loans are interest bearing, and interest income is recorded on these loans
when collected. Certain loans have forgiveness provisions based upon continued service or compliance
with various guidelines. The outstanding loan balance is amortized as a charge to operating expense as
such amounts are forgiven.
During fiscal 2007, we made the fourth and final $1.0 million earn-out payment to 6 Encore Inc.
(formerly Fifth Dimension Information Systems, Inc.), in accordance with the Asset Purchase
Agreement, dated December 12, 2001, as amended, in which Haemonetics Enterprises, Inc. and
Haemonetics Canada Ltd. purchased the assets of Fifth Dimension Information Systems, Inc. The
President and principal shareholder of 6 Encore Inc. is Brad Lazaruik, former Haemonetics Vice
President, (President, 5D division). The payments were made during fiscal year 2007, 2006, 2005 and
2004 respectively. The final earn-out payment was made to Mr. Lazaruik in February 2007. There are
no additional payments to be made to Mr. Lazaruik by Haemonetics Corporation.
16. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
Segment Definition Criteria
We manage our business on the basis of one operating segment: the design, manufacture and
marketing of automated blood processing systems. Our chief operating decision-maker uses
82
consolidated results to make operating and strategic decisions. Manufacturing processes, as well as the
regulatory environment in which we operate, are largely the same for all product lines.
Enterprise Wide Disclosures About Product and Services
We have three families of products: (1) those that serve the blood donor, (2) those that serve the
patient and (3) our services and software products which are used in connections with our donor and
patient products. Under the donor family of products we have included blood bank, red cell and
plasma collection products. The patient products include autologous blood salvage products targeting
surgical patients who lose blood before or after surgery as well as a blood loss diagnostic product.
Software and services include information technology platforms and business services, like consulting
and six sigma training, that assist blood centers and hospitals more effectively manage blood supply and
demand.
Donor
The blood bank products include machines, single use disposables and solutions that perform
‘‘apheresis,’’ (the separation of whole blood into its components and subsequent collection of certain
components, including platelets and plasma) as well as the washing of red blood cells for certain
procedures. The main devices used for these blood component therapies are the MCS(cid:2)+ mobile
collection systems and the ACP(cid:2) 215 automated cell processing system. In addition, the blood bank
product line includes generic solutions that we produce for pharmaceutical companies pursuant to
contracts.
Red cell products include machines, single use disposables and solutions that perform apheresis for
the collection of red blood cells. The devices used for the collection red blood cells is the MCS(cid:2)+ 8150
mobile collection system.
Plasma collection products are machines, disposables and solutions that perform apheresis for the
separation of whole blood components and subsequent collection of plasma. The device used in
automated plasma collection is the PCS(cid:2)2 plasma collection system.
Patient
Patient products include machines and single use disposables that process surgical blood. Patient
products include the OrthoPAT, Cell Saver and cardioPAT surgical blood salvage systems, and the
SmartSuction surgical suction product. Cell Saver is used in cardiovascular surgeries with high blood
loss, other high blood loss surgeries, and trauma. The Cell Saver is used inter-operatively. The
cardioPAT is used in lower blood loss and minimally invasive cardiovascular surgeries. The cardioPAT
can be used both intra-operatively and post-operatively. OrthoPAT technology is used for lower, slower
blood loss orthopedic procedures, where bleeding takes place during and after surgery. These
technologies perform a procedure whereby shed blood is collected, cleansed and made available to be
transfused back to the patient.
The Smart Suction is an auto-regulating suction system which removes blood and debris from the
surgical field. The systems are used in conjunction with surgical blood salvage.
In November of 2007 we acquired the TEG(cid:2) Thrombelastograph(cid:2) Hemostasis Analyzer business
from Haemoscope. The TEG system is a diagnostic tool which allows surgeons to determine the
likelihood that a patient will need a transfusion so the surgeon can then decide the best blood-related
clinical treatment for the individual patient.
83
Software and Services
Software and services revenue includes revenue generated from Haemonetics Software Solutions
business, equipment repairs performed under preventive maintenance contracts or emergency service
billings and miscellaneous sales. Haemonetics Software Solutions provides information technology
platforms to plasma collectors, blood banks and the U.S. Department of Defense.
Revenues from External Customers:
Disposables Revenues by Product Family
Donor:
Plasma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Blood Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Red Cell
Patient:
Surgical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OrthoPAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposables Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software and Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues from external customers . . . . . . . . . . . . . .
Years ended
March 29, 2008 March 31, 2007
April 1, 2006
(in thousands)
$155,219
$136,148
$ 46,377
$337,744
$ 72,085
$ 34,301
$106,386
$444,130
$ 32,812
$ 39,498
$516,440
$126,971
$126,216
$ 43,406
$296,593
$ 66,552
$ 30,515
$ 97,067
$393,660
$ 22,229
$ 33,718
$449,607
$109,100
$132,407
$ 37,830
$279,337
$ 65,893
$ 21,864
$ 87,757
$367,094
$ 25,759
$ 26,880
$419,733
84
s
e
c
i
v
r
e
S
d
n
a
t
c
u
d
o
r
P
t
u
o
b
A
s
e
r
u
s
o
l
c
s
i
D
e
d
i
W
e
s
i
r
p
r
e
t
n
E
)
s
d
n
a
s
u
o
h
t
n
i
(
d
e
d
n
e
s
r
a
e
Y
l
a
t
o
T
d
e
t
a
d
i
l
o
s
n
o
C
l
a
t
o
T
e
p
o
r
u
E
r
e
h
t
O
e
p
o
r
u
E
a
i
r
t
s
u
A
d
n
a
l
r
e
z
t
i
w
S
y
l
a
t
I
m
o
d
g
n
i
K
e
c
n
a
r
F
y
n
a
m
r
e
G
d
e
t
i
n
U
l
a
t
o
T
a
i
s
A
r
e
h
t
O
a
i
s
A
n
a
p
a
J
a
c
i
r
e
m
A
a
c
i
r
e
m
A
l
a
t
o
T
h
t
r
o
N
r
e
h
t
O
h
t
r
o
N
d
e
t
i
n
U
s
e
t
a
t
S
0
4
4
,
6
1
5
$
0
5
9
,
8
0
6
$
3
9
4
,
5
5
1
$
6
5
8
,
4
8
1
$
3
8
3
,
3
1
$
5
6
4
,
0
3
$
7
6
9
,
7
$
9
2
9
,
3
$
1
6
7
,
8
3
$
6
1
6
,
8
4
$
6
1
8
,
0
2
$
8
7
2
,
0
3
$
0
6
6
,
6
$
0
9
8
,
4
1
$
2
9
0
,
7
2
$
3
7
5
,
5
2
$
5
1
8
,
0
4
$
5
0
1
,
1
3
$
2
8
0
,
8
2
1
$
9
2
5
,
5
7
$
3
2
3
,
9
3
$
3
1
5
,
4
2
$
9
5
7
,
8
8
6
1
0
,
1
5
$
$
5
6
8
,
2
3
2
$
5
6
5
,
8
4
3
$
3
5
$
9
5
5
,
6
$
2
1
8
,
2
3
2
$
6
0
0
,
2
4
3
$
9
3
0
,
5
3
2
$
9
1
6
,
2
2
$
5
0
7
,
9
$
3
0
7
$
8
2
8
,
1
$
0
5
3
,
3
$
1
6
1
,
2
$
7
8
4
,
2
$
5
8
3
,
2
$
4
7
4
,
4
1
$
9
1
1
,
3
$
5
5
3
,
1
1
$
6
4
9
,
7
9
1
$
3
4
7
,
5
$
3
0
2
,
2
9
1
$
.
.
.
.
.
.
.
.
.
.
s
e
l
a
S
s
t
e
s
s
A
l
a
t
o
T
d
e
v
i
L
-
g
n
o
L
.
.
s
t
e
s
s
A
8
0
0
2
,
9
2
h
c
r
a
M
l
a
t
o
T
d
e
t
a
d
i
l
o
s
n
o
C
l
a
t
o
T
e
p
o
r
u
E
r
e
h
t
O
e
p
o
r
u
E
a
i
r
t
s
u
A
d
n
a
l
r
e
z
t
i
w
S
y
l
a
t
I
m
o
d
g
n
i
K
e
c
n
a
r
F
y
n
a
m
r
e
G
d
e
t
i
n
U
l
a
t
o
T
a
i
s
A
r
e
h
t
O
a
i
s
A
n
a
p
a
J
a
c
i
r
e
m
A
a
c
i
r
e
m
A
l
a
t
o
T
h
t
r
o
N
r
e
h
t
O
h
t
r
o
N
d
e
t
i
n
U
s
e
t
a
t
S
85
7
0
0
2
,
1
3
h
c
r
a
M
7
0
6
,
9
4
4
$
5
3
7
,
2
7
5
$
7
6
7
,
3
3
1
$
7
8
8
,
7
9
$
2
5
9
,
5
1
$
8
6
6
,
5
2
$
8
9
5
,
8
$
0
0
4
,
3
$
3
4
4
,
5
2
$
7
8
1
,
9
$
0
0
1
,
8
1
$
6
5
3
,
4
2
$
3
2
0
,
5
5
0
1
,
7
$
$
4
8
6
,
3
2
$
4
6
6
,
9
$
7
6
9
,
6
3
$
7
0
5
,
8
1
$
0
5
6
,
4
0
1
$
0
6
7
,
9
4
$
4
4
4
,
6
1
$
3
0
0
,
0
1
$
6
0
2
,
8
8
7
5
7
,
9
3
0
9
5
,
9
5
1
$
0
5
0
,
0
2
$
4
4
4
,
9
$
7
9
6
$
1
9
9
$
4
8
1
,
3
$
1
2
7
,
2
$
7
7
3
,
1
$
6
3
6
,
1
$
8
7
7
,
1
1
$
8
3
9
,
1
$
0
4
8
,
9
$
$
$
0
9
1
,
1
1
2
$
8
8
0
,
5
2
4
$
6
4
1
$
5
5
7
,
4
$
4
4
0
,
1
1
2
$
3
3
3
,
0
2
4
$
2
6
7
,
7
2
1
$
8
7
2
,
4
$
4
8
4
,
3
2
1
$
l
a
t
o
T
d
e
t
a
d
i
l
o
s
n
o
C
l
a
t
o
T
e
p
o
r
u
E
r
e
h
t
O
e
p
o
r
u
E
a
i
r
t
s
u
A
d
n
a
l
r
e
z
t
i
w
S
y
l
a
t
I
m
o
d
g
n
i
K
e
c
n
a
r
F
y
n
a
m
r
e
G
d
e
t
i
n
U
l
a
t
o
T
a
i
s
A
r
e
h
t
O
a
i
s
A
n
a
p
a
J
a
c
i
r
e
m
A
a
c
i
r
e
m
A
l
a
t
o
T
h
t
r
o
N
r
e
h
t
O
h
t
r
o
N
d
e
t
i
n
U
s
e
t
a
t
S
3
3
7
,
9
1
4
$
7
5
4
,
5
4
5
$
2
4
2
,
2
2
1
$
1
6
2
,
1
7
$
5
4
0
,
0
1
$
0
8
8
,
4
$
1
2
9
,
8
$
1
0
8
,
3
$
4
5
7
,
3
2
$
8
0
3
,
6
$
4
8
0
,
7
1
$
6
8
1
,
3
1
$
5
0
6
,
5
$
1
5
0
,
1
2
$
7
7
3
,
4
2
$
4
5
0
,
8
$
6
5
4
,
2
3
$
1
8
9
,
3
1
$
0
3
2
,
1
3
1
$
2
8
3
,
0
5
$
6
1
0
,
1
3
$
0
4
2
,
0
1
$
4
1
2
,
0
0
1
$
1
6
2
,
6
6
1
$
2
4
1
,
0
4
$
4
1
8
,
3
2
4
$
2
8
5
,
4
$
5
0
0
,
5
$
9
7
6
,
1
6
1
$
9
0
8
,
8
1
4
$
9
3
1
,
8
2
1
$
1
3
4
,
0
2
$
5
3
8
,
1
$
4
4
7
$
8
5
$
4
8
5
,
2
$
8
9
9
,
9
$
8
0
0
,
1
$
4
0
2
,
4
$
6
2
7
,
3
1
$
1
3
7
$
5
9
9
,
2
1
$
2
8
9
,
3
9
$
2
3
6
,
3
$
0
5
3
,
0
9
$
.
.
.
.
.
.
.
.
.
.
s
e
l
a
S
s
t
e
s
s
A
l
a
t
o
T
d
e
v
i
L
-
g
n
o
L
.
.
s
t
e
s
s
A
6
0
0
2
,
1
l
i
r
p
A
.
.
.
.
.
.
.
.
.
.
s
e
l
a
S
s
t
e
s
s
A
l
a
t
o
T
d
e
v
i
L
-
g
n
o
L
.
.
s
t
e
s
s
A
17. REORGANIZATION
In FY2007, the Company embarked on the first year of a business transformation with the primary
focus on our international businesses. The goal of the transformation was to position these businesses
to complement the growth of our U.S. business.
Having completed the business transformation in both Japan and Asia, on April 2, 2007
management approved a plan to consolidate our customer support functions in Europe into our
European Headquarters in Signy, Switzerland. The consolidated center in Signy now includes finance,
customer and sales support, and logistics supply chain management. The majority of the consolidation
of these functions occurred during fiscal year 2008. During fiscal year 2008, we recorded pre-tax
restructuring costs of $3.9 million as selling, general and administrative costs including $2.8 million of
one-time termination benefits and related costs (principally severance, outplacement costs and
relocation costs) and $1.1 million of costs associated with reducing our facilities. The remaining costs
will be paid out during fiscal 2009.
We expect this transformation will yield improved operating effectiveness, including improved
customer service, enhanced business continuity for our global organization, and greater professional
development opportunities for our employees.
Additionally during fiscal year 2008, we incurred other transformation costs of $1.8 million
including the costs of hiring new personnel in our new shared services center in Signy, Switzerland.
These costs are not included in the table below.
Also included in fiscal year 2008 restructuring costs were costs associated with exiting our OEM
solutions business in South Carolina. We cancelled a contract to produce solutions for a pharmaceutical
company and wrote down the associated assets. These costs totaled approximately $0.6 million.
The following summarizes the restructuring activity for fiscal years 2008 and 2007, respectively:
(Dollars in thousands)
. . . . . . . . . . .
Employee-related costs
Facility related costs . . . . . . . . . . . . . .
Other Exit & Termination Costs . . . . .
(Dollars in thousands)
. . . . . . . . . . .
Employee-related costs
Facility related costs . . . . . . . . . . . . . .
Balance at
March 31, 2007
Cost
Incurred
Payments Write down
Asset
Restructuring
Accrual Balance at
March 29, 2008
$ —
0
0
$ —
$2,800
$1,073
$ 663
$2,279
$ 727
$ 188
$4,536
$3,194
$ —
$304
$397
$701
Asset
$521
$ 42
$ 78
$641
Restructuring
Accrual Balance at
March 31, 2007
Balance at
April 1, 2006
Cost
Incurred
Payments Write down
$ —
—
$ —
$2,640
878
$2,640
572
$3,518
$3,212
$ —
306
$306
$ —
—
$ —
18. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
The Company is implementing an Enterprise Resource Planning (ERP) system. In Fiscal 2007, we
began our plan to implement the system in three phases over three years.
The cost of software that is developed for internal use is accounted for pursuant to AICPA
Statement of Position 98-1, ‘‘Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use’’ (‘‘SOP 98-1’’). Pursuant to SOP 98-1, the Company capitalizes costs incurred during
the application development stage of software developed for internal use, and expenses costs incurred
86
during the preliminary project and the post-implementation operation stages of development. The
Company capitalized $7.5 million and $8.7 million in costs incurred for acquisition of the software
license and related software development costs for new internal software development that was in the
application stage during fiscal year 2008 and 2007, respectively. The total capitalized costs incurred to
date include $1.8 million for the cost of the software license and $14.4 million in third party
development costs and internal personnel. The Company incurred depreciation expense of $1.4 million
and zero during fiscal year 2008 and 2007, respectively relating to the above capitalized costs.
SFAS No. 86, ‘‘Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed’’, specifies that costs incurred internally in researching and developing a computer software
product should be charged to expense until technological feasibility has been established for the
product. Once technological feasibility is established, all software costs should be capitalized until the
product is available for general release to customers. Technological feasibility is established when we
have a detailed design of the software and when research and development activities on the underlying
device, if applicable, are completed. In connection with the development of our next generation Donor
apheresis platform, the Company capitalized $5.1 million and $5.9 million in software development
costs in fiscal 2008 and fiscal 2007, respectively, for $11 million in total software development costs. All
costs capitalized were incurred after a detailed design of the software was developed and research and
development activities on the underlying device were completed. We will begin to amortize these costs
when the device is released for sale.
Additionally, the Company capitalized $2.5 million in other software development costs for
ongoing initiatives. We will begin to amortize these costs when the products are released for sale.
In connection with these development activities we capitalized interest of $0.5 million in fiscal 2008
and $0.2 million in fiscal 2007, respectively.
19. SUMMARY OF QUARTERLY DATA (UNAUDITED)
Fiscal year ended March 29, 2008:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share data:
Net Income:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended March 31, 2007:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income(a) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share data:
Net Income:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$121,936
$ 61,494
$ 15,779
$ 12,677
$121,179
$ 59,889
$ 14,616
$ 11,167
$134,587
$ 66,201
$ 19,583
$ 14,343
$138,739
$ 70,141
$ 20,309
$ 13,793
$
$
0.48
0.46
$
$
0.44
0.42
$
$
0.56
0.54
$
$
0.54
0.52
$110,674
$ 57,373
$ 14,891
$ 11,156
$108,487
$ 55,162
5,156
$
1,266
$
$113,527
$ 56,419
$ 17,005(b)
$ 16,902
$116,919
$ 58,346
$ 25,691
$ 19,784
$
$
0.41
0.40
$
$
0.05
0.05
$
$
0.64
0.62
$
$
0.75
0.72
(a) Includes a $9.1 million In-process R&D impact of Arryx acquisition.
87
(b) Includes a $5.7 million net settlement agreement resulting from a $6 million settlement received on
January 29, 2007 for full satisfaction of its claims.
20. SUBSEQUENT EVENTS (UNAUDITED)
As discussed in our Earning Release on May 1, 2008, the Company announced plans to initiate a
new $60 million share repurchase program. Repurchases commenced on May 5, 2008.
On May 1, 2008, management announced a plan to transform our Technical Operations
organization, which includes research, development and engineering, quality systems and manufacturing.
Our goal is to better align our Technical Operations resources with our strategy to be the global leader
in blood management solutions for our customers. This transformation will include: optimizing the
products manufactured in our plants to best support our global customer base and concentrating our
RD&E resources on one platform project.
We will implement these actions over the course of FY09. To complete this plan we expect to incur
exit related costs of $7 million to $8 million, including $4 to $5 million of one-time termination benefits
and related costs (principally severance and outplacement costs), and up to $3 million of other costs
including relocation costs, the costs of exiting certain lease arrangements, and the cost of disposing of
certain assets.
We expect these costs will be incurred and reflected in the financial statements principally during
Fiscal Year 2009, which began on March 30, 2008. We expect this transformation will align our
resources with our vision of being the global leader in blood management solutions.
88
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Haemonetics Corporation:
We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and
subsidiaries as of March 29, 2008 and March 31, 2007 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the period ended
March 29, 2008. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 consolidated financial position of Haemonetics Corporation and subsidiaries at March 29,
2008 and March 31, 2007, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended March 29, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective April 2, 2006, the
Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based
Payment and effective April 1, 2007, the Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109,
(FIN 48).
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Haemonetics Corporation's internal control over financial
reporting as of March 29, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated May 22, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 22, 2008
89
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
A) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer (our principal executive officer and principal financial officer, respectively)
regarding the effectiveness of the design and operation of our disclosure controls and procedures as
defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the
period covered by this report, our disclosure controls and procedures are effective.
B) Reports on Internal Control
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Company’s internal control system was designed to provide reasonable assurance to the Company’s
management and Board of directors regarding the preparation and fair presentation of published
financial statements.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of March 29, 2008. In making this assessment, the management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on our assessment we believe that, as of March 29,
2008, the Company’s internal control over financial reporting is effective based on those criteria.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
90
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Haemonetics Corporation
We have audited Haemonetics Corporation’s internal control over financial reporting as of
March 29, 2008, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Haemonetics Corporation’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Haemonetics Corporation maintained, in all material respects, effective internal
control over financial reporting as of March 29, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Haemonetics Corporation as of
March 29, 2008 and March 31, 2007, and the related consolidated statements of income, stockholders’
equity, and cash flows for each of the three years in the period ended March 29, 2008 of Haemonetics
Corporation and our report dated May 22, 2008 expressed an unqualified opinion thereon.
Boston, Massachusetts
May 22, 2008
/s/ Ernst & Young LLP
91
C) Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred
during the fourth quarter of the Company’s most recently completed fiscal year that materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
During the first three quarters of fiscal 2008, the Company completed the first phase of a
company-wide implementation of Oracle, a global enterprise resource planning (ERP) system (see
Footnote #18). Oracle is now implemented in the U.S., Europe, Japan and Asia. The ERP
implementation replaced our existing order entry, fulfillment, service and financial systems, resulting in
significant changes to our business processes and therefore our controls. These changes are intended to
improve customer service and controls and reduce manual processes. As with any significant change we
have identified certain control deficiencies resulting from business process, system and user issues. Our
implementation process is designed to identify and remediate issues of this nature, and includes
participation from global users, functional leaders and ERP implementation leads. We have monitoring
controls in place to ensure the ongoing reliability of our financial reporting. We believe the controls, as
implemented, are appropriate and functioning effectively.
Other than the change mentioned above, no other change in the Company’s internal control over
financial reporting occurred during fiscal 2008 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
92
CORPORATE DIRECTORY
INVESTOR INFORMATION
NORTH AMERICA
Corporate Headquarters
400 Wood Road
Braintree, MA 02184, USA
Phone: 781-848-7100
Fax: 781-356-3558
Web: www.haemonetics.com
Building 18, Avenue C
Buncher Industrial Park
Leetsdale, PA 15056, USA
Phone: 412-741-7399
Fax: 412-741-7458
155 Medical Sciences Drive
Union, SC 29379, USA
Phone: 864-427-6293
Fax: 864-427-1668
6231 West Howard Street
Niles, IL 60714, USA
Phone: 847-588-0453
Fax: 847-588-0455
Arryx, Inc.
316 North Michigan Avenue
Suite CL-20
Chicago, IL 60601, USA
Phone: 312-726-6675
Fax: 312-726-6652
Web: www.arryx.com
Haemonetics Software Solutions
9701 West Higgins Road
Suite 500
Rosemont, IL 60018, USA
Phone: 847-825-2300
Fax: 847-825-2303
Web: www.idm.com
Suite 500, 10025-102A Avenue
Edmonton Centre
Edmonton, Alberta T5J 2Z2, Canada
Phone: 781-425-6560
Fax: 780-420-6562
Web: www.5d.ca
Infonalé, a HAEMONETICS Company
914 Hillsdale Road, Suite 201
West Chester, PA 19382, USA
Phone: 610-918-4647
Fax: 651-305-6533
www.infonale.com
INTERNATIONAL
Haemonetics Medical Devices
(Shanghai) Trading Co., Ltd.
Room 1103-06, Evergo Mansion
1325 Middle Huaihai Road
Shanghai 200031
China
Phone: +86-21-34060700
Fax: +86-21-54668852
Haemonetics France S.A.R.L.
46 bis rue Pierre Curie
Z.I. des Gatines
78370 Plaisir
France
Phone: +33-1-308141-41
Fax: +33-1-308141-30
Web: www.haemonetics.fr
Haemonetics GmbH
Wolfratshauser StraBe 84
81379 Munich
Germany
Phone: +49-89-785807-0
Fax: +49-89-7809779
Web: www.haemonetics.de
Haemonetics Hong Kong Ltd.
Suite 3301, 33/Floor
Tower One, Lippo Centre
89 Queensway, Hong Kong
Phone: +852-28689218
Fax: +852-28014380
Haemonetics Japan
Kyodo Building
16-banchi, Ichibancho
Chiyoda-ku, Tokyo 102-0082
Japan
Phone: +81-3-3237-7260
Fax: +81-3-3237-7330
Haemonetics (UK) Ltd.
5 Ashley Drive
Bothwell, Scotland G71 8BS
Phone: + 44-1698-81-9700
Fax: +44-1698-81-1811
Haemonetics S.A.
Signy Centre
P.O. Box 262
CH-1274 Signy 2
Switzerland
Phone: +41-22-363-9011
Fax: +44-22-363-9059
For a complete list of locations, visit the Company's website.
Stock Listing
Th e Company's stock is traded on the New
York Exchange under HAE.
NYSE Certifi cation
In 2007, Haemonetics submitted to the
New York Stock Exchange the required
annual CEO certifi cation stating that the
CEO was not aware of any violation by the
Company of the NYSE corporate gover-
nance listing standards.
Transfer Agent and Registrar
Inquiries concerning the transfer of shares,
lost stock certifi cates, duplicate mailings or
change of address should be directed to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016, USA
Phone: 800-368-5948
E-mail: info@rtco.com
Auditors
Ernst & Young LLP
Boston, MA, USA
Annual Meeting
Th e Annual Meeting of the Stockholders
will be held at the Company's headquarters
at 400 Wood Road, Braintree, MA, USA
on July 31, 2008.
Investor Relations
Julie Fallon
Director, Investor Relations &
Corporate Communications
E-mail: fallon@haemonetics.com
Phone: 781-356-9517
Haemonetics' Trademarks
Th e following are trademarks or registered
trademarks of Haemonetics Coporation
in the United States, other countries, or
both:ACP, Arm to Arm, Arryx, Automation
Nation, Blood Stream, CardioPAT, Cell
Saver, Collectfi rst, Critscan, Cymbal,
Dynamic Disk, Elite, eLynx, eLynx Design,
eQue, eQue Design, Haemolite, Haemo-
net, Haemonetics,Haemonetics Cell Saver,
Haemonetics MCS, Haemonetics PCS,
Haemonetics Plasma Saver, Haemonetics
Ultralite, Haemonex, Haemosafe, Haemosave,
Latham Bowl Design, MCS, MCS Pro,
OrthoPAT, Pathways to Progress, PCS,
Peace of Mind Has Five Dimensions,
Portico, R.I.S., SmartSuction, SmartSuction
Harmony, SmartSuction Solo, Th rombe-
lastograph, TEG, Total Apheresis, Ultralite.
400 Wood Road,
Braintree, Massachusetts, USA 02184-9114
www.haemonetics.com
781-848-7100