FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarter ended: December 28, 1996 Commission File Number: 1-10730
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HAEMONETICS CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 Wood Road, Braintree, MA 02184
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(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 848-7100
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Indicate by check mark whether the registrant (1.) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) (2.) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
27,062,670 shares of Common Stock, $ .01 par value, as of
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December 28, 1996
HAEMONETICS CORPORATION
INDEX
PAGE
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PART I. Financial Information
Consolidated Balance Sheets - December 28, 1996 2
and March 30, 1996
Consolidated Statements of Income - 3
Three and Nine Months Ended December 28, 1996
and December 30 1995
Consolidated Statement of Stockholders' Equity - 4
Nine Months Ended December 28, 1996
Consolidated Statements of Cash Flows - 5
Nine Months Ended December 28, 1996 and December 30, 1995
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and 7-8
Results of Operations
PART II. Other Information 9
Signatures 10
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
December 28, March 30,
ASSETS 1996 1996
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Current assets:
Cash and short term investments................................ $ 16,571 $ 13,434
Accounts receivable, less allowance of $943 at December 28,
1996 and $984 at March 30, 1996............................... 67,429 60,326
Inventories.................................................... 46,780 56,729
Current investment in sales-type leases, net................... 13,227 11,020
Deferred tax asset............................................. 10,911 10,911
Other prepaid and current assets............................... 8,386 6,459
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Total current assets....................................... 163,304 158,879
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Property, plant and equipment.................................... 188,227 160,824
Less accumulated depreciation.................................. 86,057 74,408
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Net property, plant and equipment................................ 102,170 86,416
Other assets:
Investment in sales-type leases, net........................... 27,146 21,428
Distribution rights, net....................................... 11,190 12,418
Other assets, net.............................................. 8,081 8,677
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Total other assets......................................... 46,417 42,523
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Total assets............................................... $311,891 $287,818
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt......... $ 12,354 $ 3,378
Accounts payable............................................... 19,167 16,909
Accrued payroll and related costs.............................. 7,635 8,305
Accrued income taxes........................................... 8,855 8,345
Other accrued expenses......................................... 8,196 9,502
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Total current liabilities.................................. 56,207 46,439
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Deferred income taxes............................................ 9,382 9,253
Long-term debt, net of current maturities........................ 12,818 15,156
Stockholders' equity:
Common stock, $.01 par value; Authorized - 80,000,000 shares;
Issued - 29,005,153 at December 28, 1996;
28,770,346 shares at March 30, 1996........................... 290 288
Additional paid-in capital..................................... 55,155 52,355
Retained earnings.............................................. 207,782 182,707
Cumulative translation adjustments............................. 2,078 7,387
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Stockholders' equity before treasury stock..................... 265,305 242,737
Less: treasury stock - 1,942,483 shares at cost at December
28, 1996 and 1,607,354 shares at cost at March 30, 1996..... 31,821 25,767
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Total stockholders' equity................................. 233,484 216,970
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Total liabilities and stockholders' equity................. $311,891 $287,818
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The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands, except per share data)
Three Months Ended Nine Months Ended
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December 28, December 30, December 28, December 30,
1996 1995 1996 1995
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Net revenues.............................. $76,550 $69,858 $226,482 $207,766
Cost of goods sold........................ 38,468 30,738 106,174 92,764
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Gross profit.............................. 38,082 39,120 120,308 115,002
Operating expenses:
Research and development................ 4,620 4,938 14,338 13,742
Selling, general and administrative..... 23,121 20,422 68,584 60,216
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Total operating expenses............ 27,741 25,360 82,922 73,958
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Operating income.......................... 10,341 13,760 37,386 41,044
Interest expense......................... (396) (587) (1,281) (1,890)
Interest income........................... 678 488 2,099 1,549
Other income, net......................... 178 (1) 383 546
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Income before provision for income taxes.. 10,801 13,660 38,587 41,249
Provision for income taxes................ 3,781 4,774 13,496 14,423
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Net income................................ $ 7,020 $ 8,886 $ 25,091 $ 26,826
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NET INCOME PER SHARE...................... $ 0.26 $ 0.32 $ 0.91 $ 0.97
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING............ 27,361 27,743 27,580 27,766
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - in thousands)
Common Stock Additional Cumulative Total
------------ Paid-in Retained Treasury Translation Stockholders'
Shares $'s Capital Earnings Stock Adjustment Equity
------ --- ---------- -------- -------- ----------- -------------
Balance March 30, 1996............ 28,770 $288 $52,355 $182,707 $(25,767) $ 7,387 $216,970
Exercise of stock options......... 235 2 2,800 - - - - - - 2,802
Employee stock purchase plan...... - - - - - - - - 275 - - 275
Treasury stock.................... - - - - - - (9) (6,329) - - (6,338)
Net income........................ - - - - - - 25,091 - - - - 25,091
Translation adjustment............ - - - - - - (7) - - (5,309) (5,316)
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Balance December 28, 1996......... 29,005 $290 $55,155 $207,782 $(31,821) $ 2,078 $233,484
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The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Nine Months Ended
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Dec 28, Dec 30,
1996 1995
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Cash flows from operating activities:
Net income................................................ $ 25,091 $ 26,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 10,340 12,592
(Increase) decrease in deferred income taxes............ 140 (213)
Increase in accounts receivable, net.................... (8,811) (3,080)
Decrease in inventories................................. 9,249 782
Increase in sales-type leases........................... (8,180) (467)
(Increase) decrease in other assets..................... (2,622) 3,748
Increase in accounts payable,
accrued expenses and deferred revenues................. 502 5,349
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Total adjustments..................................... 618 18,711
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Net cash provided by operating activities............... 25,709 45,537
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Cash flows from investing activities:
Capital expenditures on property,
plant and equipment, net................................ (26,688) (12,904)
DHL asset acquisition..................................... --- (6,189)
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Net cash used in investing activities................... (26,688) (19,093)
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Cash flows from financing activities:
Payments on long-term real estate mortgage................ (142) (113)
Net increase (decrease) in short-term revolving
credit agreements........................................ 9,462 (2,966)
Net decrease in long-term revolving
credit agreements........................................ (741) (11,172)
Exercise of stock options................................. 2,802 2,187
Employee stock purchase plan.............................. 275 333
Purchase of treasury stock................................ (6,338) (4,896)
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Net cash provided by (used in) financing activities..... 5,318 (16,627)
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Effect of exchange rates on cash............................ (1,202) (133)
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Net increase in cash........................................ 3,137 9,684
Cash at beginning of period................................. 13,434 4,230
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Cash at end of period....................................... $ 16,571 $ 13,914
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Supplemental disclosures of
cash flow information:
Interest paid............................................. $ 1,841 $ 1,515
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Income taxes paid, net of refunds......................... $ 14,395 $ 13,788
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The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this report
are not necessarily indicative of results for any future interim period or
for the entire fiscal year. The Company believes that the quarterly
information presented includes all adjustments (consisting only of normal,
recurring adjustments) that the Company considers necessary for a fair
presentation in accordance with generally accepted accounting principles.
The accompanying consolidated financial statements and notes should be read
in conjunction with the Company's audited annual financial statements.
2. FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge certain
firm sales commitments to customers which are denominated in foreign
currencies. The purpose of the Company's foreign hedging activities is to
protect the Company from the risk that the eventual dollar cash flows
resulting from the sale of products to international customers will be
adversely affected by changes in exchange rates. Gains and losses realized
on these contracts are recorded in operations, offsetting the related
foreign currency transactions. The cash flows related to the gains and
losses on these foreign currency hedges are classified in the statements of
cash flows as part of cash flows from operating activities.
At December 28, 1996 the Company had forward exchange contracts, all
having maturities of less than one year, to exchange foreign currencies
(major European currencies and Japanese yen) for U.S. dollars totaling
$117.1 million. Of that balance, $66.5 million represented contracts for
terms of 30 days or less. Net unrealized gains from hedging firm sales
commitments, based on current spot rates, were $4.2 million at December 28,
1996. Deferred gains and losses are recognized in earnings when the
transactions being hedged are recognized.
3. INVENTORIES
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out method.
Inventories consist of the following:
December 28, March 30,
1996 1996
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(in thousands)
Raw materials $ 7,487 $ 6,727
Work-in-process 4,164 6,699
Finished goods 35,129 43,303
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$46,780 $56,729
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4. NET INCOME PER SHARE
Net income per share data is computed using the weighted average
number of shares of common stock outstanding and common equivalent shares
from stock options (using the treasury stock method).
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended December 28, 1996 Compared to Three Months Ended December
30, 1995
Net revenues in 1996 increased 10% to $76.6 million from $69.9 million
in 1995. Worldwide disposable sales increased approximately 10% due to
growth in both the domestic and international markets. Sales of disposables
products accounted for approximately 89% of net revenues for each of the
three month periods ended December 28, 1996 and December 30, 1995.
Worldwide equipment sales increased approximately 10% due to growth in the
domestic surgical market. International sales accounted for approximately
61% and 62%, respectively, of net revenues for the three months ended
December 28, 1996 and December 30, 1995.
Gross profit in 1996 decreased 3% to $38.1 million from $39.1 million
in the same period of 1995. As a percentage of net revenues, gross profit
decreased 6.3% to 49.7% in 1996 from 56.0% in 1995. This decrease was
approximately equally attributable to four factors: 1)a shift in the mix of
product sales from the higher margin surgical disposable products to the
lower margin commercial plasma disposable products, 2) pricing pressures
created by the managed care marketplace, 3) the start up of the Company's
services business in the second quarter of the current year and 4) the
strengthening of the dollar. The Company does not see any change in these
trends in the near term.
The Company expended $4.6 million in 1996 on research and development
(6.0% of net revenues) and $4.9 million in the same period of 1995 (7.1% of
net revenues).
Selling, general and administrative expenses increased to $23.1
million in 1996 from $20.4 million in 1995 and increased as a percentage of
net revenues to 30.2% from 29.2%. The increase resulted primarily from
start up costs for the Company's domestic service business and worldwide
regulatory costs incurred for red cell apheresis.
Operating income, as a percentage of net revenues, decreased 6.2% to
13.5% in 1996 from 19.7% in 1995. Approximately $2.0 million of the $4.7
million operating income shortfall was attributable to the start up of the
Company's services business. The remainder of the shortfall was due equally
to pricing pressures created by the managed care marketplace and the
strengthening of the dollar.
Interest expense decreased in 1996 to $0.4 million from $0.6 million
in the same period of 1995 due to a decrease in both the average borrowings
and borrowing rates. Interest income increased in 1996 to $0.7 million from
$0.5 million in 1995 resulting from an increase in the Company's investment
in sales-type leases.
The provision for income taxes remained at approximately 35% as a
percentage of pretax income for the third quarters of 1996 and 1995.
Nine Months Ended December 28, 1996 Compared to Nine Months Ended December
30, 1995
Net revenues in 1996 increased 9% to $226.5 million from $207.8
million in 1995. Worldwide disposable sales increased 7.8% due to growth in
international markets. Sales of disposables products accounted for
approximately 88% and 89%, respectively, of net revenues for the nine months
ended December 28, 1996 and December 30, 1995. Worldwide equipment sales
increased 18.4% due to growth in both the domestic blood bank and surgical
markets. International sales accounted for approximately 63% and 61%,
respectively, of net revenues for the nine months ended December 28,1996 and
December 30, 1995.
Gross profit in 1996 increased to $120.3 million from $115.0 million
in 1995. As a percentage of net revenues, gross profit declined 2.3% to
53.1% in 1996 from 55.4% in 1995. The majority of the decrease was
attributable to pricing pressures over all three businesses. The surgical
business felt the largest impact as a result of managed care. The shift in
the mix of product sales from the higher margin surgical disposable products
to the lower margin commercial plasma disposable products and the start up
of the Company's services business in the second quarter of the current
year also contributed to the gross profit shortfall. The impact of these
last two factors was partially offset by the favorable effect of currency on
a year to date comparison.
The Company expended $14.3 million in 1996 on research and development
(6.3% of net revenues) and $13.7 million in 1995 (6.6% of net revenues).
Selling, general and administrative expenses were $68.6 million in
1996 and $60.2 million in 1995 and increased as a percentage of net revenues
to 30.3% from 29.0%. The increase resulted from; 1) the start up costs for
the Company's domestic service business, 2) the worldwide regulatory costs
incurred for red cell apheresis and 3) the creation of a centralized
distribution center in Europe.
Operating income as a percentage of net revenues, decreased 3.3% to
16.5% in 1996 from 19.8% in 1995. Approximately $3.0 million of the $7.5
million operating income shortfall was attributable to the start up of the
Company's services business.
Interest expense decreased in 1996 to $1.3 million from $1.9 million
in 1995 due to both a decrease in average borrowing levels and borrowing
rates. Interest income increased in 1996 to $2.1 million from $1.5 million
in 1995 resulting from an increase in the Company's investment in sales-type
leases.
The provision for income taxes remained constant at 35% of pretax
income in 1996. The annualized rate for the full 12 months of fiscal 1997
will be approximately 35%.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements
principally from internally generated cash flow, stock offerings, and bank
borrowings. During the nine months ended December 28, 1996, the Company
generated $25.7 million in cash flow from operating activities compared to
$45.5 million in cash flow from operating activities for the nine months
ended December 30, 1995. This decrease of $19.8 million in operating cash
flow was primarily a result of growth in the business as seen by increases
in accounts receivables, sales type leases and other trade liabilities.
Financing activities, particularly an increase in revolving credit
agreements generated an additional $8.7 million of cash for the nine months
ended December 28, 1996. The Company's need for funds is derived primarily
from capital expenditures, treasury stock purchases, and an increase in
accounts receivables and sales type leases. During the nine months ended
December 28, 1996, net cash used for capital expenditures was $26.7 million
related to equipment utilized in the U.S. commercial plasma business, the
blood bank services business and investments in facilities and manufacturing
equipment. Increased accounts receivable and sales type leases utilized net
cash from operations of $17.0 million. Lastly, treasury stock purchases
utilized approximately $6.0 million of cash from financing activities. The
Company plans that committed bank lines, combined with internally generated
funds, will be sufficient to meet anticipated liquidity and capital needs
over the foreseeable future.
At December 28, 1996 the Company had working capital of $107.1
million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Not applicable.
Item 2. Changes in Securities
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Not applicable.
Item 3. Defaults upon Senior Securities
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Item 5. Other Information
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(a). Exhibits
The following exhibits will be filed as part of this form 10-Q:
Exhibit 10AI First Amendment to lease dated July 17, 1990
between Buncher Company and the Company of property
in Pittsburg, Pennsylvania.
Exhibit 27 Financial Data Schedule
(b). Reports on Form 8-K.
None
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAEMONETICS CORPORATION
Date: 2-5-97 By: /s/ John F. White
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John F. White, Chairman, President
and Chief Executive Officer
Date: 2-4-97 By: /s/ Brigid A. Makes
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Brigid A. Makes, Chief Financial Officer,
(Principal Financial Officer)