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: June 28, 1997 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
26,488,433 shares of Common Stock, $ .01 par value, as of
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June 28, 1997
HAEMONETICS CORPORATION
INDEX
PAGE
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PART I. Financial Information
Consolidated Balance Sheets - June 28, 1997 2
and March 29, 1997
Consolidated Statements of Income - 3
Three Months Ended June 28, 1997 and June 29, 1996
Consolidated Statement of Stockholders' Equity - 4
Three Months Ended June 28, 1997
Consolidated Statements of Cash Flows - 5
Three Months Ended June 28, 1997 and June 29, 1996
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)
June 28, March 29,
ASSETS 1997 1997
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Current assets:
Cash and short term investments....................................... $ 5,622 $ 8,302
Accounts receivable, less allowance of $705 at June 28, 1997
and $961 at March 29, 1997........................................... 77,884 72,199
Inventories........................................................... 59,012 55,090
Current investment in sales-type leases, net.......................... 14,640 13,559
Deferred tax asset.................................................... 12,811 14,290
Other prepaid and current assets...................................... 7,048 4,229
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Total current assets ............................................... 177,017 167,669
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Property, plant and equipment........................................... 200,135 190,758
Less accumulated depreciation......................................... 93,387 87,148
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Net property, plant and equipment....................................... 106,748 103,610
Other assets:
Investment in sales-type leases, net.................................. 39,949 30,954
Distribution rights, net.............................................. 11,373 10,266
Other assets, net .................................................... 12,503 11,047
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Total other assets ................................................. 63,825 52,267
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Total assets........................................................ $347,590 $323,546
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt................ $ 22,256 $ 19,511
Accounts payable...................................................... 22,586 27,885
Accrued payroll and related costs..................................... 8,586 6,814
Accrued income taxes.................................................. 7,050 10,478
Other accrued expenses................................................ 8,841 8,936
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Total current liabilities........................................... 69,319 73,624
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Deferred income taxes................................................... 12,772 12,770
Long-term debt, net of current maturities............................... 33,603 10,015
Other long-term liabilities............................................. 3,721 1,863
Stockholders' equity:
Common stock, $.01 par value; Authorized - 80,000,000 shares;
Issued - 29,286,021 at June 28, 1997;
29,238,350 shares at March 29, 1997.................................. 293 292
Additional paid-in capital............................................ 57,368 56,547
Retained earnings..................................................... 222,138 215,657
Cumulative translation adjustments.................................... (4,998) (6,162)
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Stockholders' equity before treasury stock............................ 274,801 266,334
Less: treasury stock - 2,797,588 shares at cost at June 28, 1997
and 2,478,888 shares at cost at March 29, 1997..................... 46,626 41,060
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Total stockholders' equity.......................................... 228,175 225,274
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Total liabilities and stockholders' equity.......................... $347,590 $323,546
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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 share data)
Three Months Ended
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June 28, June 29,
1997 1996
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Net revenues..................................... $82,328 $75,506
Cost of goods sold............................... 45,266 33,190
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Gross profit..................................... 37,062 42,316
Operating expenses:
Research and development....................... 5,004 5,037
Selling, general and administrative............ 22,473 23,132
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Total operating expenses..................... 27,477 28,169
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Operating income................................. 9,585 14,147
Interest expense................................ (596) (412)
Interest income.................................. 950 648
Other income, net................................ 32 99
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Income before provision for income taxes......... 9,971 14,482
Provision for income taxes....................... 3,490 5,060
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Net income....................................... $ 6,481 $ 9,422
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NET INCOME PER SHARE............................. $ 0.24 $ 0.34
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING..................................... 26,954 27,707
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 29, 1997................... 29,238 $292 $56,547 $215,657 $(41,060) $(6,162) $225,274
Exercise of stock options................ 48 1 821 - - - - - - 822
Treasury stock .......................... - - - - - - - - (5,566) - - (5,566)
Net income............................... - - - - - - 6,481 - - - - 6,481
Translation adjustment................... - - - - - - - - - - 1,164 1,164
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Balance June 28, 1997.................... 29,286 $293 $57,368 $222,138 $(46,626) $(4,998) $228,175
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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)
Three Months Ended
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June 28, June 29,
1997 1996
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Cash flows from operating activities:
Net income.................................................... $ 6,481 $ 9,422
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 5,328 3,180
(Increase) decrease in deferred income taxes................ (54) 259
Increase in accounts receivable, net........................ (4,211) (5,325)
Increase in inventories..................................... (3,026) (2,095)
Increase in sales-type leases............................... (1,120) (1,153)
Increase in other assets.................................... (3,312) (1,426)
Decrease in accounts payable, accrued expenses and
deferred revenues.......................................... (6,473) (1,767)
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Total adjustments......................................... (12,868) (8,327)
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Net cash (used in) provided by operating activities....... (6,387) 1,095
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Cash flows from investing activities:
Capital expenditures on property, plant and equipment, net.... (7,490) (4,197)
Net increase in long-term sales contracts..................... (9,061) (2,463)
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Net cash used in investing activities..................... (16,551) (6,660)
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Cash flows from financing activities:
Payments on long-term real estate mortgage.................... (45) (57)
Net increase in short-term revolving credit agreements........ 1,328 3,637
Net increase (decrease) in long-term revolving credit
agreements................................................... 23,625 (2,271)
Exercise of stock options..................................... 822 2,172
Purchase of treasury stock.................................... (5,566) ---
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Net cash provided by financing activities................. 20,164 3,481
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Effect of exchange rates on cash................................ 94 (422)
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Net decrease in cash............................................ (2,680) (2,506)
Cash at beginning of period..................................... 8,302 13,434
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Cash at end of period........................................... $ 5,622 $ 10,928
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Supplemental disclosures of cash flow information:
Interest paid................................................. $ 519 $ 451
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Income taxes paid, net of refunds............................. $ 6,210 $ 3,916
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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
reduce uncertainty associated with currency movement in future periods.
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 June 28, 1997 the Company had forward exchange contracts, all
having maturities of less than one year, to exchange foreign currencies
(major European currencies and Japanese yen) for U.S. dollars totaling
$123.4 million. Of that balance, $50.7 million represented contracts for
terms of 30 days or less. Gross unrealized gains from hedging firm sales
commitments, based on current spot rates, were $2.5 million at June 28,
1997. Deferred gains and losses are recognized in earnings when the
transactions being hedged are recognized. Management anticipates that the
deferred amounts will be offset by the foreign exchange effect on sales of
products in future periods.
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:
June 28, March 29,
1997 1997
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(in thousands)
Raw materials $10,072 $12,501
Work-in-process 8,013 5,628
Finished goods 40,927 36,961
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$59,012 $55,090
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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
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Three Months Ended June 28, 1997 Compared to Three Months Ended June 29,
1996
Net revenues in 1997 increased 9% to $82.3 million from $75.5 million
in 1996. Without the effects of currency, the increase was 16%. Worldwide
disposable sales increased 9%. Without the effects of currency, the
increase in disposable sales was approximately 15%, driven approximately 60%
by the international market and 40% by the domestic market. Sales of
disposables products accounted for approximately 86% of revenues for each the
three months ended June 28, 1997, and June 29, 1996. Disposable revenue
includes service revenue earned for the collection of blood products through
the Company's blood service business. Worldwide equipment sales increased
12%. Without the effects of currency, the increase in equipment sales was
approximately 17% attributable to growth in the international markets.
International sales accounted for approximately 65% and 64% of net revenues
for 1997 and 1996, respectively.
Gross profit for the three months ended June 28, 1997 decreased to
$37.1 million from $42.3 million for the three months ended June 29, 1996.
As a percentage of net revenues, gross profit decreased 11% to 45.0% from
56.0%. Approximately 30% of the decrease was due to higher manufacturing
costs and approximately 40% of the decrease was due to the unfavorable
effects of currency. The unfavorable impact of currency was driven by the
stregthening of the US dollar; of particular significance was the movement
in the Company's Japanese yen hedge rate of approximately 25% quarter over
quarter. The remaining decrease was equally attributable to the mix shift
in product sales from the higher margin surgical disposable products to the
lower margin commercial plasma disposable products and the start up costs
associated with the Company's services business.
The Company expended $5.0 million in 1997 and 1996 on research and
development (6.1% of net revenues in 1997 and 6.7% of net revenues in 1996.)
Selling, general and administrative expenses decreased to $22.5
million in 1997 from $23.1 million in 1996 and decreased as a percentage of
net revenues to 27.3% from 30.6%. The decrease was due to careful
management of discretionary spending by all levels of the organization.
Operating income, as a percentage of net revenues, decreased 7.1% in
1997 to 11.6% from 18.7% during the same period in 1996. Slightly less than
two-thirds of the decrease was due to higher manufacturing costs and
approximately 30% of the decrease was due to the startup costs of the
service business. The negative effect of currency, accounting for slightly
over 50% of the decrease, was largely offset by the decrease in both
research and development and selling, general and administrative expenses.
Interest expense increased $0.2 million in 1997 to $0.6 million from
$0.4 million for the same period in 1996 due to an increased level of
borrowing.
Interest income increased $0.4 million in 1997 to $1.0 million from
$0.6 million for the same period in 1996. The increase was due to the
increase in long-term sales contract; primarily from the China business on
which the Company recognizes financing interest income.
The provision for income taxes remained at approximately 35% as a
percentage of pretax income. The annualized rate for the full 12 months of
fiscal 1998 is expected to be approximately 35%.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements
principally from internally generated cash flow and bank borrowings. During
the three months ended June 28, 1997, the Company utilized $6.4 million in
cash flow from operating activities compared to generating $1.1 million in
cash flow from operating activities for the three months ended June 29,
1996. The Company's need for funds is derived primarily from capital
expenditures, long-term sales contracts, acquisitions, treasury stock
purchases and working capital. During the three months ended June 28, 1997,
net cash used for capital expenditures was $7.5 million related to equipment
utilized in the worldwide plasma business and manufacturing operations and
investments in the Company's service businesses. The increases in accounts
receivable and inventories utilized net cash of $4.2 million and $3.0
million respectively for the three months ended June 28, 1997 and the
decrease in accounts payable, accrued expenses and deferred revenues for the
same period utilized $6.5 million. The increase in long-term sales contracts
during the three months ended June 28, 1997 utilized cash of $9.1 million
attributable to growth in the plasma business worldwide, particularly China.
During the three months ended June 28, 1997, the need for funds not
satisfied by the internally generated cash flow was satisfied by an increase
to the committed bank lines of $24.9 million. At the April 1997 board
meeting, the board approved the increase in the Company's committed bank
lines to $40.0 million from $20.0 million. The additional financing was
secured during the three months ended June 28, 1997.
The Company used $5.6 million to repurchase 318,700 shares of treasury
stock during the three months ended June 28, 1997. There remains
approximately 271,000 shares available to repurchase by the Company at
prevailing prices as market conditions warrant.
At June 28, 1997 and March 29, 1997, the Company had working capital of
$107.7 million and $94.0 million respectively.
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 10A $40,000,000.00 Revolving Credit Facility
Among Mellon Bank, N.A. ForItself and as Agent BankBoston,
N.A. and The Sanwa Bank, Limited to Haemonetics Corporation
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: August 6, 1997 By: /s/ JOHN F. WHITE
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John F. White, Chairman, President
and Chief Executive Officer
Date: August 5, 1997 By: /s/ BRIGID A. MAKES
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Brigid A. Makes, Chief Financial Officer,
(Principal Financial Officer)