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: September 27, 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.
26,512,979 shares of Common Stock, $ .01 par value, as of
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September 27, 1997
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Consolidated Balance Sheets - September 27, 1997 2
and March 29, 1997
Consolidated Statements of Income - 3
Three and Six Months Ended September 27, 1997
and September 28, 1996
Consolidated Statement of Stockholders' Equity - 4
Six Months Ended September 27, 1997
Consolidated Statements of Cash Flows - 5
Six Months Ended September 27, 1997 and September 28, 1996
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
PART II. Other Information 10
Signatures 11
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, March 29,
ASSETS 1997 1997
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Current assets: (unaudited)
Cash and cash equivalents $ 6,640 $ 8,302
Accounts receivable, less allowance of $648
at September 27, 1997 and $961 at March 29, 1997 78,434 72,199
Inventories 65,145 55,090
Current investment in sales-type leases, net 14,361 13,559
Deferred tax asset 12,811 14,290
Other prepaid and current assets 7,517 4,229
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Total current assets 184,908 167,669
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Property, plant and equipment 208,370 190,758
Less accumulated depreciation 96,346 87,148
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Net property, plant and equipment 112,024 103,610
Other assets:
Investment in sales-type leases, net 40,618 30,954
Distribution rights, net 11,869 10,266
Other assets, net 17,454 11,047
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Total other assets 69,941 52,267
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Total assets $366,873 $323,546
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 23,572 $ 19,511
Accounts payable 26,384 27,885
Accrued payroll and related costs 8,490 6,814
Accrued income taxes 570 10,478
Other accrued expenses 9,800 8,936
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Total current liabilities 68,816 73,624
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Deferred income taxes 12,661 12,770
Long-term debt, net of current maturities 49,973 10,015
Other long-term liabilities 4,022 1,863
Stockholders' equity:
Common stock, $.01 par value; Authorized -
80,000,000 shares;
Issued - 29,294,736 at September 27, 1997;
29,238,350 shares at March 29, 1997 293 292
Additional paid-in capital 58,386 56,547
Retained earnings 226,156 215,657
Cumulative translation adjustments (7,072) (6,162)
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Stockholders' equity before treasury stock 277,763 266,334
Less: treasury stock - 2,781,757 shares at cost
at September 27, 1997 and 2,478,888 shares at
cost at March 29, 1997 46,362 41,060
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Total stockholders' equity 231,401 225,274
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Total liabilities and stockholders' equity $366,873 $323,546
=======================
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 Six Months Ended
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September 27, September 28, September 27, September 28,
1997 1996 1997 1996
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Net revenues $76,613 $74,426 $158,941 $149,932
Cost of goods sold 42,077 34,516 87,343 67,706
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Gross profit 34,536 39,910 71,598 82,226
Operating expenses:
Research and development 4,745 4,681 9,749 9,718
Selling, general and administrative 23,660 22,331 46,133 45,463
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Total operating expenses 28,405 27,012 55,882 55,181
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Operating income 6,131 12,898 15,716 27,045
Interest expense (872) (473) (1,468) (885)
Interest income 1,075 773 2,025 1,421
Other income(expense), net (133) 106 (101) 205
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Income before provision for income taxes 6,201 13,304 16,172 27,786
Provision for income taxes 2,170 4,655 5,660 9,715
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Net income $ 4,031 $ 8,649 $ 10,512 $ 18,071
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NET INCOME PER SHARE $ 0.15 $ 0.31 $ 0.39 $ 0.65
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 26,620 27,673 26,633 27,690
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
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Balance March 29, 1997 29,238 $292 $56,547 $215,657 ($41,060) ($6,162) $225,274
Exercise of stock options and related
tax benefit 56 1 1,839 --- --- --- 1,840
Employee stock purchase plan --- --- --- (13) 264 --- 251
Treasury stock --- --- --- --- (5,566) --- (5,566)
Net income --- --- --- 10,512 --- --- 10,512
Translation adjustment --- --- --- --- --- (910) (910)
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Balance September 27, 1997 29,294 $293 $58,386 $226,156 ($46,362) ($7,072) $231,401
=========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Six Months Ended
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Sept. 27, Sept. 28,
1997 1996
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Cash flows from operating activities:
Net income $10,512 $18,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,001 7,552
(Increase) decrease in deferred income taxes (111) 198
Increase in accounts receivable, net (5,705) (7,999)
(Increase) decrease in inventories (9,548) 3,849
Increase in sales-type leases (935) (1,891)
Increase in other assets (3,889) (5,048)
Decrease in accounts payable,
accrued expenses and deferred revenues (6,359) (1,179)
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Total adjustments (15,546) (4,518)
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Net cash (used in) provided by operating activities (5,034) 13,553
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Cash flows from investing activities:
Capital expenditures on property,
plant and equipment, net (14,688) (15,938)
Increase in distribution rights (1,717) ---
Acquisitions in Blood Bank Management Services Business (10,508) ---
Net increase in long-term sales contracts (9,829) (4,790)
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Net cash used in investing activities (36,742) (20,728)
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Cash flows from financing activities:
Payments on long-term real estate mortgage (91) (99)
Net increase in short-term revolving
credit agreements 3,804 7,610
Net increase (decrease) in long-term revolving
credit agreements 39,866 (1,776)
Exercise of stock options and related tax benefit 1,840 2,427
Employee stock purchase plan 251 ---
Purchase of treasury stock (5,566) (1,006)
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Net cash provided by financing activities 40,104 7,156
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Effect of exchange rates on cash 10 (208)
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Net decrease in cash (1,662) (227)
Cash at beginning of period 8,302 13,434
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Cash at end of period $ 6,640 $13,207
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Supplemental disclosures of
cash flow information:
Interest paid $ 1,009 $ 1,298
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Income taxes paid, net of refunds $14,059 $12,405
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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 September 27, 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 US dollars totaling $96.3
million. Of that balance, $55.2 million represented contracts for terms of
30 days or less. Gross unrealized gains from hedging firm sales
commitments, based on current spot rates, were $4.0 million at September 27,
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
product 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:
September 27, March 29,
1997 1997
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(in thousands)
Raw materials $10,925 $12,501
Work-in-process 6,232 5,628
Finished goods 47,988 36,961
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$65,145 $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).
5. ACQUISITION OF BLOOD CENTERS BY BLOOD BANK MANAGEMENT SERVICES
During the six months ended September 27, 1997, the Company purchased
substantially all of the assets of three blood centers. Each of these
acquisitions was accounted for using the purchase method of accounting,
and accordingly, the results of operations for each acquisition have been
included in the consolidated results of the Company from the respective
acquisition dates. The purchase price for the 1997 acquisitions exceeded
the underlying fair value of the net assets acquired by $4.9 million which
has been assigned to goodwill. Goodwill is included in other assets in
the accompanying consolidated Balance Sheet. The purchase price allocation
is preliminary and subject to adjustment. To finance the 1997 acquisitions,
the Company paid approximately $10.5 million in cash which was provided
through the Company's long-term revolving credit agreements.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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Three Months Ended September 27, 1997 Compared to Three Months Ended
September 28, 1996
Net revenues in 1997 increased 3% to $76.6 million from $74.4 million
in 1996. Without the effects of currency, the increase was 7%. Worldwide
disposable sales increased 5%. Without the effects of currency, the
increase in disposable sales was approximately 10% driven approximately 40%
by the domestic market and 60% by the international market. Sales of
disposables products accounted for approximately 90% and 88% of revenues for
the three months ended September 27, 1997 and September 28, 1996
respectively. Disposable revenue includes $4.1 million and $1.2 million in
service revenue earned for the collection of blood products through the
Company's blood service business for 1997 and 1996 respectively. Worldwide
equipment sales in 1997 decreased 13% to $7.5 million from $8.6 million in
1996. Without the effects of currency, the decrease in equipment sales was
approximately 10% driven by a shortfall in the international market.
International sales accounted for approximately 60% and 62% of net revenues
for 1997 and 1996, respectively.
Gross profit for the three months ended September 27, 1997 decreased
to $34.5 million from $39.9 million for the three months ended September 28,
1996. As a percentage of net revenues, gross profit decreased 8.5% to 45.1%
from 53.6%. The decline in margin is due equally to sales mix, higher
manufacturing costs, investment in the Blood Bank Management Services
Business (BBMS) and the strengthening of the dollar.
The Company expended $4.7 million in 1997 and 1996 on research and
development (6.2% of net revenues in 1997 and 6.3% of net revenues in 1996.)
Selling, general and administrative expenses increased to $23.7
million in 1997 from $22.3 million in 1996 and increased as a percentage of
net revenues to 30.9% from 30.0%. A majority of this increase is attributed
to BBMS.
Operating income, as a percentage of net revenues, decreased in 1997
to 8.0% from 17.3% during the same period in 1996. The decrease is due
equally to the investment costs associated with BBMS, the strengthening of
the dollar and higher product costs.
Interest expense increased $0.4 million in 1997 to $0.9 million from
$0.5 million for the same period in 1996 due to an increased level of
borrowing.
Interest income increased $0.2 million in 1997 to $1.0 million from
$0.8 million for the same period in 1996. The increase was due to the
increase in the balance of sales-type leases.
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%.
Six Months Ended September 27, 1997 Compared to Six Months Ended September
28, 1996
Net revenues in 1997 increased 6% to $158.9 million from $149.9
million in 1996. Without the effects of currency, the increase was 12%.
Worldwide disposable sales increased 7%. Without the effects of currency,
the increase in disposable sales was approximately 13% driven approximately
40% by the domestic market and 60% by the international market. Sales of
disposable products accounted for approximately 88% and 87% of revenues for
the six months ended September 27, 1997 and September 28, 1996 respectively.
Disposable revenue includes $6.9 million and $1.7 million in service revenue
earned for the collection of blood products through BBMS for 1997 and 1996
respectively. Worldwide equipment sales were approximately $19 million in
1997 and 1996. Without the effects of currency, equipment revenue increased
5%, due to growth in the international markets in the first quarter.
International sales accounted for approximately 63% of net revenues for 1997
and 1996.
Gross profit for the six months ended September 27, 1997 decreased to
$71.6 million from $82.2 million for the six months ended September 28,
1996. As a percentage of net revenues, gross profit decreased to 45.0%
from 54.8%. Approximately 60% of the decrease was shared equally by the
unfavorable effects of the strengthening of the dollar and higher
manufacturing costs. The remaining 40% of the decrease was shared equally
by the investment cost in BBMS and the mix shift in product sales from the
higher margin surgical disposable products to the lower margin plasma
disposable products.
The Company expended $9.7 million in 1997 and 1996 on research and
development (6.1% of net revenues in 1997 and 6.5% of net revenues in 1996.)
Selling, general and administrative expenses increased to $46.1
million in 1997 from $45.5 million in 1996 and decreased as a percentage of
net revenues to 29.0% from 30.3%. A majority of the dollar increase is
attributed to BBMS.
Operating income, as a percentage of net revenues, decreased in 1997
to 9.9% from 18.0% during the same period in 1996. The decrease was due to
higher manufacturing costs, the stronger dollar and the costs associated
with BBMS. This decrease was partially offset by the decrease in selling,
general and administrative expenses as a percentage of net revenues.
Interest expense increased $0.6 million in 1997 to $1.5 million from
$0.9 million for the same period in 1996 due to an increased level of
borrowing.
Interest income increased $0.6 million in 1997 to $2.0 million from
$1.4 million for the same period in 1996, due to the increase in the balance
of sales-type leases.
The provision for income taxes remained at approximately 35% as a
percentage of pretax income.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements
principally from internally generated cash flow and bank borrowings. During
the six months ended September 27, 1997, the Company utilized $5.0 million
in cash flow from operating activities compared to generating $13.6 million
in cash flow from operating activities for the six months ended September
28, 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 six months ended September 27,
1997, net cash used for investing activities totaled $36.7 million
consisting of $14.7 million for capital expenditures related primarily to
equipment utilized in the manufacturing operations and the worldwide plasma
business, $10.5 million for acquisitions in BBMS and $ 9.8 million from the
increase in long-term sales contracts attributable to growth in the plasma
business worldwide, particularly China. During the six months ended
September 27, 1997, the need for funds not satisfied by the internally
generated cash flow was satisfied by an increase to the committed bank
lines of $43.7 million. Effective October 28, 1997 the Company completed
a private placement of $40.0 million in unsecured senior notes. The notes
have a coupon rate of 7.05% and a ten year term.
The Company used $5.6 million to repurchase 318,700 shares of treasury
stock during the six months ended September 27, 1997. There remains
approximately 271,000 shares available to repurchase by the Company at
prevailing prices as market conditions warrant. No shares were purchased
during the second quarter.
At September 27, 1997 and March 29, 1997, the Company had working
capital of $116.1 million and $94.0 million respectively. The Company
believes its sources of cash are adequate to meet projected needs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
The following exhibits will be filed as part of this form 10-Q:
Exhibit 10A Note Purchase agreement whereby Haemonetics
Corporation authorized sale of $40,000,000,
7.05% Senior Notes due October 15, 2007.
Exhibit 27 Financial Data Schedule
(b). Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAEMONETICS CORPORATION
Date: 11/10/97 By: /s/ JOHN F. WHITE
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John F. White, Chairman, President
and Chief Executive Officer
Date: 11/10/97 By: /s/ BRIGID A. MAKES
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Brigid A. Makes, Chief Financial
Officer,
(Principal Financial Officer)