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 28, 1996 Commission File Number: 1-10730 ------------------ ------- HAEMONETICS CORPORATION ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2882273 ----------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 400 Wood Road, Braintree, MA 02184 -------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (617) 848-7100 ---------------------- 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. 27,314,872 shares of Common Stock, $ .01 par value, as of ------------------------------------------------------------- September 28, 1996
HAEMONETICS CORPORATION INDEX PAGE ---- PART I. Financial Information Consolidated Balance Sheets - September 28, 1996 and March 30, 1996 2 Consolidated Statements of Income - Three and Six Months Ended September 28, 1996 and September 30 1995 3 Consolidated Statement of Stockholders' Equity - Six Months Ended September 28, 1996 4 Consolidated Statements of Cash Flows - Six Months Ended September 28, 1996 and September 30, 1995 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II. Other Information 9 Signatures 10
HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited - in thousands, except share data) <TABLE> <CAPTION> September 28, March 30, ASSETS 1996 1996 ------------- --------- <S> <C> <C> Current assets: Cash and short term investments $ 13,207 $ 13,434 Accounts receivable, less allowance of $1,174 at September 28, 1996 and $984 at March 30, 1996 67,776 60,326 Inventories 52,547 56,729 Current investment in sales-type leases, net 12,888 11,020 Deferred tax asset 10,911 10,911 Other prepaid and current assets 9,433 6,459 ------------------------- Total current assets 166,762 158,879 ------------------------- Property, plant and equipment 177,501 160,824 Less accumulated depreciation 81,562 74,408 ------------------------- Net property, plant and equipment 95,939 86,416 Other assets: Investment in sales-type leases, net 26,157 21,428 Distribution rights, net 11,700 12,418 Other assets, net 8,216 8,677 ------------------------- Total other assets 46,073 42,523 ------------------------- Total assets $308,774 $287,818 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 10,840 $ 3,378 Accounts payable 18,992 16,909 Accrued payroll and related costs 7,894 8,305 Accrued income taxes 5,912 8,345 Other accrued expenses 8,840 9,502 ------------------------- Total current liabilities 52,478 46,439 ------------------------- Deferred income taxes 9,438 9,253 Long-term debt, net of current maturities 11,774 15,156 Stockholders' equity: Common stock, $.01 par value; Authorized - 80,000,000 shares; Issued - 28,972,422 at September 28, 1996; 28,770,346 shares at March 30, 1996 290 288 Additional paid-in capital 54,780 52,355 Retained earnings 200,764 182,707 Cumulative translation adjustments 6,009 7,387 ------------------------- Stockholders' equity before treasury stock 261,843 242,737 Less: treasury stock - 1,657,550 shares at cost at September 28, 1996 and 1,607,354 shares at cost at March 30, 1996 26,759 25,767 ------------------------- Total stockholders' equity 235,084 216,970 ------------------------- Total liabilities and stockholders' equity $308,774 $287,818 ========================= </TABLE> 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) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------ ------------------------------ September 28, September 30, September 28, September 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net revenues $74,426 $69,133 $149,932 $137,908 Cost of goods sold 34,516 30,568 67,706 62,026 ----------------------------------------------------------- Gross profit 39,910 38,565 82,226 75,882 Operating expenses: Research and development 4,681 4,521 9,718 8,804 Selling, general and administrative 22,331 20,320 45,463 39,794 ----------------------------------------------------------- Total operating expenses 27,012 24,841 55,181 48,598 Operating income 12,898 13,724 27,045 27,284 Interest expense (473) (664) (885) (1,303) Interest income 773 507 1,421 1,061 Other income, net 106 588 205 547 ----------------------------------------------------------- Income before provision for income taxes 13,304 14,155 27,786 27,589 Provision for income taxes 4,655 4,955 9,715 9,649 ----------------------------------------------------------- Net income $ 8,649 $ 9,200 $ 18,071 $ 17,940 =========================================================== NET INCOME PER SHARE $ 0.31 $ 0.33 $ 0.65 $ 0.65 =========================================================== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 27,673 27,880 27,690 27,778 </TABLE> The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited - in thousands) <TABLE> <CAPTION> Additional Cumulative Total Common Stock Paid-in Retained Treasury Translation Stockholders' Shares $'s Capital Earnings Stock Adjustment Equity ------ ----- ---------- -------- --------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> Balance March 30, 1996 28,770 $ 288 $52,355 $182,707 ($25,767) $7,387 $216,970 Exercise of stock options 202 2 2,425 - - - - - - - - - 2,427 Employee stock purchase plan - - - - - - - - - - - - - - - - - - 0 Treasury stock - - - - - - - - - (14) (992) - - - (1,006) Net income - - - - - - - - - 18,071 - - - - - - 18,071 Translation adjustment - - - - - - - - - - - - - - - (1,378) (1,378) ------------------------------------------------------------------------------------- Balance September 28, 1996 28,972 $ 290 $54,780 $200,764 ($26,759) $6,009 $235,084 ===================================================================================== </TABLE> The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited- in thousands) <TABLE> <CAPTION> Six Months Ended ---------------------- Sept 28, Sept 30, 1996 1995 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 18,071 $ 17,940 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,186 8,417 (Increase) decrease in deferred income taxes 198 (148) Increase in accounts receivable, net (7,999) (6,978) (Increase) decrease in inventories 3,849 (178) Increase in sales-type leases (6,681) (73) (Increase) decrease in other assets (3,682) 2,833 Increase (decrease) in accounts payable, accrued expenses and deferred revenues (1,179) 3,355 ---------------------- Total adjustments (9,308) 7,228 ---------------------- Net cash provided by operating activities 8,763 25,168 ---------------------- Cash flows from investing activities: Capital expenditures on property, plant and equipment, net (15,938) (8,903) DHL asset acquisition --- (6,189) ---------------------- Net cash used in investing activities (15,938) (15,092) ---------------------- Cash flows from financing activities: Payments on long-term real estate mortgage (99) (74) Net increase (decrease) in short-term revolving credit agreements 7,610 (4,123) Net increase (decrease) in long-term revolving credit agreements (1,776) 775 Exercise of stock options 2,427 2,106 Employee stock purchase plan 333 Purchase of treasury stock (1,006) (4,896) ---------------------- Net cash used in financing activities 7,156 (5,879) ---------------------- Effect of exchange rates on cash (208) 7 ---------------------- Net increase (decrease) in cash (227) 4,204 Cash at beginning of period 13,434 4,230 ---------------------- Cash at end of period $ 13,207 $ 8,434 ====================== Supplemental disclosures of cash flow information: Interest paid $ 1,298 $ 1,036 ====================== Income taxes paid, net of refunds $ 12,405 $ 11,444 ====================== </TABLE> 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 September 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 $121.6 million. Of that balance, $70.3 million represented contracts for terms of 30 days or less. Net unrealized gains from hedging firm sales commitments, based on current spot rates, were $3.0 million at September 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: <TABLE> <CAPTION> September 28, March 30, 1996 1996 ------------- --------- (in thousands) <S> <C> <C> Raw materials $ 7,673 $ 6,727 Work-in-process 6,017 6,699 Finished goods 38,857 43,303 ----------------------- $52,547 $56,729 ======================= </TABLE> 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 September 28, 1996 Compared to Three Months Ended September 30, 1995 Net revenues in 1996 increased 8% to $74.4 million from $69.1 million in 1995. Worldwide disposable sales increased 7% due to growth in international markets and equipment sales increased 15% due to growth in domestic markets. Sales of disposables products accounted for approximately 88% and 89%, respectively, of net revenues for the three months ended September 28,1996 and September 30, 1995. International sales accounted for approximately 62% and 61%, respectively, of net revenues for the three months ended September 28,1996 and September 30, 1995. Gross profit in 1996 increased to $39.9 million from $38.6 million in the same period of 1995. As a percentage of net revenues, gross profit decreased 2.2% to 53.6% in 1996 from 55.8% in 1995. This decrease was attributable to both a shift in the mix of product sales from the higher margin surgical products to the lower margin commercial plasma products and an increase in spending to fund the start up of new business. The Company expended $4.7 million in 1996 on research and development (6.3% of net revenues) and $4.5 million in the same period of 1995 (6.5% of net revenues). Selling, general and administrative expenses increased to $22.3 million in 1996 from $20.3 million in 1995 and increased as a percentage of net revenues to 30.0% from 29.3%. The increase resulted from increased staffing and related personnel costs in both the domestic and international markets, as well as increased costs for new business opportunities. Interest expense decreased in 1996 to $0.5 million from $0.7 million in the same period of 1995 due to a decreased level of borrowing. Total debt decreased $6.2 million from a year ago. 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 1997 will be approximately 35%. Six Months Ended September 28, 1996 Compared to Six Months Ended September 30, 1995 Net revenues in 1996 increased 9% to $149.9 million from $137.9 million in 1995. Worldwide disposable sales increased 7% due to growth in international markets and equipment sales increased 22% due to growth in domestic markets. Sales of disposables products accounted for approximately 87% and 89%, respectively, of net revenues for the six months ended September 28, 1996 and September 30, 1995. International sales accounted for approximately 63% and 61%, respectively, of net revenues for the six months ended September 28,1996 and September 30, 1995. Gross profit in 1996 increased to $82.2 million from $75.9 million in 1995. As a percentage of net revenues, gross profit declined .2% to 54.8% in 1996 from 55.0% in 1995. A shift in the mix of product sales from the higher margin surgical products to the lower margin commercial plasma products and an increase in spending to fund the start up of new business accounted for approximately a 3.0% decrease in gross margin. This decrease was largely offset by gains in our gross margin due to a higher percentage of international sales which have a better gross profit margin than domestic sales and favorable currency impact. The Company expended $9.7 million in 1996 on research and development (6.5% of net revenues) and $8.8 million in 1995 (6.4% of net revenues). Selling, general and administrative expenses were $45.5 million in 1996 and $39.8 million in 1995 and increased as a percentage of net revenues to 30.3% from 28.9%. The increase resulted from increased staffing and related personnel costs in both the domestic and international markets, as well as increased costs for new business opportunities. Interest expense decreased in 1996 to $0.9 million from $1.3 million in 1995 due to a decreased level of borrowing. Interest income increased in 1996 to $1.4 million from $1.1 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 and 1995. 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 six months ended September 28, 1996, the Company generated $8.8 million in cash flow from operating activities compared to $25.2 million in cash flow from operating activities for the six months ended September 30, 1995. Cash utilized from the increase in revolving credit agreements totaled $7.6 million for the six months ended September 28, 1996. The Company's need for funds is derived primarily from capital expenditures and from increases in sales- type leases and accounts receivable. During the six months ended September 28, 1996, net cash used for capital expenditures was $15.9 million related to equipment utilized in the U.S. commercial plasma business and investments in facilities and manufacturing equipment. Increased accounts receivable and sales type leases utilized net cash of $14.7 million. The Company believes that committed bank lines, combined with internally generated funds, will be sufficient to meet future liquidity and capital needs. At September 28, 1996 and March 30, 1996, the Company had working capital of $114.3 million and $112.4 million, respectively.
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 10AG Lease dated May 10, 1996 between Charlotte E. Flatley and John P. Garrahan, trustees of the 1970 Flatley Family Trust and the Company for the property located at Forbes Business Center, Braintree, Massachusetts. Exhibit 10AH Supplement to the lease dated May 10, 1996 between Charlotte E. Flatley and John P. Garrahan, trustees of the 1970 Flatley Family Trust and the Company for the property located at Forbes Business Center, Braintree, Massachusetts. 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: November 6, 1996 By: /s/ JOHN F. WHITE -------------------- ----------------------------------------- John F. White, Chairman, President and Chief Executive Officer Date: November 6, 1996 By: /s/ BRIDIG A. MAKES -------------------- ----------------------------------------- Brigid A. Makes, Chief Financial Officer, (Principal Financial Officer)