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 --------------------- ------- 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. 26,512,979 shares of Common Stock, $ .01 par value, as of --------------------------------------------------------- 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 <TABLE> <CAPTION> September 27, March 29, ASSETS 1997 1997 ------------------------- <S> <C> <C> 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 ----------------------- Total current assets 184,908 167,669 ----------------------- Property, plant and equipment 208,370 190,758 Less accumulated depreciation 96,346 87,148 ----------------------- 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 ----------------------- Total other assets 69,941 52,267 ----------------------- Total assets $366,873 $323,546 ======================= 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 ----------------------- Total current liabilities 68,816 73,624 ----------------------- 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) ----------------------- 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 ----------------------- Total stockholders' equity 231,401 225,274 ----------------------- Total liabilities and stockholders' equity $366,873 $323,546 ======================= </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 share data) <TABLE> <CAPTION> Three Months Ended Six Months Ended ---------------------------- ----------------------------- September 27, September 28, September 27, September 28, 1997 1996 1997 1996 ----------------------------------------------------------- <S> <C> <C> <C> <C> Net revenues $76,613 $74,426 $158,941 $149,932 Cost of goods sold 42,077 34,516 87,343 67,706 ------------------------------------------------------ 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 ------------------------------------------------------ Total operating expenses 28,405 27,012 55,882 55,181 ------------------------------------------------------ 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 ------------------------------------------------------ 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 ------------------------------------------------------ Net income $ 4,031 $ 8,649 $ 10,512 $ 18,071 ====================================================== NET INCOME PER SHARE $ 0.15 $ 0.31 $ 0.39 $ 0.65 ====================================================== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 26,620 27,673 26,633 27,690 </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> Common Stock Additional Cumulative Total ------------ Paid-in Retained Treasury Translation Stockholders' Shares $'s Capital Earnings Stock Adjustment Equity ----------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> 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) ------------------------------------------------------------------------- Balance September 27, 1997 29,294 $293 $58,386 $226,156 ($46,362) ($7,072) $231,401 ========================================================================= </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. 27, Sept. 28, 1997 1996 --------------------- <S> <C> <C> 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) ------------------- Total adjustments (15,546) (4,518) ------------------- Net cash (used in) provided by operating activities (5,034) 13,553 ------------------- 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) ------------------- Net cash used in investing activities (36,742) (20,728) ------------------- 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) ------------------- Net cash provided by financing activities 40,104 7,156 ------------------- Effect of exchange rates on cash 10 (208) ------------------- Net decrease in cash (1,662) (227) Cash at beginning of period 8,302 13,434 ------------------- Cash at end of period $ 6,640 $13,207 =================== Supplemental disclosures of cash flow information: Interest paid $ 1,009 $ 1,298 =================== Income taxes paid, net of refunds $14,059 $12,405 =================== </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 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: <TABLE> <CAPTION> September 27, March 29, 1997 1997 -------------------------- (in thousands) <S> <C> <C> Raw materials $10,925 $12,501 Work-in-process 6,232 5,628 Finished goods 47,988 36,961 ---------------------- $65,145 $55,090 ====================== </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). 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 - ---------------------------------------------------------------------------- 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 -------------------- ------------------------------------ John F. White, Chairman, President and Chief Executive Officer Date: 11/10/97 By: /s/ BRIGID A. MAKES -------------------- ------------------------------------ Brigid A. Makes, Chief Financial Officer, (Principal Financial Officer)