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: July 1, 2000 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
of incorporation or organization) Identification No.)
400 Wood Road, Braintree, MA 02184
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 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.
25,087,007 shares of Common Stock, $ .01 par value, as of
---------------------------------------------------------
July 1, 2000
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Consolidated Statements of Operations - 2
Three Months Ended July 1, 2000
and July 3, 1999
Consolidated Balance Sheets - July 1, 2000 3
and April 1, 2000
Consolidated Statements of Stockholders' Equity - 4
Three Months Ended July 1, 2000
Consolidated Statements of Cash Flows - 5
Three Months Ended July 1, 2000 and July 3, 1999
Notes to Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-16
Quantitative and Qualitative Disclosures about Market Risk 16-17
PART II. Other Information 18
Signatures 19
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
July 1, July 3,
2000 1999
------------------
<S> <C> <C>
Net revenues $69,693 $69,122
Cost of goods sold 36,276 36,305
------------------
Gross profit 33,417 32,817
Operating expenses:
Research and development 4,134 3,623
Selling, general and administrative 20,956 20,744
------------------
Total operating expenses 25,090 24,367
------------------
Operating income 8,327 8,450
Interest expense (1,021) (1,015)
Interest income 1,182 1,117
Other income, net 767 232
------------------
Income from continuing operations
before provision for income taxes 9,255 8,784
Provision for income taxes 2,591 2,811
------------------
Net Income $ 6,664 $ 5,973
==================
Basic income(loss) per common share $ 0.264 $ 0.223
Income(loss) per common share assuming dilution $ 0.259 $ 0.223
Weighted average shares outstanding
Basic 25,248 26,729
Diluted 25,731 26,830
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
<TABLE>
<CAPTION>
July 1, April 1,
ASSETS 2000 2000
--------------------
<S> <C> <C>
Current assets:
Cash and short term investments $ 52,195 $ 61,328
Accounts receivable, less allowance of
$993 at July 1, 2000 and $1,149 at
April 1, 2000 58,814 59,140
Inventories 57,615 59,817
Current investment in sales-type
leases, net 7,456 8,036
Deferred tax asset 19,794 16,360
Other prepaid and current assets 4,607 5,237
--------------------
Total current assets 200,481 209,918
--------------------
Property, plant and equipment 189,158 185,432
Less accumulated depreciation 108,853 103,824
--------------------
Net property, plant and equipment 80,305 81,608
Other assets:
Investment in sales-type leases, net
(long term) 8,454 10,775
Distribution rights, net 11,129 11,356
Goodwill, less accumulated amortization of
$706 at July 1, 200 and $662
at April 1, 2000 1,788 1,832
Deferred tax asset 14,806 14,806
Other assets, net 20,948 18,815
--------------------
Total other assets 57,125 57,584
--------------------
Total assets $337,911 $349,110
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 24,823 $ 32,896
Accounts payable 8,323 17,224
Accrued payroll and related costs 7,968 8,456
Accrued income taxes 16,710 15,700
Other accrued liabilities 13,727 14,199
--------------------
Total current liabilities 71,551 88,475
--------------------
Deferred income taxes 14,165 10,722
Long-term debt, net of current maturities 41,184 41,306
Other long-term liabilities 2,153 2,164
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 30,038,869 shares at July 1, 2000;
30,004,811 shares at April 1, 2000 300 300
Additional paid-in capital 74,557 73,662
Retained earnings 237,366 230,732
Cumulative translation adjustments (13,701) (13,078)
--------------------
Stockholders' equity before treasury stock 298,522 291,616
Less: treasury stock 4,951,862 shares at
cost at July 1, 2000 and 4,728,762 shares
at cost at April 1, 2000 89,664 85,173
--------------------
Total stockholders' equity 208,858 206,443
--------------------
Total liabilities and stockholders'
equity $337,911 $349,110
====================
Supplemental disclosure of
balance sheet information:
Net debt $ 13,812 $ 12,874
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Total
------------ Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Income
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 2000 30,005 $300 $73,662 $(85,173) $230,732 $(13,078) $206,443
==========================================================================================
Employee stock purchase
plan --- --- --- 238 (30) --- 208
Exercise of stock options
and related tax benefit 34 0 895 --- --- --- 895
Purchase of treasury stock --- --- --- (4,729) --- --- (4,729)
Net income --- --- --- --- 6,664 --- 6,664 $6,664
Foreign currency
translation adjustment --- --- --- --- --- (623) (623) (623)
------------------------------------------------------------------------------------------
Comprehensive income --- --- --- --- --- --- --- $6,041
------------------------------------------------------------------------------------======
Balance, July 1, 2000 30,039 $300 $74,557 $(89,664) $237,366 $(13,701) $208,858
===========================================================================
</TABLE>
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
July 1, July 3,
2000 1999
--------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 6,664 $ 5,973
Adjustments to reconcile net income to
net cash provided by operating activities:
Non cash items:
Depreciation and amortization 6,027 7,359
Deferred tax benefit 9 1
Other 787 234
Change in operating assets and liabilities:
Decrease in accounts receivable - net 169 3,216
Decrease in inventories 2,116 1,234
Decrease in sales-type leases (current) 580 637
(Increase) decrease in prepaid income taxes (225) 1,208
(Increase) decrease in other assets (1,352) 938
Decrease in accounts payable, accrued
expenses and other current liabilities (8,884) (9,461)
--------------------
Net cash provided by operating
activities, continuing operations 5,891 11,339
--------------------
Net cash used in operating
activities, discontinued operations 0 (4,281)
--------------------
Net cash provided by operating
activities 5,891 7,058
Cash Flows from Investing Activities:
Capital expenditures on property, plant
and equipment, net of retirements
and disposals (4,636) (6,942)
Net decrease in sales-type leases
(long-term) 1,534 562
--------------------
Net cash used in investing activities,
continuing operations (3,102) (6,380)
Net cash provided by investing activities,
discontinued operations 0 3,562
--------------------
Net cash used in investing activities (3,102) (2,818)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage 0 (62)
Net increase (decrease) in short-term revolving
credit agreements (8,136) 2,444
Net decrease in long-term credit agreements (126) (20)
Employee stock purchase plan 208 185
Exercise of stock options and related
tax benefit 895 82
Purchase of treasury stock (4,729) (9,546)
--------------------
Net cash used in financing activities (11,888) (6,917)
Effect of exchange rates on cash and
cash equivalents (34) (345)
--------------------
Net decrease in cash and cash equivalents (9,133) (3,022)
Cash and cash equivalents at beginning of period 61,328 56,319
--------------------
Cash and cash equivalents at end of period $52,195 $53,297
====================
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents,
discontinued operations $ 0 $ (719)
Net decrease in cash and cash equivalents,
continuing operations $(9,133) $(2,303)
Increase in net debt $ 871 $ 5,384
Interest paid $ 1,670 $ 1,674
Income taxes paid $ 1,084 $ 3,835
====================
</TABLE>
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. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last day
of March. Both fiscal year 2001 and 2000 include 52 weeks with the first
quarter of each fiscal year including 13 weeks.
3. COMPREHENSIVE INCOME
In the first quarter of fiscal year 1999, the Company adopted the
provisions of Statement of Financial Accounting Standard (SFAS) NO. 130,
"Reporting Comprehensive Income," which established standards for reporting
and display of comprehensive income and its components. Comprehensive income
is the total of net income and all other non-owner changes in stockholders'
equity, which for the Company, is foreign currency translation. At July 1,
2000 and April 1, 2000, the cumulative foreign currency translation
adjustment totaled ($13.7) million and ($13.1) million, respectively.
4. NEW PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt by the end of the
fourth quarter of fiscal year 2001. SAB 101 provides additional guidance on
the accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of accumulating the information necessary to quantify the
potential impact, if any, of this new guidance.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value. The SFAS No. 133 requires that changes in the derivatives fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, or in the case of a hedge of a forecasted probable
transaction, a derivative's gains and losses are included in other
comprehensive income until the transaction is consummated. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. A company may implement SFAS No.
133 as of the beginning of any fiscal quarter after issuance (that is fiscal
quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot be
applied retroactively. The impacts of adopting SFAS No. 133 on the Company's
financial statements or the timing of adoption of SFAS No. 133 have not been
determined. However, it is expected that the derivative financial
instruments acquired in connection with the Company's hedging program will
continue to qualify for hedge accounting.
5. FOREIGN CURRENCY
Foreign currency transactions and financial statements are translated
into U.S. dollars following the provisions of SFAS No. 52, "Foreign Currency
Translation." Accordingly, assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at exchange rates in effect at period end.
Net revenues and costs and expenses are translated at average rates in
effect during the period. The effects of exchange rate changes on the
Company's assets and liabilities are included in the cumulative translation
adjustment account. Included in other income (expense) in the consolidated
statement of operations in fiscal year 2001 and fiscal year 2000 are
($153,000) and $2,000 respectively, in foreign currency transaction gains
(losses).
The Company enters into forward exchange contracts to hedge certain
firm sales commitments by customers that are denominated in foreign
currencies. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The Company
also enters into forward contracts that settle within 35 days to hedge
certain inter-company receivables denominated in foreign currencies. Actual
gains and losses on all forward contracts are recorded in operations,
offsetting the gains and losses on the underlying transactions being hedged.
These derivative financial instruments are not used for trading purposes.
The cash flows related to the gains and losses on these foreign currency
hedges are classified in the consolidated statements of cash flows as part
of cash flows from operating activities.
At July 1, 2000 and July 3, 1999, the Company had forward exchange
contracts, all maturing in less than twelve months, to exchange foreign
currencies (major European currencies and Japanese yen) primarily for U.S.
dollars totaling $135,057,000 and $145,270,000, respectively. Of the
respective balances, $28,504,000 and $49,752,000 represented contracts
related to inter-company receivables that settled within 35 days. The
balance of the contracts relate to firm sales commitments. Gross unrealized
gains and losses from hedging firm sales commitments, based upon current
forward rates, were a $1,902,000 gain and a $327,000 loss at July 1, 2000
and a $3,909,000 gain and a $4,121,000 loss at July 3, 1999. Deferred gains
and losses are recognized in earnings when the transactions being hedged are
recognized. Management anticipates that these deferred amounts at July 1,
2000 will be offset by the foreign exchange effect on sales of products to
international customers in future periods.
The Company is exposed to credit loss in the event of nonperformance
by counter-parties on these foreign exchange contracts. The Company does not
anticipate nonperformance by any of these parties.
6. 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>
July 1, April 1,
2000 2000
-----------------------
(in thousands)
<S> <C> <C>
Raw materials $13,559 $14,081
Work-in-process 6,019 7,199
Finished goods 38,037 38,537
----------------------
$57,615 $59,817
======================
</TABLE>
7. NET INCOME PER SHARE
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by Statement of Financial Accounting Standards, "SFAS" No. 128,
"Earnings Per Share." Basic EPS is computed by dividing reported earnings
available to stockholders by weighted average shares outstanding. Diluted
EPS includes the effect of other common stock equivalents.
<TABLE>
<CAPTION>
For the three months ended
----------------------------
July 1, 2000 July 3, 1999
----------------------------
<S> <C> <C>
Basic EPS
---------
Net Income(loss) $ 6,664 $ 5,973
Weighted Average Shares 25,248 26,729
-----------------------
Basic income(loss) per share $ .264 $ .223
-----------------------
Diluted EPS
-----------
Net Income(loss) $ 6,664 $ 5,973
Basic Weighted Average shares 25,248 26,729
Effect of Stock options 483 101
-----------------------
Diluted Weighted Average shares 25,731 26,830
-----------------------
Diluted income(loss) per share $ .259 $ .223
-----------------------
</TABLE>
8. SEGMENT INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating segment: the
design, manufacture and marketing of automated blood processing systems.
Haemonetics chief operating decision-maker uses consolidated results to make
operating and strategic decisions. Manufacturing processes, as well as the
regulatory environment in which the company operates, are largely the same
for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank, surgical and
plasma products.
The blood bank products comprise machines and single use disposables that
perform "apheresis," the separation of whole blood into its components and
subsequent collection of certain components. The device used for blood
component therapy is the MCS(R)+, mobile collection system.
Surgical products comprise machines and single use disposables that perform
intraoperative autologous transfusion ("IAT") or surgical blood salvage as
it is more commonly known. Surgical blood salvage is a procedure whereby
shed blood is cleansed and then returned back to a patient. The devices used
to perform this are a full line of Cell Saver(R) autologous blood recovery
systems.
Plasma collection products are machines and disposables that, like blood
bank, perform apheresis for the separation of whole blood components and
subsequent collection of plasma. The device used in automated plasma
collection is the PCS(R)2.
Three months ended (in thousands)
<TABLE>
<CAPTION>
July 1, 2000 Blood Bank Surgical Plasma Other Total
------------ ---------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues from external customers 29,457 15,972 20,217 4,047 69,693
<CAPTION>
July 3, 1999
------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers 29,051 15,851 21,684 2,536 69,122
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
The table outlines the components of the consolidated statements of
income for continuing operations as a percentage of net revenues:
<TABLE>
<CAPTION>
Percentage of Net Revenues Percentage Inc(Dec)
Three Months Ended Three Months Ended
---------------------------- -------------------
July 1, 2000 July 1, 1999 2000/1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 1.0%
Cost of goods sold 52.1 52.5 (0.1)
----------------------------------------
Gross Profit 47.9 47.5 1.8
Operating Expenses:
Research and development 5.9 5.3 14.1
Selling, general and administrative 30.1 30.0 1.0
----------------------------------------
Total operating expenses 36.0 35.3 3.0
Operating income 11.9 12.2 (1.0)
Interest expense (1.4) (1.5) 1.0
Interest income 1.7 1.6 5.8
Other income, net 1.1 0.3 230.6
----------------------------------------
Income from continuing operations before
provision for income taxes 13.3 12.6 5.4
Provision for income taxes 3.7 4.0 (7.8)
----------------------------------------
Earnings from continuing operations 9.6% 8.6% 11.6%
========================================
</TABLE>
Three Months Ended July 1, 2000 Compared to Three Months Ended July 3, 1999
Net Revenue Summary
-------------------
( in thousands)
-------------------
<TABLE>
<CAPTION>
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
---------------------------------------------------
<S> <C> <C> <C> <C>
United States $22,148 $22,522 (1.7)% (1.7)%
International 47,545 46,600 2.0 0.3
-----------------------------------------------
Net revenues 69,693 $69,122 0.8% (0.4)%
<CAPTION>
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
---------------------------------------------------
<S> <C> <C> <C> <C>
Disposables $62,636 $62,115 0.8% (0.7)%
Misc & service 4,048 2,540 59.4 63.7
Equipment 3,009 4,467 (32.6) (31.3)
-----------------------------------------------
Net revenues $69,693 $69,122 0.8% (0.4)%
<CAPTION>
Percent Increase / (Decrease)
-----------------------------
Disposables Actual dollars At constant
By product line: 2000 1999 as reported currency
---------------------------------------------------
<S> <C> <C> <C> <C>
Surgical $14,849 $14,564 2.0% 2.7%
Blood bank** 27,683 27,046 2.4 (0.4)
Plasma 20,104 20,505 (2.0) (3.7)
-----------------------------------------------
Disposable revenues $62,636 $62,115 0.8 (0.7)
<FN>
** Includes red cell disposables
</FN>
</TABLE>
Three months ended July 1, 2000 compared to three months ended July 3, 1999
Net Revenues
Net revenues in 2000 increased 0.8% to $69.7 million from $69.1
million in 1999. With currency rates held constant, net revenues decreased
0.4% from 1999 to 2000. Disposable sales increased 0.8% from 1999 to 2000 at
actual rates. With currency rates held constant, disposable sales decreased
0.7%. The 0.7% decrease was largely a result of lower sales in the U.S.
commercial plasma business due to the continued shortage of available
donors. Constant currency sales of disposable products, excluding service
and other miscellaneous revenue, accounted for approximately 90% of constant
currency net revenues for both 2000 and 1999. Service generated from
equipment repairs performed under preventive maintenance contracts or
emergency service billings and miscellaneous revenues accounted for
approximately 6.0% and 4.0% of the Company's net revenues, at constant
currency, for 2000 and 1999, respectively. Equipment revenues decreased
approximately $1.5 million from the $4.5 million in 1999. With currency
rates held constant, equipment revenues decreased 31.3% from 1999 to 2000.
The equipment decrease was attributable primarily to a 1999 international
sale of plasma equipment that was non-recurring in 2000. International sales
as reported accounted for approximately 68% and 67% of net revenues for 2000
and 1999, respectively.
Gross profit
Gross profit of $33.4 million in 2000 increased $0.6 million from
$32.8 million 1999 and increased 0.4% as a percent of sales from 1999 to
2000. At constant currency rates, gross profit, as a percent of sales and in
dollars remained relatively unchanged from 1999 to 2000.
Expenses
The Company expended $4.1 million (5.9 % of net revenues) on research
and development in 2000 and $3.6 million (5.3% of net revenues) in 1999. At
constant currency rates, research and development as a percent of sales
increased slightly by 0.7%, or $0.5 million in dollars from 1999 to 2000.
Selling, general and administrative expenses increased to $21.0
million in 2000 from $20.7 million in 1999. At constant currency rates,
selling, general and administrative expenses increased $0.2 million and
increased 0.4% as a percent of sales from 1999 to 2000.
Operating Income
Operating income as a percentage of net revenues decreased 0.3
percentage points to 11.9% in 2000 from 12.2% in 1999. At constant currency
rates, operating income, as a percent of sales, decreased 1.1% from 1999 or
$0.8 million. The $0.8 million decrease in operating income resulted mainly
from increases in R&D spending.
Foreign Exchange
Greater than two-thirds of the Company's revenues are generated
outside the U.S. in foreign currencies. As such, the Company uses a
combination of business and financial tools comprised of various natural
hedges, (offsetting exposures from local production costs and operating
expenses), and forward contracts to hedge its balance sheet and P&L
exposures.
The Company computes a composite rate index for purposes of measuring,
comparatively, the change in foreign currency hedge spot rates from the
hedge spot rates of the corresponding period in the prior year. The relative
value of currencies in the index corresponds to the value of sales in those
currencies. The composite was set at 1.00 based upon the weighted rates at
March 31, 1997.
For fiscal year 2000 and 2001, the indexed hedge rates were 3.9% less
favorable and 9.1% more favorable than the respective prior years. For the
first quarter of fiscal 2001 and 2002, the indexed hedge spot rates
appreciated 5.4% and a 5.2% over the corresponding quarter of the preceding
years. The final impact of currency fluctuations on the results of
operations is dependent on the local currency amounts hedged and the actual
local currency results.
<TABLE>
<CAPTION>
Composite Index Favorable / (Unfavorable)
Hedge Spot Rates Change vs Prior Year
---------------------------------------------
<S> <C> <C>
FY1999 Q1 0.98 (9.4%)
Q2 1.06 (13.4%)
Q3 1.03 (5.9%)
Q4 1.05 (7.4%)
1999 Total 1.03 (9.1%)
FY2000 Q1 1.10 (10.8%)
Q2 1.09 (2.8%)
Q3 1.04 (0.6%)
Q4 1.07 (1.0%)
2000 Total 1.07 (3.9%)
FY2001 Q1 1.04 5.4%
Q2 1.00 8.2%
Q3 0.92 12.9%
Q4 0.97 10.3%
2001 Total 0.98 9.1%
FY2002 Q1 0.99 5.2%
Q2 0.97 3.3%
</TABLE>
Other Income and Expense
Interest expense and interest income remained relatively unchanged
from 1999 to 2000. Other income net increased $0.5, of which $0.3 was due
to increases in income earned on points on forward contracts.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% in the first quarter of fiscal year 1999 and 28.0% in the first
quarter of fiscal year 2001. The Company expects the provision rate to
remain at 28% for the full 12 months of fiscal year 2001. Contributing to
the decrease in the tax rates was an increase in export benefits from the
Company's Foreign Sales Corporation, benefits associated with the
repatriation of funds as well as the geographic mix of income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's need for funds
is derived primarily from capital expenditures, acquisitions, new business
development and working capital.
During the three months ended July 1, 2000, the Company decreased its
cash balances, before the effect of exchange rates, by $9.1 million from
operating, investing and financing activities which represents an increase
in cash utilization of $6.4 million from the $2.7 million utilized in the
Company's operating, investing and financing activities during the three
months ended July 3, 1999. The increase cash utilization was largely funded
by an increase of $4.9 million in net cash from the Company's financing
activities.
Operating Activities:
The Company generated $5.9 million in cash from operating activities
of continuing operations in 2000 as compared to $11.3 million generated
during 1999. The $5.4 million decrease in operating cash flow generated from
continuing operations from 1999 to 2000 was a result of a $3.0 million
change in accounts receivable and a $3.7 million increase in prepaid income
taxes and other assets offset by increases in cash generated by an $0.8
million decrease in inventory and a $0.5 million change in accounts payable,
accrued expenses and other current liabilities.
The Company measures its performance using an operating cash flow
metric defined as net income adjusted for depreciation, amortization and
other non-cash items; capital expenditures for property, plant and equipment
together with the investment in Haemonetics equipment at customer sites,
including sales-type leases; and the change in operating working capital,
including change in accounts receivable, inventory, accounts payable and
accrued expenses, excluding tax accounts and the effects of currency
translation. During the three months ended July 1, 2000, The company
generated $10.0 million of operating cash during both the three months ended
July 1, 2000 and the three months ended July 3, 1999. The $10.0 million of
operating cash generated for the three months ended July 1, 2000 resulted
from $7.8 million of net income adjusted for non-cash items and $3.0 million
from the reduction of the Company's net investment in property plant and
equipment and sales-type leases offset by $0.8 million in higher working
capital investment.
Investing Activities
The Company utilized $3.1 million in cash for investing activities
from continuing operations in 2000, a decrease of $3.3 million from 1999. In
2000, the Company incurred $4.6 million in capital expenditures net of
retirements and disposals, a decrease of $2.3 in capital expenditures from
the $6.9 million incurred for capital expenditures in 1999. Additionally,
the Company generated $1.0 million more cash in 2000 as compared to 1999 by
reducing its investment in long-term sales-type leases.
Financing Activities:
During the three months ended July 1, 2000, the Company's net debt
increased $0.9 million, a $4.5 million decrease in the change in net debt as
compared to the three months ended July 1, 1999. This $4.5 million decrease
in the change in net debt stems from the Company's repurchase of fewer
shares of common stock in 2000 for its treasury with a cost savings of $4.8
million and $0.8 million received in additional funds from the exercise of
stock options in 2000 as compared to 1999. These increase sources of cash,
reducing the change in net debt, were offset by the Company's 2000 operating
and investing activities which provided $1.5 million less cash as compared
to 1999.
At July 1, 2000, the Company had working capital of $128.9 million.
This reflects an increase of $7.5 million in working capital for the three
months ended July 1, 2000. The Company believes its sources of cash are
adequate to meet its projected needs.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt in the third or
fourth quarter of fiscal year 2001. SAB 101 provides additional guidance on
the accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of accumulating the information necessary to quantify the
potential impact, if any, of this new guidance.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value. The SFAS No. 133 requires that changes in the derivatives fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, or in the case of a hedge of a forecasted probable
transaction, a derivative's gains and losses are included in other
comprehensive income until the transaction is consummated. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. A company may implement SFAS No.
133 as of the beginning of any fiscal quarter after issuance (that is fiscal
quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot be
applied retroactively. The impacts of adopting SFAS No. 133 on the Company's
financial statements or the timing of adoption of SFAS No. 133 have not been
determined. However, it is expected that the derivative financial
instruments acquired in connection with the Company's hedging program will
continue to qualify for hedge accounting.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made
by the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward looking statements
regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of
operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further,
any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made. As it is not possible to predict every new
factor that may emerge, forward-looking statements should not be relied upon
as a prediction of actual future financial condition or results. These
forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or unanticipated. Such risks and uncertainties include
technological advances in the medical field and the Company's ability to
successfully implement products that incorporate such advances, product
demand and market acceptance of the Company's products, regulatory
uncertainties, the effect of economic conditions, the impact of competitive
products and pricing, foreign currency exchange rates, changes in customers'
ordering patterns, the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which the Company operates, and the
implications of Year 2000 including but not limited to the cost and expense
of updating software and hardware and any potential system interruptions.
The foregoing list should not be construed as exhaustive.
EURO CURRENCY
Effective January 1, 1999, 11 of the 15 countries in the European
Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain) adopted a single currency known as the Euro.
For the three years following January 1, 1999, these countries will be
allowed to transact business in both the Euro and in their own currencies at
fixed exchange rates. Beginning on July 1, 2002, the Euro will become the
only currency for these 11 countries.
Operations in Europe
The introduction of the Euro may have a significant impact on the
Company's operations. The Company has 10 subsidiaries located throughout
Europe, that generate one-third of its sales.
State of Readiness
The Company has formed a Euro Steering Committee (the "Committee") to
address all issues related to the Euro. This Committee is now preparing a
detailed action plan which will cover all areas of concern including
information systems, finance, tax, treasury, legal, marketing and human
resources.
As a part of the detailed action plan, a comprehensive questionnaire
was distributed to all of the Company's European subsidiaries to gain a
better understanding of the impact of the Euro currency in each location.
Currently, the responses to the questionnaires are being analyzed and
specific action plans are being developed for each subsidiary.
Date of conversion
The target date for conversion of the Company's local and corporate
information systems to the Euro is April 1, 2001, which is the first day of
the Company's fiscal year 2002.
Business activities
Although the introduction of the Euro will likely result in greater
transparency of pricing throughout Europe, it is anticipated that these
changes will have little impact on Haemonetics. The Company's products are
heavily regulated by organizations specific to each country and as a result,
transactions between countries are infrequent.
Information systems
The Company is continuing to gain a more complete view of the impact
of the Euro conversion on its information systems. The Company realizes it
will create technical challenges to adapt information technology and other
systems to accommodate Euro-denominated transactions. The Committee is in
the process of identifying all systems and determining their state of Euro
readiness. The cost of adapting these systems is not yet known, but the
Company does not believe it to be significant. All local transactional
systems will be tested by September 2000 reviewed shortly thereafter.
Accounting, Finance & Treasury
At the point the Company adopts the Euro, it expects to experience the
benefits of simplified hedging, banking and financial transaction systems.
The Corporate local currency bank accounts have been consolidated to a
single Euro account. Each subsidiary will maintain bank accounts, which are
capable of processing transactions in both the local currency and the Euro.
The transactions between the local currency accounts and Euro accounts
throughout Europe do not result in any additional expense for the company.
Tax
It is expected that some of the European countries will allow costs
related to the introduction of the Euro to be fully deductible.
Additionally, it is anticipated that most countries will allow tax relief by
means of a one-time depreciation or amortization charge related to assets
utilized in the Euro conversion.
Legal
The EU has adopted regulations precluding a party from using the Euro
conversion as the reason for breaching or changing its contractual
obligations, unless the other parties to the contract are in agreement. The
Company is now in the process of identifying any contracts between the
Company and parties outside the USA, which fall under these regulations. At
this point, the Company is not aware of substantial risk related to such
contracts.
The conversion to Euro on April 2, 2001 will result in the conversion
of the share capital of the 6 subsidiaries within the European Monetary
Union (EMU). The amount of the converted share capital must be modified in
order to eliminate uneven amounts and decimals resulting from the
conversion.
The Committee has identified the new amounts of the share capital per
the requested minimum capital requirements issued by the EU. The Committee
is currently in the process of coordinating all activities related to these
changes such as meetings of the subsidiary board of directors, shareholder
meetings, changes in by-laws and defining the appropriate accounting
transactions. The Company anticipates that all required changes will be
completed during the second and third quarters of fiscal year 2001. The
Company does not anticipate material exposure resulting from the share
capital conversion.
Human Resources
The Committee has decided not to rewrite the existing employee
contracts in subsidiaries located in the EMU, but rather, to give a letter
to each employee which will form an integrated part of the existing employee
contract. This letter will indicate the salary amount in Euro, as well as
provide general information about the Euro. The effective date of this
letter will be April 2, 2001.
A Euro contact person responsible for organizing regular employee
updates and for communicating the company-wide progress of the Euro
implementation has been identified at each European subsidiary.
Costs
Although the total cost of the Euro conversion has not yet been
quantified, the Company does not believe that the total cost will be
significant or have a material impact on its business, results of
operations, financial position or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures relative to market risk are due to foreign
exchange risk and interest rate risk.
Foreign exchange risk
Over two-thirds of the Company's revenues are generated outside the
U.S. yet the Company's reporting currency is the U.S. dollar. Foreign
exchange risk arises because the Company engages in business in foreign
countries in local currency. Exposure is partially mitigated by producing
and sourcing product in local currency. Accordingly, whenever the US dollar
strengthens relative to the other major currencies, there is an adverse
affect on the Company's results of operations and alternatively, whenever
the U.S. dollar weakness relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time, the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the majority of its firm sales commitments to customers
that are denominated in foreign currencies. The Company also enters into
forward contracts that settle within 35 days to hedge certain intercompany
receivables denominated in foreign currencies. Actual gains and losses on
all forward contracts are recorded in operations, offsetting the gains and
losses on the underlying transactions being hedged. These derivative
financial instruments are not used for trading purposes. The Company's
primary foreign currency exposures in relation to the U.S. dollar are the
Japanese Yen and the Euro equivalent of the French Franc, Deutsche Mark and
Italian Lire.
At July 1, 2000, the Company had the following significant foreign
exchange contracts to hedge certain firm sales commitments denominated in
foreign currency outstanding:
<TABLE>
<CAPTION>
Hedged (BUY) / SELL Weighted Forward US$ @ Unrealized
Currency Local Currency Contract Rate Current Fwd Gain / (Loss) Maturity
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Euro Equivalent 7,200,000 $1.077 6,876,160 $ 881,000 Jul-Sep 2000
Euro Equivalent 7,500,000 $1.108 7,200,600 $ 1,106,900 Oct-Dec 2000
Euro Equivalent 8,100,000 $1.004 7,812,720 $ 315,910 Jan-Mar 2001
Euro Equivalent 7,500,000 $0.915 7,261,900 $ (401,525) Apr-Jun 2001
Japanese Yen 1,975,000,000 111.9 per US$ 18,727,430 $(1,078,814) Jul-Sep 2000
Japanese Yen 2,075,000,000 99.7 per US$ 20,027,233 $ 793,629 Oct-Dec 2000
Japanese Yen 1,900,000,000 100.8 per US$ 18,661,438 $ 189,996 Jan-Mar 2001
Japanese Yen 2,000,000,000 101.2 per US$ 19,985,383 $ (231,454) Apr-Jun 2001
----------------------------------------------
Total: 106,552,863 $ 1,575,642
==============================================
</TABLE>
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S. dollar
relative to all other major currencies. In the event of a 10% strengthening
of the U.S. dollar, the change in fair value of all forward contracts would
create an additional $12.7 million unrealized gain; whereas a 10% weakening
of the U.S. dollar would create an additional $14.8 million unrealized loss.
Interest Rate Risk
Approximately 97%, of the Company's long-term debt is at fixed rates.
Accordingly, a change in interest rates has an insignificant effect on the
Company's interest expense amounts. The fair value of the Company's long-
term debt however would change in response to interest rates movements due
to its fixed rate nature. At July 1, 2000, the fair value of the Company's
long-term debt was approximately $0.6 million higher than the value of the
debt reflected on the Company's financial statements. This higher fair
market is primarily related to the $40 million, 7.05% fixed rate senior
notes the Company holds. These notes represent approximately 97% of the
Company's outstanding long-term borrowings at July 1, 2000. At July 3, 1999,
the fair value of the Company's long-term debt was approximately $1.6
million higher than the value of the debt reflected on the Company's
financial statements.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at July 1,
2000. The effect was a change in the fair value of the Company's long-term
debt, of approximately $1.5 million.
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
-----------------
None
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 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: August 4 , 2000 By: /s/ James L. Peterson
--------------- ------------------------------------
James L. Peterson,
President and Chief Executive Officer
Date: August 4 , 2000 By: /s/ Ronald J. Ryan
--------------- ------------------------------------
Ronald J. Ryan,
Sr. Vice President and Chief
Financial Officer, (Principal
Accounting Officer)
