Retractable Technologies, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited quarterly data, including fourth-quarter results. The company designs, manufactures, and sells safety syringes and other medical safety devices, primarily under the VanishPoint brand.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $33.64 million | $32.10 million |
| Gross profit / margin | $11.18 million / 33.2% | $10.90 million / 34.0% |
| Operating loss | $3.94 million | $4.09 million |
| Net income (loss) | $(4.13) million | $1.42 million |
| Loss (earnings) applicable to common shareholders | $(5.05) million | $0.45 million |
| Basic and diluted EPS | $(0.19) | $0.02 |
| Cash from operating activities | $0.16 million | $5.51 million |
| Cash and cash equivalents at year-end | $25.96 million | $25.67 million |
| Total assets / stockholders’ equity | $47.63 million / $35.73 million | $48.92 million / $38.65 million |
| Total debt at year-end | $4.14 million | $4.76 million |
Current assets were $35.44 million and current liabilities $8.08 million at year-end, implying substantial reported short-term asset coverage. Operating cash flow was nearly flat despite the cash balance, and was supported by working-capital changes and noncash charges. Capital expenditures were $0.51 million; debt repayments were $0.63 million.
Material changes and fourth-quarter results
- Annual sales increased 4.8%, while total unit sales rose 14.7%. U.S. sales declined 4.8%, reflecting lower domestic unit volume and average price; international sales rose from $5.4 million to $8.3 million, mainly on higher volume.
- Gross margin declined from 34.0% to 33.2%. Higher sales volume increased cost of sales, partly offset by lower manufacturing unit costs.
- Despite a modestly smaller operating loss, the company swung from 2011 net income to a 2012 net loss because 2011 included $5.7 million of net litigation settlements; 2010 included $9.2 million. No litigation settlement income was recorded in 2012.
- Fourth-quarter 2012 sales were $8.04 million, gross profit $1.65 million, operating loss $2.55 million, and net loss $2.54 million. Gross margin was 20.5%, versus 17.8% in fourth-quarter 2011. The filing attributes major quarterly comparisons to Hospira option payments received in 2011.
- Cash increased $0.29 million during 2012. The company repurchased 67,102 common shares for $0.12 million and its CEO exercised options for 2 million shares at $0.81 each, providing $1.62 million of proceeds.
Outlook, risks, and unusual items
- Management said it had sufficient cash reserves and expected to rely primarily on operations, cash reserves, and debt financing; it did not intend to raise equity capital at that time. It cautioned that additional cost reductions could be needed if market access remained limited and operating cash became insufficient.
- A 2.3% federal medical-device excise tax began in 2013. Management estimated an impact exceeding $1 million for 2013, with no assurance it could pass the cost to customers; $157,000 had been paid through March 14, 2013.
- Market access is a central business risk. The company alleges that BD’s exclusive marketing practices restrict competition and was pursuing antitrust and related claims, with a trial expected in summer 2013. The Supreme Court denied the company’s patent appeal in January 2013; the Federal Circuit had upheld infringement findings for BD’s 1mL Integra syringe but reversed them for the 3mL product. Separate patent-infringement litigation brought by BD and MDC remained stayed.
- Supply concentration is significant: Chinese supplier Double Dove produced approximately 72% of units in 2012. The company reported using about 35% of its U.S. productive capacity and manufacturing 27.2% of units domestically. A supplier disruption could require alternative sourcing or a costly domestic production ramp-up.
- Three customers represented 40.6% of 2012 revenue. The company also faces patent expirations beginning in 2015, competition from larger manufacturers, product-liability exposure without recall insurance, and limited access to capital markets.
- Preferred dividends in arrears totaled approximately $11.4 million at year-end, restricting common dividends and potentially common-stock repurchases. Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses identified.
Important facts for investors to verify
- Whether the BD antitrust case proceeds as expected and the potential financial and commercial effects of its outcome and other patent litigation.
- Whether 2013 excise-tax costs, supplier concentration, and customer concentration affect margins, cash flow, or product availability.
- The composition and sustainability of operating cash flow, as 2012 operating cash generation was only $0.16 million despite $25.96 million of cash on hand.
- The extent and terms of preferred-dividend arrears, future dividend payments, and any resulting constraints on share repurchases.
- Whether fourth-quarter margin weakness persists; the filing reports a 20.5% fourth-quarter gross margin compared with 33.2% for the full year.