Haemonetics Corporation — FY2011 Form 10-K Summary
Business context and reporting period
Haemonetics develops blood collection, processing, diagnostic, surgical blood-salvage and blood-management software solutions for plasma collectors, blood centers and hospitals. The filing covers the fiscal year ended April 2, 2011 (52 weeks), compared with FY2010 ended April 3, 2010 (53 weeks). It is an annual report, not a standalone fourth-quarter filing; FY2010’s extra week affects the comparison.
Financial performance and position
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Revenue | $676.7 million | $645.4 million | +4.8%; +6.7% excluding FY2010’s extra week |
| Gross profit / margin | $355.2 million / 52.5% | $337.5 million / 52.3% | Profit +5.3%; margin +0.2 percentage points |
| Operating income / margin | $110.5 million / 16.3% | $83.3 million / 12.9% | +32.7% |
| Net income / margin | $80.0 million / 11.8% | $58.4 million / 9.0% | +37.0% |
| Diluted EPS | $3.12 | $2.24 | +39.3% |
| Operating cash flow | $123.5 million | $130.7 million | -$7.2 million |
| Capital expenditures | $46.7 million | $56.3 million | -$9.6 million |
- Revenue mix: disposables $551.8 million (-0.6%), software solutions $66.9 million (+86.2%), and equipment and other $58.0 million (+6.8%). Software growth was principally associated with the Global Med acquisition; disposables represented 81.5% of revenue.
- Cash and cash equivalents were $196.7 million; working capital was $340.2 million and the current ratio was 4.1. Net cash (cash less debt) was $191.8 million. Total debt was $4.9 million, down from $20.5 million.
- Net cash provided by investing activities was negative $51.6 million, versus negative $132.3 million, largely reflecting lower acquisition spending. Financing cash flow was negative $18.1 million, including $50 million of share repurchases. Operating cash flow less capital expenditures was approximately $76.8 million.
Material changes versus prior year
- Revenue growth reflected acquisitions, including Global Med, and emerging-market growth; foreign exchange contributed 0.2 percentage points to reported revenue growth. The extra FY2010 week makes the reported 4.8% growth rate lower than the company’s 6.7% adjusted comparison.
- Disposables declined as plasma collection growth slowed and demand for automated red-cell and surgical products weakened amid fewer surgeries, competitive pressure and market conditions. Diagnostics disposables rose 15.8%, while plasma disposables fell 2.2% and surgical disposables fell 4.9%.
- Operating income benefited from higher software sales, manufacturing cost improvements, lower cash-bonus expense, emerging-market growth and the absence of FY2010’s $15.7 million asset impairment. FY2010 impairment related to abandoned platelet-platform development and the Symphony software product.
- Research and development expense increased 23.8% to $32.7 million (4.8% of revenue), with spending focused on a next-generation surgical blood-salvage device, automated whole-blood collection and portfolio enhancements.
Outlook, commentary, risks and unusual items
- Management expected the global blood-components market to return to modest, low-single-digit growth. It noted plasma-derived therapy demand was driving plasma-collection growth of approximately 5–7%, while near-term collections were affected by excess plasma supply and changes in Japan Red Cross sourcing. No specific company-wide revenue or earnings guidance is provided in the supplied filing text.
- In April 2011, the company announced a voluntary recall of OrthoPAT devices manufactured before 2002. It recorded $0.8 million of FY2011 expense and expected approximately $10 million of incremental FY2012 capital expenditures for device upgrades; management did not expect material FY2012 reductions in equipment or disposable sales from the recall.
- The board approved up to $50 million in FY2012 share repurchases. The company said available cash, operating cash generation and option proceeds should fund requirements for at least 12 months, including capital expenditures and approximately $50 million of repurchases.
- Japan Red Cross Society generated 14.2% of FY2011 revenue, creating significant customer concentration. International markets generated 53.1% of revenue, exposing results to exchange rates, local regulation and political and economic conditions. Other risks include competition, product acceptance, regulatory compliance, supplier interruptions, plastic-material costs, intellectual-property protection, product liability and data security.
- Legal matters include ongoing patent litigation with Fenwal: an earlier $18 million damages award and injunction were vacated on appeal, and further proceedings continued. A Milan, Italy court’s guilty verdict against the Italian subsidiary and two employees was affirmed on appeal; the company was considering further options. Management believed its legal exposures would not materially affect consolidated results, but outcomes remain uncertain.
- The company repurchased approximately 0.9 million shares for $50 million in FY2011. It paid no cash dividends and did not expect to do so in the foreseeable future. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the FY2011 versus FY2010 revenue and earnings comparison accounts for FY2010’s 53rd week, and distinguish organic growth from acquisition-driven growth.
- Monitor the OrthoPAT recall’s remediation costs, planned $10 million upgrade spending and any effect on customer usage or sales.
- Assess whether software growth and emerging-market demand can offset continued softness in plasma, red-cell and surgical disposables.
- Review customer concentration, particularly Japan Red Cross purchases and receivables, along with commercial plasma customer contracts.
- Track outcomes and potential financial effects of the Fenwal patent cases and the Italian legal proceedings.
- Evaluate execution of the FY2012 repurchase authorization against liquidity, capital needs and the company’s stated cash-generation expectations.