HAEMONETICS CORPORATION Our Business
Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers, to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. When used in this report, the terms "we," "us," "our" and the "Company" mean Haemonetics. We view our operations and manage our business in three principal reporting segments: Plasma,Blood Center and Hospital. For that purpose, "Plasma" includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. "Blood Center " includes blood collection and processing devices and disposables for red cells, platelets and whole blood. "Hospital", which is comprised of Hemostasis Management, Vascular Closure, Transfusion Management and Cell Salvage products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables, blood transfusion management software and vascular closure devices.
We believe that Plasma and Hospital have growth potential, while
Recent Developments
Operational Excellence Program
During the first quarter of fiscal 2022, our Board of Directors approved the revised Operational Excellence Program (the "2020 Program"). The revised program is designed to improve product and service quality, reduce cost principally in our manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic. We now expect to incur aggregate charges between$95 million and$105 million by the end of fiscal 2025 and to achieve total gross savings of$115 million to$125 million on an annualized basis once the program is completed. The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved. During the years endedApril 2, 2022 ,April 3, 2021 andMarch 28, 2020 , the Company incurred$28.7 million ,$15.1 million and$11.9 million , respectively, of restructuring and restructuring related costs under this program. Total cumulative charges under this program are$55.7 million as ofApril 2, 2022 .
COVID-19
We continue to closely manage the impacts of the COVID-19 pandemic on our business, results of operations and financial condition. The continuation of the COVID-19 pandemic during fiscal 2022 has significantly impacted our financial results. While the duration and additional implications remain uncertain, the full extent of the impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
Our priorities continue to be the safety of our employees and business continuity while continuing to invest in growth opportunities. Our manufacturing and supply chain remain operational without significant disruptions and we continue to operate in all of our markets.
Although the pace and timing of the recovery is uncertain, we remain confident
in the long term strength of the end markets that we serve across our three
business units. For additional information regarding the expected impacts to our
business units and the various risks posed by the COVID-19 pandemic, refer to
Results of Operations within Management's Discussion and Analysis and Risk
Factors contained in Item 1A of this Annual Report on Form 10-K.
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--------------------------------------------------------------------------------Table of Contents Market Trends Plasma Market
There are two key aspects to the market for our plasma products - the growth in demand for plasma-derived biopharmaceuticals and the limited number of significant biopharmaceutical companies in this market.
Changes in demand for plasma-derived biopharmaceuticals, particularly immunoglobulin, are the key driver of plasma collection volumes in the biopharmaceutical market. Various factors related to the supply of plasma and the production of plasma-derived biopharmaceuticals also affect collection volume, including the following:
•Biopharmaceutical companies are seeking more yield from the collected plasma to meet growing demand for biopharmaceuticals without requiring an equivalent increase in plasma supply.
•Newly approved indications for auto-immune diseases treated with plasma-derived therapies, the growing understanding and diagnosis of these diseases, longer lifespans and a growing aging patient population increase the demand for plasma.
•Geographical expansion of biopharmaceuticals also increases demand for plasma.
During fiscal 2022 the COVID-19 pandemic significantly reduced the number of source plasma collections in theU.S. , which materially reduced the demand for plasma products. We continue to view the impacts of the pandemic on plasma collection as temporary and remain confident in the strength of the plasma end market growth as the long-term global demand for plasma-derived pharmaceuticals is expected to continue. Because plasma collected in theU.S. supplies the vast majority of plasma volume demand worldwide, we anticipate continued growth inNorth America in future periods as collection volumes benefit from an expanding end user market for plasma-derived biopharmaceuticals. Despite the overall growth in the market, the number of biopharmaceutical companies that collect and fractionate source plasma is low and industry consolidation is ongoing. Significant barriers to entry exist for new entrants due to high capital outlay requirements for fractionation, long regulatory pathways to the licensing of collection centers and fractionation facilities and approval of plasma-derived biopharmaceuticals. As a result, there are relatively few customers for our Plasma products, especially in theU.S. where over 70% of the world's source plasma is collected and only a few customers provide the majority of our Plasma revenue.
Blood Center Market
In theBlood Center market, we sell automated blood component and manual whole blood collection systems. While we sell products around the world, a significant portion of our sales are to a limited number of customers due to relatively limited number of blood collectors. Within theBlood Center market, we have seen three trends that have negatively impacted growth of the overall marketplace despite the overall increase in aging populations. Overall, we continue to expect a decline in this business in the low to mid single-digits.
•Declining transfusion rates in mature markets due to the development of more minimally invasive procedures with lower associated blood loss, as well as better blood management.
•Competition in multi-unit collection technology for automated blood component collection systems has intensified and has negatively impacted our sales in markets where these collections are prevalent.
?Industry consolidation through group purchasing organizations has intensified pricing competition particularly in the manual whole blood collection systems.
Hospital Markets
Hemostasis Management Market - The use of routine coagulation testing is well
established throughout the world in various medical procedures, including
cardiovascular surgery, organ transplantation, trauma, post-partum hemorrhage
and percutaneous coronary intervention. While standard tests like prothrombin
time, partial thromboplastin time and platelet count have limited
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ability to reveal a patient's risk for bleeding, they do not provide information
on the patient's risk for thrombosis. In addition, these routine tests do not
provide specific data about clot quality or stability. As a result of these
limitations, clinicians are increasingly utilizing advanced hemostasis testing
to provide more information about a patient's hemostasis status, resulting in
improved clinical decision-making. In addition, advanced hemostasis testing
supports hospital efforts to reduce the risks, complications and costs
associated with unnecessary blood component transfusions.
Haemonetics' TEG®, ClotPro® and HAS hemostasis analyzer systems are advanced
diagnostic tools that provide a comprehensive assessment of a patient's overall
hemostasis. This information enables clinicians to decide the most appropriate
clinical treatment for the patient to minimize blood loss and reduce clotting
risk. For example, TEG analyzers have been used to support clinical decision
making in open cardiovascular surgery and organ transplantation, becoming the
standard of care in liver transplants. In more recent years, interest has grown
into the utilization of TEG in trauma and other procedures in which the risk of
hemorrhage and thrombosis are high.
Geographically, TEG systems have achieved the highest market penetration in
Vascular Closure Market - Our target markets, coronary and peripheral procedures and electrophysiology procedures, are highly concentrated in theU.S. The mature market of coronary and peripheral procedures consists of interventions to diagnose and treat vascular diseases. Electrophysiology procedures consist of catheter-based interventions to diagnose and treat cardiac arrhythmias. This procedure category is expected to grow based on the increasing incidence and prevalence of cardiac arrhythmias, mainly in theU.S. Transfusion Management Market - Revenues from BloodTrack® have increased in theU.S. andEurope in recent years as hospitals seek means to improve efficiencies and meet compliance guidelines for tracking and dispositioning blood components to patients. SafeTrace Tx®'s leading market share in theU.S. remains steady and in fiscal 2021 launched in theUnited Kingdom . We continue to explore opportunities to expand the portfolio internationally. Cell Salvage Market - In recent years, more efficient blood use and less invasive surgeries have reduced demand for autotransfusion in these procedures and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new markets and sources of growth. Orthopedic procedures have seen similar changes with improved blood management practices, including the use of tranexamic acid to treat and prevent postoperative bleeding, significantly reducing the number of transfusions and autotransfusion. Geographically, the Cell Saver® has achieved the highest market penetration inNorth America ,Europe andJapan . However, there are considerable growth opportunities in certainAsia Pacific and other emerging markets as addressable procedure volumes grow and the use of autotransfusion is becoming accepted as a standard of care. 32 --------------------------------------------------------------------------------
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Financial Summary
Fiscal Year
% Increase/(Decrease) % Increase/(Decrease)
(In thousands, except per share data) 2022 2021 2020 22 vs. 21 21 vs. 20
Net revenues $ 993,196 $ 870,463 $ 988,479 14.1 % (11.9) %
Gross profit $ 505,502 $ 397,838 $ 484,513 27.1 % (17.9) %
% of net revenues 50.9 % 45.7 % 49.0 %
Operating expenses $ 424,752 $ 308,091 $ 381,162 37.9 % (19.2) %
Operating income $ 80,750 $ 89,747 $ 103,351 (10.0) % (13.2) %
% of net revenues 8.1 % 10.3 % 10.5 %
Interest and other expense, net $ (17,121) $ (16,834) $ (16,199) 1.7 % 3.9 %
Income before (benefit) provision for
income taxes $ 63,629 $ 72,913 $ 87,152 (12.7) % (16.3) %
Provision (benefit) for income taxes $ 20,254 $ (6,556) $ 10,626 n/m n/m
% of pre-tax income 31.8 % (9.0) % 12.2 %
Net income $ 43,375 $ 79,469 $ 76,526 (45.4) % 3.8 %
% of net revenues 4.4 % 9.1 % 7.7 %
Net income per share - basic $ 0.85 $ 1.57 $ 1.51 (45.9) % 4.0 %
Net income per share - diluted $ 0.84 $ 1.55 $ 1.48 (45.8) % 4.7 %
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal
years 2022 and 2020 included 52 weeks with each quarter having 13 weeks. Fiscal
2021 included 53 weeks with each of the first three quarters having 13 weeks and
the fourth quarter having 14 weeks.
Net revenues for fiscal 2022 increased 14.1% compared with fiscal 2021. Without
the effects of foreign exchange, net revenues increased 13.4% compared with
fiscal 2021. Revenue increases in Hospital, primarily Vascular Closure, drove
the overall increase in revenue during the fiscal year ended April 2, 2022 .
Net revenues for fiscal 2021 decreased 11.9% compared with fiscal 2020. Without
the effects of foreign exchange, net revenues decreased 12.9% compared with
fiscal 2020. Revenue decreases in Plasma due to the COVID-19 pandemic primarily
drove the overall decrease in revenue during the fiscal year ended April 3,
2021 .
Operating income decreased during fiscal 2022 as compared with fiscal 2021,
primarily due to increased spend related to the acquisition of Cardiva Medical,
Inc. ("Cardiva"), including higher transaction and integration costs,
amortization of the fair value inventory step-up, increased intangible
amortization expense and an increase in the fair value of contingent
consideration, as well as increased freight costs and inflationary pressures,
partially offset by productivity savings from the 2020 Program.
Operating income decreased during fiscal 2021 as compared with fiscal 2020, primarily due to the impact of the COVID-19 pandemic on revenue and gross margin, offset by gains on divestitures, incremental savings from the 2020 Program and lower asset impairment charges and depreciation expense.
Management's Use of Non-GAAP Measures
Management uses non-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"), to monitor the financial performance of the business, make informed business decisions, establish budgets and forecast future results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance withU.S. GAAP. Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency conversion rate. We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented. 33 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONSNet Revenues by Geography Fiscal Year Fiscal 2022 versus 2021 Fiscal 2021 versus 2020 Constant Constant Reported currency growth currency growth (In thousands) 2022 2021 2020 Growth Currency impact (1) Reported Growth Currency impact (1)United States $ 639,322 $ 522,607 $ 646,204 22.3 % - % 22.3 % (19.1) % - % (19.1) % International 353,874 347,856 342,275 1.7 % 1.7 % - % 1.6 % 3.0 % (1.4) % Net revenues$ 993,196 $ 870,463 $ 988,479 14.1 % 0.7 % 13.4 % (11.9) % 1.0 % (12.9) %
(1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures."
International Operations and the Impact of Foreign Exchange
Our principal operations are in
The percentage of revenue generated in our principal operating regions is
summarized below:
Fiscal Year
2022 2021 2020
United States 64.4 % 60.0 % 65.4 %
Japan 7.6 % 8.9 % 7.2 %
Europe 16.5 % 18.3 % 15.5 %
Asia 11.2 % 12.2 % 11.1 %
Other 0.3 % 0.6 % 0.8 %
Total 100.0 % 100.0 % 100.0 %
International sales are generally conducted in local currencies, primarily
Japanese Yen, Euro, Chinese Yuan and Australian Dollar. Our results of
operations are impacted by changes in foreign exchange rates, particularly in
the value of the Yen, Euro and Australian Dollar relative to the U.S. Dollar. We
have placed foreign currency hedges to mitigate our exposure to foreign currency
fluctuations.
Please see the section entitled "Foreign Exchange" in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
Net Revenues by Business Unit
Fiscal Year Fiscal 2022 versus 2021 Fiscal 2021 versus 2020
Constant currency Constant currency
(In thousands) 2022 2021 2020 Reported Growth Currency impact growth(1) Reported Growth Currency impact growth(1) Plasma$ 351,347 $ 332,236 $ 458,681 5.8% 0.2% 5.6% (27.6)% -% (27.6)%Blood Center 298,512 307,452 317,761 (2.9)% 1.3% (4.2)% (3.2)% 2.4% (5.6)% Hospital(2) 322,804 210,632 193,437 53.3% 0.6% 52.7% 8.9% 0.7% 8.2% Service 20,533 20,143 18,600 1.9% 1.6% 0.3% 8.3% 3.6% 4.7% Net revenues$ 993,196 $ 870,463 $ 988,479 14.1% 0.7% 13.4% (11.9)% 1.0% (12.9)% (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." (2) Hospital revenue includes Hemostasis Management revenue of$127.4 million ,$107.4 million , and$95.7 million for fiscal years 2022, 2021 and 2020, respectively. Hemostasis Management revenue increased 18.6% during fiscal 2022 as compared with fiscal 2021. Without the effect of foreign exchange, Hemostasis Management revenue increased 18.4% as compared with fiscal 2021. Hemostasis Management revenue increased 12.2% during fiscal 2021 as compared with fiscal 2020. Without the effect of foreign exchange, Hemostasis Management revenue increased 12.8% during fiscal 2021 as compared with fiscal 2020. Hospital revenue also includes Vascular Closure revenue of$93.8 million and$7.7 million for fiscal years 2022 and 2021, respectively. 34 -------------------------------------------------------------------------------- Table of Contents Plasma Plasma revenue increased 5.8% during fiscal 2022 as compared with fiscal 2021. Without the effect of foreign exchange, Plasma revenue increased 5.6% during fiscal 2022 as compared with fiscal 2021. This revenue increase was primarily driven by increase in volume of plasma disposables and an increase in software revenue, partially offset by declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business.
We remain confident in the strength of the plasma end market growth as the long-term global demand for plasma-derived pharmaceuticals is expected to continue. Although we continue to experience the negative impact of COVID-19 on our business, we believe the impacts on plasma collection are temporary.
In earlyApril 2021 ,CSL Plasma, Ltd. informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits following the expiration of the current term of the Supply Agreement inJune 2022 . In fiscal 2022, revenue under this Supply Agreement was$102.4 million . During the third quarter of fiscal 2022, we amended the Supply Agreement to allow CSL to continue to use our PCS2 devices and purchase disposables throughDecember 2023 . The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and CSL has committed to a minimum of$88.0 million of disposable purchases in fiscal 2023. Plasma revenue decreased 27.6% during fiscal 2021 as compared with fiscal 2020. There was no foreign exchange impact on Plasma revenue during fiscal 2021. This revenue decrease was primarily driven by a decline in the volume of plasma disposables, primarily in theU.S. , due to the COVID-19 pandemic and declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business. Declines in software revenue due to a one-time favorable impact in the prior year period also contributed to the decrease.
Blood Center revenue decreased 2.9% during fiscal 2022 as compared with fiscal 2021. Without the effect of foreign exchange,Blood Center revenue decreased 4.2% during fiscal 2022. The decrease was primarily driven by continued declines in whole blood disposables, the divestiture of certain blood donor management software solution assets and the impact of previously discontinued customer contracts inNorth America as well as an apheresis stocking order in the prior year period.Blood Center revenue decreased 3.2% during fiscal 2021 as compared with fiscal 2020. Without the effect of foreign exchange,Blood Center revenue decreased 5.6% during fiscal 2021 primarily due to continued declines in whole blood disposables and the divestiture of certain blood donor management software solution assets. These declines were partially offset by increases in apheresis revenue, despite certain customers' conversions to alternative sources of supply, due to the impact distributor stocking orders in the first quarter and the 53rd week in fiscal 2021. The impact of the loss of this apheresis business was an incremental revenue decline of approximately$17.0 million in fiscal 2021 as compared with fiscal 2020. Hospital Hospital revenue increased 53.3% during fiscal 2022 as compared with fiscal 2021. Without the effect of foreign exchange, Hospital revenue increased 52.7% during fiscal 2022. The increase was primarily attributable to Vascular Closure revenue resulting from the acquisition of Cardiva and an increase in TEG disposables revenue in theU.S. The increase also reflected the impact of the COVID-19 pandemic on the prior year period, partially offset by the divestiture of certain blood bank and hospital software solution assets during the same period of fiscal 2021. Hospital revenue increased 8.9% during fiscal 2021 as compared with fiscal 2020 despite the negative impact of COVID-19, primarily inChina and theU.S , early in the fiscal year. Without the effect of foreign exchange, Hospital revenue increased 8.2% during fiscal 2021. This increase was primarily attributable to a recent acquisition, TEG® disposable revenue in theU.S. and equipment sales inEurope . The increases were partially offset by declines in Cell Salvage revenue and the divestiture of certain blood bank and hospital software solution assets. 35 --------------------------------------------------------------------------------
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Gross Profit
Fiscal Year
% Increase/(Decrease) % Increase/(Decrease)
(In thousands) 2022 2021 2020 22 vs. 21 21 vs. 20
Gross profit $ 505,502 $ 397,838 $ 484,513 27.1 % (17.9) %
% of net revenues 50.9 % 45.7 % 49.0 %
Gross profit increased 27.1% during fiscal 2022 as compared with fiscal 2021.
Without the effects of foreign exchange, gross profit increased 26.0% during
fiscal 2022. The increase was primarily driven by the addition of Vascular
Closure, productivity savings from the 2020 Program and favorable volume and
product mix. The increase was partially offset by inflationary pressures and
higher freight costs in our global supply chain, increased restructuring and
restructuring related costs, the amortization of the fair value inventory
step-up related to the acquisition of Cardiva and asset impairments.
Gross profit decreased 17.9% during fiscal 2021 as compared with fiscal 2020.
Without the effects of foreign exchange, gross profit decreased 19.6% during
fiscal 2021. The decrease in gross profit during fiscal 2021 was primarily due
to unfavorable volumes and product mix, asset impairments, higher operational
costs from the impact of the COVID-19 pandemic, recent divestitures and the
amortization of the fair value inventory step-up related to the acquisition of
Cardiva. The decline was partially offset by lower depreciation expense and
productivity savings from the 2020 Program, the 53rd week in fiscal 2021 and
recent acquisitions.
Operating Expenses
Fiscal Year
% Increase/(Decrease) % Increase/(Decrease)
(In thousands) 2022 2021 2020 22 vs. 21 21 vs. 20Research and development$ 46,801 $ 32,857 $ 30,883 42.4 % 6.4 % % of net revenues 4.7 % 3.8 %
3.1 %
Selling, general and administrative
23.8 % (2.8) %
% of net revenues 34.2 % 31.5 % 28.5 %
Amortization of intangible assets $ 47,414 $ 32,830 $ 25,746 44.4 % 27.5 %
% of net revenues 4.8 % 3.8 % 2.6 %
Impairment of assets $ 577 $ 1,028 $ 50,599 (43.9) % (98.0) %
% of net revenues 0.1 % 0.1 % 5.1 %
Gains on divestitures and sale of
assets $ (9,603) $ (32,812) $ (8,083) (70.7) % n/m
% of net revenues (1.0) % (3.8) % (0.8) %
Total operating expenses $ 424,752 $ 308,091 $ 381,162 37.9 % (19.2) %
% of net revenues 42.8 % 35.4 % 38.6 %
Research and Development
Research and development expenses increased 42.4% during fiscal 2022 as compared
with fiscal 2021. Without the effects of foreign exchange, research and
development expenses increased 41.9% during fiscal 2022. The increase in fiscal
2022 was primarily due to increased spend related to investments in our Hospital
Business unit, primarily driven by Vascular Closure, as well as costs related to
compliance with the EU MDR and EU IVDR requirements, partially offset by cost
savings related to the 2020 Program.
Research and development expenses increased 6.4% during fiscal 2021 as compared
with fiscal 2020. Without the effects of foreign exchange, research and
development expenses increased 6.1% during fiscal 2021. The increase in fiscal
2021 was primarily due to increased spend related to EU MDR and EU IVDR costs,
recent acquisitions and continued investments in our Plasma and Hospital
Business units. The increases were partially offset by cost savings primarily
related to the 2020 Program.
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Selling, General and Administrative
Selling, general and administrative expenses increased 23.8% during fiscal 2022
as compared with fiscal 2021. Without the effects of foreign exchange, selling,
general and administrative expenses increased 23.2% during fiscal 2022. The
increase in fiscal 2022 was primarily due to spend related to the acquisition of
Cardiva, including the increase in the fair value of contingent consideration.
Higher freight costs also contributed to these increases, which were partially
offset by cost savings related to the 2020 Program.
Selling, general and administrative expenses decreased 2.8% during fiscal 2021
as compared with fiscal 2020. Without the effects of foreign exchange, selling,
general and administrative expenses decreased 3.5% during fiscal 2021. The
decrease in fiscal 2021 was primarily due to cost containment actions taken to
offset the negative effects related to the COVID-19 pandemic, incremental
productivity savings from the 2020 Program and a reduction in restructuring and
restructuring related costs. The decrease was partially offset by higher
transaction and integration costs and higher share-based and variable
compensation expense.
Amortization of Intangible Assets
We recognized amortization expense of
Impairment of Assets
We recognized intangible asset impairment charges of
Gains on Divestitures
We recognized gains on divestitures of$9.6 million and$32.8 million during fiscal 2022 and fiscal 2021, respectively. Refer to Note 5, Divestitures, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for information pertaining to these divestitures.
Interest and Other Expense, Net
Interest and other expenses increased 1.7% during fiscal 2022 as compared with fiscal 2021. Without the effects of foreign exchange, interest and other expenses increased 1.3% during fiscal 2022. The increase was primarily driven by realized losses due to foreign currency, partially offset by a reduction in interest expense. Interest and other expenses increased 3.9% during fiscal 2021 as compared with fiscal 2020. Without the effects of foreign exchange, interest and other expenses increased 4.8% during fiscal 2021. The increase is primarily driven by realized losses on interest rate swaps due to declining rates, interest and debt issuance costs incurred in connection with short-term financing for the Cardiva acquisition and amortization of the debt discount associated with the 2026 Notes partially offset by a reduction in interest expense from borrowings under our$350.0 million term loan and$350.0 million revolving loan. The effective interest rate on total debt outstanding for the fiscal year endedApril 3, 2021 was 1.4%. Income Taxes Fiscal Year % Increase/(Decrease) % Increase/(Decrease) 2022 2021 2020 22 vs. 21 21 vs. 20 Reported income tax rate 31.8 % (9.0) % 12.2 % 40.8 % (21.2) % Reported Tax Rate We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to theU.S. Our reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from theU.S. statutory tax rate. 37 -------------------------------------------------------------------------------- Table of Contents We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. As ofApril 2, 2022 , we maintain a valuation allowance against certainU.S. state deferred tax assets that are not more-likely-than-not realizable and have a full valuation allowance against the net deferred tax assets of certain foreign subsidiaries. For the year endedApril 2, 2022 , we recorded income tax expense of$20.3 million on our worldwide pre-tax income of$63.6 million , resulting in a reported tax rate of 31.8%. Our effective tax rate for the year endedApril 2, 2022 is higher than our effective tax rates of (9.0)% and 12.2% for the years endedApril 3, 2021 andMarch 28, 2020 , respectively. The increase in our tax rate for fiscal 2022, as compared with fiscal 2021, is primarily the result of a deferred tax asset recorded in the prior year related to theU.S. purchase of intellectual property, a non-recurring tax benefit in the prior year from the release of a portion of the valuation allowance due to taxable temporary differences acquired with the acquisition of Cardiva being available as a source of income to realize certain pre-existing deferred tax assets, greater tax benefits associated with windfall stock compensation deductions in the prior year, and jurisdictional mix of earnings. Effective for fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize research and development expenses over five years for research activities conducted in theU.S. and over fifteen years for research activities conducted outside of theU.S. The Company is evaluating the impact on our effective tax rate.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
April 2, April 3,
(In thousands) 2022 2021
Cash and cash equivalents $ 259,496 $ 192,305
Working capital $ 313,765 $ 440,051
Current ratio 1.7 2.7
Net debt position(1) $ (514,093) $ (515,303)
Days sales outstanding (DSO) 54 51
Inventory turnover 1.4 1.2
(1)Net debt position is the sum of cash and cash equivalents less total debt.
Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, our revolving credit line that expires in the first quarter of fiscal 2024 and proceeds from employee stock option exercises. We believe these sources are sufficient to fund our cash requirements over at least the next twelve months. Our expected cash outlays relate primarily to acquisitions, investments, capital expenditures, including the build out of our new manufacturing facility inClinton, PA , cash payments under our credit agreement and restructuring initiatives. InMarch 2021 , the Company issued$500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes. The 2026 Notes are governed by the terms of the Indenture between the Company andU.S. Bank National Association , as trustee. The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers' discounts and debt issuance costs, were approximately$486.7 million . The 2026 Notes will mature onMarch 1, 2026 , unless earlier converted, redeemed or repurchased. The 2026 Notes have an effective interest rate of 0.5% as ofApril 2, 2022 . As ofApril 2, 2022 , we had$259.5 million in cash and cash equivalents, the majority of which is held in theU.S. or in countries from which it can be repatriated to theU.S. OnJune 15, 2018 , we entered into a five-year credit agreement which provided for a$350.0 million term loan and a$350.0 million revolving loan (together with the term loan, as amended from time to time, the "Credit Facilities"). Interest on the term loan and revolving loan is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio. Under the Credit Facilities, we are required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants. During the fourth quarter of fiscal 2021, the Company entered into an additional$150.0 million term loan under the existing Credit Facilities and borrowed$290.0 million under the Revolving Credit Facility in connection with the acquisition of Cardiva. Both of these borrowings were subsequently paid in full during the same period using the proceeds from the 2026 Notes. In connection with the additional$150 million term loan borrowing, the Company and its lenders also agreed to increase the maximum consolidated leverage ratio the Company is required to maintain for the four consecutive quarters immediately following the closing of the Cardiva acquisition to 4.25:1.0, after which the maximum consolidated leverage ratio the Company is required to maintain will revert to 3.5:1.0. 38
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As ofApril 2, 2022 ,$284.4 million was outstanding under the term loan with an effective interest rate of 2.3%. There were no borrowings outstanding on the revolving loan. We also had$23.0 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as ofApril 2, 2022 . The Company has scheduled principal payments of$214.4 million required during fiscal 2023. The Company plans to refinance the Credit Facility prior to the maturity date ofJune 15, 2023 . The Company was in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as ofApril 2, 2022 . During fiscal 2022, our Board of Directors approved a revised 2020 Program. We now estimate that we will incur aggregate charges between$95 million and$105 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2025. During the years endedApril 2, 2022 ,April 3, 2021 andMarch 28, 2020 , the Company incurred$28.7 million ,$15.1 million and$11.9 million , respectively, of restructuring and restructuring related costs under this program. Cash Flows Fiscal Year (In thousands) 2022 2021 2020 Net cash provided by (used in): Operating activities$ 172,263 $ 108,805 $ 158,217 Investing activities (86,345) (425,442) (57,176) Financing activities (15,749) 367,452 (131,208) Effect of exchange rate changes on cash and cash equivalents(1) (2,978) 4,179 (1,873) Net change in cash and cash equivalents$ 67,191 $ 54,994 $ (32,040) (1) The balance sheet is affected by spot exchange rates used to translate local currency amounts intoU.S. dollars. In accordance withU.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. Operating Activities Net cash provided by operating activities was$172.3 million during fiscal 2022, an increase of$63.5 million as compared with fiscal 2021. The increase in cash provided by operating activities was primarily the result of higher net income, as adjusted for depreciation, amortization and other non-cash charges compared to the prior year period, decreased inventory driven by higher NexSys PCS device placements and the absence of a payment for a compensation-related liability paid at the closing of the Cardiva acquisition during fiscal 2021, partially offset by increases in accounts receivable during fiscal 2022. Net cash provided by operating activities was$108.8 million during fiscal 2021, a decrease of$49.4 million as compared with fiscal 2020. The decrease in cash provided by operating activities was primarily the result of a reduction in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior year period, partially offset by a decrease in working capital outflow as compared with the prior year period due to lower inventory growth, primarily related to NexSys PCS devices, a decline in the build of accounts receivable due to lower sales and improved collection timing, partially offset by a payment for a compensation-related liability paid at the closing of the Cardiva acquisition. Investing Activities Net cash used in investing activities was$86.3 million during fiscal 2022, a decrease of$339.1 million as compared with fiscal 2021. The decrease in cash used in investing activities was primarily the result of decreased acquisition spend in fiscal 2022, partially offset by increased capital expenditures in fiscal 2022 and lower proceeds received from various divestitures during fiscal 2022 as compared to fiscal 2021. Net cash used in investing activities was$425.4 million during fiscal 2021, an increase of$368.3 million as compared with fiscal 2020. The increase in cash used in investing activities was primarily the result of cash paid for acquisitions. The increase was partially offset by an increase in proceeds received relating to divestitures and a decrease in capital expenditures. 39 -------------------------------------------------------------------------------- Table of Contents Financing Activities Net cash used in financing activities was$15.7 million during fiscal 2022, an increase of$383.2 million as compared with fiscal 2021. The increase in cash used in financing activities during fiscal 2022 was primarily the result of cash received from issuance of convertible notes in fiscal 2021 and contingent consideration payments in fiscal 2022, partially offset by lower payments of short-term loans during fiscal 2022 as compared to fiscal 2021. Net cash provided by financing activities was$367.5 million during fiscal 2021, an increase of$498.7 million as compared with fiscal 2020. The increase in cash provided by financing activities was primarily due to the$500.0 million of proceeds related to the 2026 Notes entered into inMarch 2021 and a decrease in share repurchases compared with the prior year period. The increase was partially offset by the repayment of borrowings on our revolving credit facility, the purchase of the Capped Call on the 2026 Notes and higher payments on our term loan. Contractual Obligations A summary of our contractual and commercial commitments as ofApril 2, 2022 is as follows: Payments Due by Period Less than More than (In thousands) Total 1 year 1-3 years 3-5 years 5 years Convertible senior notes$ 500,000 $ - $ -$ 500,000 $ - Debt 284,375 214,375 70,000 - - Interest payments (1) 4,415 4,415 - - - Operating leases 79,489 9,996 15,356 14,348 39,789 Purchase commitments(2) 192,584 192,584 - - - Contingent consideration 30,209 30,209 - - - Expected retirement plan benefit payments 16,760 1,328 2,752 2,813 9,867 Total contractual obligations$ 1,107,832 $ 452,907
The above table does not reflect our long-term liabilities associated with unrecognized tax benefits of$2.6 million recorded in accordance with ASC Topic 740, Income Taxes. We cannot reasonably make a reliable estimate of the period in which we expect to settle these long-term liabilities due to factors outside of our control, such as tax examinations.
Concentration of Credit Risk
While approximately 45% of our revenue during fiscal 2022 was generated by our ten largest customers, concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. Certain markets and industries, however, can expose us to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. In addition, a portion of our trade accounts receivable outside theU.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays and local economic conditions. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies. We have not incurred significant losses on receivables. We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries' healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods. 40 -------------------------------------------------------------------------------- Table of Contents Legal Proceedings In accordance withU.S. GAAP, we record a liability in our consolidated financial statements for legal matters when a loss is known or considered probable and the amount may be reasonably estimated. Actual settlements may be different than estimated and could have a material impact on our consolidated earnings, financial position and/or cash flows. For a discussion of our material legal proceedings refer to Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Inflation
We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during fiscal 2022. We continue to monitor inflationary pressures generally and raw materials indices that may affect our procurement and production costs. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. We expect the inflationary pressures we have experienced in our global supply chain to continue throughout fiscal 2023. Historically, we have been able to limit the impact of the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products, but we may not be able to fully mitigate these increases in our operational costs in the future. Foreign Exchange During fiscal 2022, 35.6% of our sales were generated outside theU.S. , generally in foreign currencies, yet our reporting currency is theU.S. Dollar. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Our primary foreign currency exposures relate to sales denominated in Euro, Japanese Yen, Chinese Yuan and Australian Dollars. We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit. The Yen, Euro, Yuan and Australian Dollar sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies. Since our foreign currency denominated Yen, Euro, Yuan and Australian Dollar sales exceed the foreign currency denominated costs, whenever theU.S. Dollar strengthens relative to the Yen, Euro, Yuan or Australian Dollar, there is an adverse effect on our results of operations and, conversely, whenever theU.S. Dollar weakens relative to the Yen, Euro, Yuan or Australian Dollar, there is a positive effect on our results of operations. For Swiss Francs, Canadian Dollars Mexican Pesos and Malaysian Ringgit our primary cash flows relate to product costs or costs and expenses of local operations. Whenever theU.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever theU.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations. We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Franc, Australian Dollar, Chinese Yuan and the Mexican Peso. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. These contracts are designated as cash flow hedges. 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.
Recent Accounting Pronouncements
There are currently no recent accounting pronouncements that we expect to have a material impact on our financial position and results of operations.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates. We consider an estimate to be a "critical 41 -------------------------------------------------------------------------------- Table of Contents accounting estimate" when (i) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (ii) the impact of the estimate on financial condition or operating performance is material. The accounting policies and estimates identified as critical are as follows:
Revenue Recognition
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration related to rebates, product returns and volume discounts. These reserves, which are based on estimates of the amounts earned or to be claimed on the related sales, are recorded as a reduction of revenue and a current liability. Our estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized in the current period related to performance obligations satisfied in prior periods was not material. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned. In circumstances where we provide upfront rebate payments to customers, we capitalize the rebate payments and amortize the resulting asset as a reduction of revenue using a systematic method over the life of the contract. Refer to Note 2, Summary of Significant Accounting Policies and Note 8, Revenue, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates could result in different fair value estimates. Future events that could have a negative impact on the levels of excess fair value over carrying value of our reporting units include, but are not limited to, the following:
•Decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions and/or competitive technology developments,
•Declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies and market and/or regulatory conditions that may cause significant launch delays or product recalls,
•Decreases in our forecasted profitability due to an inability to implement successfully and achieve timely and sustainable cost improvement measures consistent with our expectations,
•Changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses and •Increases in our market-participant risk-adjusted weighted average cost of capital and increases in our market-participant tax rate and/or changes in tax laws or macroeconomic conditions.
Negative changes in one or more of these factors, among others, could result in future impairment charges.
We review intangible assets subject to amortization for impairment at least annually or more frequently if certain conditions arise to determine if any adverse conditions exist that would indicate that the carrying value of an asset or asset group may not be recoverable, or that a change in the remaining useful life is required. Conditions indicating that an impairment exists include but are not limited to a change in the competitive landscape, internal decisions to pursue new or different technology strategies, a loss of a significant customer or a significant change in the marketplace including prices paid for our products or the size of the market for our products. Refer Note 2, Summary of Significant Accounting Policies and Note 11,Goodwill & Intangible Assets, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information. 42 -------------------------------------------------------------------------------- Table of Contents Inventory Provisions We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Additionally, uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory.
Income Taxes
The income tax provision is calculated for all jurisdictions in which we operate. The income tax provision process involves calculating current taxes due and assessing temporary differences arising from items that are taxable or deductible in different periods for tax and accounting purposes and are recorded as deferred tax assets and liabilities. Deferred tax assets are evaluated for realizability and a valuation allowance is maintained for the portion of our deferred tax assets that are not more-likely-than-not realizable. All available evidence, both positive and negative, has been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed against the deferred tax assets. Refer to Note 6, Income Taxes, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information and discussion of our income tax provision and balances. We file income tax returns in all jurisdictions in which we operate. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts. We record a liability for the portion of unrecognized tax benefits claimed that we have determined are not more-likely-than-not realizable. These tax reserves have been established based on management's assessment as to the potential exposure attributable to our uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.
Contingencies
We may become involved in various legal proceedings that arise in the ordinary
course of business, including, without limitation, patent infringement, product
liability and environmental matters. Accruals recorded for various contingencies
including legal proceedings, employee related litigation, self-insurance and
other claims are based on judgment, the probability of losses and, where
applicable, the consideration of opinions of internal and/or external legal
counsel and actuarially determined estimates. When a loss is probable and a
range of loss is established but a best estimate cannot be made, we record the
minimum loss contingency amount. These estimates are often initially developed
substantially earlier than the ultimate loss is known and the estimates are
reevaluated each accounting period, as additional information is available. When
we are initially unable to develop a best estimate of loss, we record the
minimum amount of loss, which could be zero. As information becomes known, an
additional loss provision is recorded when either a best estimate can be made or
the minimum loss amount is increased. When events result in an expectation of a
more favorable outcome than previously expected, our best estimate is changed to
a lower amount.
Business Combinations
We record tangible and intangible assets acquired and liabilities assumed in
business combinations under the purchase method of accounting. Amounts paid for
each acquisition are allocated to the assets acquired and liabilities assumed
based on their fair values at the dates of acquisition. The fair value of
identifiable intangible assets is based on detailed valuations that use
information and assumptions including forecasted cash flows, revenues
attributable to existing technology and existing customer attrition. When
estimating the significant assumptions to be used in the valuation we included a
consideration of current industry information, market and economic trends,
historical results of the acquired business and other relevant factors. These
significant assumptions are forward-looking and could be affected by future
economic and market conditions. We allocate any excess purchase price over the
fair value of the net tangible and intangible assets acquired and liabilities
assumed to goodwill.
Contingent consideration is recorded at fair value as measured on the date of
acquisition using an appropriate valuation model, such as the Monte Carlo
simulation model. The value recorded is based on estimates of future financial
projections under various potential scenarios, in which the model runs many
simulations based on comparable companies' growth rates and their implied
volatility. Our estimates of forecasted revenues in the earn out period include
a consideration of current industry information, market and economic trends,
historical results of the acquired business and other relevant factors. These
cash flow
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projections are discounted with a risk adjusted rate. Each quarter until such
contingent amounts are earned, the fair value of the liability is remeasured at
each reporting period and adjusted as a component of operating expenses based on
changes to the underlying assumptions. The estimates used to determine the fair
value of the contingent consideration liability are subject to significant
judgment and given the inherent uncertainties in making these estimates, actual
results are likely to differ from the amounts originally recorded and could be
materially different.
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