<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-6516
DATASCOPE CORP.
______________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-2529596
_________________________________________________________________
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
____________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 391-8100
_________________________
_____________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report:
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), and
(2) has been subject to such filing requirements for the past 90
days.
YES X NO
____________ ____________
Number of Shares of Company's Common Stock outstanding as of October 31, 1996:
16,138,248.
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DATASCOPE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES
Net sales increased 4% in the first quarter of fiscal 1997 compared to
the first quarter last year as a result of the continued U.S. sales
growth of VasoSeal(R), which was introduced to the U.S. market in the
second quarter last year, and increased sales in the domestic patient
monitoring business that more than offset a sales decline in cardiac
assist products and vascular grafts.
The decline in sales of cardiac assist products was attributable to the
continuation of competitive offerings of intra-aortic balloon catheters
for evaluation, lower balloon and pump prices and more balloon pump
shipments under terms that result in future revenues. The company
expects this competitive environment to continue and it intends to
compete vigorously to retain its market leadership in intra-aortic
balloon pumping.
Sales of patient monitoring products increased in the first quarter of
fiscal 1997 due to strong domestic sales growth, particularly sales of
the new Passport(R) XG monitor introduced in June 1996. The company
plans to further enhance the Passport monitor line by introducing
additional features, including a color screen, during the second
quarter of fiscal 1997.
Sales growth of InterVascular, Inc., the company's subsidiary which
produces vascular grafts, was interrupted in the first quarter due to
reduced shipments to its distributor in Japan. The distributor is
reducing inventory of non-coated grafts in anticipation of obtaining
regulatory approval of the company's InterGard(TM) collagen-coated
grafts. InterVascular continued to expand in the European market and
overall sales growth is expected to resume in the second quarter.
Despite the seasonal slowness of the first quarter, sales of VasoSeal
in the U.S. exceeded an annualized rate of $9 million, a 10% increase
over the fourth quarter of fiscal 1996. The company is continuing to
expand its direct marketing organization to capitalize on VasoSeal's
market potential. As announced in August 1996, the U.S. Food and Drug
Administration has approved revised VasoSeal labeling that includes the
claim that patients who receive VasoSeal can be ambulated significantly
earlier than under conventional clinical practice using manual or
mechanical compression. Early ambulation made possible by VasoSeal
should result in significant cost savings for hospitals because
hospitalization time is reduced, patients may be moved earlier to care
settings that cost less, human and material resources are reduced and
patient throughput is increased. VasoSeal is the only
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<PAGE> 3
vascular sealing device approved in the U.S. to claim early ambulation.
Early ambulation and the potential to lower hospital costs should
accelerate VasoSeal's penetration of the vascular sealing market in the
U.S.
The foreign exchange rate effect of the stronger U.S. dollar compared
to major European currencies decreased total sales by approximately
$300 thousand in the first quarter of fiscal 1997 compared to the same
period last year.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The gross profit percentage was 65.0% for the first quarter of fiscal
1997 compared to 65.4% for the corresponding period last year, with the
slight reduction primarily attributable to lower average selling prices
for cardiac assist and patient monitoring products.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses, as a percentage of sales, amounted to 15.0% in the first
quarter of fiscal 1997 compared to 12.2% for the first quarter last
year.
Total R&D expenses increased $1.5 million or 27% in the first quarter
of fiscal 1997 compared to the same period last year attributable to
new product development activity in all businesses. Increased Cardiac
Assist R&D expense is directed towards new intra-aortic balloon pump
and balloon catheter products. Higher R&D expense in the Patient
Monitoring division was primarily attributable to development of
enhanced versions of the Accutorr and Passport monitors and
expenditures for outside technical resources to augment the internal
R&D staff. InterVascular R&D expenses increased primarily as a result
of increased technical staff and higher validation and regulatory
expenses.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses, as a percentage of sales, were 46.8% in the first
quarter of fiscal 1997 compared to 45.1% for the corresponding period
last year.
SG&A expenses increased $1.6 million or 8% in the first quarter of
fiscal 1997 compared to the corresponding period last year, with the
increase primarily attributable to the expansion of the U.S. VasoSeal
field sales and training organization and higher selling expenses
applicable to all other businesses.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $200 thousand in the first
quarter of fiscal 1997 compared to the corresponding period last year.
3
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SETTLEMENTS OF LITIGATION
Included in net earnings in the first quarter of fiscal 1997 was the
settlement expense for two lawsuits:
1) The patent infringement lawsuit filed in February 1996 by Quinton
Instruments Company and Sherwood Medical Company concerning the
VasoSeal Vascular Hemostasis Device. The settlement of this
lawsuit allows all parties to market their respective vascular
hemostasis products and includes covenants against future
litigation. The cost of the settlement including legal fees is
$3.0 million, $1.8 million after-tax or $0.11 per share.
2) The shareholder class action securities lawsuit filed in November
1993 against the company. The cost of the settlement including
legal fees is $5.6 million, $3.3 million after-tax or $0.20 per
share. This settlement is subject to final documentation and court
approval.
INTEREST INCOME AND EXPENSE
The higher interest income in the first quarter of fiscal 1997 compared
to the same period last year was attributable to an increase in the
investment portfolio as cash generated from operations was invested in
marketable securities.
OTHER INCOME AND EXPENSE
The company enters into foreign exchange forward contracts to hedge a
major portion of its foreign currency exposures, primarily related to
certain receivables denominated in foreign currencies. The hedging has
reduced the company's exposure to fluctuations in foreign currencies.
The net foreign exchange transaction gain or loss is reported in other
income and expense. Foreign exchange forward contracts outstanding at
September 30, 1996 totaled $700 thousand, all of which were in European
currencies, with maturities that do not exceed 12 months.
NET EARNINGS
Excluding the special charge for settlement of litigation of $8.6
million, $5.1 million after-tax or $0.31 per share in the first quarter
of fiscal 1997, net earnings in the first quarter of fiscal 1997 were
$1.8 million or $0.11 per share compared to $3.1 million or $0.19 per
share for the first quarter last year. The lower earnings resulted
primarily from higher R&D expenses and the effect of competitive
pressure on the Cardiac Assist division. Although the company expects
to experience continued competitive pressures on its cardiac assist
business and continued higher level of R&D investments, comparisons
with prior year results should progressively improve throughout the
balance of fiscal 1997.
4
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The company maintained its strong financial position during the first
quarter of fiscal 1997. Working capital was $112.4 million at September
30, 1996 compared to $121.4 million at June 30, 1996 with the decrease
attributable to investing cash in long term marketable securities and
an increase in accrued expenses related to the settlements of
litigation. As a result, the current ratio at September 30, 1996 was
3.4:1 compared to 3.9:1 at June 30, 1996. Cash provided by operating
activities was $8.0 million in the first quarter of fiscal 1997
compared to $6.7 million in the corresponding period last year.
In the first quarter of fiscal 1997, cash was used to purchase $5.7
million of marketable securities and $1.0 million of plant and
equipment.
On May 3, 1996 the company announced a stock repurchase program
permitting the utilization of up to $20 million to buy back its common
stock from time to time, subject to market conditions and other
relevant factors affecting the company. During the first quarter of
fiscal 1997 there were no repurchases of company stock.
Management believes that the company's financial resources are
sufficient to meet its projected cash requirements including the
expenditures expected under the stock repurchase program.
The moderate rate of current U.S. inflation has not significantly
affected the company.
This management's discussion and analysis of results of operations and
financial condition includes forward-looking statements that are
subject to uncertainty. Reasons for the uncertainty include the
possibility that market conditions affecting the competitive
environment for cardiac assist products may change as a result of the
introduction of new products by competitors, and the probability
that the French government will impose price controls on vascular
grafts. Additional detailed information on factors that could
potentially affect the company's financial results may be found in the
company's filings with the Securities and Exchange Commission.
5
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DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPT 30, JUNE 30,
1996 1996
--------- ---------
(unaudited) (a)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,782 $ 2,574
Short-term investments 66,155 64,805
Accounts receivable, less allowance for doubtful
accounts of $947 and $1,198 41,979 50,559
Inventories (Note 2) 37,711 34,757
Prepaid expenses and other current assets 10,138 10,743
--------- ---------
Total Current Assets 159,765 163,438
Property, Plant and Equipment, net of accumulated
depreciation of $37,427 and $36,363 44,457 43,973
Non-Current Marketable Securities 21,756 17,364
Other Assets 10,614 9,689
--------- ---------
$ 236,592 $ 234,464
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,597 $ 6,664
Accrued expenses 31,650 23,372
Accrued compensation 9,079 9,946
Taxes on income -- 2,097
--------- ---------
Total Current Liabilities 47,326 42,079
Other Liabilities 10,925 10,705
Stockholders' Equity (Note 3)
Preferred stock, par value $1.00 per share:
Authorized 5,000,000 shares; Issued, none -- --
Common stock, par value $.01 per share:
Authorized, 45,000,000 shares; Issued and
outstanding, 16,135,158 and 16,135,427 shares 161 161
Additional paid-in capital 42,543 42,548
Treasury stock at cost, 94,000 shares (1,671) (1,671)
Retained earnings 138,466 141,764
Cumulative translation adjustments (1,158) (1,122)
--------- ---------
178,341 181,680
--------- ---------
$ 236,592 $ 234,464
========= =========
</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
6
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DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
NET SALES $ 47,600 $ 45,900
-------- --------
Costs and Expenses:
Cost of sales 16,649 15,861
Research and development
expenses 7,131 5,611
Selling, general and
administrative expenses 22,258 20,694
Settlements of litigation (Note 4) 8,554 --
-------- --------
54,592 42,166
-------- --------
OPERATING EARNINGS (6,992) 3,734
Other (Income) Expense:
Interest income (1,189) (1,015)
Interest expense 4 18
Other, net 138 135
-------- --------
(1,047) (862)
-------- --------
EARNINGS BEFORE TAXES ON INCOME (5,945) 4,596
Taxes on Income (2,647) 1,494
-------- --------
NET EARNINGS $ (3,298) $ 3,102
======== ========
Earnings Per Share (Note 3) $ (0.20) $ 0.19
======== ========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding (Note 3) 16,237 16,428
======== ========
</TABLE>
See notes to consolidated financial statements
7
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DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 8,010 $ 6,688
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (1,015) (2,029)
Purchases of short-term marketable securities (20,975) (27,872)
Maturities of short-term marketable securities 19,625 21,954
Purchases of long-term marketable securities (4,392) --
-------- --------
Net cash used in investing activities (6,757) (7,947)
-------- --------
FINANCING ACTIVITIES:
Net cash (used in) provided by financing activities (5) 227
-------- --------
Effect of exchange rates on cash (40) 150
-------- --------
Increase (decrease) in cash and cash equivalents 1,208 (882)
Cash and cash equivalents, beginning of period 2,574 3,096
-------- --------
Cash and cash equivalents, end of period $ 3,782 $ 2,214
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash (refunded) paid during the period for:
Income taxes $ (1,154) $ 708
-------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 1,573 $ 631
-------- --------
</TABLE>
See notes to consolidated financial statements
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DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 1996 and the statements of
consolidated earnings and cash flows for the three month periods ended September
30, 1996 and 1995 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) have been made that are necessary to present fairly the financial
position, results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the condensed consolidated
financial statements included herein be read in conjunction with the financial
statements and notes included in the Company's June 30, 1996 annual report to
shareholders. The results of operations for the period ended September 30, 1996
are not necessarily indicative of a full year's operations.
The presentation of certain prior year information has been reclassified to
conform with the current year presentation.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market.
<TABLE>
<CAPTION>
(In thousands)
---------------------------
Sept 30, June 30,
1996 1996
-------- --------
<S> <C> <C>
Materials $16,150 $15,711
Work in Process 6,902 7,064
Finished Goods 14,659 11,982
------- -------
$37,711 $34,757
======= =======
</TABLE>
3. STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity for the three months ended
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Net income (loss) $(3,298)
Translation adjustments (36)
Common stock and additional paid-in
capital effects of stock option activity (5)
-------
Total decrease in stockholders' equity $(3,339)
=======
</TABLE>
4. SETTLEMENTS OF LITIGATION
The Company settled litigation during the first quarter of fiscal 1997 resulting
in the following charges against first quarter earnings:
$5,550,000 before taxes, $3,291,000 after income tax, equivalent to $0.20
per share to settle the shareholder class action securities lawsuit,
including related legal fees.
$3,004,000 before taxes, $1,807,000 after income tax, equivalent to $0.11
per share to settle the patent infringement lawsuit filed by Quinton
Instruments Company and Sherwood Medical Company concerning the
VasoSeal Vascular Hemostasis Device, including related legal fees.
The settlement allows all parties to market their respective vascular
hemostasis products and includes covenants against future litigation.
9
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Part II:
Item 6 Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. No reports on Form 8-K
have been filed during the quarter for which
this report is filed.
10
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Form 10-Q
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.
DATASCOPE CORP.
Registrant
By: LAWRENCE SAPER
--------------------------
Lawrence Saper
Chairman of the Board and
Chief Executive Officer
By: MURRAY PITKOWSKY
--------------------------
Murray Pitkowsky
Senior Vice President and
Secretary
Dated: November 13, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED EARNINGS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,782
<SECURITIES> 66,155
<RECEIVABLES> 42,926
<ALLOWANCES> (947)
<INVENTORY> 37,711
<CURRENT-ASSETS> 159,765
<PP&E> 81,884
<DEPRECIATION> (37,427)
<TOTAL-ASSETS> 236,592
<CURRENT-LIABILITIES> 47,326
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 178,180
<TOTAL-LIABILITY-AND-EQUITY> 236,592
<SALES> 47,600
<TOTAL-REVENUES> 47,600
<CGS> 16,649
<TOTAL-COSTS> 16,649
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (5,945)
<INCOME-TAX> (2,647)
<INCOME-CONTINUING> (3,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,298)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
