<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 March 31, 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 April 30, 1996:
16,131,242.
<PAGE> 2
Datascope Corp. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Net Sales
The consolidated sales increase in the third quarter and first nine
months of fiscal 1996 as compared to the corresponding periods last
year, was favorably impacted by a $2 million sales reserve established
in the third quarter of fiscal 1995 in connection with the domestic
recall of the Point of View(R) (POV) monitor. Excluding the effect of
last year's sales reserve, third quarter and first nine months fiscal
1996 consolidated sales increased 4% and 7%, respectively, which is a
lower rate of growth than the first and second quarters of fiscal 1996.
Excluding the effect of the sales reserve taken last year, third quarter
sales of the Patient Monitoring division declined in both domestic and
international markets. The sales decline was caused by increased
competition and by delays in bringing new products to market. The
Company has engaged outside technical resources to augment its internal
staff and, consequently, will incur increased research and development
expenses in the near term.
The Cardiac Assist division made the principal contribution to increased
sales during the third quarter and first nine months of fiscal 1996.
Sales of the division's products continued to increase, although the
rate of growth slowed compared to recent quarters because of increased
competition which the Company expects will continue in the near-term.
Competitive pressures had a particularly strong impact on the Company's
revenues from shipment of pumps, which increasingly are being sold under
terms that result in delayed recognition of revenue from the shipment.
The Company believes it retained its market share despite the
intensified efforts of its competitors in this market.
InterVascular, Inc., the Company's wholly owned producer of Vascular
grafts with sales primarily in the international market, continued its
strong growth rate.
The Company continued to be encouraged by the U.S. market reception of
the VasoSeal(R) vascular hemostasis device during the third quarter,
which was the first full quarter of commercial sale in the U.S. The
VasoSeal U.S. field sales and training organization was expanded during
the third quarter to take advantage of the market opportunity and the
Company anticipates continued future expansion as well. VasoSeal is the
first device, and currently the only device of its kind, approved by the
Food and Drug Administration and sold in the U.S. The Company believes
that its investment in expanding its sales force will strengthen its
competitive advantage and ultimate market position in the vascular
sealing device market in the United States.
<PAGE> 3
The weakening of the U.S. dollar compared to major European currencies
favorably impacted sales by approximately $0.2 million and $1.3 million
in the third quarter and first nine months of fiscal 1996, respectively,
compared to the corresponding periods last year.
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage improved to 65.1% and 65.5% for the third
quarter and first nine months of fiscal 1996, respectively, compared to
64.5% and 64.8% for the corresponding periods last year because of a
more favorable sales mix, partially offset by the unfavorable effect of
lower average selling prices in the Patient Monitoring and Cardiac
Assist divisions due to competitive pressure.
Research and Development (R&D)
R&D expenses, as a percentage of sales, amounted to 10.7% and 11.3% in
the third quarter and first nine months of fiscal 1996, as compared to
10.0% and 10.1% for the third quarter and first nine months last year,
respectively. Total R&D expenses increased 16% and 22% in the third
quarter and first nine months of fiscal 1996, respectively, compared to
the same periods last year as R&D activity in all businesses was higher.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses, as a percentage of sales, were 41.9% and 43.1% in the
third quarter and first nine months of fiscal 1996, respectively,
compared to 42.7% and 43.6% for the corresponding periods last year.
SG&A expenses increased $1.3 million or 6% in the third quarter and $4.5
million or 7% in the first nine months of fiscal 1996, compared to the
corresponding periods last year. The increases were primarily
attributable to sales and marketing expenses relating to higher sales
volume and start-up costs associated with the VasoSeal market
introduction including the buildup of the U.S. VasoSeal field sales and
training organization.
The weakening of the U.S. dollar compared to major European currencies
increased SG&A expenses by approximately $120 thousand and $820 thousand
in the third quarter and first nine months of fiscal 1996, respectively,
compared to the corresponding periods last year.
Income from Settlement of Litigation
In the second quarter of fiscal 1996, the Company settled all litigation
brought by its wholly owned subsidiaries, InterVascular, Inc. and
InterVascular, SA (France), against several former employees and certain
other defendants. Income from the settlement of litigation, net of
related expenses, was $10.7 million, or $7.9 million after tax,
equivalent to $0.47 per share.
<PAGE> 4
Interest Income and Expense
The higher interest income in the third quarter and first nine months of
fiscal 1996 compared to the same periods last year was attributable to
an increase in the investment portfolio and an increase in interest
rates.
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
March 31, 1996 totaled $120 thousand, all of which were in European
currencies, with maturities that do not exceed 12 months.
Net Earnings
Excluding the special charge of $730,000 due to the effect of the
$2 million POV monitor sales reserve in the third quarter last year and
the $7.9 million income from the settlement of litigation in the second
quarter of fiscal 1996, net earnings in the third quarter and first
nine months of fiscal 1996 exceeded the same periods last year by 4%
and 8%, respectively, which is a lower rate of earnings growth than
recent periods. The Company believes that because of the competitive
pressures in its core business it is possible that near-term quarterly
earnings comparisons to the same prior year periods may be unfavorable.
For the long-term the Company remains confident in the future of its
core business and believes that new products already launched, under
development or awaiting regulatory approvals, show good prospects for
growing existing businesses and may enable expansion into new markets.
Liquidity and Capital Resources
The Company maintained its strong financial position during the first
nine months of fiscal 1996. Working capital was $131.6 million at March
31, 1996, compared to $110.7 million at June 30, 1995.
The current ratio at March 31, 1996 was 4.7:1 compared to 4.3:1 at June
30, 1995, with the increase attributable to cash and short-term
investments due to profitable operations while current liabilities
remained relatively unchanged. Cash provided by operating activities was
$23.8 million in the first nine months of fiscal 1996 compared to $25.4
million in the corresponding period last year. In the first nine months
of fiscal 1996, cash provided by operating activities included
litigation settlement income of $7.9 million, partially offset by an
increase in inventory. In the first nine months of fiscal 1995, cash
from operating activities was favorably impacted by strong collections
of accounts receivable.
<PAGE> 5
In the first nine months of fiscal 1996, cash was used to purchase $15.2
million of marketable securities and $9.1 million of plant and equipment
which included sales demonstration units for new products.
On May 3, 1996 the Company announced a stock repurchase program
utilizing 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. 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 may or may
not materialize. Additional 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.
<PAGE> 6
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
Mar 31, June 30,
1996 1995
----------- ---------
Assets (unaudited) (a)
Current Assets:
Cash and cash equivalents 3,431 3,096
Marketable securities 68,471 53,165
Accounts receivable, less allowance for doubtful
accounts of $1,396 and $1,273 46,688 45,590
Inventories (Note 2) 42,416 36,499
Prepaid expenses and other current assets 6,614 5,880
-------- --------
Total Current Assets 167,620 144,230
Property, Plant and Equipment, net of accumulated
depreciation of $36,655 and $32,681 45,015 44,278
Marketable Securities, non-current 9,256 9,354
Other Assets 9,355 9,001
-------- --------
231,246 206,863
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 8,019 7,644
Accrued expenses 16,546 14,149
Accrued compensation 8,716 9,384
Taxes on income 2,703 2,309
-------- --------
Total Current Liabilities 35,984 33,486
Other Liabilities 10,707 10,058
Stockholders' Equity (Note 3)
Preferred stock, par value $1.00 per share:
Authorized 5,000,000 shares;
Issued and outstanding, none -- --
Common stock, par value $.01 per share:
Authorized, 45,000,000 shares; Issued and
outstanding, 16,131,139 and 16,070,689 shares 161 161
Additional paid-in capital 42,517 41,837
Retained earnings 142,597 121,347
Cumulative translation adjustments (720) (26)
-------- --------
184,555 163,319
-------- --------
231,246 206,863
======== ========
(a) Derived from audited financial statements
See notes to consolidated financial statements
<PAGE> 7
Datascope Corp. and Subsidiaries
Statements of Consolidated Earnings
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 152,800 $ 140,500 $ 54,600 $ 50,500
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 52,783 49,505 19,063 17,940
Research and development
expenses 17,274 14,152 5,824 5,036
Selling, general and
administrative expenses 65,797 61,302 22,859 21,579
Income from settlement of litigation (Note 4) (10,691) -- -- --
--------- --------- --------- ---------
125,163 124,959 47,746 44,555
--------- --------- --------- ---------
Operating Earnings 27,637 15,541 6,854 5,945
Other (Income) Expense:
Interest income (3,193) (1,859) (1,137) (727)
Interest expense 44 18 6 11
Other, net 508 209 162 112
--------- --------- --------- ---------
(2,641) (1,632) (969) (604)
--------- --------- --------- ---------
Earnings Before Taxes on Income 30,278 17,173 7,823 6,549
Taxes on Income 9,028 5,536 2,386 2,030
--------- --------- --------- ---------
Net Earnings $ 21,250 $ 11,637 $ 5,437 $ 4,519
========= ========= ========= =========
Earnings Per Share (Note 3) $ 1.28 $ 0.72 $ 0.33 $ 0.28
========= ========= ========= =========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding (Note 3) 16,556 16,206 16,602 16,211
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
Datascope Corp. and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
Operating Activities:
Net cash provided by operating activities $ 23,842 $ 25,425
--------- ---------
Investing Activities:
Capital expenditures (9,058) (10,772)
Purchases of short-term marketable securities (106,097) (57,077)
Maturities of short-term marketable securities 90,889 52,055
Purchases of long-term marketable securities -- (9,509)
--------- ---------
Net cash used in investing activities (24,266) (25,303)
--------- ---------
Financing Activities:
Net cash provided by financing activities 512 168
--------- ---------
Effect of exchange rates on cash 247 (391)
--------- ---------
Increase (decrease) in cash and cash equivalents 335 (101)
Cash and cash equivalents, beginning of period 3,096 2,082
--------- ---------
Cash and cash equivalents, end of period $ 3,431 $ 1,981
========= =========
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 8,617 $ 4,480
--------- ---------
See notes to consolidated financial statements
<PAGE> 9
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated balance sheet as of March 31, 1996 and the statements of
consolidated earnings and cash flows for the three and nine month periods ended
March 31, 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, 1995 annual report to
shareholders. The results of operations for the period ended March 31, 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.
(In thousands)
--------------------------
March 31, June 30,
1996 1995
------- -------
Materials $18,455 $15,452
Work in Process 8,330 6,592
Finished Goods 15,631 14,455
------- -------
$42,416 $36,499
======= =======
3. Stockholders' Equity
Changes in the components of stockholders' equity for the nine months ended
March 31, 1996 are as follows:
(In thousands)
--------------
Net income $21,250
Translation adjustments (694)
Proceeds on the exercise of options to purchase
60,450 shares of common stock 680
-------
Total increase in stockholders' equity $21,236
=======
4. Income from Settlement of Litigation
In the second quarter of fiscal 1996 the Company settled all litigation brought
by its wholly owned subsidiaries, InterVascular, Inc. and InterVascular, SA
(France), against several former employees and certain other defendants. Income
from the settlement of litigation, net of related expenses, was $10.7 million,
or $7.9 million after tax, equivalent to $0.47 per share.
<PAGE> 10
Part II:
Item 1 Legal Proceedings
On March 4, 1996 the Company announced that Quinton
Instrument Company and Sherwood Medical Company had filed
a complaint in the United States District Court for the
Eastern District of Virginia alleging that the VasoSeal(R)
vascular hemostasis device infringes on certain patents
owned by Quinton. The complaint seeks a permanent
injunction as well as an unspecified amount of monetary
damages. The Company believes that the allegations in the
complaint are without merit and will vigorously defend the
action.
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.
<PAGE> 11
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: /s/ Lawrence Saper
-------------------------
Lawrence Saper
Chairman of the Board and
Chief Executive Officer
By: /s/ Murray Pitkowsky
-------------------------
Murray Pitkowsky
Senior Vice President and
Secretary
Dated: May 15, 1996
<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated Balance Sheets and Statements of Consolidated Earnings.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 3,431
<SECURITIES> 68,471
<RECEIVABLES> 48,084
<ALLOWANCES> (1,396)
<INVENTORY> 42,416
<CURRENT-ASSETS> 167,620
<PP&E> 81,670
<DEPRECIATION> (36,655)
<TOTAL-ASSETS> 231,246
<CURRENT-LIABILITIES> 35,984
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 184,394
<TOTAL-LIABILITY-AND-EQUITY> 231,246
<SALES> 152,800
<TOTAL-REVENUES> 152,800
<CGS> 52,783
<TOTAL-COSTS> 52,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 30,278
<INCOME-TAX> 9,028
<INCOME-CONTINUING> 21,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,250
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
