<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, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-6516
DATASCOPE CORP.
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(Exact name of registrant as specified in its charter)
Delaware 13-2529596
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 391-8100
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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
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Number of Shares of Company's Common Stock outstanding as of October 31, 1997:
16,059,818.
<PAGE> 2
DATASCOPE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES
Net sales in the first quarter of fiscal 1998 were 14% higher than a
year ago, with all product lines showing sales increases.
Sales of cardiac assist products increased modestly in the first
quarter of fiscal 1998, reflecting higher unit shipments and the
Company's continuing ability to hold its dominant share of the market.
The effect of higher unit shipments was partially offset by lower sales
prices, as a result of the continuing highly competitive environment.
While the Company believes the business environment will remain very
competitive, the Company expects to strengthen its position and improve
margins with the introduction of a series of new products and
value-added services planned for the current year. Marketing of certain
of these products in the U.S. is subject to FDA clearance of 510(k)
pre-market notifications.
In September 1997, Datascope introduced a new balloon pump, the System
97e with CardioSync(TM) software, and a new kink-resistant sheath for
balloon catheters, the FlexiSheath(TM), at the European Society of
Cardiology conference in Stockholm, Sweden. CardioSync software
provides significantly improved performance automatically in dealing
with premature beats, atrial fibrillation and other arrhythmia. In
addition, the new system provides diagnostic software to facilitate
service by telecommunication, using the system's integral modem. The
FlexiSheath is uniquely designed to have exceptional resistance to
kinking, thereby allowing it to more easily navigate tortuous blood
vessels. Shipments of the System 97e and international shipments of the
FlexiSheath are expected to begin in the second quarter of fiscal 1998.
Marketing of the FlexiSheath in the U.S. awaits clearance by the FDA of
the Company's 510(k) notification that was submitted in August 1997.
Sales of VasoSeal(R) in the U.S. rose to $6.0 million, a 164% increase
compared to last year, and a 3% increase compared to the fourth fiscal
quarter of 1997. The latter gain reflects the seasonal slowness of the
first fiscal quarter, in which interventional cardiology procedures are
reduced by an estimated 10% compared to the fourth fiscal quarter, and
the first full quarter of competitive activity. Worldwide sales of
VasoSeal increased 117%, year-to-year, making a strong contribution to
earnings. Datascope continued to expand its direct marketing
organization in the U.S. to meet growing demand and increased
competition for vascular sealing devices. Internationally, the Company
is awaiting final action on its application for the CE mark which would
allow marketing of VasoSeal in the European common market.
<PAGE> 3
Sales of vascular grafts grew in the first quarter of fiscal 1998 due
to sales of the InterGard(TM) collagen coated grafts to the Company's
distributors in the U.S. and Japan. These represent new markets for the
InterGard products following receipt of regulatory clearance in May and
August 1997, respectively. The sales increase reverses a sales decline
experienced last fiscal year due to a price reduction of 40% imposed by
the French Government on vascular grafts in November 1996.
Sales of patient monitoring products increased in the first quarter of
fiscal 1998 compared to the same period last year, due to continued
domestic sales growth of the Passport(R) XG line of portable monitors
and higher sales of Visa(TM) central monitoring stations.
In October 1997, the Company announced that it will market high-end
patient monitoring systems as a result of a long-term agreement with
the Fukuda Denshi Company of Japan. The new monitor, trade named the
EXPERT(TM), will allow the Company to compete in the $350 million U.S.
market for high-end monitoring systems. The EXPERT monitor is
compatible with the VISA central monitoring station, telemetry units
and new anesthetic gas modules. The new systems are planned to begin
shipping in the fourth quarter of fiscal 1998 subject to timely receipt
of FDA 510(k) clearance for a software interface.
The foreign exchange rate effect of the stronger U.S. dollar, compared
to major European currencies, decreased total sales by approximately
$845 thousand in the first quarter of fiscal 1998 compared to the same
period last year.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The gross profit percentage was 64.3% for the first quarter of fiscal
1998 compared to 65.0% for the corresponding period last year, with the
decline primarily attributable to lower average selling prices for
cardiac assist, patient monitoring and vascular graft products,
partially offset by the increased volume and improved manufacturing
efficiencies for the VasoSeal device.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses, as a percentage of sales, amounted to 14.4% in the first
quarter of fiscal 1998 compared to 15.0% for the first quarter last
year.
Total R&D expenses increased $0.7 million or 10% in the first quarter
of fiscal 1998 compared to the same period last year, primarily as a
result of increased product development expenses in the Patient
Monitoring Division and InterVascular, Inc.
<PAGE> 4
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses, as a percentage of sales, were 45.1% in the first
quarter of fiscal 1998 compared to 46.8% for the corresponding period
last year.
SG&A expenses increased $2.2 million or 10% in the first quarter of
fiscal 1998 compared to the corresponding period last year, as a result
of the continued buildup of the U.S. marketing and selling organization
for the VasoSeal device, increased sales staff and new marketing
programs in the Cardiac Assist Division and increased corporate
expenses.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $600 thousand in the first
quarter of fiscal 1998 compared to the corresponding period last year.
INTEREST INCOME AND EXPENSE
The higher interest income in the first quarter of fiscal 1998 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, and a slight 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
September 30, 1997 totaled $340 thousand, all of which were in European
currencies, with maturities that do not exceed 12 months.
NET EARNINGS
Net earnings in the first quarter of fiscal 1998 improved to $2.7
million or $0.16 per share compared to $1.8 million or $0.11 per share
for the first quarter last year, excluding the special charge for
settlement of litigation of $5.1 million after tax or $0.31 per share
in the first quarter of fiscal 1997. The improved earnings resulted
primarily from increased earnings from higher U.S. sales of the
VasoSeal device, higher U.S. sales of patient monitoring products and
increased interest income earned on investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained its strong financial position during the first
quarter of fiscal 1998. Working capital increased $2.7 million to
$126.4 million at September 30, 1997 compared to $123.7 million at June
30, 1997 primarily due to a $7.9 million increase in cash and
short-term investments, from cash provided by operations and maturity
of non-current marketable securities.
In the first quarter of fiscal 1998, cash was used to purchase $5.1
million of marketable securities and $1.6 million of plant and
equipment.
<PAGE> 5
On May 3, 1996 the Company announced a stock repurchase program
permitting 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 1998, no shares were repurchased. Since inception of the stock
repurchase program, the Company repurchased 223,300 shares of stock at
a cost of $4.2 million.
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.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This management's discussion and analysis of results of operations and
financial condition contains forward-looking statements that involve
risks and uncertainties because of the possibility that market
conditions may change, particularly as the result of competitive
activity in the cardiac assist, vascular sealing device and other
markets served by the Company, the ability of the Company to
successfully introduce and gain market acceptance for new products,
continued demand for the Company's products generally, the rapid and
significant changes that characterize the medical device industry and
the ability to continue to respond to such technological changes, and
because the timing of regulatory approvals is uncertain, as well as
other risks detailed from time to time in documents filed by Datascope
with the Securities and Exchange Commission.
<PAGE> 6
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPT 30, JUNE 30,
1997 1997
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ASSETS (unaudited) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,374 $ 2,597
Short-term investments 63,495 57,338
Accounts receivable, less allowance for doubtful
accounts of $1,013 and $922 47,445 52,240
Inventories (Note 2) 36,160 34,604
Prepaid expenses and other current assets 9,571 9,485
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Total Current Assets 161,045 156,264
Property, Plant and Equipment, net of accumulated
depreciation of $43,649 and $42,079 45,023 44,742
Non-Current Marketable Securities 24,850 25,902
Other Assets 11,697 10,954
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$ 242,615 $ 237,862
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,314 $ 6,650
Accrued expenses 15,050 15,755
Accrued compensation 8,705 9,336
Taxes on income 3,605 807
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Total Current Liabilities 34,674 32,548
Other Liabilities 13,439 13,071
Stockholders' Equity (Note 3)
Preferred stock, par value $1.00 per share:
Authorized 5,000,000 shares; Issued, none -- --
Common stock, par value $.01 per share:
Authorized, 45,000,000 shares; Issued and
outstanding, 16,263,687 and 16,245,732 shares 163 162
Additional paid-in capital 44,469 44,266
Treasury stock at cost, 223,300 shares (4,151) (4,151)
Retained earnings 158,537 155,868
Cumulative translation adjustments (4,516) (3,902)
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194,502 192,243
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$ 242,615 $ 237,862
========= =========
</TABLE>
(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>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
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<S> <C> <C>
NET SALES $ 54,300 $ 47,600
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Costs and Expenses:
Cost of sales 19,396 16,649
Research and development
expenses 7,825 7,131
Selling, general and
administrative expenses 24,499 22,258
Settlements of litigation (Note 4) -- 8,554
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51,720 54,592
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OPERATING EARNINGS 2,580 (6,992)
Other (Income) Expense:
Interest income (1,289) (1,189)
Interest expense 5 4
Other, net (4) 138
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(1,288) (1,047)
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EARNINGS BEFORE TAXES ON INCOME 3,868 (5,945)
Taxes on Income 1,199 (2,647)
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NET EARNINGS $ 2,669 $ (3,298)
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Earnings Per Share (Note 3) $ 0.16 $ (0.20)
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Weighted Average Number of Common
and Common Equivalent Shares
Outstanding (Note 3) 16,437 16,237
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
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1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 8,674 $ 8,010
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INVESTING ACTIVITIES:
Capital expenditures (1,554) (1,015)
Purchases of marketable securities (26,341) (25,367)
Maturities of marketable securities 21,237 19,625
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Net cash used in investing activities (6,658) (6,757)
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FINANCING ACTIVITIES:
Net cash provided by (used in) financing activities 203 (5)
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Effect of exchange rates on cash (442) (40)
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Increase in cash and cash equivalents 1,777 1,208
Cash and cash equivalents, beginning of period 2,597 2,574
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Cash and cash equivalents, end of period $ 4,374 $ 3,782
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash refunded during the period for:
Income taxes $ (1,565) $ (1,154)
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Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 1,146 $ 1,573
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</TABLE>
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 September 30, 1997 and the statements of
consolidated earnings and cash flows for the three month periods ended September
30, 1997 and 1996 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, 1997 annual report to
shareholders. The results of operations for the period ended September 30, 1997
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,
1997 1997
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<S> <C> <C>
Materials $13,418 $10,917
Work in Process 5,126 4,885
Finished Goods 17,616 18,802
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$36,160 $34,604
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</TABLE>
3. STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity for the three months ended
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Net income $ 2,669
Translation adjustments (614)
Common stock and additional paid-in
capital effects of stock option activity 204
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Total increase in stockholders' equity $ 2,259
=======
</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.
<PAGE> 10
Part II:
Item 2 Issuance of Unregistered Securities
During the first quarter of fiscal 1998 the Company
granted 33,500 shares of stock options at exercise
prices ranging from $22.50 to $23.125 per share.
Item 6 Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K with
the Commission on October 21, 1997.
<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, President and
Chief Executive Officer
By: /s/ Murray Pitkowsky
------------------------------
Murray Pitkowsky
Senior Vice President, Chief
Financial Officer, Secretary
and Treasurer
Dated: November 14, 1997
<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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,374
<SECURITIES> 63,495
<RECEIVABLES> 48,458
<ALLOWANCES> (1,013)
<INVENTORY> 36,160
<CURRENT-ASSETS> 161,045
<PP&E> 88,672
<DEPRECIATION> (43,649)
<TOTAL-ASSETS> 242,615
<CURRENT-LIABILITIES> 34,674
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 194,339
<TOTAL-LIABILITY-AND-EQUITY> 242,615
<SALES> 54,300
<TOTAL-REVENUES> 54,300
<CGS> 19,396
<TOTAL-COSTS> 19,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 3,868
<INCOME-TAX> 1,199
<INCOME-CONTINUING> 2,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,669
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
