<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 December 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 January 31, 1997:
16,148,467.
<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 increased 10% and 7% in the second quarter and first six months
of fiscal 1997, respectively, compared to the corresponding periods 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. Sales of
cardiac assist and vascular graft products were unchanged in the second
quarter of fiscal 1997 compared to the second quarter last year,
reflecting an improvement from the first quarter of fiscal 1997 when sales
of both products were below the comparable period of the prior year.
After posting sales declines in each of the previous two quarters, sales
of cardiac assist products in the second quarter improved to equal sales
of the year ago period, despite continued intense competition that
resulted in lower prices of intra-aortic balloon catheters and pumps,
competitive offerings of balloon catheters for evaluation and more
shipments of pumps under terms that result in future revenues. The company
believes it has not lost market share since competition increased about
nine months ago. However, the company expects that the current competitive
conditions will continue.
Sales of InterVascular, Inc. in the second quarter were flat compared to
last year because of a 40% price reduction on vascular graft products
imposed by the French government in November 1996. International sales
currently account for the bulk of InterVascular sales and France is its
single largest market. While sales growth is expected to resume from a
lower sales base created by the price cut, favorable sales comparisons are
not anticipated until after the InterGard(TM) collagen-coated grafts
receive marketing clearance in Japan or the U.S. where regulatory
applications are pending. For the six month period, vascular graft sales
were lower in fiscal 1997 compared to the same period in fiscal 1996,
primarily due to reduced shipments to the Japanese distributor in the
first quarter, which reduced its inventory of non-coated grafts in
anticipation of obtaining regulatory approval of the company's InterGard
collagen-coated grafts.
Sales of patient monitoring products increased in the second quarter and
first six months of fiscal 1997 due to strong domestic sales growth,
particularly sales of the new Passport(R) XG monitor introduced in June
1996. The new Passport XG features a larger and brighter screen than any
competitive portable monitor and the company's market position is expected
to be strengthened further with the recent introduction of the Passport
XG-CD monitor with a color display screen.
<PAGE> 3
Sales of VasoSeal in the U.S. exceeded an annualized rate of $13 million,
a 48% increase over the first quarter of fiscal 1997. The company added a
substantial number of new hospital accounts and repeat orders continued to
grow. The continued strong sales performance of VasoSeal reflects
excellent acceptance by doctors in the interventional cardiology market
and the impact of the national sales and training effort mounted by the
company.
During the second quarter the company received Food and Drug
Administration approval to market VasoSeal for sealing vascular punctures
following interventional radiology procedures. The company believes that
VasoSeal is the first and only device of its kind to receive this new
indication for use in the U.S. While the potential of this new
interventional market has yet to be determined, the company expects that
it should contribute to meeting the company's goals for continued growth
of VasoSeal sales.
The foreign exchange rate effect of the stronger U.S. dollar compared to
major European currencies decreased total sales by approximately $545
thousand and $830 thousand in the second quarter and first six months of
fiscal 1997, respectively, compared to the same periods last year.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The gross profit percentage was 65.3% and 65.2% for the second quarter and
first six months of fiscal 1997, respectively, compared to 65.9% and 65.7%
for the corresponding periods last year, with the 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 11.8% and 13.3% in the
second quarter and first six months of fiscal 1997, respectively, as
compared to 11.2% and 11.7% for the same periods last year.
Total R&D expenses increased $1.0 million or 17% and $2.5 million or 22%
in the second quarter and first six months of fiscal 1997, respectively,
compared to the same periods last year due to increased new product
development in all businesses.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses, as a percentage of sales, were 42.7% and 44.6% in the
second quarter and first six months of fiscal 1997, respectively, compared
to 42.5% and 43.7% for the corresponding periods last year.
SG&A expenses increased $2.4 million or 11% in the second quarter and $3.9
million or 9% in the first six months of fiscal 1997, compared to the
corresponding periods last year. The increases were primarily attributable
to the expansion of the
<PAGE> 4
U.S. VasoSeal field sales and training organization and higher selling
expenses in the Patient Monitoring and Cardiac Assist divisions.
The stronger U.S. dollar compared to major European currencies decreased
SG&A expenses by approximately $347 thousand and $536 thousand in the
second quarter and first six months of fiscal 1997, respectively, compared
to the corresponding periods last year.
SETTLEMENTS OF LITIGATION
Included in net earnings in the first six months of fiscal 1997 was the
settlement expense for two lawsuits recorded in the first quarter:
1) The shareholder class action securities lawsuit filed in November 1993
against the company. The cost of the settlement including legal fees
was $5.6 million, $3.3 million after-tax or $0.20 per share.
2) 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 was $3.0 million,
$1.8 million after-tax or $0.11 per share.
Included in net earnings in the second quarter and first six months of
fiscal 1996 was the settlement of litigation brought by the company's
wholly owned subsidiaries, InterVascular, Inc. and InterVascular S.A.
(France), against several former employees and certain other defendants.
Income from the settlement of this litigation, net of related expenses,
was $10.7 million, $7.9 million after-tax, or $0.47 per share.
INTEREST INCOME AND EXPENSE
The higher interest income in the second quarter and first six months of
fiscal 1997 compared to the same periods last year was primarily
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 December
31, 1996 totaled $467 thousand, all of which were in European currencies,
with maturities that do not exceed 12 months.
<PAGE> 5
NET EARNINGS
Net earnings in the second quarter of fiscal 1997 improved to $5.0 million
or $0.31 per share compared to $4.8 million, or $0.29 per share for the
comparable quarter last year, excluding litigation settlement income of
$10.7 million, $7.9 million after-tax or $0.47 per share for the
comparable period of the prior year. The higher earnings resulted
primarily from the improved performance of VasoSeal in addition to higher
interest income and a lower income tax rate.
Net earnings for the first six months of fiscal 1997 were $6.9 million or
$0.42 per share compared to $7.9 million or $0.48 per share for the first
six months last year, excluding litigation settlement expense of $8.6
million, $5.1 million after-tax, or $0.31 per share in fiscal 1997 and
litigation settlement income of $10.7 million, $7.9 million after-tax, or
$0.47 per share in fiscal 1996. The decline in earnings occurred in the
first quarter as a result of higher R&D expense and lower earnings in the
Cardiac Assist division.
LIQUIDITY AND CAPITAL RESOURCES
The company maintained its strong financial position during the first six
months of fiscal 1997. Working capital was $108.7 million at December 31,
1996, compared to $121.4 million at June 30, 1996 with the decrease
attributable to switching of $13.3 million of short-term to long-term
investments. The current ratio at December 31, 1996 was 3.8:1 compared to
3.9:1 at June 30, 1996. Operating activities used $3.0 million of cash in
the first six months of fiscal 1997 compared to $14.2 million cash
provided by operating activities in the corresponding period last year.
The decrease in cash provided by operating activities was primarily due to
the receipt of litigation settlement income of $7.9 million last year,
compared to litigation settlement disbursements of $5.1 million in the
first six months of fiscal 1997.
In the first six months of fiscal 1997, cash was used to purchase $2.2
million of plant and equipment and $13.3 million in long-term marketable
securities, with maturities less than 5 years.
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 six months of fiscal 1997, 2,300
shares of the company's stock were repurchased at a cost of $39,000. Since
inception of the stock repurchase program, the company repurchased 96,300
shares of stock at a cost of $1,710,000.
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.
<PAGE> 6
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This management discussion and analysis of results of operations and
financial condition includes forward-looking statements that are subject
to uncertainty because of the possibility that market conditions may
change, particularly as a result of the introduction of new products by
competitors. Furthermore, there can be no assurance that recent sales and
earnings growth trends will continue. 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.
<PAGE> 7
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DEC. 31, JUNE 30,
1996 1996
-------- --------
(unaudited) (a)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,794 $ 2,574
Short-term investments 46,918 64,805
Accounts receivable, less allowance for doubtful
accounts of $1,030 and $1,198 48,316 50,559
Inventories (Note 2) 40,395 34,757
Prepaid expenses and other current assets 9,822 10,743
-------- --------
Total Current Assets 147,245 163,438
Property, Plant and Equipment, net of accumulated
depreciation of $39,205 and $36,363 44,718 43,973
Non-Current Marketable Securities 30,712 17,364
Other Assets 10,376 9,689
-------- --------
$233,051 $234,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,723 $ 6,664
Accrued expenses 22,687 23,372
Accrued compensation 7,755 9,946
Taxes on income 358 2,097
-------- --------
Total Current Liabilities 38,523 42,079
Other Liabilities 11,123 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, 16,142,438 and 16,135,427 shares 161 161
Additional paid-in capital 42,600 42,548
Treasury stock at cost, 96,300 and 94,000 shares (1,710) (1,671)
Retained earnings 143,517 141,764
Cumulative translation adjustments (1,163) (1,122)
-------- --------
183,405 181,680
-------- --------
$233,051 $234,464
======== ========
</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
<PAGE> 8
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $105,200 $98,200 $57,600 $52,300
-------- ------- ------- -------
Costs and Expenses:
Cost of sales 36,616 33,720 19,967 17,859
Research and development expenses 13,939 11,450 6,808 5,839
Selling, general and administrative expenses 46,878 42,938 24,620 22,244
Settlements of litigation (Note 4) 8,554 (10,691) -- (10,691)
-------- ------- ------- -------
105,987 77,417 51,395 35,251
-------- ------- ------- -------
OPERATING EARNINGS (787) 20,783 6,205 17,049
Other (Income) Expense:
Interest income (2,449) (2,056) (1,260) (1,041)
Interest expense 8 38 4 20
Other, net 279 346 141 211
-------- ------- ------- -------
(2,162) (1,672) (1,115) (810)
-------- ------- ------- -------
EARNINGS BEFORE TAXES ON INCOME 1,375 22,455 7,320 17,859
Taxes on Income (378) 6,642 2,269 5,148
-------- ------- ------- -------
NET EARNINGS $ 1,753 $15,813 $ 5,051 $12,711
======== ======= ======= =======
Earnings Per Share (Note 3) $ 0.11 $ 0.95 $ 0.31 $ 0.76
======== ======= ======= =======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding (Note 3) 16,264 16,564 16,297 16,647
======== ======= ======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE> 9
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities $(3,036) $14,207
------- -------
INVESTING ACTIVITIES:
Capital expenditures (2,233) (3,129)
Purchases of marketable securities (52,059) (67,498)
Maturities of marketable securities 56,598 57,089
------- -------
Net cash provided by (used in) investing activities 2,306 (13,538)
------- -------
FINANCING ACTIVITIES:
Net cash provided by financing activities 12 473
------- -------
Effect of exchange rates on cash (62) 166
------- -------
(Decrease) Increase in cash and cash equivalents (780) 1,308
Cash and cash equivalents, beginning of period 2,574 3,096
------- -------
Cash and cash equivalents, end of period $ 1,794 $ 4,404
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash (refunded) paid during the period for:
Income taxes $ (110) $ 4,221
------- -------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 3,096 $ 1,578
------- -------
</TABLE>
See notes to consolidated financial statements
<PAGE> 10
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of December 31, 1996 and 1995, the statements
of consolidated earnings for the three and six month periods ended December 31,
1996 and 1995 and the statements of consolidated cash flows for the six month
periods ending December 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, 1996 annual report to
shareholders. The results of operations for the period ended December 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.
<TABLE>
<CAPTION>
(in thousands)
---------------------------
Dec 31, June 30,
1996 1996
-------- --------
<S> <C> <C>
Materials $16,215 $15,711
Work in Process 6,462 7,064
Finished Goods 17,718 11,982
------- -------
$40,395 $34,757
======= =======
</TABLE>
3. STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity for the six months ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Net income $1,753
Translation adjustments (41)
Common stock and additional paid-in
capital effects of stock option activity 13
------
Total increase in stockholders' equity $1,725
======
</TABLE>
<PAGE> 11
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. SETTLEMENTS OF LITIGATION
The Company settled litigation during the first quarter of fiscal 1997 resulting
in the following charges against earnings:
$5.6 million before taxes, $3.3 million after income tax, equivalent to
$0.20 per share to settle the shareholder class action securities
lawsuit, including related legal fees.
$3.0 million before taxes, $1.8 million 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.
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
before taxes, $7.9 million after income tax, equivalent to $0.47 per share.
<PAGE> 12
Part II:
Item 2 Issuance of Unregistered Securities
During the second quarter of fiscal 1997 the company granted
333,000 shares of stock options at exercise prices ranging from
$16.50 to $20.25 per share.
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> 13
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: February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED EARNINGS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,794
<SECURITIES> 46,918
<RECEIVABLES> 49,346
<ALLOWANCES> (1,030)
<INVENTORY> 40,395
<CURRENT-ASSETS> 147,245
<PP&E> 83,923
<DEPRECIATION> (39,205)
<TOTAL-ASSETS> 233,051
<CURRENT-LIABILITIES> 38,523
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 183,244
<TOTAL-LIABILITY-AND-EQUITY> 233,051
<SALES> 105,200
<TOTAL-REVENUES> 105,200
<CGS> 36,616
<TOTAL-COSTS> 36,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 1,375
<INCOME-TAX> (378)
<INCOME-CONTINUING> 1,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,753
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
