<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, 1997
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
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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
------------------------------
- --------------------------------------------------------------------------------
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 30,1997:
16,235,992.
<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 6% and 7% in the third quarter and first nine
months of fiscal 1997, respectively, compared to the corresponding
periods last year, despite lower sales in the Cardiac Assist division
and InterVascular, Inc., because of the continued U.S. sales growth of
VasoSeal(R) and increased sales in the patient monitoring business.
Sales of cardiac assist products in the third quarter and first nine
months declined due to continued 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 expects
that the current competitive conditions will continue and intends to
compete vigorously to defend its market share.
Sales of InterVascular, Inc. in the third quarter and first nine months
of fiscal 1997 were below last year primarily because of a 40% price
reduction on vascular graft products imposed by the French government
in November 1996 and the unfavorable effect of foreign exchange due to
the stronger U.S. dollar. Although unit sales of grafts exceeded prior
year, favorable year-to-year dollar sales comparisons are not
anticipated until after the InterGard(TM) collagen-coated grafts
receive marketing clearance in Japan and the U.S.
Sales of patient monitoring products increased in the third quarter and
first nine months of fiscal 1997 due to strong domestic sales growth
attributable to increased sales of the new Passport(R) XG monitor
introduced in June 1996. The company believes the Passport XG has a
larger and brighter screen than any competitive portable monitor and
the introduction of the Passport XG-CD monitor with a color display
screen in the third quarter is expected to further strengthen the
company's market position. International sales of patient monitors
grew in the third quarter, the first year-to-year quarterly sales
increase since the fourth quarter of 1996, attributable to increased
sales of Passports and of Accutorr Plus monitors which were introduced
in international markets in the first quarter.
Sales of VasoSeal in the U.S. exceeded an annualized rate of $19
million, a 42% increase over the second quarter of fiscal 1997. The
company continued to add 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 initial introduction in the
<PAGE> 3
interventional radiology market. The company received Food and Drug
Administration (FDA) approval to market VasoSeal for sealing vascular
punctures following interventional radiology procedures during the
second quarter of fiscal 1997. On April 30, 1997, the company
announced that it had received FDA approval to market VasoSeal for
use following stent implantation. Stents, which are devices that
support the arterial wall, are implanted in conjunction with
approximately 40% of the 500,000 coronary angioplasty procedures
performed annually 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
$460 thousand and $1.0 million in the third quarter and first nine
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 64.6% and 65.0% for the third quarter
and first nine months of fiscal 1997, respectively, compared to 65.1%
and 65.5% for the corresponding periods last year, with the reduction
primarily attributable to lower average selling prices for cardiac
assist and vascular graft products.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses, as a percentage of sales, amounted to 10.7% and 12.3% in
the third quarter and first nine months of fiscal 1997, respectively,
as compared to 10.7% and 11.3% for the same periods last year.
Total R&D expenses increased $0.4 million or 6% and $2.8 million or 16%
in the third quarter and first nine 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 41.7% and 43.5% in the
third quarter and first nine months of fiscal 1997, respectively,
compared to 41.9% and 43.1% for the corresponding periods last year.
SG&A expenses increased $1.3 million or 6% in the third quarter and
$5.2 million or 8% in the first nine months of fiscal 1997, compared to
the corresponding periods last year. The increases were primarily
attributable to the expansion of the U.S. VasoSeal field sales and
training organization, higher selling expenses in the Patient
Monitoring division and increased corporate expenses related to the
addition of a Business Development department.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $290 thousand and $637
thousand in the third quarter and first nine months of fiscal 1997,
respectively, compared to the corresponding periods last year.
<PAGE> 4
SETTLEMENTS OF LITIGATION
Included in net earnings in the first nine months of fiscal 1997 was
the settlement expense for two lawsuits recorded in the first quarter:
1) The shareholder class action securities lawsuit was filed against
the company in November 1993. 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 was 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 first nine months of fiscal 1996 was
income from litigation settlement against several former employees of
InterVascular, Inc. of $10.7 million, $7.9 million after-tax, or $0.47
per share.
INTEREST INCOME AND EXPENSE
Interest income in the third quarter of 1997 was the same as the third
quarter last year as the average investment portfolio and average
yields were essentially unchanged. However, interest income in the
first nine months of fiscal 1997 was higher compared to the same period
last year primarily attributable to an increase in the investment
portfolio, due to cash generated from operations including cash from
the settlement of InterVascular litigation received in December 1995
which 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
March 31, 1997 totaled $448 thousand, all of which were in European
currencies, with maturities that do not exceed 12 months.
NET EARNINGS
Net earnings in the third quarter of fiscal 1997 improved to $5.7
million or $0.35 per share compared to $5.4 million, or $0.33 per share
for the comparable quarter last year. The higher earnings resulted
primarily from the improved performance of VasoSeal and the Patient
Monitoring division, and to a lower income tax rate, which offset lower
results in the Cardiac Assist division and InterVascular, Inc.
Excluding litigation settlement expense or income, net earnings for the
first nine months of fiscal 1997 were $12.6 million or $0.77 per share
compared to $13.4 million or $0.81 per share for the first nine months
<PAGE> 5
last year. Litigation settlement expense amounted to $8.6 million,
$5.1 million after-tax, or $0.31 per share in fiscal 1997 and
litigation settlement income amounted to $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, lower
earnings in the Cardiac Assist division and expenses related to the
expansion of the VasoSeal direct marketing organization.
LIQUIDITY AND CAPITAL RESOURCES
The company maintained its strong financial position during the first
nine months of fiscal 1997. Working capital was $122.9 million at March
31, 1997, compared to $121.4 million at June 30, 1996 and the current
ratio at March 31, 1997 was 4.2:1 compared to 3.9:1 at June 30, 1996.
Cash provided by operating activities of $2.9 million in the first nine
months of fiscal 1997 compares to $19.1 million in the corresponding
period last year. The decrease 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 nine
months of fiscal 1997.
In the first nine months of fiscal 1997, cash was used to purchase $3.8
million of capital equipment compared to $4.4 million in the same
period last year.
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 nine months of
fiscal 1997, 102,300 shares of the company's stock were repurchased at
a cost of $1,992,000. Since inception of the stock repurchase program,
the company repurchased 196,300 shares of stock at a cost of
$3,663,000.
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.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This management's 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 cardiac assist products by competitors and because the timing of
regulatory approvals is uncertain. 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> 6
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MAR 31, JUNE 30,
1997 1996
--------- ---------
ASSETS (unaudited) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,043 $ 2,574
Short-term investments 59,689 64,805
Accounts receivable, less allowance for doubtful
accounts of $1,083 and $1,198 47,804 50,559
Inventories (Note 2) 41,037 34,757
Prepaid expenses and other current assets 10,239 10,743
--------- ---------
Total Current Assets 161,812 163,438
Property, Plant and Equipment, net of accumulated
depreciation of $40,662 and $36,363 44,848 43,973
Non-Current Marketable Securities 20,008 17,364
Other Assets 10,320 9,689
--------- ---------
$ 236,988 $ 234,464
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,375 $ 6,664
Accrued expenses 20,978 23,372
Accrued compensation 8,034 9,946
Taxes on income 2,502 2,097
--------- ---------
Total Current Liabilities 38,889 42,079
Other Liabilities 11,248 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, 16,235,836 and 16,135,427 shares 162 161
Additional paid-in capital 43,995 42,548
Treasury stock at cost, 196,300 and 94,000 shares (3,663) (1,671)
Retained earnings 149,267 141,764
Cumulative translation adjustments (2,910) (1,122)
--------- ---------
186,851 181,680
--------- ---------
$ 236,988 $ 234,464
========= =========
</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>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- -------------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 163,100 $ 152,800 $ 57,900 $ 54,600
--------- --------- -------- --------
Costs and Expenses:
Cost of sales 57,118 52,783 20,502 19,063
Research and development
expenses 20,119 17,274 6,180 5,824
Selling, general and
administrative expenses 71,017 65,797 24,139 22,859
Settlements of litigation (Note 4) 8,554 (10,691) -- --
--------- --------- -------- --------
156,808 125,163 50,821 47,746
--------- --------- -------- --------
OPERATING EARNINGS 6,292 27,637 7,079 6,854
Other (Income) Expense:
Interest income (3,568) (3,193) (1,119) (1,137)
Interest expense 14 44 6 6
Other, net 488 508 209 162
--------- --------- -------- --------
(3,066) (2,641) (904) (969)
--------- --------- -------- --------
EARNINGS BEFORE TAXES ON INCOME 9,358 30,278 7,983 7,823
Taxes on Income 1,855 9,028 2,233 2,386
--------- --------- -------- --------
NET EARNINGS $ 7,503 $ 21,250 $ 5,750 $ 5,437
========= ========= ======== ========
Earnings Per Share (Note 3) $ 0.46 $ 1.28 $ 0.35 $ 0.33
========= ========= ======== ========
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding (Note 3) 16,349 16,556 16,544 16,602
========= ========= ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 2,854 $ 19,145
-------- ---------
INVESTING ACTIVITIES:
Capital expenditures (3,783) (4,361)
Purchases of marketable securities (71,234) (106,097)
Maturities of marketable securities 73,706 90,889
-------- ---------
Net cash used in investing activities (1,311) (19,569)
-------- ---------
FINANCING ACTIVITIES:
Net cash (used in) provided by financing activities (544) 512
-------- ---------
Effect of exchange rates on cash (530) 247
-------- ---------
Increase in cash and cash equivalents 469 335
Cash and cash equivalents, beginning of period 2,574 3,096
-------- ---------
Cash and cash equivalents, end of period $ 3,043 $ 3,431
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash (refunded) paid during the period for:
Income taxes $ (21) $ 8,617
-------- ---------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 4,534 $ 2,925
-------- ---------
</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 sheets as of March 31, 1997 and 1996, the statements of
consolidated earnings for the three and nine month periods ended March 31, 1997
and 1996 and the statements of consolidated cash flows for the nine month
periods ending March 31, 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, 1996 annual report to
shareholders. The results of operations for the period ended March 31, 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)
-------------------------
Mar 31, June 30,
1997 1996
------- -------
<S> <C> <C>
Materials $15,251 $15,711
Work in Process 5,853 7,064
Finished Goods 19,933 11,982
------- -------
$41,037 $34,757
======= =======
</TABLE>
3. STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity for the nine months ended
March 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Net income $ 7,503
Translation adjustments (1,788)
Purchase of treasury stock (1,992)
Common stock and additional paid-in
capital effects of stock option activity 1,448
=======
Total increase in stockholders' equity $ 5,171
=======
</TABLE>
<PAGE> 10
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> 11
Part II:
Item 2 Issuance of Unregistered Securities
During the third quarter of fiscal 1997 the company
granted 56,000 shares of stock options at exercise prices
ranging from $22.50 to $22.625 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> 12
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 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,043
<SECURITIES> 59,689
<RECEIVABLES> 48,887
<ALLOWANCES> (1,083)
<INVENTORY> 41,037
<CURRENT-ASSETS> 161,812
<PP&E> 85,510
<DEPRECIATION> (40,662)
<TOTAL-ASSETS> 236,988
<CURRENT-LIABILITIES> 38,889
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 186,689
<TOTAL-LIABILITY-AND-EQUITY> 236,988
<SALES> 163,100
<TOTAL-REVENUES> 163,100
<CGS> 57,118
<TOTAL-COSTS> 57,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 9,358
<INCOME-TAX> 1,855
<INCOME-CONTINUING> 7,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,503
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
