<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, 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
(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 30, 1998
15,831,487.
<PAGE> 2
DATASCOPE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Second quarter and first six months fiscal 1998 compared to the
corresponding periods last year.
NET SALES
Net sales of $62.7 million in the second quarter and $117.0 million in
the first six months of fiscal 1998 increased 9% and 11%, respectively,
led by the continued U.S. sales growth of VasoSeal(R) and higher sales
of patient monitoring products and vascular grafts.
Sales of cardiac assist products were essentially unchanged from last
year reflecting the continued highly competitive climate that has
characterized the intra-aortic balloon pumping market for the past two
years. The effect of higher unit shipments was offset by lower selling
prices. While competition is expected to continue, Datascope believes
its competitive position will gain as a result of the new System 97e
which began shipping in the second quarter and the new 8 Fr. Co-Lumen
balloon catheter planned to begin shipping to international markets in
the current quarter. The new 8 Fr. catheter has the smallest profile of
any intra-aortic balloon catheter and is the first capable of insertion
through an 8 Fr. sheath, a standard sheath size used for coronary
angioplasty and stent procedures. The FDA 510(k) submission for the 8
Fr. balloon was filed January 1998.
Sales of VasoSeal in the U.S. rose to $6.4 million in the quarter, an
88% increase and a 6% increase over the sequential quarter. The Company
continued to expand its direct marketing organization in the U.S. to
meet growing demand and increased competition for vascular sealing
devices. The Company received the CE mark for VasoSeal in November 1997
and commercial sale in the major European markets began during February
1998.
Worldwide sales of patient monitoring products increased as a result of
continued strong demand for the Passport(R) line of monitors and
VISA(TM) central stations. Orders for the new EXPERT(TM) high-end
patient monitoring system are being booked and, as announced in October
1997, first shipments to customers are planned for the fourth fiscal
quarter. The new EXPERT system allows Datascope to compete in the $350
million U.S. market for high-end monitoring systems and complements the
Company's position as the leading supplier of portable monitoring
systems. The Company received FDA 510(k) clearance to market a new MRI
compatible monitor in the second quarter. The MRI monitor effectively
measures the vital signs of patients in Magnetic Resonance Imaging
(MRI) rooms which contain powerful magnetic fields that distort the
measurements of ordinary monitors.
<PAGE> 3
Orders for this new monitor are currently being taken for expected
shipment in the fourth fiscal quarter. The annual U.S. market for MRI
compatible monitors is estimated at $30 million.
Sales of vascular grafts grew for the second consecutive quarter
reflecting shipments to new markets in the U.S. and Japan for
InterGard(TM) collagen coated vascular grafts, partially offset by
lower sales prices and an unfavorable foreign exchange impact.
The foreign exchange rate effect of the stronger U.S. dollar compared
to major European currencies decreased total sales by approximately
$800 thousand and $1.6 million in the second quarter and first six
months of fiscal 1998, respectively.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The gross profit percentage was 64.2% and 64.3% for the second quarter
and first six months of fiscal 1998, respectively, compared to 65.3%
and 65.2% with the reduction primarily attributable to lower average
selling prices for cardiac assist, patient monitoring and vascular
graft products, partially offset by higher VasoSeal gross profits.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses, as a percentage of sales, amounted to 12.0% and 13.1% in
the second quarter and first six months of fiscal 1998, respectively,
compared to 11.8% and 13.3% for the same periods last year.
R&D expenses increased $0.7 million or 11% and $1.4 million or 10% in
the second quarter and first six months of fiscal 1998, respectively,
as activity increased in all businesses.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses, as a percentage of sales, were 41.1% and 43.0% in the
second quarter and first six months of fiscal 1998, respectively, a 1.6
point decline compared to 42.7% and 44.6%, as expenses increased at a
lower rate than sales increases.
SG&A expenses increased $1.2 million or 5% in the second quarter and
$3.4 million or 7% in the first six months of fiscal 1998, as a result
of the continued buildup of the U.S. VasoSeal field selling
organization, new marketing programs in the Cardiac Assist division and
higher corporate expenses.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $460 thousand and $990
thousand in the second quarter and first six months of fiscal 1998,
respectively.
<PAGE> 4
SETTLEMENTS OF LITIGATION
Net earnings in the first six months of fiscal 1997 included 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
diluted 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 diluted share.
INTEREST INCOME AND EXPENSE
The slightly higher interest income in the second quarter and first six
months of fiscal 1998 was primarily 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
December 31, 1997 totaled $1.0 million, all of which were in European
currencies, with maturities that do not exceed 12 months.
NET EARNINGS
Net earnings in the second quarter of fiscal 1998 improved to $5.6
million or $0.34 per diluted share compared to $5.1 million, or $0.31
per diluted share. The earnings increase resulted primarily from higher
U.S. sales of the VasoSeal device.
Net earnings for the first six months of fiscal 1998 were $8.3 million
or $0.50 per diluted share compared to $6.9 million or $0.42 per
diluted share for the first six months last year, excluding the special
charge for settlement of litigation of $5.1 million after tax or $0.31
per diluted share reported in the first quarter of fiscal 1997. The
improved earnings resulted from higher U.S. sales of the VasoSeal
device and increased interest income earned on investments.
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained its strong financial position during the first
six months of fiscal 1998. Working capital was $119.6 million at
December 31, 1997 compared to $123.7 million at June 30, 1997, with the
reduction attributable to more funds ($6.0 million) being invested
long-term (up to 4 years). Accounts receivable at December 31, 1997
declined $2.4 million or 5% from June 30, 1997 due to improved
collections.
Cash provided by operating activities was $12.3 million in the first
six months of fiscal 1998 compared to $3.0 million cash used by
operations in the same period last year. The increase in cash was
primarily attributable to reduced inventory purchases and the increase
in net earnings in the first six months of fiscal 1998. The first six
months of fiscal 1997 included a $5.1 million disbursement for
settlements of litigation.
In the first six months of fiscal 1998, cash was used to purchase $3.9
million of plant and equipment and $6.0 million in long-term marketable
securities, with maturities less than 5 years.
On May 3, 1996 the Company announced a common stock repurchase program
of up to $20 million, subject to market conditions and other relevant
factors affecting the Company. During the first six months of fiscal
1998, 156,800 shares of the Company's stock were repurchased at a cost
of $3,835,000. Since inception of the stock repurchase program, the
Company has repurchased 380,100 shares of stock at a cost of $7,986,000
as of December 31, 1997.
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.
ADOPTION OF NEW ACCOUNTING STANDARD
The Company adopted Financial Accounting Standard No. 128, "Earnings
Per Share," as required effective December 31, 1997. All prior
earnings per share amounts presented have been restated to conform
with this new statement.
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>
DEC 31, JUNE 30,
1997 1997
---------- ----------
ASSETS (unaudited) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,583 $ 2,597
Short-term investments 57,136 57,338
Accounts receivable, less allowance for doubtful
accounts of $1,044 and $922 49,863 52,240
Inventories (Note 2) 33,725 34,604
Prepaid expenses and other current assets 9,630 9,485
---------- ----------
Total Current Assets 151,937 156,264
Property, Plant and Equipment, net of accumulated
depreciation of $43,300 and $42,079 47,093 44,742
Non-Current Marketable Securities 32,133 25,902
Other Assets 11,983 10,954
---------- ----------
$ 243,146 $ 237,862
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,739 $ 6,650
Accrued expenses 13,792 15,755
Accrued compensation 7,727 9,336
Taxes on income 2,073 807
---------- ----------
Total Current Liabilities 32,331 32,548
Other Liabilities 13,790 13,071
Stockholders' Equity (Note 4)
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, 16,319,762 and 16,245,732 shares 163 162
Additional paid-in capital 45,602 44,266
Treasury stock at cost, 380,100 and 223,300 shares (7,986) (4,151)
Retained earnings 164,184 155,868
Cumulative translation adjustments (4,938) (3,902)
---------- ----------
197,025 192,243
---------- ----------
$ 243,146 $ 237,862
========== ==========
</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
<PAGE> 7
<TABLE>
<CAPTION>
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 117,000 $ 105,200 $ 62,700 $ 57,600
----------- ---------- ---------- -----------
Costs and Expenses:
Cost of sales 41,814 36,616 22,418 19,967
Research and development
expenses 15,376 13,939 7,551 6,808
Selling, general and
administrative expenses 50,269 46,878 25,770 24,620
Litigation settlement expense (Note 3) - 8,554 - -
----------- ---------- ---------- -----------
107,459 105,987 55,739 51,395
----------- ---------- ---------- -----------
OPERATING EARNINGS (LOSS) 9,541 (787) 6,961 6,205
Other (Income) Expense:
Interest income (2,561) (2,449) (1,272) (1,260)
Interest expense 13 8 8 4
Other, net 37 279 41 141
----------- ---------- ---------- -----------
(2,511) (2,162) (1,223) (1,115)
----------- ---------- ---------- -----------
EARNINGS BEFORE TAXES ON INCOME 12,052 1,375 8,184 7,320
Taxes on Income 3,736 (378) 2,537 2,269
----------- ---------- ---------- -----------
NET EARNINGS $ 8,316 $ 1,753 $ 5,647 $ 5,051
=========== ========== ========== ===========
Earnings Per Share, Basic (Note 4) $ 0.52 $ 0.11 $ 0.35 $ 0.31
=========== ========== ========== ===========
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Basic 16,005 16,043 15,978 16,045
=========== ========== ========== ===========
Earnings Per Share, Diluted (Note 4) $ 0.50 $ 0.11 $ 0.34 $ 0.31
=========== ========== ========== ===========
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Diluted 16,504 16,265 16,559 16,299
=========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
<TABLE>
<CAPTION>
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 12,303 $ (3,036)
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures (3,905) (2,233)
Purchases of marketable securities (46,789) (52,059)
Maturities of marketable securities 40,760 56,598
---------- ---------
Net cash (used in) provided by investing activities (9,934) 2,306
---------- ---------
FINANCING ACTIVITIES:
Net cash (used in) provided by financing activities (2,731) 12
---------- ---------
Effect of exchange rates on cash (652) (62)
---------- ---------
Decrease in cash and cash equivalents (1,014) (780)
Cash and cash equivalents, beginning of period 2,597 2,574
---------- ---------
Cash and cash equivalents, end of period $ 1,583 $ 1,794
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (refunded) during the period for:
Income taxes $ 1,995 $ (110)
---------- ---------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 3,248 $ 3,096
---------- ---------
</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 December 31, 1997 and 1996 and the
statements of consolidated earnings and cash flows for the three and six month
periods ended December 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, 1997 annual report to
shareholders. The results of operations for the period ended December 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)
---------------------------
Dec 31, June 30,
1997 1997
------- -------
<S> <C> <C>
Materials $13,602 $10,917
Work in Process 4,761 4,885
Finished Goods 15,362 18,802
------- -------
$33,725 $34,604
======= =======
</TABLE>
3. 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
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
The Company adopted Financial Accounting Standard No. 128, "Earnings Per Share",
as required effective December 31, 1997. All prior earnings per share amounts
presented have been restated to conform with this new statement.
The reconciliation of Basic Earnings Per Share to Diluted Earnings Per Share is
as follows:
<TABLE>
<CAPTION>
- ---------------------- --------------------------------------- ---------------------------------------
For Three Months Ended December 31, 1997 December 31, 1996
- ---------------------- --------------------------------------- ---------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
- --------- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings available to
common shareholders $5,647 15,978 $0.35 $5,051 16,045 $0.31
Diluted EPS
- -----------
Options issued to employees -- 581 -- -- 254 --
------ ------ ----- ------ ------ -----
Earnings available to
common shareholders
plus assumed conversions $5,647 16,559 $0.34 $5,051 16,299 $0.31
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
- -------------------- --------------------------------------- ---------------------------------------
For Six Months Ended December 31, 1997 December 31, 1996
- -------------------- --------------------------------------- ---------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
- --------- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings available to
common shareholders $8,316 16,005 $0.52 $1,753 16,043 $0.11
Diluted EPS
- -----------
Options issued to employees -- 499 -- -- 222 --
-------- ------ ------ -------- ------ ------
Earnings available to
common shareholders
plus assumed conversions $8,316 16,504 $0.50 $1,753 16,265 $0.11
======== ======= ====== ======== ====== ======
</TABLE>
Changes in the components of stockholders' equity for the six months ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Net income $ 8,316
Translation adjustments (1,036)
Common stock and additional paid-in capital
effects of stock option activity 1,337
Purchases under stock repurchase plan (3,835)
-------
Total increase in stockholders' equity $ 4,782
=======
</TABLE>
<PAGE> 11
Part II:
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of Security Holders
at the Annual Meeting of Shareholders of the Company on
December 9, 1997:
1. To elect three directors of the Company to hold office until the Annual
Meeting of Shareholders occurring in 2000 and until the election and
qualification of their respective successors;
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Lawrence Saper 12,587,472 235,316
Alan B. Abramson 12,587,472 235,316
Arno Nash 12,587,472 235,316
</TABLE>
2. To approve an amendment to the Datascope Corp. 1995 Stock Option Plan (the
"1995 Option Plan") to increase the number of shares of the Company's Common
Stock which may be the subject of options granted pursuant to the 1995 Option
Plan from 750,000 shares in the aggregate to 1,500,000 shares in the aggregate;
For Against Abstain
11,686,481 1,079,616 56,691
3. To approve the adoption of the Datascope Corp. 1997 Executive Bonus
Plan;
For Against Abstain
11,430,229 946,253 55,250
4. To approve the adoption of the Datascope Corp. Annual Incentive Plan;
For Against Abstain
11,697,009 685,011 49,712
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
*10.1(1) Datascope Corp. 1995 Stock Option Plan (as amended).
*10.2 Datascope Corp. 1997 Executive Bonus Plan.
*10.3 Datascope Corp. Annual Incentive Plan.
*10.4(2) Datascope Corp. Compensation Plan for Non-Employee
Directors.
27 Financial Data Schedule
*Indicates exhibits relating to compensatory plans, contracts
or arrangements in which executive officers or directors
participate.
(1)Incorporated by reference to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission (the "Commission") on December 19, 1997 (File No.
333-42753).
(2)Incorporated by reference to the Company's Registration
Statement on Form S-8 filed with the Commission on December
19, 1997 (File No. 333-42747).
b. A Report on Form 8-K was filed by the Company on October 22,
1997, reporting under Item 5, the press release issued by the
Company on October 21, 1997 regarding its plans to enter the
life science research market in connection with the
introduction of reagents based on 3DNA (TM) (Three-Dimensional
Nucleic Acid).
<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: February 12, 1998
<PAGE> 1
EXHIBIT 10.2
DATASCOPE CORP.
1997 EXECUTIVE BONUS PLAN
This is the Datascope Corp. 1997 Executive Bonus Plan (the "Plan"), as
authorized by the "Committee" (as defined below) of Datascope Corp. (the
"Company"), for the payment of incentive compensation to Lawrence Saper,
Chairman and Chief Executive Officer.
OBJECTIVES
The objectives of the Plan are to:
- - Align the interests of management and stockholders to increase
shareholder value.
- - Provide reasonable compensation that is in line with industry
standards.
- - Provide direct linkage between the compensation payable to Mr. Saper
and Corporate earnings growth.
DEFINITIONS
As used in this Plan, the following terms have the following meanings:
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee (or Sub-committee) of the
Board of Directors which shall consist solely of two or more "outside directors"
within the meaning of Section 162(m) of the Code.
"Plan Period" shall be the period beginning January 1, 1997 and ending June 30,
1997.
"Earnings" shall mean the pre-tax operating earnings as included in the
quarterly and audited annual consolidated financial statements of the Company
and its subsidiaries, as adjusted for pre-tax income or expense related to
"Special Items" of a material nature that are separately reported on the face of
the Company's financial statement, and also as adjusted for the pre-tax effect
of "Extraordinary Items" as disclosed on the Company's financial statements as
filed with the Securities and Exchange Commission and as confirmed by the
Company's independent auditors. The terms "Special Items" and "Extraordinary
Items" shall have the same meaning as defined under Generally Accepted
Accounting Principles (GAAP).
<PAGE> 2
2
"Base Earnings" shall be $ 13,986,000, which constitutes the Company's total
pre-tax operating earnings for the period January 1, 1996 through June 30, 1996,
as included in the Company's quarterly and audited annual Financial Statements,
but excluding any special and extraordinary items as defined above.
"Bonus Earnings" shall be the amount by which the Earnings for the applicable
Plan Period exceeds Base Earnings, expressed in terms of a percentage increase
and rounded to the nearest one tenth of one percent.
The "Bonus Percentage" is the Bonus Award as a percent of salary paid with
respect to the Plan Period. The Bonus Percentage for the Plan Period shall be
computed as follows:
- - If Bonus Earnings is less than 15%, then Bonus Percentage equals zero.
- - If Bonus Earnings is 15% or greater, then Bonus Percentage equals Bonus
Earnings that exceeds 15% multiplied by 10, plus 100%; however in no
event shall the Bonus Percentage exceed the Plan maximum of 200%.
The "Bonus Award" payable for the Plan Period shall be the amount of base salary
paid with respect to the Plan Period, times the Plan Period Bonus Percentage,
limited with respect to the Plan Period to $ 795,000.
The Bonus Award payable for the Plan Period may be expressed utilizing the
following applicable mathematical formula, where:
B = Bonus Award
S = Base Salary for Measurement Period
G = Percent Growth in Earnings for the Measurement Period, rounded to the
nearest 0.1%.
If "G" is less than 15%, then "B" = 0.
If "G" is 15% or greater, then
B = [ 1 + ((G-.15) x 10) ] x S, subject to a maximum of 2 x S.
<PAGE> 3
3
EXAMPLES
Utilizing the above formulas, and assuming a base salary of $ 397,500
attributable to the Plan Period, the bonus payment will be computed as follows
for hypothetical earnings growth:
<TABLE>
<CAPTION>
Earnings Growth % Percent of Salary Bonus Amount
----------------- ----------------- ------------
<S> <C> <C>
15% 100% 397,500
20% 150% 596,250
25% 200% 795,000
</TABLE>
ADMINISTRATION
The Plan will be administered by the Committee. Subject to the provisions of the
Plan, the Committee will have full authority to interpret the Plan, to establish
and amend rules and regulations relating to it, to determine the terms and
provisions for making awards and to make all other determinations necessary or
advisable for the administration of the Plan.
PARTICIPATION
Participation in the Plan is limited to Lawrence Saper, Chairman and Chief
Executive Officer of the Company.
PAYMENT
The Bonus Award is contingent upon the satisfaction of the performance goals set
forth within this Plan, and upon receiving shareholder approval of the Plan. The
Bonus Award will be paid in cash as soon as practicable following issuance of
the written certification from the Committee that the performance goals have
been attained, and subsequent to Shareholder approval of this Plan.
MISCELLANEOUS
The Committee retains the right, if the performance goal is met, to reduce the
Bonus Award if, in its judgment, other subjective factors warrant a reduction.
<PAGE> 1
Exhibit 10.3
DATASCOPE CORP.
ANNUAL INCENTIVE PLAN
(AS OF SEPTEMBER 17, 1997)
Section 1. Purpose. The purpose of the Datascope Corp. Annual Incentive
Plan (the "Plan") is to benefit and advance the interests of Datascope Corp., a
Delaware corporation (the "Company"), by rewarding selected employees of the
Company and its subsidiaries and divisions (each such subsidiary or division is
referred to herein as a "Business Unit") for their contributions to the
Company's financial success and thereby motivate them to continue to make such
contributions in the future by granting annual performance-based awards
("Awards").
Section 2. Administration of the Plan.
(a) Generally. The Plan shall be administered by the Compensation
Committee ("Committee") of the Company's Board of Directors ("Board"). The
Committee shall consist of two or more directors, each of whom is an "outside
director" (as defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended, and regulations thereunder (the "Code")). The Committee is authorized
to administer, interpret and apply the Plan and from time to time may adopt such
rules, regulations and guidelines consistent with the provisions of the Plan as
it may deem advisable to carry out the Plan, except that the Committee may
authorize any one or more of its members, or any officer of the Company, to
execute and deliver documents on behalf of the Committee. The Committee's
interpretations of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be conclusive
and binding on all parties concerned, including the Company, its shareholders
and Participants (as defined below). The Committee shall have authority to
determine the terms and conditions of the Awards granted to Participants (as
defined below).
(b) Delegation. The Committee may delegate its responsibilities for
administering the Plan to the Chief Executive Officer, as the Committee deems
necessary. However, the Committee shall not delegate its responsibilities under
the Plan relating to (i) the Chief Executive Officer and (ii) any other
Participant who is designated by the Committee, either (x) prior to the
Determination Date (as defined below) or (y) such later date as such Participant
commences employment, to be a "covered employee" within the meaning of Section
162(m) of the Code whose "applicable employee remuneration" (within the meaning
of Section 162(m) of the Code) for such Performance Period (as defined below) is
expected to exceed $1,000,000 (each a "Covered Employee"). For purposes of the
Plan, (i) "Performance Period" means the current Fiscal Year (as defined below)
of the Company, and (ii) "Fiscal Year" means the fiscal year ending on June 30
or such other period that the Company may hereafter adopt as its fiscal year.
(c) Reliance and Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons, and the Committee, the Company and
its officers and directors shall be entitled to rely upon the advice, opinions
or valuations of any such persons. Neither any member of the Committee nor the
Chief Executive Officer shall be personally liable for any action, determination
or interpretation taken or made in good faith by the Committee or the Chief
Executive Officer with respect to the Plan or Awards granted hereunder, and all
members of the Committee and the Chief Executive Officer shall be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
Section 3. Eligible Persons; Participants. Only employees of the Company
or its Business Units who are at the level of Manager or at a more senior level
are eligible to participate in the Plan ("Eligible Persons"). An Eligible Person
shall participate in the Plan during a Performance Period only if such Eligible
Person commenced employment before the end of either (a) the first quarter of
such Performance Period (in the case of an Eligible Person who would be a
Covered Employee), or (b) the second quarter of such Performance Period (in the
case of an Eligible Person who would not be a Covered Employee) (each a
"Participant"). An individual shall not be deemed an employee for purposes of
the Plan unless such individual receives
B-1
<PAGE> 2
compensation from either the Company or one of its Business Units for services
performed as an employee of the Company or any one of its Business Units.
Section 4. Awards. Awards may be granted only to Participants with respect
to each Performance Period, subject to the terms and conditions set forth in the
Plan.
Section 5. Determination of Targets, Performance Thresholds and Base Salary
Percentage. Prior to the beginning of each Performance Period or (x) with
respect to Covered Employees, prior to any later date described in Treasury
Regulation 1.162-27(e)(2) (or any successor thereto), or (y) with respect to any
Participants who are not Covered Employees who have commenced employment within
the time limit specified in Section 3, on such date of commencement (each a
"Determination Date"), the Committee shall adopt each of the following:
(a) with respect to each Covered Employee, one or more Targets, which
shall be equal to a desired level or levels for any Fiscal Year of any or a
combination of the following business criteria on an absolute or relative
basis (including comparisons of results for the Performance Period to
either (x) results for the prior Fiscal Year or (y) budget for the
Performance Period), and measured before extraordinary items and/or special
items: (i) net sales, (ii) pre-tax earnings, (iii) after-tax earnings, (iv)
operating earnings, and (v) earnings per share, each as determined in
accordance with generally accepted accounting principles consistently
applied for the Company on a consolidated basis (collectively, the
"Financial Criteria"); provided, however, that with respect to any Covered
Employee who is employed by a Business Unit, the Financial Criteria shall
be based on the results of such Business Unit and consolidated results of
the Company;
(b) with respect to each Participant who is not a Covered Employee,
one or more Targets, which shall be equal to a desired level or levels for
any Fiscal Year of any, or a combination of any, quantitative criteria
(including, without limitation, any Financial Criteria) or qualitative
criteria (collectively, the "Individual Criteria"); provided, however, that
with respect to such Participants who are employed by a Business Unit, the
Financial Criteria may be based on the results of such Business Unit rather
than consolidated results of the Company, or a combination of the two;
(c) a Performance Threshold, with respect to each Target, based upon
one or more Financial Criteria or Individual Criteria, as applicable,
representing a minimum amount which, if not exceeded, would result in no
Award being made to the Participant; and
(d) a Base Salary Percentage, representing the percentage of such
Participant's Base Salary (as defined in Section 7) in effect at the time
such Participant's Targets are established, which shall be payable as an
Award (subject to modification under Section 7(b)) in the event that 100%
of such Participant's Targets are achieved.
The Committee shall also determine on each Determination Date for each
Participant a mathematical formula or matrix which shall contain weighting for
each Target and indicate the extent to which Awards will be made (subject to
modification under Section 7(b)) if such Participant's Performance Thresholds
are exceeded, including if such Participant's Targets are achieved or exceeded.
Section 6. Calculation of Awards; Certification; Payment; Deferral. As
soon as practicable after the end of the Performance Period, and subject to
verification by the Company's independent auditors of the applicable Financial
Criteria, the Committee shall determine with respect to each Participant whether
and the extent to which such Participant's Performance Thresholds were exceeded,
including the extent to which, if any, each Target was attained or exceeded.
Such Participant's Award, if any, shall be calculated in accordance with the
mathematical formula or matrix determined pursuant to Section 5, and subject to
the limitations set forth in Section 7 hereof. The Committee shall certify in
writing to the Board the amount of such Award and whether each material term of
the Plan relating to such Award has been satisfied. Subject to Section 8 hereof,
such Award shall become payable in cash as promptly as practicable thereafter.
However, from time to time, prior to the beginning of a Performance Period, the
Committee may, in its sole discretion (under uniform rules applicable to all
Participants and in compliance with applicable law in effect at such time),
offer Participants
B-2
<PAGE> 3
the opportunity to defer receipt of all or a portion of any Award that is made
(subject to modification under Section 7(b)) for such Performance Period.
Section 7. Limitations; Modifications to Awards. Each Award determined
pursuant to Section 6 hereof shall be subject to modification or forfeiture in
accordance with the following provisions:
(a) Limitations. The aggregate amount of any Award to any Participant
for any Performance Period shall not exceed the lesser of either (x) the
amount determined by multiplying such Participant's Base Salary by a factor
of two (2) or (y) $3,000,000. For purposes of the Plan, "Base Salary" shall
mean the annual base salary of the Participant on the first day of such
Performance Period or, in the case of a Participant commencing employment
after such date (to the extent permitted by Section 3), such Participant's
annual base salary on the date of such commencement.
(b) Modifications. The Committee may, in its sole discretion, (i)
increase, decrease or eliminate the Award payable to any Participant who is
not a Covered Employee and who would not become a Covered Employee as a
result of such increase or (ii) decrease or eliminate the Award payable to
any Covered Employee, to reflect the individual performance and
contribution of, and other factors relating to, such Participant. The
determination of the Committee shall be final and conclusive.
Section 8. Employment Requirement. No Participant shall have any right to
receive payment of any Award unless such Participant remains in the employ of
the Company or a Business Unit through the date of certification of such Award;
provided, however, that the Committee may, in its sole discretion, pay all or
any part of an Award to any Participant who, prior to such date of
certification, retires, dies or becomes permanently disabled or where other
special circumstances exist with respect to such Participant, so long as such
Participant exceeded such Participant's Performance Thresholds. The maximum
amount of such payment, if any, will be calculated, and to the extent determined
by the Committee, paid as provided in Section 6 (subject to modification under
Section 7(b)). The determination of the Committee shall be final and conclusive.
Section 9. Miscellaneous.
(a) No Contract; No Rights to Awards or Continued Employment. The Plan is
not a contract between the Company and any Participant or other employee. No
Participant or other employee shall have any claim or right to receive Awards
under the Plan. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee any right to be retained by the Company or any
of its Business Units.
(b) No Right to Future Participation. Participation in the Plan during one
Performance Period shall not guarantee participation during any other
Performance Period.
(c) Restriction on Transfer. The rights of a Participant with respect to
Awards under the Plan shall not be transferable by the Participant to whom such
Award is granted (other than by will or the laws of descent and distribution),
and any attempted assignment or transfer shall be null and void and shall permit
the Committee, in its sole discretion, to extinguish the Company's obligation
under the Plan to pay any Award with respect to such Participant.
(d) Tax Withholding. The Company or a subsidiary thereof, as appropriate,
shall have the right to deduct from all payments made under the Plan to a
Participant or to a Participant's beneficiary or beneficiaries any Federal,
state or local taxes required by law to be withheld with respect to such
payments.
(e) No Restriction on Right of Company to Effect Changes. The Plan shall
not affect in any way the right or power of the Company or its shareholders to
make or authorize any recapitalization, reorganization, merger, acquisition,
divestiture, consolidation, spin off, combination, liquidation, dissolution,
sale of assets, or other similar corporate transaction or event involving the
Company or a subsidiary thereof or any other event or series of events, whether
of a similar character or otherwise.
(f) Source of Payments. The Plan shall be unfunded. The Plan shall not
create or be construed to create a trust or separate fund or segregation of
assets of any kind or a fiduciary relationship between the Company and a
Participant or any other individual, corporation, partnership, association,
joint-stock company,
B-3
<PAGE> 4
trust, unincorporated organization, or government or political subdivision
thereof. To the extent that any Participant is granted an Award under Section 6
(subject to modification under Section 7(b)), such Participant's right to
receive such Award shall be no greater than the right of any unsecured general
creditor of the Company.
(g) No Interest. If the Company for any reason fails to make payment of an
Award at the time such Award becomes payable, the Company shall not be liable
for any interest or other charges thereon.
(h) Amendment and Termination. The Committee may at any time and from time
to time alter, amend, suspend or terminate the Plan in whole or in part. No such
amendment shall be effective which alters the Award, Target or other criteria
relating to an Award applicable to a Covered Employee for the Performance Period
in which such amendment is made or any prior Performance Period, except any such
amendment that may be made without causing such Award to cease to qualify as
performance-based compensation under Section 162(m)(4)(C) of the Code.
(i) Governmental Regulations. The Plan, and all Awards hereunder, shall be
subject to all applicable rules and regulations of governmental or other
authorities.
(j) Headings. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
(k) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of New Jersey, without regard to the choice-of-law principles
thereof, and applicable federal law.
(l) Severability. If any term or provision ("Provision") of the Plan or
the application thereof (i) as to any Participant or circumstance (other than as
described in clause (ii)) is, to any extent, found to be illegal or invalid, or
(ii) would cause any Award to any Covered Employee not to constitute
performance-based compensation under Section 162(m)(4)(C) of the code, then the
Committee shall sever such Provision from the Plan and, thereupon, such
Provision shall not be a part of the Plan.
(m) Effective Date. The Plan shall be effective as of July 1, 1997;
provided, however, that it shall be a condition to the effectiveness of the
Plan, and any Awards made on or after July 1, 1997, that the shareholders of the
Company ("Shareholders") approve the Plan at the 1997 Annual Meeting of
Shareholders. Such approval shall meet the requirements of Section 162(m) of the
Code and the regulations thereunder. If such approval is not obtained, then the
Plan shall not be effective and any Award made on or after July 1, 1997 shall be
void ab initio.
(n) Approval and Reapproval by Shareholders. To the extent required under
Section 162(m) of the Code, (i) any change to the material terms of the
Financial Criteria shall be disclosed to and approved by the Shareholders at the
next Annual Meeting of Shareholders to be held following such change, and (ii)
the material terms of the Financial Criteria shall be disclosed to and
reapproved by the Shareholders no later than the Annual Meeting of Shareholders
that occurs in the fifth year following the year in which Shareholders approve
the Financial Criteria.
B-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,583
<SECURITIES> 57,136
<RECEIVABLES> 50,907
<ALLOWANCES> (1,044)
<INVENTORY> 33,725
<CURRENT-ASSETS> 151,937
<PP&E> 90,393
<DEPRECIATION> (43,300)
<TOTAL-ASSETS> 243,146
<CURRENT-LIABILITIES> 32,331
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 196,862
<TOTAL-LIABILITY-AND-EQUITY> 243,146
<SALES> 117,000
<TOTAL-REVENUES> 117,000
<CGS> 41,814
<TOTAL-COSTS> 41,814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 12,052
<INCOME-TAX> 3,736
<INCOME-CONTINUING> 8,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,316
<EPS-PRIMARY> 0.52<F1>
<EPS-DILUTED> 0.50
<FN>
<F1>
BASIC EPS AS REQUIRED BY FAS 128.
</FN>
</TABLE>
