<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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-6516
DATASCOPE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-2529596
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 391-8100
Former name, former address and former fiscal year, if changed since last
report:
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
YES X NO____
Number of Shares of Company's Common Stock outstanding as of April 30, 1998:
15,577,121.
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DATASCOPE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Third quarter and first nine months fiscal 1998 compared to the
corresponding periods last year.
NET SALES
Net sales of $60.3 million in the third quarter and $177.3 million in
the first nine months of fiscal 1998 increased 4% and 9%, 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. While competition is expected to continue, the Company believes
its competitive position will gain as a result of the new System 97e,
which began shipping in the second quarter, and the new Profile 8 Fr.
Co-Lumen (CL) balloon catheter that the Company believes offers
significant advantages over competitive products. The new Profile 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 510(k) submission for the Profile 8 Fr. Catheter was
approved by the FDA in early May 1998 and the Company believes that the
introduction of this product in the U.S. market will contribute to
improvements in sales and margins of the Cardiac Assist division.
Sales of VasoSeal in the U.S. rose to $7.2 million in the third
quarter, a 50% increase and a 13% increase over the sequential quarter.
The Company continues to expand the VasoSeal direct selling
organization in the U.S. to meet growing demand and increased
competition for vascular sealing devices and is establishing a direct
sales effort in Europe.
Sales of patient monitoring products increased modestly in the third
quarter as initial shipments of new products, including the Expert(TM)
high-end patient monitoring system more than offset lower sales of
older monitors. The Patient Monitoring division has introduced several
new products including the Expert, the Accutorr(R) Plus non-invasive
blood pressure monitors, an enhanced Passport(R) XG portable monitor
and the new MRI(TM) monitor. These new products have broadened and
improved the product line and are expected to contribute to stronger
growth in the patient monitoring business beginning in the fourth
quarter.
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<PAGE> 3
Sales of InterVascular, Inc. increased for the third consecutive
quarter reflecting shipments to the Company's U.S. distributor of
InterGard(TM) collagen coated vascular grafts. InterVascular has
expanded its production capacity to meet increased orders for the U.S.
market.
The foreign exchange rate effect of the stronger U.S. dollar compared
to major European currencies decreased total sales by approximately
$600 thousand and $2.2 million in the third quarter and first nine
months of fiscal 1998, respectively.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The gross profit percentage was 66.1% and 64.9% for the third quarter
and first nine months of fiscal 1998, respectively, compared to 64.6%
and 65.0% for the comparable periods last year. The increase in the
gross profit percentage in the third quarter of fiscal 1998 was
primarily attributable to manufacturing efficiencies and higher selling
prices for the VasoSeal device and cost reductions in the Patient
Monitoring division, partially offset by lower selling prices for
cardiac assist products.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses, as a percentage of sales, amounted to 12.3% and 12.8% in
the third quarter and first nine months of fiscal 1998, respectively,
compared to 10.7% and 12.3% for the same periods last year.
R&D expenses increased $1.2 million or 20% and $2.7 million or 13% in
the third quarter and first nine months of fiscal 1998, respectively,
primarily attributable to new product development activity in
essentially all businesses.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses, as a percentage of sales, were 41.2% and 42.4% in the
third quarter and first nine months of fiscal 1998, respectively,
compared to 41.7% and 43.5%, for the same periods last year, as
expenses increased at a lower rate than sales increases.
SG&A expenses increased $0.7 million or 3% in the third quarter and
$4.1 million or 6% in the first nine months of fiscal 1998, as a result
of the continuing buildup of the U.S. and international VasoSeal field
selling organization, new marketing programs in the Cardiac Assist
division and higher business development expenses.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $425 thousand and $1.6 million
in the third quarter and first nine months of fiscal 1998,
respectively.
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SETTLEMENTS OF LITIGATION
Net earnings in the first nine 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 higher interest income in the third quarter and first nine months
of fiscal 1998 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
March 31, 1998 totaled $0.2 million, 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 1998 improved to $6.2
million or $0.38 per diluted share compared to $5.75 million, or $0.35
per diluted share. The earnings increase resulted primarily from higher
sales of the VasoSeal device, improved gross profit margins and
slightly higher interest income earned on investments.
Net earnings for the first nine months of fiscal 1998 were $14.5
million or $0.88 per diluted share compared to $12.6 million or $0.77
per diluted share for the first nine 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 primarily from higher U.S. sales
of the VasoSeal device and patient monitoring products, and increased
interest income earned on investments.
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LIQUIDITY AND CAPITAL RESOURCES
The Company maintained its strong financial position during the first
nine months of fiscal 1998. Working capital was $111.9 million at March
31, 1998 compared to $123.7 million at June 30, 1997, with the
reduction primarily attributable to cash used for the stock repurchase
program ($14.0M) and more funds ($9.3 million) being invested
long-term.
Cash provided by operating activities was $17.8 million in the first
nine months of fiscal 1998 compared to $2.9 million in the same period
last year. The increase in cash was primarily attributable to improved
management of inventory and the increase in net earnings in the first
nine months of fiscal 1998. The first nine months of fiscal 1997
included a $5.1 million disbursement for settlements of litigation.
In the first nine months of fiscal 1998, cash was used to purchase $5.3
million of plant and equipment and $9.3 million in long-term marketable
securities, with maturities up to 4 years. Short-term investments were
reduced $11.5 million for cash used for the stock repurchase program.
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 nine months of fiscal
1998, 570,100 shares of the Company's stock were repurchased at a cost
of $13,971,000. Since inception of the stock repurchase program, the
Company has repurchased 793,400 shares of stock at a cost of
$18,122,000 as of March 31, 1998.
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.
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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.
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DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
--------- ---------
ASSETS (unaudited) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,851 $ 2,597
Short-term investments 45,846 57,338
Accounts receivable, less allowance for doubtful
accounts of $1,062 and $922 50,726 52,240
Inventories (Note 2) 35,290 34,604
Prepaid expenses and other current assets 10,505 9,485
--------- ---------
Total Current Assets 146,218 156,264
Property, Plant and Equipment, net of accumulated
depreciation of $44,838 and $42,079 47,671 44,742
Non-Current Marketable Securities 35,170 25,902
Other Assets 12,171 10,954
--------- ---------
$ 241,230 $ 237,862
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,729 $ 6,650
Accrued expenses 13,494 15,755
Accrued compensation 7,776 9,336
Taxes on income 3,346 807
--------- ---------
Total Current Liabilities 34,345 32,548
Other Liabilities 14,082 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, 16,349,186 and 16,245,732 shares 163 162
Additional paid-in capital 45,931 44,266
Treasury stock at cost, 793,400 and 223,300 shares (18,122) (4,151)
Retained earnings 170,389 155,868
Cumulative translation adjustments (5,558) (3,902)
--------- ---------
192,803 192,243
--------- ---------
$ 241,230 $ 237,862
========= =========
</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
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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,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 177,300 $ 163,100 $ 60,300 $ 57,900
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 62,272 57,118 20,458 20,502
Research and development
expenses 22,775 20,119 7,399 6,180
Selling, general and
administrative expenses 75,120 71,017 24,851 24,139
Litigation settlement expense (Note 3) -- 8,554 -- --
--------- --------- --------- ---------
160,167 156,808 52,708 50,821
--------- --------- --------- ---------
OPERATING EARNINGS (LOSS) 17,133 6,292 7,592 7,079
Other (Income) Expense:
Interest income (3,796) (3,568) (1,235) (1,119)
Interest expense 18 14 5 6
Other, net 120 488 83 209
--------- --------- --------- ---------
(3,658) (3,066) (1,147) (904)
--------- --------- --------- ---------
EARNINGS BEFORE TAXES ON INCOME 20,791 9,358 8,739 7,983
Taxes on Income 6,270 1,855 2,534 2,233
--------- --------- --------- ---------
NET EARNINGS $ 14,521 $ 7,503 $ 6,205 $ 5,750
========= ========= ========= =========
Earnings Per Share, Basic (Note 4) $ 0.91 $ 0.47 $ 0.39 $ 0.36
========= ========= ========= =========
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Basic 15,924 16,057 15,762 16,085
========= ========= ========= =========
Earnings Per Share, Diluted (Note 4) $ 0.88 $ 0.46 $ 0.38 $ 0.35
========= ========= ========= =========
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Diluted 16,445 16,347 16,323 16,542
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
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DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 17,789 $ 2,854
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (5,322) (3,783)
Purchases of marketable securities (61,416) (71,234)
Maturities of marketable securities 63,640 73,706
-------- --------
Net cash used in investing activities (3,098) (1,311)
-------- --------
FINANCING ACTIVITIES:
Treasury shares acquired under repurchase program (13,971) (1,992)
Exercise of stock options, net 1,433 1,448
-------- --------
Net cash used in financing activities (12,538) (544)
-------- --------
Effect of exchange rates on cash (899) (530)
-------- --------
Increase in cash and cash equivalents 1,254 469
Cash and cash equivalents, beginning of period 2,597 2,574
-------- --------
Cash and cash equivalents, end of period $ 3,851 $ 3,043
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (refunded) during the period for:
Income taxes $ 3,263 $ (21)
-------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 4,974 $ 4,534
-------- --------
</TABLE>
See notes to consolidated financial statements
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DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of March 31, 1998 and 1997 and the statements
of consolidated earnings and cash flows for the three and nine month periods
ended March 31, 1998 and 1997 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 March 31, 1998 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)
-----------------------
March 31, June 30,
1998 1997
------- -------
<S> <C> <C>
Materials $12,464 $10,917
Work in Process 6,507 4,885
Finished Goods 16,319 18,802
------- -------
$35,290 $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.
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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 March 31, 1998 March 31, 1997
- ---------------------------- ----------------------------------- ---------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
- --------- ------ ------ ----- ------ ------ -----
Earnings available to
<S> <C> <C> <C> <C> <C> <C>
common shareholders $6,205 15,762 $0.39 $5,750 16,085 $0.36
Diluted EPS
Options issued to employees -- 561 -- -- 457 --
------ ------ ----- ------ ------ -----
Earnings available to
common shareholders
plus assumed conversions $6,205 16,323 $0.38 $5,750 16,542 $0.35
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------------- ------------------------------------
For Nine Months Ended March 31, 1998 March 31, 1997
- ----------------------------- ----------------------------------- ------------------------------------
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 $14,521 15,924 $0.91 $ 7,503 16,057 $0.47
Diluted EPS
Options issued to employees -- 521 -- -- 290 --
------- ------- ----- ------- ------- -----
Earnings available to
common shareholders
plus assumed conversions $14,521 16,445 $0.88 $ 7,503 16,347 $0.46
======= ======= ===== ======= ======= =====
</TABLE>
Changes in the components of stockholders' equity for the nine months ended
March 31, 1998 were as follows:
<TABLE>
<CAPTION>
(In thousands)
--------
<S> <C>
Net income $ 14,521
Translation adjustments (1,656)
Common stock and additional paid-in capital
effects of stock option activity 1,666
Purchases under stock repurchase plan (13,971)
--------
Total increase in stockholders' equity $ 560
========
</TABLE>
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Part II:
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
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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 11, 1998
Page 13
<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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,851
<SECURITIES> 45,846
<RECEIVABLES> 51,788
<ALLOWANCES> (1,062)
<INVENTORY> 35,290
<CURRENT-ASSETS> 146,218
<PP&E> 92,509
<DEPRECIATION> (44,838)
<TOTAL-ASSETS> 241,230
<CURRENT-LIABILITIES> 34,345
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 192,640
<TOTAL-LIABILITY-AND-EQUITY> 241,230
<SALES> 177,300
<TOTAL-REVENUES> 177,300
<CGS> 62,272
<TOTAL-COSTS> 62,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 20,791
<INCOME-TAX> 6,270
<INCOME-CONTINUING> 14,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,521
<EPS-PRIMARY> 0.91<F1>
<EPS-DILUTED> 0.88
<FN>
<F1>E.P.S. on this line is BASIC, not PRIMARY.
</FN>
</TABLE>
