<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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 October 30, 1998:
15,168,891.
<PAGE>
Datascope Corp. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Net Sales
Net sales in the first quarter of fiscal 1999 were 3% higher than a
year ago. Sales growth was hampered, as anticipated, because the
Company's outside supplier could not produce enough new anesthetic gas
modules (AGM) to support the market launch of the new Expert
(Trademark) high-end patient monitoring system. The AGM supplier
has since corrected its production problem so that supply is now
adequate to effectively introduce the Expert system. In addition,
sales of new monitoring products introduced in the second half
last year were offset by the decline in sales of older Visa
and Passport(Registered) monitors. As a consequence, sales of
patient monitoring products were comparable to the first
quarter last year.
Sales of cardiac assist products increased modestly despite a continued
highly competitive business climate. The Company reported excellent
customer response to its two major new products, the Profile 8 Fr.
balloon catheter and the System 98 balloon pump. Based on the highly
favorable market response thus far, the Company expects increasing
sales and margin contributions from these new products throughout
fiscal 1999.
Sales of VasoSeal(Registered) predominately in the U.S.
rose 31% above the year-ago period to a record $8.2 million,
reflecting strong sales momentum that the Company anticipates
will continue throughout fiscal 1999. During the first quarter
the Company completed a planned 50% expansion of its direct sales
and clinical specialist organization in the U.S. to meet growing
demand and increased competition. While increased spending for
expansion in advance of sales will adversely affect earnings in the
first half of fiscal 1999, the Company views the expansion as an
essential investment to meet its objectives for VasoSeal in the
dynamic arterial puncture closure market.
Sales of vascular grafts in the first quarter of fiscal 1999 declined
from the first quarter last year which included pipeline filling
shipments of the InterGard(Registered) collagen coated grafts
to the Company's distributors in the U.S. and Japan.
There was no significant impact on sales due to foreign exchange in the
first quarter compared to last year as European foreign exchange rates
were essentially unchanged.
<PAGE>
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage of 65.6% compared favorably to 64.3% for
the corresponding period last year, with the improvement primarily
attributable to cost reductions in the Patient Monitoring division and
a favorable mix of sales, partially offset by lower selling prices for
older balloon catheters and costs associated with the production
start-up of the new Profile 8 Fr. balloon catheter.
Research and Development (R&D)
R&D expenses, as a percentage of sales, amounted to 14.1% in the first
quarter of fiscal 1999 compared to 14.4% for the first quarter last
year.
Total R&D expenses were the same compared to the first quarter last
year, as the Company continued to maintain its new product development
investment in all businesses.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses, as a percentage of sales, were 46.5% in the first
quarter of fiscal 1999 compared to 45.1% for the corresponding period
last year.
SG&A expenses increased $1.4 million or 6% in the first quarter of
fiscal 1999 compared to the corresponding period last year, as a result
of the expansion of the U.S. and European VasoSeal marketing and
selling organization and the addition of sales and marketing staff in
Genisphere, partially offset by lower corporate expenses.
There was no significant impact on expenses due to foreign exchange in
the first quarter compared to last year.
Interest Income and Expense
The lower interest income was attributable to a reduction in the
investment portfolio as $11.7 million was used for the Company's common
stock repurchase program.
Other Income and Expense
The Company enters into foreign exchange forward contracts to hedge a
major portion of its foreign currency exposures, primarily related to
certain receivables denominated in foreign currencies. The hedging has
reduced the Company's exposure to fluctuations in foreign currencies.
The net foreign exchange transaction gain or loss is reported in other
income and expense. Foreign exchange forward contracts outstanding at
September 30, 1998 totaled $125 thousand, all of which were in European
currencies, with maturities that do not exceed 12 months.
Net Earnings
Net earnings in the first quarter of fiscal 1999 were $2.68 million or
$0.17 per diluted share compared to $2.67 million or $0.16 per diluted
share for the first quarter last year. The slightly higher earnings per
share resulted primarily because fewer common shares were outstanding
as a result of the Company's common stock repurchase program.
<PAGE>
Liquidity and Capital Resources
Although working capital and current ratio declined during the first
quarter of fiscal 1999, the Company maintained a strong financial position.
Working capital was $106.5 million at September 30, 1998 compared to $117.9
million at June 30, 1998 and the current ratio was 4.0:1 compared to 4.2:1.
The decreases were primarily attributable to using $11.7 million for the
Company's common stock repurchase program.
In the first quarter of fiscal 1999, cash was also used to purchase $2.2
million of plant and equipment.
In May 1996 the Company announced a stock repurchase program of up to $20
million to buy shares of its common stock from time to time subject to
market conditions and other relevant factors affecting the Company. During
the first quarter of fiscal 1999, the Company completed the May 1996
repurchase program by purchasing $1.9 million of common stock remaining
under this program. A second stock repurchase program for up to $20 million
was approved by the board of directors on August 5, 1998 and through
September 30, 1998 the Company purchased $9.8 million of stock under this
second repurchase program.
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.
Year 2000
Many currently installed computer systems, software products and
manufactured products that utilize microprocessors are coded to accept only
two-digit entries in the date code field. These date code fields will need
to accept four-digit entries to distinguish twenty-first century dates from
twentieth century dates. This is commonly referred to as the "Year 2000
issue." The Company is aware of the Year 2000 issue and during fiscal 1998
commenced a program to identify, remediate, test and develop contingency
plans for the Year 2000 issue (the "Y2K Program"), to be substantially
completed by the fall of 1999.
As of October 30, 1998, the results of the assessment being conducted under
the Y2K Program were as follows:
Computer Information Systems (Company CIS) Most of the Company CIS was
found to be Year 2000 compliant. Several minor software programs that are
not currently compliant will be modified by December 31, 1998 by the
software vendor or third party support vendor. As a contingency, if a
vendor does not modify their noncompliant software program by December 31,
1998, then the Company intends to replace the noncompliant program by July
1, 1999.
<PAGE>
Products It was determined that all currently marketed patient monitor and
intra-aortic balloon pump products are Year 2000 compliant or are not
affected because the product does not contain a date field in the software.
A small number of patient monitor products that are no longer manufactured
are not Year 2000 compliant. In these cases, the Company has plans to offer
an upgrade to any customer requiring Year 2000 compliance for their
monitor.
Third Parties The Company solicited statements of compliance from its key
outside vendors, manufacturers and suppliers with respect to their CIS and
products. Approximately 60% of these parties responded and informed the
Company that they are currently compliant or plan to be compliant by
December 31, 1999. In the event that any of these parties are unable to
certify that they will be Year 2000 compliant by early 1999, the Company
will be reviewing its alternatives with respect to other vendors,
manufacturers or suppliers (as applicable). The Company solicited
statements of compliance, from its key customers at the end of October
1998, with respect to their CIS. In the event that its key customers are
unable to certify that they will be Year 2000 compliant by early 1999, the
Company will be assessing the accounts receivable collection risk of such
key customers.
Costs The cost to modify the computer software programs used in the Company
CIS is covered by existing service agreements with the software vendors.
The assessments, testing and verification of all Company CIS and the
Company's software and manufactured products was performed by existing
staff. No significant outside resources were required. Despite the use of
internal resources for the Y2K Program, there was no significant deferral
of other Company CIS projects. The Company does not currently anticipate
that the cost of the Y2K Program will be material to its financial
condition or results of operations.
The Year 2000 issue presents far-reaching implications, some of which
cannot be anticipated with any degree of certainty. Satisfactorily
addressing the Year 2000 issue is dependent on many factors, some of which
are not completely within the Company's control, such as the availability
of certain resources, third-party remediation plans and other factors.
Based on the assessment that has been made under the Y2K Program, and other
than as stated above, the Company has no other contingency plans in the
event of any Year 2000 noncompliance and does not currently believe that
any other contingency plans are necessary. In addition, management is not
able to determine the effect of any Year 2000 noncompliance (including with
respect to a "worst-case scenario") on the Company, and there can be no
guarantee that any such noncompliance would not have an adverse effect on
the Company's CIS, products, results of operations or financial condition.
<PAGE>
Information Concerning Forward Looking Statements
This Management's Discussion includes 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, and because of the Company's dependence on its suppliers for
certain patient monitoring products. Additional risks are 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 and life
science research industries and the ability to continue to respond to such
technological changes, information provided to the Company by third parties
concerning their year 2000 readiness 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.
Quantitative and Qualitative Disclosures About Market Risk
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters
into foreign currency forward exchange contracts to hedge foreign currency
transactions (which are primarily related to certain receivables
denominated in foreign currencies) on a continuing basis for periods
consistent with its committed foreign currency exposures. The effect of
this practice is to minimize the impact of foreign exchange rate movements
on the Company's operating results. The Company's hedging activities do not
subject the Company to exchange rate risk because gains and losses on these
contracts offset losses and gains on the assets, liabilities and
transactions being hedged. The net foreign exchange transaction gain or
loss is reported in other income and expense.
As of September 30, 1998, the Company had $125 thousand of foreign exchange
forward contracts outstanding, all of which were in European currencies.
The foreign exchange forward contracts generally have maturities that do
not exceed 12 months and require the Company to exchange foreign currencies
for U.S. dollars at maturity, at rates agreed to at inception of the
contracts.
<PAGE>
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
Sept 30, June 30,
1998 1998
---------------- ----------------
Assets (unaudited) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,408 $ 3,364
Short-term investments 32,289 46,314
Accounts receivable, less allowance for doubtful
accounts of $1,165 and $1,078 50,111 55,248
Inventories (Note 2) 46,884 40,246
Prepaid expenses and other current assets 9,809 10,036
---------------- ----------------
Total Current Assets 142,501 155,208
Property, Plant and Equipment, net of accumulated
depreciation of $49,032 and $43,649 53,789 50,946
Non-Current Marketable Securities 33,241 34,371
Other Assets 13,874 12,523
---------------- ----------------
$ 243,405 $ 253,048
================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 11,258 $ 14,378
Accrued expenses 12,847 12,743
Accrued compensation 9,756 10,190
Taxes on income 2,178 -
---------------- ----------------
Total Current Liabilities 36,039 37,311
Other Liabilities 13,401 14,255
Stockholders' Equity (Notes 3, 4 and 5):
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, 16,406,177 and 16,394,387 shares 164 164
Additional paid-in capital 47,160 47,041
Treasury stock at cost, 1,363,791 and 793,400 shares (29,816) (18,122)
Retained earnings 180,190 177,509
Accumulated other comprehensive income (3,733) (5,110)
---------------- ----------------
193,965 201,482
---------------- ----------------
$ 243,405 $ 253,048
================ ================
</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Statements of Consolidated Earnings
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net Sales $ 55,700 $ 54,300
---------------- ----------------
Costs and Expenses:
Cost of sales 19,171 19,396
Research and development
expenses 7,834 7,825
Selling, general and
administrative expenses 25,908 24,499
---------------- ----------------
52,913 51,720
---------------- ----------------
Operating Earnings 2,787 2,580
Other (Income) Expense:
Interest income (1,072) (1,289)
Interest expense 6 5
Other, net (32) (4)
---------------- ----------------
(1,098) (1,288)
---------------- ----------------
Earnings Before Taxes on Income 3,885 3,868
Taxes on Income 1,204 1,199
---------------- ----------------
Net Earnings $ 2,681 $ 2,669
================ ================
Earnings Per Share, Basic (Note 4) $ 0.17 $ 0.17
================ ================
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Basic 15,417 16,029
================ ================
Earnings Per Share, Diluted (Note 4) $ 0.17 $ 0.16
================ ================
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding, Diluted 15,860 16,437
================ ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Operating Activities:
Net cash (used in) provided by operating activities $ (1,436) $ 8,674
---------------- ----------------
Investing Activities:
Capital expenditures (2,155) (1,554)
Purchases of marketable securities (5,374) (26,341)
Maturities of marketable securities 20,530 21,237
---------------- ----------------
Net cash provided by (used in) investing activities 13,001 (6,658)
---------------- ----------------
Financing Activities:
Net cash (used in) provided by financing activities (11,575) 203
---------------- ----------------
Effect of exchange rates on cash 54 (442)
---------------- ----------------
Increase in cash and cash equivalents 44 1,777
Cash and cash equivalents, beginning of period 3,364 2,597
---------------- ----------------
Cash and cash equivalents, end of period $ 3,408 $ 4,374
================ ================
Supplemental Cash Flow Information
Cash refunded during the period for:
Income taxes $ (1,018) $ (1,565)
---------------- ----------------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 2,706 $ 1,146
---------------- ----------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated balance sheet as of September 30, 1998 and the statements of
consolidated earnings and cash flows for the three month periods ended September
30, 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 Annual Report on Form 10-K for
the fiscal year ended June 30, 1998. The results of operations for the period
ended September 30, 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.
(In thousands)
--------------------------------
Sept 30, June 30,
1998 1998
-------------- ------------
Materials $ 16,915 $ 13,323
Work in Process 6,496 6,620
Finished Goods 23,473 20,303
------------ ------------
$ 46,884 $ 40,246
============ ============
3. Stockholders' Equity
Changes in the components of stockholders' equity for the three months ended
September 30, 1998 were as follows:
(In thousands)
--------------
Net income $2,681
Foreign currency translation adjustments 1,377
Common stock and additional paid-in
capital effects of stock option activity 119
Purchases under stock repurchase plans (11,694)
----------
Total decrease in stockholders' equity ($7,517)
==========
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
4. Earnings Per Share
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 statement.
The reconciliation of Basic Earnings Per Share to Diluted Earnings Per Share is
as follows:
<TABLE>
<CAPTION>
- --------------------------------- ---------------------------------------------------------------------------------
For Three Months Ended September 30, 1998 September 30, 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 $2,681 15,417 $0.17 $2,669 16,029 $0.17
Diluted EPS
- -----------
Options issued to employees - 443 - - 408 -
------------- ----------- ---------- ---------- ------------ ------------
Earnings available to
common shareholders
plus assumed conversions $2,681 15,860 $0.17 $2,669 16,437 $0.16
============= =========== ========== ========== ============ ============
</TABLE>
5. Comprehensive Income
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). This
statement requires the disclosure of comprehensive income and its components,
including net income, minimum pension liability adjustments, unrealized gains
and losses on available-for-sale securities and foreign currency translation
adjustments, in an annual financial statement displayed with the same prominence
as other annual financial statements. Interim reporting is required beginning
with the first quarter after adoption of the new standard and prior periods must
be restated.
The Company's comprehensive income for the three months ended September 30, 1998
and 1997 was as follows:
(In thousands)
--------------------------
1998 1997
---------- ----------
Net earnings $2,681 $2,669
Foreign currency translation 1,377 (614)
---------- ----------
Total comprehensive income $4,058 $2,055
========== ==========
The adoption of SFAS No. 130 had no effect on the Company's reported results of
operations or financial position.
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
6. Subsequent Event - Acquisition of Polyprobe, Inc. and Alpha-Probe, Inc.
On October 2, 1998, pursuant to merger agreements, the Company
acquired 100% of the outstanding common stock of Polyprobe, Inc.
and Alpha-Probe, Inc. Polyprobe, Inc. developed the 3DNA
technology and was funded by Datascope. The purchase price
for the acquisition of these companies was approximately $3 million, paid
through the issuance of the Company's common stock. Both acquisitions will be
accounted for using the purchase method of accounting. The excess of the
purchase price over the fair value of the net assets acquired will be allocated
to goodwill.
<PAGE>
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.
<PAGE>
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATASCOPE CORP.
Registrant
By: /s/ Lawrence Saper
-----------------------------------
Lawrence Saper
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Murray Pitkowsky
-----------------------------------
Murray Pitkowsky
Senior Vice President and
Secretary
Dated: November 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Balance Sheets and Statements of Consolidated Earnings.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,408
<SECURITIES> 32,289
<RECEIVABLES> 51,276
<ALLOWANCES> (1,165)
<INVENTORY> 46,884
<CURRENT-ASSETS> 142,501
<PP&E> 102,821
<DEPRECIATION> (49,032)
<TOTAL-ASSETS> 243,405
<CURRENT-LIABILITIES> 36,039
<BONDS> 0
0
0
<COMMON> 164
<OTHER-SE> 193,801
<TOTAL-LIABILITY-AND-EQUITY> 243,405
<SALES> 55,700
<TOTAL-REVENUES> 55,700
<CGS> 19,171
<TOTAL-COSTS> 19,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 3,885
<INCOME-TAX> 1,204
<INCOME-CONTINUING> 2,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,681
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
