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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NUMBER 0-6516
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DATASCOPE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2529596
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14 PHILIPS PARKWAY
MONTVALE, NEW JERSEY 07645
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 391-8100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
(TITLE OF CLASS)
Common Stock, par value $.01 per share
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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 at least the past 90 days.
Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K /x/.
The approximate aggregate market value of the common stock held by
non-affiliates of the registrant as of September 15, 1999 was approximately
$382 million. As of September 15, 1999, there were 14,954,227 outstanding shares
of the registrant's common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission no later than October 28, 1999 pursuant to Regulation
14A of the Securities Exchange Act of 1934 is incorporated by reference in
Items 10 through 13 of Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................................... 1
Item 2. Properties..................................................................................... 12
Item 3. Legal Proceedings.............................................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders............................................ 13
Item 4A. Executive Officers of the Company.............................................................. 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 15
Item 6. Selected Financial Data........................................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................... 24
Item 8. Financial Statements and Supplementary Data.................................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 24
Item 11. Executive Compensation......................................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 24
Item 13. Certain Relationships and Related Transactions................................................. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 25
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PART I
This Report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate," "anticipate,"
"believe," "target," "plan," "project" or "continue" or the negatives thereof or
other variations thereon or similar terminology. These statements appear in a
number of places in this Report on Form 10-K and include statements regarding
our intent, belief or current expectations that relate to, among other things,
trends affecting our financial condition or results of operations and our
business and strategies. We may make additional written or oral forward-looking
statements from time to time in filings with the Securities and Exchange
Commission or otherwise. Forward-looking statements speak only as of the date
the statement is made. Readers are cautioned that these forward-looking
statements are not a guarantee of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of many important
factors. Many of these important factors cannot be predicted or quantified and
are outside of our control, including competitive factors, changes in government
regulation, our ability to introduce new products and information provided to us
by third parties regarding their "Year 2000" compliance. The accompanying
information contained in this Report on Form 10-K, including, without
limitation, the information set forth below under Item 1 regarding the
description of our business and under Item 7 concerning "Management's Discussion
and Analysis of Financial Condition and Results of Operations," identifies
additional important factors that could cause these differences. We do not
undertake to publicly update or revise our forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied in this Report on Form 10-K will not be realized. All subsequent
written and oral forward-looking statements attributable to us or persons acting
for or on our behalf are expressly qualified in their entirety by this section.
ITEM 1. BUSINESS.
SUMMARY
Datascope Corp. is a diversified medical device company that manufactures
and markets proprietary products for clinical health care markets in
interventional cardiology and radiology, cardiovascular and vascular surgery,
anesthesiology, emergency medicine and critical care. Our products are
distributed worldwide by direct sales employees and independent distributors.
Originally organized as a New York corporation in 1964, we reincorporated in
Delaware in 1989.
Below is a summary of our four major product lines:
o CARDIAC ASSIST. We are the pioneer in intra-aortic balloon pump and
catheter technology. The intra-aortic balloon system that we manufacture
is used principally to treat cardiac shock, acute heart failure,
irregular heart-rhythms, and in open-heart surgery, pre-operative
coronary artery bypass grafting and coronary angioplasty. We believe that
our cardiac assist products are complemented by our VasoSeal wound
closure line of collagen products.
o PATIENT MONITORING. We manufacture and market a broad line of
physiological monitors designed to provide for patient safety and
management of patient care. Our monitors are capable of continuous and
simultaneous measurement of many different vital signs. These monitors
are used in operating rooms, emergency rooms, critical care units,
post-anesthesia care units and recovery rooms, intensive care units,
labor and delivery rooms and magnetic resonance imaging, or MRI units.
o COLLAGEN PRODUCTS. Our Collagen Products have revolutionized the
technology that is used to seal arterial puncture wounds to stop bleeding
after catheterization procedures. We manufacture and sell the
VasoSeal(Registered) line of extravascular hemostasis devices, which was
the first vascular sealing device to be approved in the United States.
The VasoSeal devices provide for reduced time to hemostasis of the
arterial puncture wound, reduced time to ambulation, cost savings and
increased patient satisfaction. In addition, Collagen Products
manufactures surgical hemostatic agents used to stop bleeding during
surgery.
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o VASCULAR GRAFTS. Our InterVascular subsidiary markets and sells a
proprietary line of knitted and woven polyester vascular grafts and
patches for reconstructive vascular and cardiovascular surgery. Vascular
grafts are used to replace diseased arteries.
The following table sets forth the relative contribution of our four major
product lines to total sales for the last three years:
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FISCAL YEAR ENDED JUNE
30,
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1999 1998 1997
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Cardiac Assist.................................................... 41% 42% 46%
Patient Monitoring................................................ 35% 38% 39%
Collagen Products................................................. 16% 12% 8%
Vascular Grafts................................................... 8% 8% 7%
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GLOSSARY: WE HAVE PREPARED THIS SHORT GLOSSARY TO HELP YOU UNDERSTAND OUR
PRODUCT LINES BETTER.
ANGIOGRAM is a series of X-ray visualizations of the heart and blood vessels. A
radiopaque substance, that is, a material that does not allow the passage of X
rays through it, is injected into a vein or artery, and X-ray pictures are then
taken in rapid succession. The series of pictures produced reveals the size and
shape of veins or arteries in organs and tissues. An angiogram is used as a
diagnostic tool with certain diseases; arteriosclerosis being an example.
ANGIOPLASTY is surgical reconstruction of blood vessels, usually damaged by
atherosclerosis. If the arteries in question are in the heart, a coronary bypass
operation is often recommended. However, the nonsurgical method of balloon
angioplasty is often employed, especially when only one vessel is blocked.
ARTERIOSCLEROSIS, often called "hardening of the arteries," is an arterial
disorder characterized by a progressive thickening and hardening of the walls of
the arteries. This causes a decrease in or loss of blood circulation. The most
common form of arteriosclerosis is atherosclerosis, which is characterized by
the deposition of fatty substances in large and medium-sized arteries, such as
the arteries that lead to the heart and brain. Atherosclerosis and its
complications are a major cause of death in the United States. Heart and brain
disease are often the direct result of this accumulation of fatty substances
that impair the arteries' ability to nourish vital body organs.
BALLOON ANGIOPLASTY is a nonsurgical method of clearing coronary and other
arteries, blocked by atherosclerotic plaque, fibrous and fatty deposits on the
walls of arteries. A catheter with a balloon-like tip is threaded up from the
arm or groin through the artery until it reaches the blocked area. The balloon
is then inflated, flattening the plaque and increasing the diameter of the blood
vessel opening. The arterial passage is thus widened.
HEMOSTASIS is the stopping of bleeding, either by physiological properties of
coagulation and vasoconstriction or by surgical or mechanical means.
Below is a more detailed description of our product lines:
CARDIAC ASSIST. We are the pioneer in intra-aortic balloon pumping, or
cardiac assist systems. Cardiac assist systems are used in the treatment of
cardiac shock, acute heart failure, irregular heart rhythms, and in open-heart
surgery to stabilize the patient before and after an operation, coronary artery
bypass grafting and coronary angioplasty. As part of our cardiac assist system,
we produce a line of disposable intra-aortic balloon catheters. The balloon
catheter serves as the pumping device within the patient's aorta. We introduced
the first balloon catheter capable of insertion by puncturing the skin. This
innovation eliminated the need for surgical insertion. As a result, the market
for cardiac assist products expanded from open-heart surgery to the
interventional cardiology market. We continue to advance our cardiac assist
technology and to introduce new products.
Intra-aortic balloon therapy is used to stabilize heart function in
instances of cardiac shock, before and after open-heart surgery and angioplasty
and in the management of acute heart failure. Balloon therapy increases the
heart's output and the supply of oxygen-rich blood to the heart, while reducing
the heart muscle's workload and its oxygen demand. Balloon therapy plays an
important role in supporting coronary artery bypass grafting and acute
angioplasty intervention, especially in the high-risk patient. It is also used
to
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relieve refractory unstable angina and to correct certain instances of medically
resistant irregular heart rhythms.
INTRA-AORTIC BALLOON PUMPS We manufacture and market the following intra-aortic
balloon pumps:
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PRODUCT FEATURES SIGNIFICANT DEVELOPMENTS
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System 98 o Most advanced intra-aortic balloon pump on o Distribution began in 1998 in the United
the market States and European Union
o Faster pneumatics o Approval to distribute in Japan received
o Larger display in March 1999
o Better automation
o Features make balloon pumping therapy
simpler to administer and faster to
initiate
System 97 o Compact design takes up less floor space o Worldwide distribution began in 1994
"Small than competing systems
Wonder"(Trademark) o Designed for use at bedside or in
transport
o Built-in modem allows doctors to make
remote diagnosis
System 97e o Uses CardioSync Software, which assists as o Introduced in 1997 at the European Society
many heartbeats as possible in the of Cardiology Conference
presence of complex heart rhythms o Distribution began in 1998 worldwide
o Beat-to-beat support can be optimized with
minimal user intervention
o Built-in modem
o Contains diagnostic software, which
enables us to service the unit by modem
System 96 o Incorporates many of the advanced features o Introduced in 1996 at the European Society
seen in earlier balloon pumps of Cardiology Conference
o Provides the performance and flexibility o Distribution began in 1996 outside the
hospitals expect in a variety of clinical United States
situations
o Simple and cost-effective
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INTRA-AORTIC BALLOON CATHETERS
We manufacture a broad line of disposable intra-aortic balloon catheters
for use with intra-aortic balloon pumps.
Our Profile 8 Fr. intra-aortic balloon catheter, based on a co-lumen,
rather than co-axial design is the first catheter to allow the interventional
cardiologist to move from a coronary angioplasty/stent intervention to balloon
pumping using an 8 Fr. sheath. Prior to introduction of the Profile 8 Fr., there
was not an intra-aortic balloon catheter available that was small enough to fit
through a standard 8 Fr. (2.64 mm) sheath used for the angioplasty/stent
procedure. Use of the Profile 8 Fr. is expected to reduce possible vascular
complications, and to make balloon insertion easier and more convenient.
The Profile 8 Fr. is the first true 8 Fr. intra-aortic balloon catheter,
because the folded balloon membrane diameter is the same as the diameter of
the catheter itself. As a result, the Profile 8 Fr. reduces the risk of
potential bleeding complications after insertion. The Profile 8 Fr. can also
be inserted without a sheath. Sheathless insertion reduces the cross sectional
area occupied by the catheter in the artery. This reduction results in less
obstruction to blood flow around the outside of the catheter and a potential
reduction in ischemic complications.
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The Profile 8 Fr. was:
o Introduced in European Union in January 1998
o Approved by the FDA in May 1998
o Introduced in the United States in July 1998
o Approved by Japanese authorities in March 1999
In addition we manufacture a complete line of intra-aortic balloon
catheters to accommodate balloon pumping in both the adult and pediatric
population. Catheters available for use in the pediatric patient include the
2.5cc, 5cc, 7cc, 12cc and 20cc volumes. Our 9.5 Fr. intra-aortic balloon
catheters are available in 25cc, 34cc and 40cc volumes. A 50cc volume is also
available for patients who are taller than 6 feet.
Clinical Support. We provide the following clinical and educational
services to our customers:
o 24 hour clinical support via modem
o On-site training and education for all personnel involved with patient
care
o Comprehensive educational materials for hospital staff, patient and
family
o Consultative services to help hospitals maximize the goals of IABP
therapy within the hospital network
o A comprehensive registry database to assist hospitals in tracking
outcomes of the patient receiving IABP therapy
Markets, Sales and Competition. Our cardiac assist products are sold
primarily to major hospitals with open-heart surgery and balloon angioplasty
facilities and to community hospitals with cardiac catheterization laboratories.
More recently, our cardiac assist products have been sold, to a growing degree,
to a broader range of hospitals, where intra-aortic balloon pumping is used for
temporary support to the patient's heart prior to transport to a major hospital
center where definitive procedures, such as balloon angioplasty or open heart
surgery, can be conducted. Our main competitor for cardiac assist products is
Arrow International Inc.
PATIENT MONITORING. We manufacture and market a broad line of
physiological monitors designed to provide for patient safety and management of
patient care. Our monitors are capable of continuous and simultaneous
measurement of many different vital signs. Our monitors are used in operating
rooms, emergency rooms, critical care units, post-anesthesia care units and
recovery rooms, intensive care units, labor and delivery rooms and MRI, or
magnetic resonance imaging units.
Our line of patient monitors and their significant features are as follows:
PASSPORT(REGISTERED) 5L EL
o Portable/Bedside capability with electroluminescent display.
o Battery-powered
o Offers features of a traditional bedside monitor, such as
electrocardiograms, or ECGs, non-invasive and invasive blood pressure,
temperature, respiration and pulse oximetry, or blood oxygen saturation
and CO2.
o Clinical/hospital information system interface capability
o Telemetry or hardwire communications to our VISA(Trademark) central
station
PASSPORT(REGISTERED) XG
o Same as PASSPORT(Registered) 5L EL, except has a larger and brighter
display than many competing portable monitors
o Offers Masimo SET(Registered) advanced pulse oximetry for motion
tolerance
o Offers mainstream and sidestream CO2
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o Optional complete gas analysis via Gas Module II for operating rooms and
out-patient applications
PASSPORT(REGISTERED) XG-CD
o Same as PASSPORT(Registered) XG, but offers a color display
VISA(TRADEMARK)
o Central Station Monitoring system
o Displays up to eight patients on a single monitor
o Can support both instrument and ambulatory patient telemetry
o Compatible with our EXPERT(Trademark) and PASSPORT(Registered) monitors
o Equipment may communicate via hardwire or instrument telemetry
o Patient information may be exported to hospital/clinical information
systems
o Scaleable software options tailor the system to customer requirements
VISA(TRADEMARK) II
o Central Station Monitoring system
o Displays up to eight patients on a single monitor
o Can support both instrument and ambulatory patient telemetry
o Compatible with our EXPERT(Trademark) and PASSPORT(Registered) monitors
o Network communications allows for inter-department transfers
o Optional Remote View Stations allow access to any patient on the
VISA(Trademark) II network
o Optional Paging interface alerts caregivers to alarm conditions
o Optional Vital Access provides modem access of patient information
o Patient information may be exported to hospital/clinical information
systems
o Scaleable software options tailor the system to customer requirements
ACCUTORR(REGISTERED) PLUS
o First non-invasive blood pressure monitor with an integrated patient
database that automatically records up to 100 patient measurements
o Also measures pulse oximetry, or blood oxygen saturation, and temperature
o Optional recorder module
EXPERT(TRADEMARK)
o High-end, modular patient monitor
o Compatible with our VISA central monitoring stations, in either hard wire
or telemetry mode
o Compatible with our Gas Module II gas measurement subsystem
o Integrated patient monitoring system combines modular design with
advanced monitoring features needed in operating rooms, advanced
emergency departments, intensive care and critical care units
MR MONITOR
o MRI equipment creates powerful magnetic fields that provide an unsafe
environment for ordinary patient monitors
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o Our MR monitor effectively measures vital signs of patients undergoing
MRI procedures by incorporating state-of-the-art fiberoptic technology
which is not affected by powerful magnetic fields
GAS MODULE II
o Anesthetic gas measurement subsystem
o Monitors CO2, oxygen, nitrous oxide and all 5 inhalated anesthetic gases
o Interfaces with the controls and displays of the PASSPORT(Registered) XG
monitor, for use in the growing out-patient surgery market
o Interfaces with the controls and displays of the EXPERT(Trademark)
monitor, for use in main hospital operating rooms
We manufacture and market the following sensor systems, which are designed
to be used with our patient monitors:
FLEXISENSOR(REGISTERED) PULSE OXIMETRY SENSORS AND SENSOR GUARD(REGISTERED)
BANDAGES
o Proprietary sensor system for measuring pulse oximetry, or blood oxygen
saturation
o Compatible with PASSPORT(Registered), PASSPORT(Registered) XG, and
Accutorr(Registered) Plus
o Unique semi-disposable sensors offer low cost option for pulse oximetry
SIGNIFICANT DEVELOPMENTS
In the past four years, we have expanded our patient monitoring product
line:
o Introduced Accutorr(Registered) Plus in international markets in fiscal
1996 and the U.S. market in fiscal 1998.
o Began U.S. shipments of the EXPERT(Trademark) in fiscal 1998.
o Received FDA 510(k) clearance of our MR monitor in 1997 and began U.S.
shipments in 1998.
o Began U.S. shipments of the Gas Module II in 1998.
o Added Masimo SET(Registered) SPO2 technology to the PASSPORT(Registered)
XG product line in 1998.
Markets, Sales and Competition. Our patient monitors are used in hospital
operating rooms, emergency rooms, critical care units, post-anesthesia care
units and recovery rooms, intensive care units, labor and delivery rooms and MRI
units. The EXPERT(Trademark) monitor has allowed us to compete in the estimated
$350 million United States market for high-end patient monitoring systems and
will enable primary care hospitals to utilize our patient monitoring products
for most of their needs. In addition, we estimate that the U.S. market for MRI
monitors is $30 million annually.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our patient monitoring
products. Our major competitors are Hewlett Packard, General Electric/Marquette,
Spacelabs and Datex.
COLLAGEN PRODUCTS. Our Collagen Products have revolutionized the
technology that is used to seal arterial punctures to stop bleeding after
catheterization procedures, such as balloon angioplasty, stenting and diagnostic
angiography.
We manufacture and market two main product lines: the VasoSeal
VHD(Registered) and the VasoSeal ES(Registered); both vascular hemostasis
devices, which can rapidly seal arterial punctures after procedures requiring
catheterization. We also manufacture surgical hemostatic agents that are used to
stop bleeding during surgery.
VASOSEAL VHD AND VASOSEAL ES (VASCULAR HEMOSTASIS DEVICES)
We manufacture and market the VasoSeal VHD extravascular sealing device,
which was the first device of its kind to be approved in the United States, and
a second generation sealing device, known as VasoSeal ES (Extravascular
Security). Our VasoSeal products are currently a leading choice among the
extravascular
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arterial puncture sealing devices available today. Prior to the introduction of
VasoSeal VHD in 1995, the only way to stop bleeding to seal arterial puncture
wounds after catheterization procedures was to supplement the body's natural
process of blood clot formation through the use of manual compression or
mechanical means such as a "C" clamp. The concept behind the VasoSeal device is
simple and it does not involve prolonged compression. A soft collagen plug is
placed between the puncture in the artery and the puncture wound in the skin.
Sealing is accomplished on the outside of the artery. No foreign objects remain
inside of the artery. In addition, the use of our VasoSeal products permits
immediate removal of the sheath used in certain (coronary and radiology)
procedures, rather than leaving the sheath in place for prolonged periods of
time.
The VasoSeal ES device, introduced in the European Union in 1998 and the
United States in 1999, retains the proprietary, extravascular technology of our
original VasoSeal device. However, the VasoSeal ES device features a
"one-size-fits-all" design that eliminates the need to measure skin-to-artery
distance and the hospital's need to stock multiple sizes of the device. These
features are made possible by a unique locator that provides an easier method
for locating the arterial puncture site. VasoSeal ES is also the first vascular
sealing device to have been approved by the FDA for use in patients with
peripheral vascular disease, which represents a significant portion of the total
patient population undergoing catherization procedures.
ADVANTAGES OF VASOSEAL
Using our VasoSeal devices has the following advantages:
o Reduces time to ambulation. Patients can be ambulated much faster,
compared to conventional manual or mechanical compression. We believe
faster ambulation should result in significant potential savings for
hospitals because patients can be moved to lower, less expensive levels
of care.
o Early ambulation lowers the use of human and material resources, which
results in improved hospital efficiencies.
o Allows the majority of diagnostic angiography patients to be ambulated
safely within 1 hour after the procedure, compared with 4 to 6 hours
under standard clinical practice.
o Provides increased comfort and satisfaction for patients.
o Frees up valuable recovery room beds.
o Only device approved for use on patients diagnosed with peripheral
vascular disease.
o Eliminates the need for uncomfortable pressure devices, sand bags and
manual pressure holds.
o Results in improved patient management within hospitals.
o Can be deployed by healthcare professionals other than physicians (nurses
and technicians).
CLINICAL EDUCATION AND SUPPORT
We offer health care providers the following services in connection with
their use of our VasoSeal devices:
o On-site training and education of all personnel involved with patient
care
o 24 hour clinical support
o Comprehensive educational materials for the staff and patient
o Consultative services to help facilities identify and maximize the goals
and objectives of vascular sealing
SIGNIFICANT DEVELOPMENTS
Since 1993 we have achieved the following regulatory and marketing
milestones in connection with our VasoSeal product line:
o Pre-Market Approval (PMA) Application for the VasoSeal device approved by
the FDA in September 1995
o During calendar years 1993 through 1995, we received regulatory approvals
to market the VasoSeal device in Canada, Australia, Italy, Spain and The
Netherlands
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o In 1994, we received regulatory approval to market the VasoSeal device in
Japan
o We received the "CE" mark for the VasoSeal device in 1997 and the
VasoSeal ES device in 1998, which permits us to sell our VasoSeal product
line throughout the European Union
o In 1998, we began marketing the VasoSeal device in Germany, France and
the United Kingdom
o The VasoSeal ES device was approved by the FDA in December 1998
o U.S. shipments of the VasoSeal ES device began in August 1999
The VasoSeal VHD device has received the following additional approvals
from the FDA:
o In August, 1996 for early ambulation in diagnostic angiography and
delayed sheath pull for interventional patients.
o In December 1996 for use of VasoSeal in radiology procedures.
o In April 1997 for use after stent implantation.
o In September 1997 for deployment of VasoSeal by nurses and technicians.
Markets, Sales and Competition. Our VasoSeal line of products is sold to
both interventional cardiology and radiology labs, both in hospitals and
independent diagnostic facilities.
We believe that our VasoSeal products have created an entirely new market
for improved sealing and management of femoral arterial puncture wounds made
during catheterization procedures. In addition, our VasoSeal products can also
be used following stent implantation. Stents, which are devices that support the
arterial wall, are implanted in approximately 60% to 70% of coronary and
peripheral balloon angioplasty procedures.
In 1999, according to industry estimates, interventional cardiologists and
radiologists in the United States will perform approximately 3,500,000
diagnostic angiography procedures, and 835,000 balloon angioplasty/stent
procedures. Based on currently approved indications for use, the above
procedures represent the potential market for our VasoSeal products in the
United States and are growing at an estimated annual 10% rate for balloon
angioplasty and 5% rate for diagnostic angiography.
In addition to the competitive advantages discussed above, we believe that
the increased ease-of-use of our VasoSeal ES device, as well as its unique
approval for use in patients with peripheral vascular disease, will strengthen
our competitive position.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with the VasoSeal and VasoSeal ES
devices. Our major competitors are Perclose, Inc. (to be acquired by Abbott
Laboratories), St. Jude Medical and Vascular Solutions, Inc. Other competitive
products are in development and may be introduced in the near future.
VASCULAR GRAFTS. Our InterVascular subsidiary manufactures and distributes
a proprietary line of knitted and woven polyester vascular grafts and patches
for reconstructive vascular and cardiovascular surgery. Vascular grafts are used
to replace diseased arteries.
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Our vascular graft products and their significant features are:
INTERGARD(TRADEMARK) KNITTED PRODUCTS
o Collagen-coated graft for use in most vascular applications including
patches for carotid arteries.
INTERGARD(TRADEMARK) WOVEN PRODUCTS
o Designed primarily for use in open-heart surgery
INTERGARD SILVER(TRADEMARK)
o World's first anti-microbial graft
o Designed to prevent post-operative infection of the graft, which occurs
in between 2% and 5% of cases, by using the broad spectrum,
anti-infective properties of silver, which are released from the
surface of the graft and onto surrounding tissues following implantation
o Prosthetic graft infections are associated with high morbidity,
including amputation and high mortality
o Infection typically lengthens the hospital stay of a patient by up to 50
days, which usually results in a significant increase in cost
ULTRA THIN(TRADEMARK)
o Designed specifically for use in the replacement of peripheral arteries
and includes products with a heparin bonding to reduce thrombogenicity
and improve patency.
SIGNIFICANT DEVELOPMENTS
In the last few years, we have expanded our vascular graft product line:
o Approval of InterGard(Trademark) in both the U.S. and Japan in fiscal
year 1998
o InterGard(Trademark) Woven Products were introduced in the United States
during fiscal year 1999
o InterGard Silver(Trademark) received the CE mark in April 1999, for
commercial sale throughout the European Union
o UltraThin(Trademark) was introduced in the United States during fiscal
year 1999
Markets, Sales and Competition. Our vascular graft products are sold to
vascular and cardio-thoracic surgeons. Products are distributed exclusively in
the United States by Impra, a division of C.R. Bard, Inc.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our vascular graft products.
Our major competitors are Boston Scientific, Vascutek, Gore and C.R. Bard.
LIFE SCIENCE RESEARCH PRODUCTS. In 1998, we entered the life science
research market by forming a new subsidiary, Genisphere Inc. Genisphere has
developed reagents based on a new, proprietary class of DNA molecules known as
3DNA(Trademark), or Three Dimensional Nucleic Acid. A reagent is a substance
that is used to produce a chemical reaction so as to detect and measure other
substances. Our 3DNA(Trademark)-based reagents have been shown to increase the
sensitivity of nucleic acid detection and may also provide substantially greater
sensitivity for the detection of proteins than was previously possible using
conventional assays. We are focusing on developing 3DNA(Trademark)-based
products to improve the performance of newly-developing technologies for drug
discovery used by the pharmaceutical and biotechnology industries. In this new
target market, use of new research technologies occurs much faster and potential
customers are more highly concentrated and easier to reach, when compared to the
academic research market, which was our initial target market. Our first
products aimed at the drug discovery market are fluorescent probes designed to
improve the detection sensitivity and reliability of microarrays, a new research
tool whose use is growing rapidly. Based on our new market entry
9
<PAGE>
strategy, our life science research products will be primarily targeted at the
research and development department of pharmaceutical and biotechnology
companies. Because our new market entry strategy does not contemplate near-term
sales until our fluorescent probe products are launched, we suspended production
of our 3DNA(Trademark) reagent and we are using our existing inventory. A number
of companies, some of which are substantially larger than us, manufacture and
market products that compete with our life science research products. Our major
competitors include Amersham Pharmacia Biotech and Roche Molecular Biochemicals.
RESEARCH AND DEVELOPMENT
We invested approximately $29.0 million in 1999, $30.1 million in 1998 and
$26.8 million in 1997 on research and development of new products and the
improvement of our existing products. We have established relationships with
several teaching hospitals for the purpose of clinically evaluating our new
products. We also have consulting arrangements with physicians and scientists in
the areas of research, product development and clinical evaluation.
MARKETING AND SALES ORGANIZATION
Our products are sold throughout the world through our own direct sales
organization and through independent distributors. Our worldwide sales
organization employs approximately 300 people, and consists of sales
representatives, sales managers, clinical education specialists and sales
support personnel. We have a worldwide clinical education staff, most of whom
are critical care and catheterization lab nurses. They conduct seminars and
provide in-service training to nurses and physicians on a continuing basis.
We provide service and maintenance to purchasers of our products under
warranty. After the warranty expires, we provide service and maintenance on a
contract basis. We employ service representatives in the United States and
Europe, and maintain service facilities in the United States, The Netherlands,
France, Germany and the United Kingdom. We conduct regional service seminars
throughout the United States for our customers and their biomedical engineers
and service technicians.
International sales as a percentage of our total sales were 28% in 1999,
29% in 1998 and 31% in 1997. We are continuing to expand our international
presence. We have subsidiaries in the United Kingdom, France, Germany, Italy,
Belgium and The Netherlands. Because a portion of our international sales are
made in foreign currencies, we bear the risk of adverse changes in exchange
rates for such sales. Please see Notes 1, 2 and 8 to the Financial Statements
for additional information with respect to our international operations and
foreign currency exposures. Our sales are broadly based and no customer accounts
for more than 10% of our total sales.
COMPETITION
We believe that customers, primarily hospitals and other medical
institutions, choose among competing products on the basis of product
performance, features, price and service. In general, we believe price has
become an important factor in hospital purchasing decisions because of pressure
to cut costs. These pressures on hospitals result from Federal and State
regulations that limit reimbursement for services provided to Medicare and
Medicaid patients. Many companies, some of which are substantially larger than
us, are engaged in manufacturing competing products. We have identified our
major competitors in the above sections which described our product lines.
SUPPLIERS
Our products are made of components which we manufacture or which are
usually available from existing and alternate sources of supply. We purchase
certain components from single or preferred sources of supply. Recently, we have
become more dependent on the use of original equipment manufacturers to supply
certain patient monitoring products such as the EXPERT(Trademark) monitor, the
Gas Module II and the MR monitor. Our use of single or preferred sources of
supply increases our exposure to price increases and production delays. In
addition, certain of our suppliers have been contemplating, and in a few cases
have begun, reducing or eliminating sales of their products to medical device
manufacturers like us. We are not able to predict whether or not additional
suppliers will withhold their products from medical device manufacturers,
including us. To date, we have not experienced any material disruption or delay
in processing our components.
10
<PAGE>
PATENTS
We hold a number of United States and foreign patents. In addition, we also
have filed a number of patent applications that are currently pending. We do not
believe the expiration or invalidity of any of our patents would have a material
adverse effect on our business as currently conducted.
EMPLOYEES
We currently employ approximately 1,200 people. We believe our relationship
with our employees is good.
REGULATION
Our medical devices are subject to regulation by the FDA. In some cases,
they are also subject to regulation by state and foreign governments. The
Medical Device Amendment of 1976 and the Safe Medical Device Act of 1990, which
are amendments to the Federal Food, Drug and Cosmetics Act of 1938, require
manufacturers of medical devices to comply with certain controls that regulate
the composition, labeling, testing, manufacturing and distribution of medical
devices. FDA regulations known as "Current Good Manufacturing Practices for
Medical Devices" provide standards for the design, manufacture, packages,
labels, storage, installation and service of medical devices. Our manufacturing
and assembling facilities are subject to routine FDA inspections. The FDA can
also conduct investigations and evaluations of our products at its own
initiative or in response to customer complaints or reports of malfunctions. The
FDA also has the authority to require manufacturers to recall or correct
marketed products which it believes do not comply with the requirements of these
laws.
Under the Act, all medical devices are classified as Class I, Class II, or
Class III devices. In addition to the above requirements, Class II devices must
comply with pre-market notification, or 510(k), regulations and with performance
standards or special controls established by the FDA. Subject to certain
exceptions, a Class III device must receive pre-market approval from the FDA
before it can be commercially distributed in the United States. Our principal
products are designated as Class II and Class III devices.
We also receive inquiries from the FDA and other agencies. Sometimes, we
may disagree with positions of members of the staffs of those agencies. To date,
the resolutions of such disagreements with the staffs of the FDA and other
agencies have not resulted in material cost to us.
We are also subject to certain federal, state and local environmental
regulations. The cost of complying with these regulations has not been, and we
do not expect them to be, material to our operations.
HEALTH CARE REFORM
We believe that concerns about potential health care reform legislation
have slowed the domestic sales of medical devices generally. Our management
cannot predict at this time what impact, if any, the adoption by the United
States Congress of health care reform legislation would have on our business.
11
<PAGE>
ITEM 2. PROPERTIES.
The following table contains information concerning our real property that
we own or lease and which we consider important to our business:
<TABLE>
<CAPTION>
OWNERSHIP OR
EXPIRATION
LOCATION GENERAL CHARACTER AND USE OF PROPERTY DATE OF LEASE
- ----------------------------------- --------------------------------------------------- ------------------------
<S> <C> <C>
Montvale, New Jersey............... 38,000 sq. feet, used as our corporate headquarters Owned
and as offices for Collagen Products.
Oakland, New Jersey................ 42,000 sq. feet, used for warehousing and Owned
distribution of Cardiac Assist and Collagen
Products and corporate records storage.
Paramus, New Jersey................ 35,600 sq. feet, used for administrative offices October 31, 2000
for the Patient Monitoring organization.
Paramus, New Jersey................ 72,700 sq. feet, used for research and development October 31, 2000
and the manufacture of Patient Monitoring products
and Cardiac Assist balloon pump systems.
Fairfield, New Jersey.............. 75,000 sq. feet, used for administrative offices Owned
for the Cardiac Assist product line and in the
manufacture of intra-aortic balloons.
Clearwater, Florida................ 12,000 sq. feet, used by InterVascular for offices Leased until
and in the manufacture of vascular grafts. October 31, 2000 with an
option to purchase
La Ciotat, France.................. 30,000 sq. feet, used by InterVascular for the Part Owned, (18,000 sq.
production of vascular grafts. feet) and Part Leased
(12,000 sq. feet) until
May 30, 2007
Vaals, The Netherlands............. 17,500 sq. feet, used in the manufacture of, and Owned
for research and development relating to, collagen
products.
Hoevelaken, The Netherlands........ 12,700 sq. feet, used for administrative offices Owned
and a European central warehouse.
</TABLE>
We also lease office space in the United States, England, France, Italy,
Belgium and Germany. We believe that our facilities and equipment are in good
working condition and are adequate for our needs.
ITEM 3. LEGAL PROCEEDINGS.
On December 22, 1981, we instituted patent infringement litigation relating
to an intra-aortic balloon catheter against SMEC, Inc. ("SMEC") in the United
States District Court for the District of New Jersey, (the "Court"). The Court
rendered a decision on September 24, 1984 that one of our patents for the
percutaneous intra-aortic balloon catheter is valid and was infringed by SMEC.
Certain claims of a second patent for the intra-aortic balloon catheter system
were held to be invalid. After the United States Court of Appeals for the
Federal Circuit upheld the lower court's decision, a separate trial was held on
the amount to which we were entitled as damages from SMEC, and damages were
awarded to us.
In August 1990, SMEC filed for protection under Chapter 11 of the Federal
Bankruptcy Code. In that bankruptcy proceeding, at our request, a trustee was
appointed for SMEC so that the debtor, SMEC, would no longer be in possession of
its assets. The trustee then filed an action in the Tennessee Bankruptcy Court
against Peter Schiff, principal stockholder and officer of SMEC, to recover from
him assets belonging to SMEC. The
12
<PAGE>
bankruptcy proceeding was thereafter converted to a case under Chapter 7. In
July 1991, we and the SMEC trustee initiated litigation in State Court in
Massachusetts against Boston Scientific Corporation and IABP Corp. for the
wrongful acquisition of SMEC assets.
We settled the Massachusetts action in the fourth quarter of fiscal 1993.
In addition, in the fourth quarter of fiscal 1993, the trustee settled the
Massachusetts action and the trustee's settlement was approved by the Bankruptcy
Court in Tennessee. In connection with the settlement by the trustee, Boston
Scientific Corporation and IABP Corp. made a payment to the trustee for the
benefit of the bankruptcy estate of SMEC.
A complaint was filed on June 7, 1995 by the Trustee in Bankruptcy for SMEC
in the United States Bankruptcy Court for the Middle District of Tennessee,
which sought a judgment against us, Boston Scientific Corporation and IABP Corp.
for actual damages in the amount of $6 million. The suit also sought recovery of
treble damages, punitive damages, pre and post judgment interest and attorney
fees. The suit accused us and Boston Scientific Corporation of entering into an
elaborate scheme to defraud the trustee in the SMEC bankruptcy case and sought
recovery under theories of breach of fiduciary duty, fraud conversion, RICO, and
an impermissible postpetition transfer of property by the bankruptcy estate. In
effect, the suit was a collateral attack on the order of dismissal entered in
the Massachusetts case. We denied the Trustee's charges.
We participated in a mediation session in September 1998. The mediation
session resulted in an agreement in principle, (i) to settle all pending
matters, (ii) to give mutual releases and, (iii) to pay us $200,000. From
September 1998 until July 1999, the parties were in negotiations concerning
definitive settlement documents. The parties executed definitive settlement
documents in July 1999, but the Bankruptcy Court does have to approve the
settlement. At this time, we believe that the settlement will be approved.
However, the settlement is not final and binding on the parties until the
approval is obtained. We anticipate that it will take several months before an
order is entered by the Bankruptcy Court approving the settlement and the
$200,000 is paid to us.
We are subject, in the ordinary course of our business, to product
liability litigation. We believe we have meritorious defenses in all material
pending lawsuits. We also believe that we maintain adequate insurance against
any potential liability. We receive comments and recommendations with respect to
our products from the staff of the FDA and from other agencies on an on-going
basis. We may or may not agree with these comments and recommendations. However,
we are not a party to any formal regulatory administrative proceedings.
On July 21, 1999, we instituted patent infringement litigation relating to
a vascular sealing method against Vascular Solutions, Inc. ("Vascular
Solutions") in the United Stated District Court, District of Minnesota. In that
litigation, our complaint alleges that the manufacture, use and/or sale of
Vascular Solutions' Duett device, infringes our United States Patent 5,725,498.
We seek relief in the form of a preliminary and permanent injunction against the
marketing and/or sale of Vascular Solutions' Duett device.
In response to our complaint, Vascular Solutions filed an answer and
counterclaim. Their answer generally denied the allegations of our complaint and
their counterclaim claimed that we tortiously interfered and unfairly competed
by filing the complaint which impacted upon their ability to raise capital
through an initial public offering.
We believe that we will be successful in prosecuting our complaint and
defending against Vascular Solutions' counterclaim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of fiscal 1999.
13
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth the names, ages, positions and offices of
our executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES PRESENTLY HELD
- ---- --- ----------------------------------------------------------
<S> <C> <C>
Lawrence Saper................ 71 Chairman of the Board and CEO
Murray Pitkowsky.............. 68 Senior Vice President and Secretary
Leonard S. Goodman............ 55 Vice President, Treasurer and CFO
Nicholas E. Barker............ 41 Vice President, Corporate Design
James Cooper.................. 48 Vice President, Human Resources
John Gilbert.................. 42 Vice President; President, Collagen Products
Timothy J. Haines............. 42 Vice President; President, InterVascular, Inc.
Stanton Rowe.................. 48 Vice President, Business Development
Donald Southard............... 53 Vice President; President, Patient Monitoring
Paul J. Southworth............ 55 Vice President; President, Cardiac Assist
S. Arieh Zak.................. 38 Vice President, Regulatory Affairs and Corporate Counsel
</TABLE>
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
Our common stock is traded over-the-counter and is listed on The Nasdaq
Stock Market. Our Nasdaq symbol is DSCP. The following table sets forth, for
each quarter period during the last two fiscal years, the high and low sale
prices as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ------------------------------------------------------------------------------------------- ---- ---
<S> <C> <C>
1998
First Quarter.............................................................................. 24 3/4 19
Second Quarter............................................................................. 28 1/2 21 1/4
Third Quarter.............................................................................. 26 7/8 22
Fourth Quarter............................................................................. 30 1/2 25 1/4
1999
First Quarter.............................................................................. 26 3/4 18 3/4
Second Quarter............................................................................. 25 3/8 16
Third Quarter.............................................................................. 30 19 1/8
Fourth Quarter............................................................................. 33 1/2 24
</TABLE>
As of September 15, 1999, there were approximately 783 holders of record of
our common stock.
DIVIDEND POLICY
Since our Company was founded we have not paid cash dividends to our
shareholders. We have historically retained our earnings for facility expansion,
R&D, and working capital investments. Our dividend policy is reviewed
periodically.
RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data for Datascope as of
the dates and for the periods indicated. The data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto on pages F-2
to F-24.
15
<PAGE>
SELECTED FINANCIAL INFORMATION
EARNINGS STATEMENT DATA:
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $269,100 $242,400 $225,600 $211,300 $195,700
-------- -------- -------- -------- --------
Cost of sales........................................ 103,776 93,596 89,795 84,215 79,551
Cost of sales, point of view charge.................. -- -- -- 9,600 --
Research and development............................. 28,994 30,109 26,815 24,275 19,400
Selling, general and administrative.................. 105,847 93,740 86,962 80,493 74,204
Special Items........................................ 3,429 -- 8,554 (10,691) --
-------- -------- -------- -------- --------
242,046 217,445 212,126 187,892 173,155
-------- -------- -------- -------- --------
Operating earnings................................... 27,054 24,955 13,474 23,408 22,545
Other (income) expense:
Interest income.................................... (3,342) (4,972) (4,744) (4,226) (2,855)
Interest expense................................... 29 25 18 50 55
Other, net......................................... 583 187 380 743 366
-------- -------- -------- -------- --------
(2,730) (4,760) (4,346) (3,433) (2,434)
-------- -------- -------- -------- --------
Earnings before taxes on income...................... 29,784 29,715 17,820 26,841 24,979
Taxes on income...................................... 8,372 8,074 3,716 6,424 7,640
-------- -------- -------- -------- --------
Net earnings......................................... $ 21,412 $ 21,641 $ 14,104 $ 20,417 $ 17,339
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share, Basic............................ $ 1.40 $ 1.37 $ 0.88 $ 1.27 $ 1.08
-------- -------- -------- -------- --------
Earnings per share, Diluted.......................... $ 1.36 $ 1.32 $ 0.86 $ 1.24 $ 1.07
-------- -------- -------- -------- --------
</TABLE>
BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets......................................... $269,494 $253,048 $237,862 $234,464 $206,863
Long-term debt....................................... -- -- -- -- --
Working capital...................................... 125,421 115,968 121,575 119,588 108,756
Stockholders' equity................................. 214,455 201,482 192,243 181,680 163,319
Cash Dividends....................................... -- -- -- -- --
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table shows the comparison of net earnings and earnings per
diluted share over the past three fiscal years.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS,
EXCEPT EPS)
---------------------------
YEAR ENDED JUNE 30,
---------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Earnings................................................... $21.4 $21.6 $14.1
Earnings per share, diluted.................................... $1.36 $1.32 $0.86
Net Earnings, excluding restructuring charges and special items
(1).......................................................... $23.6 $21.6 $19.2
Earnings per share, diluted.................................... $1.50 $1.32 $1.17
</TABLE>
- ------------------
(1) Restructuring charges in fiscal 1999 were $2.17 million or $0.14 per diluted
share. Special items in fiscal 1997 were $3.3 million or $0.20 per diluted
share for settlement of a shareholder class action lawsuit and $1.8 million
or $0.11 per diluted share for settlement of the Quinton patent infringement
lawsuit.
COMPARISON OF RESULTS -- FISCAL 1999 VS. FISCAL 1998
SALES
The following table shows sales by product line over the past three fiscal
years.
<TABLE>
<CAPTION>
SALES BY PRODUCT LINE
(DOLLARS IN MILLIONS)
YEAR ENDED JUNE 30,
------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cardiac Assist............................................. $110.6 $102.9 $103.0
% change from prior year................................. 8% 0% (4)%
% of total sales......................................... 41% 42% 46 %
Patient Monitoring......................................... $ 95.0 $ 91.5 $ 87.8
% change from prior year................................. 4% 4% 13 %
% of total sales......................................... 35% 38% 39 %
Collagen Products.......................................... $ 42.9 $ 29.1 $ 18.9
% change from prior year................................. 47% 54% 131 %
% of total sales......................................... 16% 12% 8 %
Vascular Grafts............................................ $ 20.6 $ 18.9 $ 15.9
% change from prior year................................. 9% 19% (11)%
% of total sales......................................... 8% 8% 7 %
Total Sales................................................ $269.1 $242.4 $225.6
% change from prior year................................. 11% 7% 7 %
</TABLE>
Cardiac Assist
Sales of Cardiac Assist products in fiscal 1999 increased 8% above last
year to $110.6 million, a reversal of the negative or substantially flat
comparisons of the previous two years. Renewed sales growth is attributed to
worldwide customer response to our two major new Cardiac Assist products: the
Profile 8 Fr. intra-aortic balloon introduced in the fourth quarter of fiscal
1998 and the System 98 balloon pump introduced in the first quarter of fiscal
1999. Sales in the United States increased 8% over fiscal 1998 as the business
expanded its market share in each of the last three quarters of fiscal 1999.
International sales grew 6% over fiscal 1998 primarily attributable to increased
sales to the European direct markets.
Patient Monitoring
Sales of Patient Monitoring products increased 4% above last year to
$95.0 million. The increase was produced by higher sales of Visa Central Station
monitors and of several new patient monitoring products introduced in fiscal
1998 including the Expert(Trademark) and Accutorr(Registered)Plus. While sales
of Passport monitors declined
17
<PAGE>
for the year because of lower sales during the first nine months, Passport
shipments increased in the fourth quarter approximately 22% (both units and
dollar sales) driven, in part, by Year 2000 compliance programs. Datascope
expects Patient Monitoring sales to continue to increase in fiscal 2000 as a
result of higher international shipments and the launch of additional new
products in the second half of the year.
Collagen Products
Sales of VasoSeal devices rose 49% in fiscal 1999 to a record $42.3 million
reflecting:
o vigorous growth of the arterial puncture sealing market
o excellent clinical performance of the VasoSeal(Registered)VHD product
o expansion of the direct sales and clinical support organization in the
United States.
VasoSeal(Registered)ES, our second generation product, is being launched in
the first quarter of fiscal 2000 and is expected to complement the VHD product
and strengthen VasoSeal's competitive position. Sales of hemostats were not
significant.
Vascular Grafts
Sales of InterVascular, Inc.'s vascular grafts in fiscal 1999 increased 9%
to $20.6 million. In the second half of the year, sales increased approximately
22% over the comparable six month period last year, driven by sales of new
products, including the Heparin coated graft, the improved woven graft and the
InterGard(Registered) Silver, the world's first anti-microbial vascular graft
which was launched in Europe during the fourth quarter. In addition, higher
sales in fiscal 1999 benefitted from shipments to InterVascular's U.S.
distributor, which more than doubled compared to last year.
The foreign exchange rate effect of the weaker U.S. dollar compared to
major European currencies increased total sales by approximately $0.3 million in
fiscal 1999 compared to fiscal 1998.
Genisphere (Life Science Research Products)
There were no sales of Genisphere products in fiscal 1999 and 1998.
Spending for the development of the Genisphere business is being reduced
from $2.8 million in fiscal 1999 to approximately $1 million in fiscal 2000.
This action followed our decision to revise the market entry strategy for
Genisphere's proprietary 3DNA technology based on the following conclusions:
o Our attempt to capture a significant share of the academic research
market for Southern and Northern blots, as originally planned,
would be too costly and time-consuming.
o Instead, we are now focusing on developing 3DNA-based products to improve
the performance of newly-developing technologies for drug discovery used
by the pharmaceutical and biotech industries. In this market, use of new
research technologies occurs much faster and potential customers are more
highly concentrated and easier to reach.
o The first Genisphere products aimed at the drug discovery market are
fluorescent probes designed to improve the detection sensitivity and
reliability of microarrays. This is a new research tool whose use is
growing rapidly.
o Because the new market entry strategy does not contemplate near-term
sales until the fluorescent probe products are launched, we suspended
manufacturing of our 3DNA reagent and we are using our existing
inventory.
COSTS AND EXPENSES
Cost of Sales as a percentage of sales remained unchanged at 38.6% in
fiscal 1999. The favorable effect of increased sales volume of higher margin
products and increased average selling prices for VasoSeal were offset by lower
average selling prices for older patient monitoring and cardiac assist products.
(See below "Reclassification.")
Research and development (R&D) expenses declined 4% in fiscal 1999 compared
to fiscal 1998 because of lower development expenses in the Cardiac Assist and
Patient Monitoring product lines, partially offset by increased expenses for the
development of second and third generation VasoSeal products. As a percentage of
sales R&D expenses were 10.8% in fiscal 1999 compared to 12.4% in fiscal 1998.
18
<PAGE>
Selling, general and administrative expenses (SG&A) increased 13% in fiscal
1999 compared to last year primarily as a result of the expansion of the U.S.
VasoSeal selling and clinical organization, filling open sales and clinical
positions in the patient monitoring and cardiac assist sales forces and higher
corporate expenses. As a percentage of sales, SG&A expenses were 39.3% in fiscal
1999 compared to 38.7% in fiscal 1998. (See below "Reclassification.")
The weakening of the U.S. dollar compared to major European currencies
increased SG&A expenses by approximately $0.3 million in fiscal 1999 compared to
fiscal 1998.
RECLASSIFICATION
Beginning fiscal 1999, certain service expenses directly related to revenue
producing activities and warranty were reclassified from SG&A to Cost of Sales.
The reclassification resulted in a better matching of revenue and expenses and
had no impact on reported net earnings, earnings per share or stockholders'
equity. Amounts reported for prior years have been reclassified to conform to
the 1999 presentation. Service expenses reclassified from SG&A to Cost of Sales
were $9.7 million for 1999, $9.2 million for 1998 and $9.2 million for 1997. The
effect of this reclassification was to reduce gross margin by approximately 4
percentage points in each year and reduce SG&A as a percent of sales by a
comparable amount.
RESTRUCTURING CHARGE
In the third and fourth quarters of fiscal 1999, we recorded pre-tax
restructuring charges totaling $3.43 million, or $0.14 per share, related to
cost reduction programs. The pre-tax restructuring charge recorded in the third
quarter was $864 thousand or $0.04 per share and the restructuring charge
recorded in the fourth quarter was $2.57 million or $0.10 per share. The
restructuring charges consist of the following:
o Lease termination costs and asset writedowns related to the closing of
InterVascular's Clearwater, Florida leased manufacturing facility ($880
thousand). The knitting and weaving operations currently housed in the
Clearwater facility will be moved to InterVascular's expanded
manufacturing facility in La Ciotat, France in the second quarter of
fiscal 2001.
o Employee severance expenses related to workforce reductions and the
closing of the Company's Clearwater, Florida facility ($1.67 million).
Approximately 70% of the 80 terminated employees left the Company by
June 30, 1999. The balance of the employees received notification prior
to year-end and will be leaving over the next 15 months.
o Writedown of certain Genisphere fixed assets based on our revised market
entry strategy for the proprietary 3DNA technology ($875 thousand).
INTEREST INCOME
Interest income was $3.3 million in fiscal 1999 compared to $5.0 million in
fiscal 1998. The 33% lower interest income in fiscal 1999 compared to fiscal
1998 was attributable to a $21.8 million decrease in the average investment
portfolio and a decline in the average yield to 5.2% from 5.5%. The decline in
the average investment portfolio was caused primarily by:
o cash used for stock repurchase programs ($11.5 million)
o increased capital expenditures ($6.1 million), primarily attributable to
$7.2 million for the new Patient Monitoring facility in Mahwah, New
Jersey.
o increased inventory to support new products ($4.4 million).
INCOME TAXES
The consolidated effective tax rate for fiscal 1999 was 28.1% compared to
27.2% for fiscal 1998. The tax rate in both years was lower than the federal
statutory tax rate primarily as a result of:
o the tax benefit from the Foreign Sales Corporation
o earnings in an international tax exempt industrial zone
o interest income exempt from federal income tax.
19
<PAGE>
The higher tax rate in fiscal 1999 compared to last year was due mainly to
the impact of higher earnings taxed at higher statutory tax rates and a lower
R&D tax credit resulting from reduced R&D spending.
We operate a manufacturing subsidiary in an industrial development zone in
Europe. Profits from those manufacturing activities are exempt from corporation
taxes until December 31, 1999. Alternative tax planning strategies are being
implemented to reduce the impact from the loss of this tax exemption.
NET EARNINGS
Excluding pre-tax restructuring charges of $3.4 million ($2.6 million
after-tax), net earnings in fiscal 1999 increased 9% compared to last year,
driven by the strong sales growth in all product lines.
FOREIGN CURRENCY
Due to the global nature of our operations, we are subject to the exposures
that arise from foreign exchange rate fluctuations. Our objective in managing
our exposure to foreign currency fluctuations is to minimize net earnings
volatility associated with foreign exchange rate changes. We enter into foreign
currency forward exchange contracts to hedge foreign currency transactions which
are primarily related to certain receivables denominated in foreign currencies.
Our hedging activities do not subject us to exchange rate risk because gains and
losses on these contracts offset losses and gains on the assets, liabilities and
transactions being hedged. A portion of the net foreign transaction gain or loss
is reported in our statement of consolidated earnings in cost of sales and the
balance in other income and expense. We do not use derivative financial
instruments for trading purposes.
As of June 30, 1999, we had $4.5 million 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 us to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to when the contract is signed.
COMPARISON OF RESULTS -- FISCAL 1998 VS. FISCAL 1997
SALES
Cardiac Assist
Cardiac Assist product sales were essentially unchanged in fiscal 1998
reflecting the highly competitive climate that has characterized the worldwide
intra-aortic balloon pumping business. Lower selling prices were offset by
increased sales of balloons and intra-aortic balloon pumps, including the new
System 97e. With the introduction of two new products, the Profile 8 Fr. balloon
catheter in the fourth quarter of fiscal 1998 and the System 98 balloon pump in
the first quarter of fiscal 1999, the Company expects to strengthen its
competitive position in the balloon pumping market in fiscal 1999.
Patient Monitoring
Sales of Patient Monitoring products increased in fiscal 1998, reflecting
increased sales of Visa(Trademark) Central Station monitors and shipments of the
following new products introduced during the fiscal year: the Expert(Trademark)
high end monitoring system, the Accutorr(Registered) Plus non-invasive blood
pressure monitor and the MRI monitor. Sales growth was impacted in the fourth
quarter of fiscal 1998 by a shortfall in the supply of new anesthetic gas
modules sold with the Expert. The supplier of the gas modules worked to resolve
production problems that caused the shortfall and resolved the production
problems by the second quarter of fiscal 1999.
Collagen Products
Sales of VasoSeal devices in fiscal 1998, predominately in the U.S., grew
59% over fiscal 1997 reflecting increased unit shipments and the impact of
higher selling prices. We continued to expand the U.S. VasoSeal direct selling
and clinical training organization to meet the growing demand for vascular
sealing products and an
20
<PAGE>
increasingly competitive environment. We also expanded our direct selling
organization in Germany upon receiving CE mark approval in November 1997.
Vascular Grafts
Sales of vascular grafts grew in fiscal 1998 reflecting shipments of the
InterGard(Trademark) collagen-coated vascular grafts to distributors in the U.S.
and Japan following receipt of regulatory clearance in both markets in May 1997
and August 1997, respectively. Partially offsetting the above were lower selling
prices in France.
Genisphere (Life Science Research Products)
Genisphere started operations in fiscal 1998 for the manufacturing and
marketing of a new proprietary class of DNA molecules, called 3DNA, which
increases the sensitivity of assays that are used to detect genetic material
such as DNA. On June 30, 1998, we announced an agreement with Fisher Scientific
L.L.C. to distribute the Genisphere life science research products in the U.S.
and Puerto Rico. Total investment in fiscal 1998 was $3.0 million.
The foreign exchange rate effect of the stronger U.S. dollar compared to
major European currencies decreased total sales by approximately $2.5 million in
fiscal 1998 compared to fiscal 1997.
COSTS AND EXPENSES
Cost of Sales was 38.6% of sales in fiscal 1998 compared to 39.8% in fiscal
1997 with the decrease primarily attributable to manufacturing efficiencies and
higher selling prices for the VasoSeal device and cost reductions for patient
monitoring products, partially offset by lower selling prices for cardiac assist
and vascular graft products.
Research and development (R&D) expenses were higher by 12% in fiscal 1998
primarily from increased staffing and expenditures to accelerate the development
of new products in all businesses, including Genisphere. As a percentage of
sales, R&D expenses were 12.4% in fiscal 1998 and 11.9% for fiscal 1997.
Selling, general and administrative expenses increased 8% primarily as a
result of the expansion of the U.S. and international VasoSeal selling
organization, new marketing programs in Cardiac Assist, higher corporate
expenses and the addition of new sales and marketing staff in Genisphere. As a
percentage of sales, SG&A expenses were 38.7% in fiscal 1998 compared to 38.5%
in fiscal 1997.
The strengthening of the U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $1.7 million in fiscal 1998 compared to
fiscal 1997.
INTEREST INCOME
Interest income was $5.0 million in fiscal 1998 compared to $4.7 million in
fiscal 1997. The 5% higher interest income in fiscal 1998 compared to fiscal
1997 was attributable to an increase in the investment portfolio from cash
generated by operations.
Foreign exchange forward contracts outstanding at June 30, 1998 totaled
$1.2 million all of which were in European currencies, with maturities that do
not exceed twelve months.
INCOME TAXES
The consolidated effective tax rate for fiscal 1998 was 27.2% compared to
20.9% for fiscal 1997. The tax rate in both years was lower than the federal
statutory tax rate primarily as a result of:
o the tax benefit from the Foreign Sales Corporation
o earnings in an international tax exempt industrial zone
o interest income exempt from federal income tax.
The higher tax rate in fiscal 1998 compared to fiscal 1997 was primarily
attributable to a higher proportion of domestic expenses (due to the special
charges recorded in fiscal 1997) versus international expenses incurred
21
<PAGE>
in fiscal 1997. The special items in fiscal 1997 were $3.3 million or $0.20 per
diluted share for settlement of the shareholder class action lawsuit and $1.8
million or $0.11 per diluted share for settlement of the Quinton patent
infringement lawsuit.
NET EARNINGS
Excluding the special charges recorded in fiscal 1997, net earnings in
fiscal 1998 were 13% higher compared to fiscal 1997 primarily as a result of
increased earnings from VasoSeal and improved profitability from patient
monitoring products and InterVascular, Inc., partially offset by reduced
earnings from cardiac assist products.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1999 was $125.4 million compared to $116.0
million and the current ratio was 4.0:1 compared to 4.1:1 last year. The
increase in working capital was primarily attributable to increased inventory
related to new product introductions and higher accounts receivable resulting
primarily from increased sales.
In fiscal 1999 cash provided by operations was $11.9 million, primarily
attributable to net earnings and depreciation and amortization, partially offset
by increased accounts receivable and inventories. Net cash used in investing
activities was $0.1 million in fiscal 1999, primarily attributable to the
purchase of $14.3 million of property, plant and equipment, including $7.2
million for the new Patient Monitoring facility in Mahwah, New Jersey, and
purchases of marketable securities, partially offset by maturities of marketable
securities. The total cost of the new Patient Monitoring facility will be
approximately $23 million. Cash used in financing activities was $10.8 million
in fiscal 1999, attributable to stock repurchases of $13.0 million, primarily
for the stock repurchase programs ($11.5 million), partially offset by cash
received from exercise of stock options.
On September 14, 1999 we announced a program to buy $30 million of our
common stock. In September, we completed our second stock repurchase program to
buy $20 million of our common stock which was announced in August 1998.
In fiscal 1998 cash provided by operations was $18.9 million. Cash was
used to purchase $8.2 million of equipment and to purchase $14.0 million of our
stock under the stock repurchase program.
In fiscal 1997 cash provided by operations was $8.9 million. Cash was used
to purchase $5.9 million of equipment and to purchase $2.5 million of our stock
under the stock repurchase program, with the balance invested in short- and
long-term investments.
We believe that our financial resources are sufficient to meet our
projected cash requirements.
The low rate of U.S. inflation during the past three fiscal years has not
had a significant impact on us.
YEAR 2000 READINESS
The Year 2000 issue is a term used to describe problems that may occur when
computer systems are unable to accurately interpret dates after December 31,
1999. These problems result from the fact that many software programs use the
two digits "00" to represent the Year 2000.
Starting in fiscal 1998 we commenced a program to identify, remediate, test
and develop contingency plans for the Year 2000 issue in our computer
information systems (CIS), products, vendors, suppliers and customers.
As of September 15, 1999, the results of our Year 2000 Program were as
follows:
Computer Information Systems All internal computer systems are Year
2000 compliant.
Products We 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, we offer an upgrade to any
customer requiring Year 2000 compliance for their monitor, to be paid for
by the customer.
Third Party Vendors and Suppliers We solicited statements of
compliance from our key outside vendors and suppliers with respect to their
CIS and products. Approximately 80% of these parties responded and informed
us that they are currently compliant or plan to be compliant by
December 31, 1999. In the
22
<PAGE>
event that any of these parties are unable to certify that they will be
Year 2000 compliant, we will be reviewing our alternatives with respect to
other vendors or suppliers.
Customers We solicited statements of compliance from our key
customers with respect to their CIS. Approximately 56% have responded and
informed us that they are currently compliant or have plans to be compliant
by December 31, 1999. In the event that our key customers are unable to
certify that they will be Year 2000 compliant, we will be assessing the
accounts receivable collection risk of such key customers.
During the remainder of 1999 we will continue our efforts to monitor
the progress and obtain and evaluate responses of our key vendors,
suppliers and customers.
Costs The cost to modify the computer software programs used in our
CIS is covered by existing service agreements with the software vendors.
The assessments, testing and verification of our CIS products was performed
by existing staff. No significant outside resources were required. Despite
the use of internal resources for the Year 2000 Program, there was no
significant deferral of other CIS projects. We do not currently anticipate
that any remaining cost for the Year 2000 Program will be material to our
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 our control, such as third-party remediation plans and other
factors. There can be no assurance that the Year 2000 issue will not have a
negative impact on our business operations or financial statements because we
rely on Year 2000 compliance from third parties, including our suppliers,
vendors and customers.
EURO CONVERSION
As part of the European Economic and Monetary Union (EMU), a single
currency (Euro) will replace the national currencies of most of the European
countries in which we conduct our business. The conversion rates between the
Euro and the participating nations' currencies have been fixed irrevocably as of
January 1, 1999. During a transition period from January 1, 1999 to December 31,
2001 parties may settle transactions using either Euro or the participating
country's national currency. The participating national currencies will be
removed from circulation between January 1, 2002 and June 30, 2002 and replaced
by Euro notes and coinage. Full conversion of all affected country operations to
Euro is expected to be completed by the time national currencies are removed
from circulation.
We are currently involved in the phased conversion to the Euro and the
effects on revenues, costs and various business strategies are being assessed.
We are able to conduct business in both the Euro and national currencies on an
as needed basis, as required by the European Union. The cost of software and
business process conversion is not expected to be material to our financial
condition or results of operations.
STATEMENT CONCERNING FORWARD LOOKING INFORMATION
This Management's Discussion and Analysis of Results of Operations and
Financial Condition 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 us, and because of our
dependence on our suppliers for certain patient monitoring and collagen
products. Additional risks are our ability to successfully introduce and gain
market acceptance for new products, continued demand for our 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 us 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.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as either assets
or liabilities in the
23
<PAGE>
statement of financial position and measure those instruments at fair value. We
will adopt SFAS No. 133 in the first quarter of fiscal 2001, in accordance with
the deferral provision in SFAS No. 137. The adoption of SFAS No. 133 will not
have a material effect on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Due to the global nature of our operations, we are subject to the exposures
that arise from foreign exchange rate fluctuations. Our objective in managing
our exposure to foreign currency fluctuations is to minimize net earnings
volatility associated with foreign exchange rate changes. We enter into foreign
currency forward exchange contracts to hedge foreign currency transactions which
are primarily related to certain receivables denominated in foreign currencies.
Our hedging activities do not subject us to exchange rate risk because gains and
losses on these contracts offset losses and gains on the assets, liabilities and
transactions being hedged. A portion of the net foreign transaction gain or loss
is reported in our statement of consolidated earnings in cost of sales and the
balance in other income and expense. We do not use derivative financial
instruments for trading purposes.
As of June 30, 1999, we had $4.5 million 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 us to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to when the contract is signed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 14 of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for the information included in Item 4A of this report, the
information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 1999 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 1999 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 1999 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 1999 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
Our consolidated financial statements are filed on the pages listed below,
as part of Part II, Item 8 of this report:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors....................................................................... F-1
Consolidated balance sheets -- June 30, 1999 and 1998................................................ F-2
Statements of consolidated earnings -- Years ended June 30, 1999, 1998 and 1997...................... F-3
Statements of consolidated stockholders' equity -- Years ended June 30, 1999, 1998 and 1997.......... F-4
Statements of consolidated cash flows -- Years ended June 30, 1999, 1998 and 1997.................... F-5
Notes to consolidated financial statements........................................................... F-6-F-24
2. Financial Statement Schedules
II -- Valuation and Qualifying Accounts.............................................................. S-1
</TABLE>
All other schedules have been omitted because they are inapplicable, or not
required, or the information is included in the financial statements or
footnotes.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- ---------------------------------------------------------------------------------------------------------
<S> <C>
2. Agreement and Plan of Merger, dated as of October 25, 1989, by and between the registrant and Datascope
New York, incorporated by reference to Exhibit 2 to the registrant's Registration Statement on Form 8-B,
filed with the Commission on January 1990 (the "Form 8-B").
3.1 Restated Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on
October 30, 1989, incorporated by reference as Exhibit 3.1 to the Form 8-B.
3.2 By-Laws, as currently in effect, incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K
for fiscal year ended June 30, 1993 (the "1993 10-K").
4.1 Specimen of certificate of Common Stock, incorporated by reference to Exhibit 4.2 to the Form 8-B.
4.2 Form of Certificate of Designations of the Registrant's Series A Preferred Stock, incorporated by
reference to Exhibit 2.2 to the Company's Registration Statement on Form 8-A, filed with the Commission
on May 31, 1991 (the "May 31, 1991 Form 8-A").
4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company and Continental Stock Transfer &
Trust Company, incorporated by reference to Exhibit 2.1 to the May 31, 1991 Form 8-A .
10.1* 1981 Incentive Stock Option Plan, incorporated by reference to Exhibit 10.2.1 to the Form 8-B .
10.2* Stock Option Agreements, dated November 30, 1982, between David Altschiller, William Asmundson, Alan
Patricof and Norman Schneider, respectively, and the registrant, incorporated by reference to
Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K").
10.3* Stock Option Agreement, dated December 7, 1988 between Joseph Grayzel, M.D. and the registrant,
incorporated by reference to Exhibit 10.6 to the 1989 10-K.
10.4* Stock Option Agreements, dated as of March 1, 1990, between David Altschiller, William Asmundson, Joseph
Grayzel, Alan Patricof and Norman Schneider, respectively, and the registrant, incorporated by reference
to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
10.5* Stock Option Agreement, dated as of September 28, 1990, between David Altschiller and the registrant,
incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K for the fiscal year ended
June 30, 1991.
10.6* Datascope Corp. 1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (the "2Q 1998 10-Q").
10.7* Datascope Corp. 1997 Executive Bonus Plan, incorporated by reference to Exhibit 10.2 to the 2Q 1998 10-Q.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.8* Datascope Corp. Annual Incentive Plan, incorporated by reference to Exhibit 10.3 to the 2Q 1998 10-Q.
10.9* Datascope Corp. Compensation Plan for Non-Employee Directors, incorporated by reference to Exhibit 10.4
to the 2Q 1998 10-Q.
10.10* Agreement, dated as of July 1, 1996, by and between Datascope Corp. and Lawrence Saper.
10.11* Split-Dollar Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol
Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94,
incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for fiscal year ended June 30,
1996 (the "1996 10-K").
10.12* Modification Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol
Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94,
incorporated by reference to Exhibit 10.16 to the 1996 10-K.
10.13* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper
Family 1994 Trust UTA. dtd. 6/28/94 of Metropolitan Life Insurance Company Insurance Policy No. 940 750
122UM in favor of Datascope Corp., incorporated by reference to Exhibit 10.17 to 1996 10-K.
10.14* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper
Family 1994 Trust UTA. dtd. 6/28/94 of Security Mutual Life Insurance Company of New York Insurance
Policy No. 11047711 in favor of Datascope Corp., incorporated by reference to Exhibit 10.18 to 1996
10-K.
21. List of Subsidiaries.
22. Consent of Deloitte & Touche LLP.
</TABLE>
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See Item 14(a)(3) above.
(d) Management contracts or compensatory plans or arrangements required to
be filed as an exhibit pursuant to Item 14(c) are denoted by an asterisk (*).
26
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos.333-42753, 333-42747, 333-00537, 33-60169, 33-69922 and 33-33373 of
Datascope Corp. on Form S-8 of our report dated July 26, 1999 appearing in this
Annual Report on Form 10-K of Datascope Corp. for the year ended June 30, 1999.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------------------------
New York, New York
September 28, 1999
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ LAWRENCE SAPER
------------------------------------
Lawrence Saper
Chairman of the Board
and Chief Executive Officer
Date: September 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/S/ LAWRENCE SAPER Chairman of the Board and September 28, 1999
- ------------------------------------------------ Chief Executive Officer
Lawrence Saper (Principal Executive Officer)
/S/ LEONARD S. GOODMAN Vice President, Treasurer and September 28, 1999
- ------------------------------------------------ Chief Financial Officer
Leonard S. Goodman (Principal Financial and Accounting
Officer)
/S/ ALAN ABRAMSON Director September 28, 1999
- ------------------------------------------------
Alan Abramson
/S/ DAVID ALTSCHILLER Director September 28, 1999
- ------------------------------------------------
David Altschiller
/S/ WILLIAM ASMUNDSON Director September 28, 1999
- ------------------------------------------------
William Asmundson
/S/ JOSEPH GRAYZEL, M.D. Director September 28, 1999
- ------------------------------------------------
Joseph Grayzel, M.D.
/S/ GEORGE HELLER Director September 28, 1999
- ------------------------------------------------
George Heller
/S/ ARNO NASH Director September 28, 1999
- ------------------------------------------------
Arno Nash
</TABLE>
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Datascope Corp.
Montvale, New Jersey
We have audited the accompanying consolidated balance sheets of Datascope
Corp. and its subsidiaries (the "Company") as of June 30, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14
(a) (2). These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Datascope Corp. and its
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------------------------
New York, New York
July 26, 1999
F-1
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 4,572 $ 3,364
Short-term investments.................................................................. 45,539 46,314
Accounts receivable less allowance for doubtful accounts of $1,192 and $1,078........... 64,289 55,248
Inventories............................................................................. 42,747 38,317
Prepaid expenses and other current assets............................................... 9,439 10,036
-------- --------
Total Current Assets............................................................ 166,586 153,279
Property, Plant and Equipment, net........................................................ 63,321 52,875
Non-Current Marketable Securities......................................................... 20,496 34,371
Other Assets.............................................................................. 19,091 12,523
-------- --------
$269,494 $253,048
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................................ $ 10,565 $ 14,378
Accrued expenses........................................................................ 10,721 9,342
Accrued compensation.................................................................... 13,804 10,190
Deferred revenue........................................................................ 4,380 3,401
Taxes on income......................................................................... 1,695 --
-------- --------
Total Current Liabilities....................................................... 41,165 37,311
Other Liabilities......................................................................... 13,874 14,255
Stockholders' Equity:
Preferred stock, par value $1.00 per share:
Authorized 5 million shares; Issued, none............................................ -- --
Common stock, par value $.01 per share:
Authorized, 45 million shares; Issued and outstanding, 16,663 and
16,394 shares...................................................................... 167 164
Additional paid-in capital.............................................................. 52,570 47,041
Treasury stock at cost, 1,416 and 793 shares............................................ (31,079) (18,122)
Retained earnings....................................................................... 198,921 177,509
Accumulated other comprehensive income.................................................. (6,124) (5,110)
-------- --------
214,455 201,482
-------- --------
$269,494 $253,048
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales.................................................................... $269,100 $242,400 $225,600
-------- -------- --------
Costs and Expenses:
Cost of sales.............................................................. 103,776 93,596 89,795
Research and development expenses.......................................... 28,994 30,109 26,815
Selling, general and administrative expenses............................... 105,847 93,740 86,962
Restructuring and special charges.......................................... 3,429 -- 8,554
-------- -------- --------
242,046 217,445 212,126
-------- -------- --------
Operating Earnings........................................................... 27,054 24,955 13,474
Other (Income) Expense:
Interest income............................................................ (3,342) (4,972) (4,744)
Interest expense........................................................... 29 25 18
Other, net................................................................. 583 187 380
-------- -------- --------
(2,730) (4,760) (4,346)
-------- -------- --------
Earnings Before Taxes on Income.............................................. 29,784 29,715 17,820
Taxes on Income.............................................................. 8,372 8,074 3,716
-------- -------- --------
Net Earnings................................................................. $ 21,412 $ 21,641 $ 14,104
-------- -------- --------
-------- -------- --------
Earnings Per Share, Basic.................................................... $ 1.40 $ 1.37 $ 0.88
-------- -------- --------
-------- -------- --------
Weighted Average Number of Common Shares Outstanding, Basic.................. 15,247 15,840 16,049
-------- -------- --------
-------- -------- --------
Earnings Per Share, Diluted.................................................. $ 1.36 $ 1.32 $ 0.86
-------- -------- --------
-------- -------- --------
Weighted Average Number of Common Shares Outstanding, Diluted................ 15,721 16,403 16,356
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(SHARES AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
-------------- ADDITIONAL TREASURY STOCK COMPREHENSIVE
PAR PAID-IN ----------------- RETAINED INC.
SHARES VALUE CAPITAL SHARES COST EARNINGS (EXPENSE) TOTAL
------ ----- ---------- ------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996.......... 16,135 $ 161 $ 42,548 (94) $ (1,671) $141,764 $(1,122) $181,680
Net earnings.................. 14,104 14,104
Currency translation.......... (2,780) (2,780)
--------
Total comprehensive income.... 11,324
Stock option transactions..... 110 1 1,647 (60) 1,588
Tax benefit relating to
exercise of stock options.. 131 131
Cancellation of treasury
stock...................... (60) 60 --
Treasury shares acquired
under repurchase programs.. (129) (2,480) (2,480)
------ ----- -------- ------ -------- -------- ------- --------
Balance, June 30, 1997.......... 16,245 162 44,266 (223) (4,151) 155,868 (3,902) 192,243
Net earnings.................. 21,641 21,641
Currency translation.......... (1,208) (1,208)
--------
Total comprehensive income.... 20,433
--------
Stock option transactions..... 149 2 2,383 (220) 2,165
Tax benefit relating to
exercise of stock options.. 612 612
Cancellation of treasury
stock...................... (220) 220 --
Treasury shares acquired under
repurchase programs........ (570) (13,971) (13,971)
------ ----- -------- ------ -------- -------- ------- --------
Balance, June 30, 1998.......... 16,394 164 47,041 (793) (18,122) 177,509 (5,110) 201,482
Net earnings.................. 21,412 21,412
Currency translation.......... (1,014) (1,014)
--------
Total comprehensive income.... 20,398
--------
Stock option transactions..... 144 2 2,831 (649) 2,184
Issuance of common stock for
acquisition of Polyprobe,
Inc. and Alpha Probe,
Inc. ...................... 125 1 2,699 2,700
Tax benefit relating to
exercise of stock options.. 648 648
Cancellation of treasury
stock...................... (649) 649 --
Treasury shares acquired under
repurchase programs........ (623) (12,957) (12,957)
------ ----- -------- ------ -------- -------- ------- --------
Balance, June 30, 1999.......... 16,663 $ 167 $ 52,570 (1,416) $(31,079) $198,921 $(6,124) $214,455
------ ----- -------- ------ -------- -------- ------- --------
------ ----- -------- ------ -------- -------- ------- --------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Earnings................................................................. $ 21,412 $ 21,641 $ 14,104
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization............................................. 12,095 10,358 9,795
Provision for supplemental pension........................................ 165 708 897
Provision for losses on accounts receivable............................... 357 277 255
Deferred income tax (benefit)............................................. (890) 847 1,763
Tax benefit relating to stock options exercised........................... 648 612 131
Changes in assets and liabilities net of effects of acquisition of Polyprobe,
Inc. and Alpha Probe, Inc.
Accounts receivable....................................................... (9,920) (3,458) (2,603)
Inventories............................................................... (13,114) (14,236) (5,901)
Other assets.............................................................. (2,520) (3,228) (2,090)
Accounts payable.......................................................... (3,742) 7,758 100
Income taxes payable...................................................... 1,695 (807) (1,290)
Accrued and other liabilities............................................. 5,697 (1,555) (6,263)
-------- -------- --------
Net cash provided by operating activities............................ 11,883 18,917 8,898
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................... (14,281) (8,157) (5,899)
Purchases of marketable securities........................................... (50,959) (88,576) (98,877)
Maturities of marketable securities.......................................... 65,611 91,132 97,806
Acquisition of Polyprobe, Inc. and Alpha Probe, Inc. ........................ (450) -- --
-------- -------- --------
Net cash used in investing activities................................ (79) (5,601) (6,970)
-------- -------- --------
FINANCING ACTIVITIES:
Exercise of stock options.................................................... 2,184 2,165 1,588
Treasury shares acquired under repurchase programs........................... (12,958) (13,971) (2,480)
-------- -------- --------
Net cash used in financing activities................................ (10,774) (11,806) (892)
-------- -------- --------
Effect of exchange rates on cash............................................. 178 (743) (1,013)
-------- -------- --------
Increase in cash and cash equivalents.......................................... 1,208 767 23
Cash and cash equivalents, beginning of year................................... 3,364 2,597 2,574
-------- -------- --------
Cash and cash equivalents, end of year......................................... $ 4,572 $ 3,364 $ 2,597
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................................. $ 29 $ 25 $ 18
-------- -------- --------
Income taxes.............................................................. $ 7,007 $ 7,302 $ 3,247
-------- -------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets for use as demonstration
equipment............................................................... $ 8,315 $ 8,189 $ 5,745
-------- -------- --------
Issuance of common stock for acquisition of Polyprobe, Inc. and Alpha
Probe, Inc. ............................................................ $ 2,700 $ -- $ --
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Datascope
Corp. and its subsidiaries (the "Company" -- which may be referred to as our, us
or we). All material intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
which have original maturities less than 90 days.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Additions and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Asset and accumulated
depreciation accounts are relieved for dispositions, with resulting gains or
losses reflected in earnings. Depreciation of plant and equipment is provided
using the straight-line method over the estimated useful lives of the various
assets, or for leasehold improvements, over the term of the lease, if shorter.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries have been translated at
year-end exchange rates, while revenues and expenses have been translated at
average exchange rates in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
stockholders' equity.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. We will adopt SFAS No. 133 in the first quarter of
fiscal 2001, in accordance with the deferral provision in SFAS No. 137. The
adoption of SFAS No. 133 will not have a material effect on our financial
statements.
Taxes on Income
We account for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the use of the
liability method of accounting for deferred income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates in effect for the years in which the differences are
expected to reverse.
Revenue Recognition
We recognize revenue and all related costs, including warranty, when
product is shipped and title passes to the customer. For certain products where
we maintain consigned inventory at customer locations, revenue is recognized at
the time we are notified that the product has been used by the customer. Revenue
for service contracts is recognized ratably over the term of the contract.
F-6
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," we report basic earnings per share, which is based upon
weighted average common shares outstanding, and diluted earnings per share which
includes the dilutive effect of stock options outstanding.
Impairment of Long Lived Assets
The recoverability of the excess of cost over fair value of net assets
acquired is evaluated by an analysis of operating results and consideration of
other significant events or changes in the business environment. If we believe
an impairment exists, the carrying amount of these assets would be reduced to
their fair value as defined in Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
Other Assets
a. Goodwill Goodwill represents the excess of cost over net assets acquired
and is amortized using the straight-line method over periods not
exceeding 20 years. Unamortized goodwill at June 30, 1999 was $5.21
million and $2.31 million at June 30, 1998.
During fiscal 1999 we acquired Polyprobe, Inc. and Alpha Probe, Inc. for
$3.2 million. The acquisitions were accounted for using the purchase
method of accounting and were paid for by issuing 125,141 shares
of our common stock plus $450 thousand in cash. Goodwill of $3.1 million
related to these purchases will be amortized over 10 years.
b. Capitalized Software Development Costs incurred in the research and
development of new software products and enhancements to existing
software products are expensed as incurred until technological
feasibility has been established. After technological feasibility is
established, any additional software development costs are capitalized
and included in Other Assets. The amount of capitalized software
development costs were $3.7 million at June 30, 1999 and $0.9 million at
June 30, 1998. Software development costs are amortized using the
straight-line method over the remaining estimated economic life of the
product, not to exceed 5 years. Amortization of software development
costs was $51 thousand in fiscal 1999.
The carrying value of capitalized software costs is regularly reviewed by
the Company, and a loss would be recognized if the net realizable value
falls below the unamortized cost.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
The presentation of certain prior year information has been reclassified to
conform with the current year presentation.
Beginning fiscal 1999, certain service expenses directly related to revenue
producing activities and warranty were reclassified from selling, general and
administrative expenses (SG&A) to Cost of Sales. The reclassification resulted
in a better matching of revenue and expenses and had no impact on reported net
earnings, earnings per
F-7
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
share or stockholders' equity. Amounts reported for prior years have been
reclassified to conform to the 1999 presentation. Service expenses reclassified
from SG&A to Cost of Sales were $9.7 million for 1999, $9.2 million for 1998 and
$9.2 million for 1997. The effect of this reclassification was to reduce gross
margin by approximately 4 percentage points in each year and reduce SG&A as a
percent of sales by a comparable amount.
New Accounting Standards
The following new accounting standards were adopted in fiscal 1999 and did
not affect results of operations, cash flows or financial position.
<TABLE>
<CAPTION>
SFAS TITLE PURPOSE
- -------- ----------------------------------- ----------------------------------------------------------------
<S> <C> <C>
No. 130 Reporting Comprehensive Income This statement established new disclosure requirements for
comprehensive income which includes net earnings and all other
nonowner changes in equity, such as foreign currency translation
adjustments.
No. 131 Disclosures about Segments of an This statement established new standards for reporting
Enterprise and Related Information information about operating segments and related disclosures
about products, geographic areas and major customers.
No. 132 Employers' Disclosures about This statement standardized the disclosure requirements for
Pensions and Other Postretirement pensions and other postretirement benefits.
Benefits
</TABLE>
2. FINANCIAL INSTRUMENTS
The fair value of accounts receivable and payable are assumed to equal
their carrying value because of their short maturity.
The fair value of other liabilities have been determined based upon
actuarial valuations.
Fair values of short-term investments are based upon quoted market prices,
including accrued interest, and approximate their carrying values due to their
short maturities. Fair values of non-current marketable securities are also
based upon quoted market prices and include accrued interest.
We determined that our investment portfolio will be held-to-maturity and is
therefore carried at amortized cost.
F-8
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. FINANCIAL INSTRUMENTS -- (CONTINUED)
As of June 30, 1999, marketable securities were classified as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------
SHORT TERM COST GAINS LOSSES FAIR VALUE
- ---------- --------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities............................................ $34,870 $ 7 $ 21 $ 34,856
Tax-Exempt Securities............................................... 10,669 51 -- 10,720
------- ------- ------- --------
Short-term total.......................................... $45,539 $ 58 $ 21 $ 45,576
------- ------- ------- --------
------- ------- ------- --------
LONG TERM
- ---------
U.S. Treasury Securities............................................ $15,009 $ 232 $ -- $ 15,241
Tax-Exempt Securities............................................... 5,487 38 2 5,523
------- ------- ------- --------
Long-term total........................................... $20,496 $ 270 $ 2 $ 20,764
------- ------- ------- --------
------- ------- ------- --------
Totals.................................................... $66,035 $ 328 $ 23 $ 66,340
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
As of June 30, 1998, our marketable securities were classified as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------
SHORT TERM COST GAINS LOSSES FAIR VALUE
- ---------- --------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities............................................ $43,123 $ 36 $ 4 $ 43,155
Tax-Exempt Securities............................................... 3,191 6 -- 3,197
------- ------- ------- --------
Short-term total.......................................... $46,314 $ 42 $ 4 $ 46,352
------- ------- ------- --------
------- ------- ------- --------
LONG TERM
- ---------
U.S. Treasury Securities............................................ $19,017 $ 341 $ 9 $ 19,349
Tax-Exempt Securities............................................... 15,354 120 2 15,472
------- ------- ------- --------
Long-term total........................................... $34,371 $ 461 $ 11 $ 34,821
------- ------- ------- --------
------- ------- ------- --------
Totals.................................................... $80,685 $ 503 $ 15 $ 81,173
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
We invest our excess cash primarily in U.S. Treasury and tax-exempt
securities. Since we hold all short- and long-term securities until maturity,
such investments are subject to little market risk. We have not incurred losses
related to these investments.
Derivative Financial Instruments
We have limited involvement with derivative financial instruments and do
not use them for trading purposes. We utilize foreign currency forward exchange
contracts to hedge specific foreign currency exposures. The effect of this
practice is to minimize the impact of foreign exchange rate movements on our
operating results. Our hedging activities do not subject us to exchange rate
risk because gains and losses on these contracts offset losses and gains on
hedged exposures.
As of June 30, 1999, we had $4.5 million 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 that we exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to at inception of the contracts.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising our customer base. Ongoing
credit evaluations of customers' financial condition are performed. We maintain
reserves for potential credit losses and these losses have not exceeded our
expectations.
F-9
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Materials............................................................... $15,788 $13,323
Work in process......................................................... 6,229 6,620
Finished goods.......................................................... 20,730 18,374
------- -------
$42,747 $38,317
------- -------
------- -------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land.................................................................... $ 8,506 $ 4,059
Buildings............................................................... 21,306 20,782
Machinery, furniture and equipment...................................... 82,981 72,557
Leasehold improvements.................................................. 3,881 3,979
-------- --------
116,674 101,377
Less accumulated depreciation and amortization.......................... 53,353 48,502
-------- --------
$ 63,321 $ 52,875
-------- --------
-------- --------
</TABLE>
The estimated useful life of machinery and equipment is 5 years, furniture
8 years and buildings 40 years. We are constructing a new facility for the
Patient Monitoring business in Mahwah, New Jersey. Costs incurred through June
30, 1999 were $7.2 million.
5. TAXES ON INCOME
The provision for taxes on income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Taxes currently payable:
Federal......................................................................... $7,404 $5,550 $ 854
State........................................................................... 1,139 803 187
Foreign......................................................................... 719 874 912
------ ------ ------
Total current 9,262 7,227 1,953
Deferred income taxes::
Federal......................................................................... (801) 925 2,013
State........................................................................... (89) (104) 111
Foreign......................................................................... 0 26 (361)
------ ------ ------
Total deferred (890) 847 1,763
------ ------ ------
Total provision for taxes on income................................... $8,372 $8,074 $3,716
------ ------ ------
------ ------ ------
</TABLE>
Amounts are reflected in the preceding table based on the location of the
taxing authorities. As of June 30, 1999, we have not made a U.S. tax provision
for the unremitted earnings of our international subsidiaries. These earnings,
which approximated $34.26 million as of June 30, 1999 are expected to be
permanently reinvested outside of the United States.
F-10
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. TAXES ON INCOME -- (CONTINUED)
We operate a manufacturing subsidiary in an industrial development zone in
Europe. Profits from those manufacturing activities are exempt from corporation
taxes until December 31, 1999. Alternative tax planning strategies are being
implemented to reduce the impact from the loss of this tax exemption.
Reconciliations of the U.S. statutory income tax rate to our effective tax
rate follow:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tax computed at federal statutory rate............ $10,425 35.0% $10,400 35.0% $ 6,237 35.0%
(Decrease) increase resulting from:
Benefit attributable to foreign sales corp........ (956) (3.2) (821) (2.8) (787) (4.4)
State taxes on income, net of federal income tax
benefit......................................... 683 2.3 454 1.5 194 1.1
Research and development credit, net.............. (325) (1.1) (518) (1.7) (414) (2.3)
Income exempt from foreign corporate taxes........ (1,369) (4.6) (1,432) (4.8) (1,194) (6.7)
Rate differential on foreign income............... (31) (0.2) 206 0.7 167 0.9
Interest income exempt from federal income tax.... (282) (0.9) (239) (0.8) (204) (1.1)
Other............................................. 227 0.8 24 0.1 (283) (1.6)
------- ----- ------- ----- ------- -----
Total provision for taxes on income.......... $ 8,372 28.1% $ 8,074 27.2% $ 3,716 20.9%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
Deferred taxes arise because of different treatment between financial
statement accounting and tax accounting, known as "temporary differences." We
record the tax effect of these temporary differences as "deferred tax assets"
(generally items that can be used as a tax deduction or credit in future
periods) and "deferred tax liabilities" (generally items that we receive a tax
deduction for, but have not yet been recorded in the statement of consolidated
earnings).
F-11
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. TAXES ON INCOME -- (CONTINUED)
The tax effects of the major items recorded as deferred tax assets and
liabilities are:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1999 1998
------------ ------------
DEFERRED TAX DEFERRED TAX
ASSETS ASSETS
(LIABILITIES) (LIABILITIES)
------------ ------------
<S> <C> <C>
Inventories...................................................... $ 2,433 $ 2,027
Warranty......................................................... 1,229 978
Sales returns & allowances....................................... 419 51
Accrued expenses................................................. 272 461
Foreign & state tax credits...................................... 833 833
Unrealized foreign exchange losses............................... 251 316
Deferred state income taxes...................................... (352) (371)
-------- --------
Current..................................................... 5,085 4,295
-------- --------
Supplemental pension............................................. 4,403 4,350
Tax loss carryforwards........................................... 2,044 1,912
Accelerated depreciation......................................... (3,217) (2,370)
Accrued pension expense.......................................... (189) (317)
Asset writedowns................................................. 611 --
Other, net....................................................... 380 225
Less: Valuation allowance........................................ (2,044) (1,912)
-------- --------
Non-current................................................. 1,988 1,888
-------- --------
Total.................................................. $ 7,073 $ 6,183
-------- --------
-------- --------
</TABLE>
The net current deferred tax assets have been included in prepaid expenses
and other current assets and the net non-current deferred tax assets have been
included in other assets on the accompanying consolidated balance sheets.
A valuation allowance is recorded because some items recorded as deferred
tax assets may not be realizable. The valuation allowance reduces the deferred
tax assets to our best estimate of net deferred assets which more likely than
not will be realized.
The valuation allowance increased by $132 thousand during fiscal 1999 due
to the net increase of foreign and state tax loss carryforwards. The valuation
allowance of $2.04 million at June 30, 1999 was comprised of tax benefits of
$228 thousand of foreign tax loss carryforwards and $1.81 million of state tax
loss carryforwards. Benefits from foreign tax loss carryforwards of $103
thousand expire during the period 2001 through 2004 and $125 thousand may be
carried forward indefinitely. The benefits of state tax loss carryforwards
expire during the period 2000 through 2015.
F-12
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. EARNINGS PER SHARE
The computation of basic and diluted earnings per share is shown in the
table below.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings................................................ $21,412 $21,641 $14,104
------- ------- -------
Weighted average shares outstanding for basic earnings per
share..................................................... 15,247 15,840 16,049
Effect of dilutive employee stock options................... 474 563 307
------- ------- -------
Weighted average shares outstanding for diluted earnings per
share..................................................... 15,721 16,403 16,356
======= ======= =======
Basic earnings per share.................................... $ 1.40 $ 1.37 $ 0.88
------- ------- -------
Diluted earnings per share.................................. $ 1.36 $ 1.32 $ 0.86
------- ------- -------
</TABLE>
7. STOCK OPTIONS, SHAREHOLDER RIGHTS AND STOCK REPURCHASE PLANS
Stock Option Plans
We have two employee stock option plans covering 4,575,000 shares of common
stock as well as option agreements with certain consultants and members of the
board of directors. The plans provide that options may be granted at a price of
100% of fair market value on date of grant, may be exercised in full or in
installments, at the discretion of the board of directors, and must be exercised
within ten years from date of grant.
A summary of activity under the stock option plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at July 1..................... 2,157,670 $18.72 1,935,869 $16.93 1,738,219 $16.63
Granted.............................. 523,275 26.03 476,700 25.00 493,100 17.94
Exercised............................ (168,478) 16.44 (156,737) 15.09 (112,625) 14.51
Canceled............................. (194,261) 21.19 (98,162) 19.69 (182,825) 18.35
--------- --------- ---------
Outstanding at June 30.................... 2,318,206 20.33 2,157,670 18.72 1,935,869 16.93
--------- --------- ---------
--------- --------- ---------
Exercisable at June 30.................... 1,341,617 $17.76 1,243,616 $16.41 1,141,830 $15.88
--------- --------- ---------
</TABLE>
At June 30, 1999 there were 2,337,904 shares of common stock reserved for
stock options.
We adopted Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," (SFAS No. 123) in fiscal 1997. We continue to
account for our stock-based awards using the intrinsic value method in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees."
Under APB Opinion No. 25, because the exercise price of our employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
F-13
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCK OPTIONS, SHAREHOLDER RIGHTS AND STOCK REPURCHASE PLANS -- (CONTINUED)
In accordance with SFAS No. 123 the fair value of option grants is
estimated on the date of grant using an option-pricing model. Had the fair value
method of accounting been applied to our stock option plans, pro forma net
income and earnings per share would have been reported as the following pro
forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings -- as reported................................. $21,412 $21,641 $14,104
------- ------- -------
Net earnings -- pro forma................................... $19,168 $20,514 $13,165
------- ------- -------
Basic earnings per share -- as reported..................... $ 1.40 $ 1.37 $ 0.88
------- ------- -------
Basic earnings per share -- pro forma....................... $ 1.26 $ 1.30 $ 0.82
------- ------- -------
Diluted earnings per share -- as reported................... $ 1.36 $ 1.32 $ 0.86
------- ------- -------
Diluted earnings per share -- pro forma..................... $ 1.22 $ 1.25 $ 0.80
------- ------- -------
</TABLE>
This pro forma impact only takes into account options granted since
July 1, 1995 and is likely to increase in future years as additional options are
granted and amortized ratably over the respective vesting period.
The fair values of option grants were determined using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield.............................................. None None None
Volatility.................................................. 35% 33% 33%
Risk-free interest rate..................................... 5.78% 5.52% 6.33%
Expected life............................................... 4 Years 4 Years 4 Years
</TABLE>
The weighted average fair value of options granted was $9.34 in 1999, $8.43
in 1998 and $6.41 in 1997.
The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 1999.
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------- ----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE REMAINING EXERCISE EXERCISE
PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- -------------------- --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 7.38 -- $13.88 66,461 2.09 $10.35 66,461 $10.35
$14.00 -- $14.00 500,000 4.09 $14.00 500,000 $14.00
$14.25 -- $22.38 806,695 6.56 $18.59 520,869 $18.50
$22.50 -- $31.13 945,050 8.86 $25.86 254,287 $25.59
--------- ---- ------ --------- ------
2,318,206 6.84 $20.33 1,341,617 $17.76
--------- ---------
--------- ---------
</TABLE>
Shareholder Rights Plan
In May 22, 1991, we adopted a Shareholder Rights Plan. The purpose of the
plan is to prevent us from being the target of an unsolicited tender offer or
unfriendly takeover. The plan will expire on June 2, 2001.
Under the plan, our common stockholders were issued one preferred stock
purchase right for each share of common stock owned by them. The preferred stock
purchase rights expire on June 2, 2001. Until they are redeemed by us or expire,
each preferred stock purchase right entitles the holder to purchase .001 share
of our
F-14
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCK OPTIONS, SHAREHOLDER RIGHTS AND STOCK REPURCHASE PLANS -- (CONTINUED)
Series A Preferred Stock, par value $1.00 per share, at an exercise price of
$300. We may redeem the preferred stock purchase rights for $.01 per right at
any time until after the date on which our right to redeem them has expired. In
addition, the preferred stock purchase rights do not become exercisable until
our right to redeem them has expired. Our right to redeem the preferred stock
purchase rights expires on the 10th business day after the date of a public
announcement that a person, or an acquiring person, has acquired ownership of
our stock representing 15 percent or more of our shareholders' general voting
power. Before an acquiring person acquires 50% or more of our outstanding common
stock, the plan provides that we may offer to exchange the rights, in whole or
in part, on the basis of an exchange ratio of one share of common stock for each
right. However, any rights owned by the acquiring person and its affiliates and
associates will be null and void and cannot be exchanged for common stock.
The plan also provides that, after the date of a public announcement that a
person has acquired ownership of our stock representing 15 percent or more of
our shareholders' general voting power, generally each holder of a preferred
stock purchase right will have the right to purchase, at the exercise price, a
number of shares of our preferred stock having a market value equal to twice the
exercise price. The plan further provides that if certain other business
combinations occur, generally each holder of a preferred stock purchase right
will have the right to purchase, at the exercise price, a number of shares of
the acquiring person's common stock having a market value of twice the exercise
price.
Stock Repurchase Plans
On May 3, 1996, we announced a stock repurchase program for up to $20
million of our common stock to be repurchased when market conditions and other
relevant factors were favorable. We had acquired 793,400 shares prior to this
year and completed the program in fiscal 1999 with the repurchase of 83,525
additional shares.
We announced a second stock repurchase program on August 5, 1998, also for
$20 million, and as of June 30, 1999 have repurchased 479,325 shares at a cost
of approximately $9.7 million.
Stock Compensation Plan for Non-Employee Directors
We have a compensation plan for non-employee directors, which became
effective in calendar year 1998. A summary of this plan is shown below:
o Any member of the board of directors who is not an employee or a
consultant to us or any of our divisions or subsidiaries will receive an
annual retainer (currently $24 thousand) payable in shares of our common
stock.
o Payment of the annual retainer is made in January for the prior calendar
year.
o A non-employee director may elect to defer receipt of the annual retainer
in which case the annual retainer will be paid entirely in shares of our
common stock that will be deposited into a director's account established
under the plan.
o In the case of a non-employee director who does not elect to receive the
retainer (or who has not filed a form of election), 39.6% of the retainer
will be paid in cash (to approximate current federal income tax
liability) and the balance in our common stock.
o Distribution of amounts in a director's account will be made when an
event of distribution occurs, in accordance with the method of
distribution stated in the form of election.
F-15
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. SEGMENT INFORMATION
Our business is the development, manufacture and sale of medical devices.
We have two reportable segments, Cardiac Assist/Monitoring Products and Vascular
Grafts/Collagen Products.
The Cardiac Assist/Monitoring Products segment includes electronic
intra-aortic balloon pumps and catheters that are used in the treatment of
vascular disease and electronic physiological monitors that provide for patient
safety and management of patient care.
The Vascular Graft/Collagen Products segment includes a proprietary line of
knitted and woven polyester vascular grafts and patches for reconstructive
vascular and cardiovascular surgery and extravascular hemostasis devices, which
are used to seal arterial puncture wounds to stop bleeding after cardiovascular
catheterization procedures.
We have aggregated our product lines into two segments based on similar
manufacturing processes, distribution channels, regulatory environments and
customers. Management evaluates the revenue and profitability performance of
each of our product lines to make operating and strategic decisions. We have no
intersegment revenue.
<TABLE>
<CAPTION>
CARDIAC VASCULAR
ASSIST/ GRAFTS/ CORPORATE
MONITORING COLLAGEN AND
PRODUCTS PRODUCTS OTHER CONSOLIDATED
---------- -------- --------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1999
Net sales to external customers....................... $205,638 $ 63,462 $ -- $269,100
Operating margin...................................... $ 26,950 $ 7,397 $(3,864) $ 30,483
Assets (a)............................................ $140,962 $ 40,237 $88,295 $269,494
Capital expenditures.................................. $ 12,078 $ 1,654 $ 549 $ 14,281
Depreciation and amortization......................... $ 9,354 $ 1,497 $ 1,244 $ 12,095
YEAR ENDED JUNE 30, 1998
Net sales to external customers....................... $194,357 $ 48,043 $ -- $242,400
Operating margin...................................... $ 24,568 $ 3,522 $(3,135) $ 24,955
Assets (a)............................................ $118,464 $ 33,650 $100,934 $253,048
Capital expenditures.................................. $ 4,681 $ 1,524 $ 1,952 $ 8,157
Depreciation and amortization......................... $ 7,897 $ 1,129 $ 1,332 $ 10,358
YEAR ENDED JUNE 30, 1997
Net sales to external customers....................... $190,848 $ 34,752 $ -- $225,600
Operating margin...................................... $ 25,694 $ (3,525) $ (141) $ 22,028
Assets (a)............................................ $110,336 $ 28,380 $99,146 $237,862
Capital expenditures.................................. $ 4,134 $ 1,273 $ 492 $ 5,899
Depreciation and amortization......................... $ 7,908 $ 1,008 $ 879 $ 9,795
</TABLE>
- ------------------
(a) Assets within Corporate and Other include cash, marketable securities,
property, plant and equipment including the corporate headquarters, goodwill
and cash surrender value of officers life insurance.
F-16
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. SEGMENT INFORMATION -- (CONTINUED)
Reconciliation to consolidated earnings before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Consolidated operating margin.......................................... $30,483 $24,955 $22,028
Interest income, net................................................... 3,313 4,947 4,726
Other expense.......................................................... (583) (187) (380)
Special items (b)...................................................... (3,429) -- (8,554)
------- ------- -------
Consolidated earnings before taxes..................................... $29,784 $29,715 $17,820
------- ------- -------
------- ------- -------
</TABLE>
- ------------------
(b) Restructuring expenses in fiscal 1999 and litigation settlements in fiscal
1997.
The following table presents net sales by geography based on the location
of the external customer.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States...................................................... $193,146 $170,890 $154,570
-------- -------- --------
Foreign countries.................................................. 75,954 71,510 71,030
-------- -------- --------
Total.............................................................. $269,100 $242,400 $225,600
-------- -------- --------
-------- -------- --------
</TABLE>
The following table presents long-lived assets by geography.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
United States.......................................................... $70,526 $54,418 $47,076
------- ------- -------
Foreign countries...................................................... 10,535 9,323 8,906
------- ------- -------
Total.................................................................. $81,061 $63,741 $55,982
------- ------- -------
------- ------- -------
</TABLE>
9. RETIREMENT BENEFIT PLANS
We have various retirement benefit plans covering substantially all U.S.
and international employees. Total pension expense for the domestic and
international pension plans was $3.98 million in 1999, $3.85 million in 1998 and
$3.44 million in 1997.
Defined Benefit Plan -- U.S.
We have a defined benefit pension plan designed to provide retirement
benefits to substantially all U.S. employees. U.S. pension benefits are based on
years of service, compensation and the primary social security benefits. Funding
for the U.S. plan is within the range prescribed under the Employee Retirement
Income Security Act of 1974.
F-17
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RETIREMENT BENEFIT PLANS -- (CONTINUED)
The change in benefit obligation, change in plan assets and funded status
of the U.S. defined benefit pension plan is shown below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Change in Benefit Obligation
- ----------------------------
Pension benefit obligation at beginning of year.................... $ 25,913 $ 21,282 $ 21,184
Service cost....................................................... 1,903 1,587 1,304
Interest cost...................................................... 1,800 1,577 1,369
Plan amendments.................................................... (41) 0 176
Actual (gain)/loss................................................. 152 1,853 (2,335)
Benefits paid...................................................... (487) (386) (416)
-------- -------- --------
Pension benefit obligation at end of year....................... $ 29,240 $ 25,913 $ 21,282
-------- -------- --------
-------- -------- --------
Change in Plan Assets
- ---------------------
Fair value of plan assets at beginning of year..................... $ 23,623 $ 20,460 $ 18,429
Actual return on assets............................................ 1,675 2,090 1,267
Employer contributions............................................. 1,633 1,459 1,180
Benefits paid...................................................... (487) (386) (416)
-------- -------- --------
Fair value of plan assets at end of year........................ $ 26,444 $ 23,623 $ 20,460
-------- -------- --------
-------- -------- --------
Funded Status at June 30,
- -------------------------
Pension benefit obligation......................................... $(29,240) $(25,913) $(21,282)
Fair value of plan assets.......................................... 26,444 23,623 20,460
-------- -------- --------
Funded status -- plan assets less than benefit obligation.......... (2,796) (2,290) (822)
Unrecognized prior service cost.................................... 27 69 73
Unrecognized net actuarial loss.................................... 2,953 2,652 1,182
Unrecognized net obligation remaining at June 30,.................. 325 396 467
-------- -------- --------
Prepaid pension cost............................................ $ 509 $ 827 $ 900
-------- -------- --------
-------- -------- --------
</TABLE>
F-18
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RETIREMENT BENEFIT PLANS -- (CONTINUED)
The components of net pension expense of the U.S. defined benefit pension
plan include the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Pension expense
- ---------------
Service cost.......................................................... $ 1,904 $ 1,587 $ 1,303
Interest cost......................................................... 1,800 1,576 1,369
Expected return on assets............................................. (1,855) (1,706) (1,625)
Amortization of net loss and unrecognized prior service cost.......... 31 4 4
Amortization of the remaining unrecognized net obligation............. 71 71 71
------- ------- -------
Net pension expense................................................... $ 1,951 $ 1,532 $ 1,122
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Actuarial assumptions
- ---------------------
Discount rate......................................................... 7.00% 7.00% 7.25%
Salary increase....................................................... 6.00% 6.00% 6.00%
Long-term return on assets............................................ 7.75% 7.75% 8.00%
</TABLE>
Plan assets are invested in U.S. Government and corporate securities and
include investments in our common stock of $3.08 million (96,000 shares) at
June 30, 1999. No dividends are paid on our common stock.
Defined Benefit Plans -- International
We have international defined benefit pension plans which cover
substantially all employees. Retirement benefits are based on years of service,
final average earnings and social security benefits. Funding policies are based
on local statutes and the assets are invested in guaranteed insurance contracts.
The funded status and components of net pension expense of the
international defined benefit pension plans are shown below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Funded status at June 30,
- ------------------------
Pension benefit obligation............................................ $(1,827) $(1,473) $(1,239)
Fair value of plan assets............................................. 266 249 450
------- ------- -------
Funded status......................................................... (1,561) (1,722) (789)
Unrecognized net actuarial loss....................................... 1,256 1,326 747
Unrecognized net obligation remaining at June 30,..................... 83 100 117
------- ------- -------
(Accrued)/Prepaid pension cost..................................... $ (222) $ (47) $ 75
------- ------- -------
------- ------- -------
</TABLE>
F-19
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RETIREMENT BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Pension Expense
- ---------------
Service cost.......................................................... $ 199 $ 179 $ 142
Interest cost......................................................... 114 100 92
Expected return on assets............................................. (26) (42) (40)
Amortization of net loss and unrecognized prior service cost.......... 37 25 21
Amortization of the remaining unrecognized net obligation............. 17 17 17
------- ------- -------
Net pension expense................................................ $ 341 $ 279 $ 232
------- ------- -------
------- ------- -------
Actuarial Assumptions
- ---------------------
Discount rate......................................................... 7.00% 7.00% 7.25%
Salary increase....................................................... 6.00% 6.00% 6.00%
Long-term return on assets............................................ 7.75% 7.75% 8.00%
</TABLE>
Supplemental Retirement Plans
We have noncontributory, unfunded supplemental defined benefit retirement
plans for the Chairman and Chief Executive Officer, Mr. Lawrence Saper, and
certain other current and former key officers. Life insurance has been
purchased to recover a substantial portion of the net after tax cost for these
supplemental retirement plans. The assumptions used to develop the supplemental
pension cost and the actuarial present value of the projected benefit obligation
are reviewed annually.
A summary of Mr. Saper's supplemental pension plan is as follows:
o Mr. Saper is entitled to receive a lifetime pension of up to 60% of
his average earnings for the three-year period in which Mr. Saper's
compensation was greatest of the ten years immediately preceding his
retirement.
o The supplementary retirement benefit will not be less than the value
of the benefit that would have been payable had his retirement
occurred at age 65.
o The plan provides survivor benefits in the form of a $10 million
life insurance policy, maintained pursuant to a split-dollar
agreement between us, Mr. Saper and a trust for the benefit of
Mr. Saper's family.
The supplemental pension expense for Mr. Saper recognized in the
consolidated financial statements was $148 thousand in 1999, $526 thousand in
1998 and $741 thousand in 1997.
The supplemental retirement plan covering certain other current and former
key officers provides that at age 65, these employees may receive, for a period
of up to 15 years, a pension of up to 60% of a predetermined earnings level for
the five-year period prior to retirement. The supplemental pension expense for
these executives recognized in the consolidated financial statements was $17
thousand in 1999, $182 thousand in 1998 and $156 thousand in 1997.
F-20
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RETIREMENT BENEFIT PLANS -- (CONTINUED)
The change in benefit obligation, funded status and components of net
pension expense of the supplemental defined benefit retirement plans are shown
below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Change In Benefit Obligation
- ----------------------------
Pension benefit obligation at beginning of year.................... $ 7,466 $ 8,328 $ na
Service cost....................................................... 183 165 na
Interest cost...................................................... 513 467 na
Actuarial loss/(gain).............................................. 137 (1,459) na
Benefits paid...................................................... (35) (35) na
-------- -------- --------
Pension benefit obligation at end of year.................. $ 8,264 $ 7,466 $ 8,328
-------- -------- --------
-------- -------- --------
Funded Status at June 30,
- -------------------------
Pension benefit obligation/Funded Status........................... $ (8,264) $ (7,466) $ (8,328)
Unrecognized prior service cost.................................... 440 661 1,502
Unrecognized net actuarial (gain).................................. (3,094) (3,982) (3,289)
-------- -------- --------
Accrued pension liability....................................... $(10,918) $(10,787) $(10,115)
-------- -------- --------
-------- -------- --------
Pension Expense
- ---------------
Service cost....................................................... $ 224 $ 164 $ 200
Interest cost...................................................... 472 467 568
Amortization of net (gain)......................................... (751) (765) (712)
Amortization of unrecognized prior service cost.................... 220 842 841
-------- -------- --------
Net pension expense............................................. $ 165 $ 708 $ 897
-------- -------- --------
-------- -------- --------
Actuarial Assumption
- --------------------
Discount rate...................................................... 7.00% 7.00% 7.50%
</TABLE>
Defined Contribution Plans
We have defined contribution savings and supplemental retirement plans that
cover substantially all U.S. employees and certain international employees. The
plans provide an incentive to employees to save and invest regularly for their
retirement. In the U.S. we maintain a 401(k) savings and supplemental retirement
plan for eligible domestic employees. The contributions are based on matching
50% of participating employees' contributions up to a maximum of 6% of
compensation. The provisions for the international defined contribution plans
vary by local country. The total expense under these plans was $1.53 million for
1999, $1.33 million for 1998 and $1.19 million for 1997.
F-21
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum rental commitments under noncancellable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------------------
<S> <C>
2000........................................................................................... $3,967
2001........................................................................................... 2,495
2002........................................................................................... 1,179
2003........................................................................................... 474
2004........................................................................................... 40
Thereafter..................................................................................... 32
------
Total future minimum rental payments......................................................... $8,187
------
------
</TABLE>
Total rent expense amounted to approximately $4.54 million in 1999,
$4.16 million in 1998 and $4.39 million in 1997.
Litigation
We are subject to litigation in the ordinary course of our business. We
believe we have meritorious defenses in all material pending lawsuits and that
the outcome will not have a material adverse effect on our financial position or
results of operations. See Footnote 12 for further discussion of settlements of
litigation.
Credit Arrangements
We have lines of credit totaling $50.4 million, with interest payable at
each lender's prime rate. We did not have any borrowings at June 30, 1999 or
June 30, 1998. Of the total available, $25 million expires in December 1999 and
$25 million expires in April 2000. These lines are renewable annually at the
option of the banks, and we plan to renew them. We also have $400 thousand in
lines of credit with no expiration date.
11. RESTRUCTURING CHARGE
In the third and fourth quarters of fiscal 1999, we recorded pre-tax
restructuring charges totaling $3.43 million, or $0.14 per share, related to
cost reduction programs. The pre-tax restructuring charge recorded in the third
quarter was $864 thousand or $0.04 per share and the restructuring charge
recorded in the fourth quarter was $2.57 million or $0.10 per share. The cost
reduction programs and related restructuring charges consist of the following:
o Lease termination costs and asset writedowns related to the closing of
InterVascular's Clearwater, Florida leased manufacturing facility. The
knitting and weaving operations currently housed in the Clearwater
facility will be moved to InterVascular's expanded manufacturing facility
in La Ciotat, France in the second quarter of fiscal 2001.
The asset writedowns relate primarily to research and production
equipment and leasehold improvements that will be removed from service
and disposed. The assets have no salvage value.
o Employee severance expenses related to workforce reductions and closing
of the Clearwater facility. Approximately 70% of the 80 terminated
employees left by June 30, 1999. The balance of the employees received
notification prior to year-end and will be leaving over the next 15
months. The employee terminations were primarily in administrative, R&D
and manufacturing positions.
F-22
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. RESTRUCTURING CHARGE -- (CONTINUED)
o Writedown of certain Genisphere fixed assets based on our revised
market entry strategy for the 3DNA technology. The asset writedowns
are primarily for manufacturing equipment that will be removed from
service and disposed. The assets have no salvage value.
A summary of the fiscal 1999 restructuring charges is shown below:
<TABLE>
<CAPTION>
CLEARWATER, GENISPHERE
FLORIDA EMPLOYEE ASSET
PLANT CLOSURE SEVERANCE WRITEDOWN TOTAL
------------- --------- ---------- ------
<S> <C> <C> <C> <C>
Fiscal 1999 charges.................................... $ 880 $ 1,674 $875 $3,429
Utilized in Fiscal 1999................................ 535 482 875 1,892
----- ------- ---- ------
Remaining liability at June 30, 1999................... $ 345 $ 1,192 $ -- $1,537
----- ------- ---- ------
----- ------- ---- ------
</TABLE>
12. SPECIAL ITEMS
Included in fiscal 1997 earnings were two special items as follows:
Settlement of Shareholder Class Action Securities Lawsuit
We settled the shareholder class action securities lawsuit filed in
November 1993 for $5.6 million, including legal fees, or $3.3 million after tax,
equivalent to $0.20 per diluted share.
Settlement of Patent Infringement Lawsuit
We settled the patent infringement lawsuit filed in February 1996 by
Quinton Instruments Company and Sherwood Medical Company concerning the VasoSeal
Vascular Hemostasis Device. The settlement 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
or $1.8 million after tax, equivalent to $0.11 per diluted share.
F-23
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $55,700 $66,700 $70,500 $76,200 $269,100
------- ------- ------- ------- --------
Gross margin.................................. $34,106 $41,048 $43,303 $46,867 $165,324
------- ------- ------- ------- --------
Net earnings.................................. $ 2,681 $ 5,886 $ 5,966 $ 6,879 $ 21,412
------- ------- ------- ------- --------
Earnings per share, basic..................... $ 0.17 $ 0.39 $ 0.39 $ 0.45 $ 1.40
------- ------- ------- ------- --------
Earnings per share, diluted................... $ 0.17 $ 0.38 $ 0.38 $ 0.43 $ 1.36
------- ------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $54,300 $62,700 $60,300 $65,100 $242,400
------- ------- ------- ------- --------
Gross margin.................................. $32,805 $38,028 $37,453 $40,518 $148,804
------- ------- ------- ------- --------
Net earnings.................................. $ 2,669 $ 5,647 $ 6,205 $ 7,120 $ 21,641
------- ------- ------- ------- --------
Earnings per share, basic..................... $ 0.17 $ 0.35 $ 0.39 $ 0.46 $ 1.37
------- ------- ------- ------- --------
Earnings per share, diluted................... $ 0.16 $ 0.34 $ 0.38 $ 0.44 $ 1.32
------- ------- ------- ------- --------
</TABLE>
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares outstanding during each period.
Net earnings for fiscal 1999 includes restructuring charges as follows:
<TABLE>
<CAPTION>
THIRD FOURTH TOTAL
QUARTER QUARTER FY 99
------- ------- --------
<S> <C> <C> <C>
Restructuring charges.................................................. $ 605 $ 1,564 $ 2,169
Earnings per share, diluted............................................ $ 0.04 $ 0.10 $ 0.14
</TABLE>
14. SUBSEQUENT EVENT
On September 14, 1999 we announced a program to buy $30 million of our
common stock. In September, we completed our second stock repurchase program to
buy $20 million of our common stock which was announced in August 1998.
F-24
<PAGE>
DATASCOPE CORP. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
------------------------
ADDITIONS
------------------------ COLUMN D
COLUMN B (1) (2) ---------- COLUMN E
------------ CHARGED TO DEDUCTIONS ----------
COLUMN A BALANCE AT CHARGED TO OTHER FROM BALANCE AT
- -------------------------------------------------- BEGINNING OF COSTS AND ACCOUNTS-- RESERVES-- CLOSE OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- -------------------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1999
Allowance for doubtful accounts................... $1,078 $357 $-- $243(A) $1,192
------ ---- -- ---- ------
------ ---- -- ---- ------
Reserve for warranty costs........................ 640 -- -- -- 640
------ ---- -- ---- ------
------ ---- -- ---- ------
YEAR ENDED JUNE 30, 1998
Allowance for doubtful accounts................... $ 922 $277 $-- $121(A) $1,078
------ ---- -- ---- ------
------ ---- -- ---- ------
Reserve for warranty costs........................ 700 -- -- 60(A) 640
------ ---- -- ---- ------
------ ---- -- ---- ------
YEAR ENDED JUNE 30, 1997
Allowance for doubtful accounts................... $1,198 $255 $-- $531(A) $ 922
------ ---- -- ---- ------
------ ---- -- ---- ------
Reserve for warranty costs........................ 810 -- -- 110(A) 700
------ ---- -- ---- ------
------ ---- -- ---- ------
</TABLE>
- ------------------
(A) Write-offs
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Consolidated
Balance Sheets and Statements of Consolidated Earnings and is qualified in its
entirety by reference to such.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4,572
<SECURITIES> 45,539
<RECEIVABLES> 65,481
<ALLOWANCES> (1,192)
<INVENTORY> 42,747
<CURRENT-ASSETS> 166,586
<PP&E> 116,674
<DEPRECIATION> (53,353)
<TOTAL-ASSETS> 269,494
<CURRENT-LIABILITIES> 41,165
<BONDS> 0
0
0
<COMMON> 167
<OTHER-SE> 214,288
<TOTAL-LIABILITY-AND-EQUITY> 269,494
<SALES> 269,100
<TOTAL-REVENUES> 269,100
<CGS> 103,776
<TOTAL-COSTS> 103,776
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 29,784
<INCOME-TAX> 8,372
<INCOME-CONTINUING> 21,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,412
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.36
</TABLE>
