<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-6516
DATASCOPE CORP.
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(Exact name of registrant as specified in its charter)
Delaware 13-2529596
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
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(Address of principal executive offices)
(201) 391-8100
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(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report:
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X No
--- ---
Number of Shares of Company's Common Stock outstanding as of
October 31, 2000: 14,811,646.
<PAGE>
Datascope Corp. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
First quarter of fiscal 2001 compared to the corresponding period last
year.
Net Sales
Net sales of $67.8 million in the first quarter of fiscal 2001
increased $4.3 million or 7% from $63.5 million last year.
Sales of the Cardiac Assist / Monitoring Products segment increased
$3.0 million or 6% to $49.8 million from $46.8 million.
Sales of Cardiac Assist products increased 4% to $26.3 million,
due to increased balloon pump sales, generated by the continued
market penetration of the System 98. The Profile 8 Fr. catheter
continues to be a significant factor in IAB sales and now
represents approximately 60% of total balloon catheter sales.
Patient Monitoring sales increased 9% to $23.6 million. Sales of
Passport(R) products increased substantially due to the strong
customer demand for the new Passport 2, the company's next
generation portable, battery powered bedside monitor. The Passport
2 was introduced in international markets in the second quarter of
fiscal 2000 and in the U.S. market in the third quarter of fiscal
2000. Additionally, the Accutorr(R) Plus blood pressure monitor
and Masimo SpO2 sensors continued to experience strong customer
demand.
Sales of the Collagen Products / Vascular Grafts segment increased $1.3
million or 8% to $18.0 million from $16.7 million.
Sales of VasoSeal(R) arterial puncture sealing devices increased
9% to $13 million. Sales growth compared to last fiscal year was
lower as competitive sales resources and competitive product
evaluations increased. At the same time, VasoSeal's sales
resources were significantly below normal strength because of open
sales territories. During the quarter, the company recruited new
sales representatives and clinical specialists needed to fill all
open territories. In addition, the company is currently completing
a 20% expansion of its field sales organization, in order to meet
the challenge of increased competition. The company anticipates
that its replenished and expanded complement of field resources
will begin to become effective when training is completed in the
third quarter.
<PAGE>
InterVascular's sales rose 6%, excluding the impact of foreign
exchange rates, due to continued strong demand for the
InterGard(R) Silver, the world's first anti-microbial vascular
graft, primarily in European markets. Sales to the U.S. market
increased 38%, reversing the decline experienced in the previous
three quarters, when our U.S. distributor reduced inventory. After
foreign exchange adjustment, InterVascular sales declined modestly
to $4.5 million.
The stronger U.S. dollar compared to major European currencies
decreased total sales by approximately $1.1 million in the first
quarter of fiscal 2001.
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage was 60.1% for the first quarter compared to
61.9% for the same period last year. The gross profit percentage in the
first quarter of fiscal 2001 was impacted by lower average selling
prices for certain patient monitoring products and a less favorable
sales mix.
Research and Development (R&D)
R&D expenses, as a percentage of sales, were 9.2% for the first quarter
of fiscal 2001, compared to 10.2% for the corresponding period last
year.
R&D expenses were $6.3 million in the first quarter of fiscal 2001
compared to $6.5 million last year. The 4% decrease was primarily due
to reduced development expenses in the Patient Monitoring product line.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses, as a percentage of sales, were 39.9% in the first
quarter of fiscal 2001, compared to 41.9% last year.
SG&A expenses of $27.0 million in the first quarter of fiscal 2001
increased $0.4 million or 2% primarily as a result of higher selling
and marketing expenses in the VasoSeal and Cardiac Assist product lines
related to new marketing programs and the higher sales.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $0.7 million in the first
quarter of fiscal 2001.
Interest Income and Expense
Interest income in the fiscal 2001 first quarter of $1.1 million,
increased $0.2 million or 27% compared to the first quarter last year.
The higher interest income was attributable to a 6% increase in the
average investment portfolio from $67.8 million to $71.9 million and an
increase in the average yield to 6.1% from 5.1%.
<PAGE>
During the first quarter, the company recorded a pretax gain of $593
thousand, or $0.02 per share after tax, from the sale of an
underutilized facility in Oakland, New Jersey.
Income Taxes
The consolidated effective tax rate was 32.0% for the first quarter of
fiscal 2001 compared to 31.0% last year. The higher tax rate was due
mainly to the impact of higher earnings taxed at a higher statutory tax
rate and expiration of a tax exemption for a manufacturing subsidiary
in Europe.
Net Earnings
Net earnings were $6.1 million or $0.39 per diluted share in the first
quarter of fiscal 2001 compared to $4.8 million, or $0.30 per diluted
share last year.
The increased earnings reflect:
o higher gross margin from increased sales
o greater expense control
o non-recurring gain of $593 thousand or $0.02 per diluted share
after tax related to the sale of an underutilized facility
o increased interest income of $231 thousand described above.
Liquidity and Capital Resources
Working capital was $121.4 million at September 30, 2000, compared to
$120.8 million at June 30, 2000 and the current ratio was 3.4:1 compared to
3.3:1. The modest increase in working capital and current ratio were
primarily due to a decline in accrued compensation expenses.
In the first three months of fiscal 2001 cash provided by operations was
$9.7 million, compared to $8.1 million last year. The $1.6 million increase
primarily reflects higher net earnings and lower inventories. Net cash used
in investing activities was $3.0 million, attributable to the purchase of
$3.0 million of property, plant and equipment. Net cash used in financing
activities was $6.4 million, primarily due to stock repurchases of $5.5
million and $0.6 million dividends paid.
Through September 30, 2000 we expended $5.5 million to purchase about
160,000 shares of our common stock under the current $30 million stock
repurchase program.
On August 18, 2000, the Board of Directors declared a quarterly cash
dividend of $0.04 per share payable on September 29, 2000 to stockholders
of record at September 1, 2000.
We believe our financial resources are sufficient to meet our projected
cash requirements.
The moderate rate of current U.S. inflation has not significantly affected
the company.
<PAGE>
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 the Euro currency 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.
Information Concerning Forward Looking Statements
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, arterial sealing and other markets served by the company, the
company's ability to gain market acceptance for new products and the
company's dependence on certain suppliers for patient monitoring and
VasoSeal products. Additional risks are the ability of the company to
successfully introduce new products, continued demand for the company's
products generally, the rapid and significant changes that characterize the
medical device industry and the ability to continue to respond to such
technological changes, the uncertain timing of regulatory approvals, as
well as other risks detailed from time to time in documents filed by
Datascope with the Securities and Exchange Commission.
Quantitative and Qualitative Disclosures About Market Risk
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 the 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 a substantial
portion of the foreign currency transactions which are primarily related to
certain intercompany 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.
<PAGE>
We do not use derivative financial instruments for trading purposes. None
of our foreign currency forward exchange contracts are designated as
economic hedges of our net investment in foreign subsidiaries.
As of September 30, 2000, we had a notional amount of $4.3 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.
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 have adopted 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 did not have a material
effect on our financial statements.
<PAGE>
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Sept 30, June 30,
2000 2000
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Assets (unaudited) (a)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,643 $ 2,102
Short-term investments 57,118 53,096
Accounts receivable less allowance for
doubtful accounts of $1,635 and $1,644 61,945 69,081
Inventories 39,610 38,986
Prepaid expenses and other current assets 11,236 10,014
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Total Current Assets 172,552 173,279
Property, Plant and Equipment, net of accumulated
depreciation of $59,483 and $58,234 86,855 86,243
Non-Current Marketable Securities 8,138 12,235
Other Assets 23,941 23,034
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$ 291,486 $ 294,791
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 14,668 $ 14,250
Accrued expenses 13,262 11,165
Accrued compensation 14,727 19,662
Deferred revenue 4,216 4,773
Taxes on income 4,273 2,630
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Total Current Liabilities 51,146 52,480
Other Liabilities 14,462 14,524
Stockholders' Equity
Preferred stock, par value $1.00 per share:
Authorized 5 million shares; Issued, none -- --
Common stock, par value $.01 per share:
Authorized, 45 million shares; Issued and
outstanding, 17,098 and 17,028 shares 171 170
Additional paid-in capital 60,357 60,646
Treasury stock at cost, 2,309 and 2,149 shares (60,714) (55,247)
Retained earnings 235,675 230,187
Accumulated other comprehensive loss (9,611) (7,969)
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225,878 227,787
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$ 291,486 $ 294,791
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</TABLE>
(a) Derived from audited financial statements
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Statements of Consolidated Earnings
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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<S> <C> <C>
Net Sales $ 67,800 $ 63,500
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Costs and Expenses:
Cost of sales 27,072 24,214
Research and development
expenses 6,256 6,497
Selling, general and
administrative expenses 27,030 26,606
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60,358 57,317
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Operating Earnings 7,442 6,183
Other (Income) Expense:
Interest income (1,098) (867)
Interest expense 2 2
Other, net (408) 48
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(1,504) (817)
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Earnings Before Taxes on Income 8,946 7,000
Taxes on Income 2,863 2,170
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Net Earnings $ 6,083 $ 4,830
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Earnings Per Share, Basic $ 0.41 $ 0.32
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Weighted average common
shares outstanding, Basic 14,858 15,206
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Earnings Per Share, Diluted $ 0.39 $ 0.30
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Weighted average common
shares outstanding, Diluted 15,595 16,093
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</TABLE>
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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<S> <C> <C>
Operating Activities:
Net cash provided by operating activities $ 9,732 $ 8,103
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Investing Activities:
Capital expenditures (3,043) (3,282)
Purchases of marketable securities (7,961) (14,499)
Maturities of marketable securities 8,036 17,003
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Net cash used in investing activities (2,968) (778)
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Financing Activities:
Treasury shares acquired under repurchase programs (5,467) (10,348)
Exercise of stock options (288) 1,028
Cash dividends paid (595) 0
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Net cash used in financing activities (6,350) (9,320)
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Effect of exchange rates on cash 127 (95)
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Increase (decrease) in cash and cash equivalents 541 (2,090)
Cash and cash equivalents, beginning of period 2,102 4,572
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Cash and cash equivalents, end of period $ 2,643 $ 2,482
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Supplemental Cash Flow Information
Cash Paid during the period for:
Income taxes $ 1,223 $ 726
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Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 1,333 $ 2,171
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</TABLE>
See notes to consolidated financial statements
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
1. Basis of Presentation
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").
The consolidated balance sheet as of September 30, 2000 and the statements of
consolidated earnings and cash flows for the three month periods ended September
30, 2000 and 1999 have been prepared by the Company, without audit. In our
opinion, all adjustments (which include only normal recurring adjustments) have
been made that are necessary to present fairly the financial position, results
of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. We suggest that you read these condensed
consolidated financial statements in conjunction with the financial statements
and notes included in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2000. The results of operations for the period ended September 30, 2000
are not necessarily indicative of a full year's operations.
We have reclassified certain prior year information to conform with the current
year presentation.
2. Inventories
Inventories are stated at the lower of cost or market, with cost determined on a
first-in, first-out basis.
---------------------------------
Sept 30, June 30,
2000 2000
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Materials $18,232 $17,462
Work in Process 8,591 7,888
Finished Goods 12,787 13,636
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$39,610 $38,986
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3. Stockholders' Equity
Changes in the components of stockholders' equity for the three months ended
September 30, 2000 were as follows:
Net earnings $6,083
Foreign currency translation adjustments (1,642)
Common stock and additional paid-in
capital effects of stock option activity (288)
Cash dividends on common stock (595)
Purchases under stock repurchase plans (5,467)
---------
Total decrease in stockholders' equity ($1,909)
=========
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
4. Earnings Per Share
In accordance with Financial Accounting Standard No. 128, "Earnings Per Share",
we disclose both Basic and Diluted Earnings Per Share. The reconciliation of
Basic Earnings Per Share to Diluted Earnings Per Share is as follows:
<TABLE>
<CAPTION>
---------------------------- ---------------------------------- -----------------------------------
For Three Months Ended September 30, 2000 September 30, 1999
---------------------------- ---------------------------------- -----------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
--------- ---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings available to
common shareholders $6,083 14,858 $0.41 $4,830 15,206 $0.32
Diluted EPS
Options issued to employees -- 737 (0.02) -- 887 (0.02)
---------- ----------- ----------- ----------- ----------- ----------
Earnings available to
common shareholders
plus assumed conversions $6,083 15,595 $0.39 $4,830 16,093 $0.30
========== =========== =========== =========== =========== ==========
</TABLE>
5. Comprehensive Income
In accordance with Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", we disclose comprehensive income and its components. For
the three month periods ended September 30, 2000 and 1999 our comprehensive
income was as follows:
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2000 1999
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Net earnings $6,083 $4,830
Foreign currency translation
gain or (loss) (1,642) 692
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Total comprehensive income $4,441 $5,522
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<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
6. Segment Information
Our business is the development, manufacture and sale of medical devices. We
have two reportable segments, Cardiac Assist / Monitoring Products and Collagen
Products / Vascular Grafts.
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 Collagen Products / Vascular Grafts segment includes extravascular
hemostasis devices which are used to seal arterial puncture wounds to stop
bleeding after cardiovascular catheterization procedures and a proprietary line
of knitted and woven vascular grafts and patches for reconstructive vascular and
cardiovascular surgery.
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. Net sales and operating earnings are shown below.
<TABLE>
<CAPTION>
Cardiac Collagen
Assist / Products / Corporate
Monitoring Vascular and
Products Grafts Other Consolidated
----------------------------------------------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Three months ended September 30, 2000
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Net sales to external customers $49,819 $17,981 -- $67,800
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Operating earnings $3,190 $3,430 $822 $7,442
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Three months ended September 30, 1999
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Net sales to external customers $46,818 $16,682 -- $63,500
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Operating earnings $3,250 $3,391 ($458) $6,183
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Reconciliation to consolidated
earnings before income taxes: 2000 1999
-------------------------------
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Consolidated operating earnings $7,442 $6,183
Interest income, net 1,096 865
Other (expense) income 408 (48)
---------------- ----------------
Consolidated earnings before taxes $8,946 $7,000
================ ================
</TABLE>
<PAGE>
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
7. Restructuring Program
Based upon a review by senior management of all company operations, a
restructuring plan was approved in fiscal year 1999 to reduce the company's cost
structure and streamline certain operations. We recorded pretax restructuring
charges totaling $3.43 million, or $0.14 per share, during the second half of
fiscal 1999 related to the following cost reduction initiatives:
o Closure of InterVascular's Clearwater, Florida leased manufacturing
facility in order to reduce costs and centralize operations in our
expanded manufacturing facility in LaCiotat, France.
o Workforce reductions in certain administrative, R&D and manufacturing
positions throughout the company.
o Writedown of certain Genisphere fixed assets based on the revised
market entry strategy for the proprietary 3DNA technology. Under the
revised market entry stategy we will focus product development on
improving the performance of newly-developing technologies for drug
discovery used by the pharmaceutical and biotech industries.
A summary of the restructuring charges and remaining liability at September 30,
2000 is shown below.
<TABLE>
<CAPTION>
Clearwater Genisphere
Plant Employee Asset
Closure Severance Writedown Total
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Fiscal 1999 restructuring charges $880 $1,674 $875 $3,429
Utilized through fiscal 2000 722 1,363 875 2,960
Utilized in Q1 fiscal 2001 49 25 -- 74
-------------- -------------- -------------- ---------------
Remaining liability at September 30, 2000 $109 $286 -- $395
============== ============== ============== ===============
</TABLE>
No additional expenditures are expected to complete the restructuring program.
<PAGE>
Part II:
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
none
b. Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
<PAGE>
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATASCOPE CORP.
Registrant
By: \s\ Lawrence Saper
---------------------------------------
Chairman of the Board and
Chief Executive Officer
By: \s\ Leonard S. Goodman
-----------------------------------
Vice President, CFO and Treasurer
Dated: November 14, 2000
