SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-6516
DATASCOPE CORP.
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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
April 30, 2002: 14,778,356.
Datascope Corp. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Third quarter and first nine months of fiscal 2002 compared to the
corresponding periods last year.
Net Sales
Net sales of $81.4 million in the third quarter declined 1% compared to
the third quarter last year. Net sales in the first nine months of
fiscal 2002 increased 2%.
Sales of the Cardiac Assist / Monitoring Products segment were
$59.8 million compared to $59.5 million in the third quarter last
year and $171.4 million in the first nine months of fiscal 2002
compared to $165.4 million last year.
Sales of Cardiac Assist products in the third quarter of
fiscal 2002 were $27.6 million or 11% below the same period
last year, primarily because U.S. sales of intra-aortic
balloon pumps in the third quarter of last year benefited from
a substantially higher level of trade-ins of discontinued pump
models. In the first nine months of fiscal 2002 sales of
Cardiac Assist products were $81.8 million compared to $86.9
million last year, with the decrease primarily attributable to
lower sales of balloon pumps.
Datascope began marketing its next generation intra-aortic
balloon catheter, the Fidelity 8 Fr., in February 2002 as
planned. The Fidelity product is intended to replace the
Profile 8 Fr. balloon catheter. After a favorable response
from customers to an initial market release, in April 2002 the
Company began ramping up the Fidelity market launch. By the
end of the fourth fiscal quarter, the Company expects unit
sales of Fidelity 8 Fr. to account for 20% of all Datascope
balloon catheters.
Sales of Patient Monitoring products rose 12% to $32.2 million
in the third quarter of fiscal 2002. The strong growth in
sales reflects continued strong demand for the flagship
Passport 2(R) monitor. Sales growth also reflects growing
contributions from sales of wireless and wired central
monitoring systems and from sales of Masimo SET pulse oximetry
sensors that are linked to the growing installed base of
Passport and Accutorr(R) monitors. Sales of Patient Monitoring
products in the first nine months of fiscal 2002 were $89.6
million compared to $78.5 million last year, for the same
reasons discussed above.
Sales of the Collagen Products / Vascular Grafts segment were
$21.4 million compared to $22.4 million in the third quarter last
year and $58.4 million in the first nine months of fiscal 2002
compared to $60.4 million last year.
Sales of VasoSeal(R) arterial puncture sealing devices
continued under pressure, decreasing 12% to $13.5 million in
the third quarter of fiscal 2002, and 8% to $39.1 million in
the first nine months of fiscal 2002.
The Company received FDA approval on March 7, 2002 of a PMA
Special Supplement for a new technique for deploying both
VasoSeal VHD and VasoSeal ES devices. Importantly, the new
technique, called MHT, protects the mechanical seal produced
by deployment of VasoSeal's collagen plug.
The early clinical experience with MHT, which included
anticoagulated interventional patients and diagnostic patients
at beta sites in Europe and the United States, is encouraging;
MHT largely eliminates the previous need for postprocedure
hold in order to achieve hemostasis. The introduction of MHT
to the U.S. market began in mid-April 2002 and is planned to
reach most existing accounts by the end of the fourth quarter.
Over time, the Company believes that MHT could significantly
bolster VasoSeal's competitive position.
During the third quarter the Company also submitted new
product PMA Supplements for VasoSeal 4-5 Fr. and VasoSeal
Elite. VasoSeal 4-5 Fr. is a downsized VHD model aimed at the
growing market segment of 4 and 5 French diagnostic
procedures. VasoSeal Elite embodies the new proprietary
collagen hemostat whose development the Company has previously
reported. The Elite PMA Supplement covers the VHD and ES
VasoSeal models.
Sales of InterVascular, Inc. increased 11% to $7.5 million,
reflecting continued strong demand in European markets for the
InterGard(R) Silver anti-microbial graft. As planned,
Datascope began selling InterVascular products through its
dedicated direct sales organization in the U.S. in January
2002. InterVascular's direct selling entry to the U.S. market
was augmented by the launch of the InterGard(R) Heparin coated
graft line and the Company is encouraged by the positive
responses to date from U.S. vascular surgeons. For the first
nine months of fiscal 2002, InterVascular sales were $18.5
million compared to $17.0 million last year, with the increase
due to higher international sales.
The stronger U.S. dollar compared to major European currencies
decreased total sales by approximately $0.6 million in the third
quarter of fiscal 2002 and $0.8 million for the first nine months of
fiscal 2002.
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage was 57.2% for the third quarter and 58.8%
for the first nine months of fiscal 2002, compared to 60.4% and 60.2%
for the corresponding periods last year. The reduced gross profit
percentage in the third quarter and first nine months of fiscal 2002
was primarily attributable to a less favorable sales mix, as a result
of increased sales of lower margin patient monitoring products and
decreased sales of higher margin cardiac assist and VasoSeal products.
Research and Development (R&D)
R&D expenses, as a percentage of sales, were 8.5% for the third quarter
and 8.2% for the first nine months of fiscal 2002, compared to 7.9% and
8.3% for the corresponding periods last year.
R&D expenses were $6.9 million in the third quarter and $18.8 million
in the first nine months of fiscal 2002 compared to $6.5 million and
$18.8 million for the corresponding periods last year. The increased
R&D expenses in the third quarter of fiscal 2002 was primarily
attributable to new product development expenses in Patient Monitoring
and InterVascular.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses, as a percentage of sales were 38.3% in the third quarter
and 40.3% in the first nine months of fiscal 2002 compared to 38.0% and
38.4% for the corresponding periods last year. SG&A expenses were $31.2
million in the third quarter and $92.8 million in the first nine months
of fiscal 2002 compared to $31.2 million and $87.0 million for the
corresponding periods last year. The increase in SG&A expenses in the
nine month period was primarily attributable to:
o investment in building a U.S. direct field force for
InterVascular, Inc.
o filling open field sales positions and territory expansions in
Cardiac Assist and Patient Monitoring
o the impact from the earlier expansion of the VasoSeal U.S.
field organization.
The stronger U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $0.4 million in the third
quarter of fiscal 2002 and approximately $0.5 million in the first nine
months of fiscal 2002.
Restructuring Charges
In the first and second quarters of fiscal 2002, the Company recorded
restructuring charges totaling $11.4 million ($5.1 million in the first
quarter and $6.3 million in the second quarter). The restructuring
charges consisted of the following.
First Quarter
o severance expenses, asset write-downs, and exit costs related
to the closure of the VasoSeal manufacturing and R&D facility
in Vaals, the Netherlands, and
o severance expenses for employee terminations in New Jersey
facilities.
By the end of the fourth quarter, the manufacture of VasoSeal products
will be centralized in the Mahwah, New Jersey VasoSeal facility. The
Vaals facility was put up for sale at the end of April and will be
formally closed by the end of the fourth quarter. The Company received
FDA clearance for manufacturing at the Mahwah facility, which also
houses VasoSeal R&D, warehousing and administration.
Headcount reductions, primarily in the Netherlands, totaled 110 people,
or 8% of the Company's worldwide employment. All of the New Jersey
based employees left the Company effective September 30, 2001.
Approximately 85% of the Vaals employees left the Company by the end of
April and the remaining employees will be leaving by the end of June
2002.
Second Quarter
o workforce reductions in VasoSeal and Patient Monitoring
o costs associated with discontinuing the coronary stent sales
business in Europe, including the resulting impairment of our
investments in AMG and QualiMed, and
o closure of an unprofitable Cardiac Assist direct sales
operation in a European country.
Based on the highly competitive stent market in Europe and an analysis
of the future economic contributions of the stent business, the company
decided to exit the coronary stent business. In conjunction with this
decision, Datascope decided not to exercise the option to purchase the
remaining 70% of the equity of AMG and QualiMed and to discontinue
support to these businesses. As a consequence of these decisions and
the resulting impact on the operations of AMG and QualiMed, the company
determined that there has been an other than temporary decline in the
value of these investments. As a result, the company has adjusted the
carrying value of these investments to their net realizable value by
writing off its 30% equity investment in these two companies. Datascope
will continue to sell peripheral stent products in Europe through its
subsidiary, InterVascular, Inc. The Cardiac Assist direct sales
operation in a European country was closed because it was unprofitable.
The company will distribute its Cardiac Assist products through a
distributor in this country. The restructuring charge in the second
quarter includes severance expenses for 41 people, or 3% of the
company's worldwide employment. Substantially all of the terminated
employees left the company effective December 31, 2001.
The workforce reductions will not have any significant impact on our
operations. The restructuring programs are expected to provide annual
cost savings of approximately $10.0 million.
Other Income and Expense
Interest income was $0.4 million in the third quarter compared to $0.8
million last year. The decline in interest income in the third quarter
of fiscal 2002 was the result of a lower average portfolio balance
(from $53.3 million to $38.0 million) and a decrease in the average
yield from 6.0% to 4.0%. Interest income was $1.4 million in the first
nine months of fiscal 2002 compared to $2.8 million in the same period
last year with the decrease due to the same reasons discussed above.
In the first quarter of fiscal 2001 we 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.
Goodwill Amortization - Adoption of Recent Accounting Standard
In the first quarter of fiscal 2002, the Company adopted Financial
Accounting Standards Board Statement No. 142, "Accounting for Goodwill
and Other Intangible Assets." In accordance with the new accounting
rules, the Company discontinued amortizing goodwill, which amounted to
$179 thousand pre tax, equivalent to $0.01 per share after tax, in the
third quarter of fiscal 2002, and $537 thousand pre tax, equivalent to
$0.03 per share after tax for the first nine months of fiscal 2002.
There was no impairment of goodwill based on appropriate testing and
analysis.
Income Taxes
In the third quarter of fiscal 2002, the consolidated effective tax
rate was 31.5% compared to 31.2% for the third quarter last year. In
the first nine months of fiscal 2002 the tax rate was 43.4% compared to
31.7% for the comparable period last year. The tax rate in the first
nine months of fiscal 2002 was significantly impacted by expenses
related to the restructuring programs in the first half of the year
that were not deductible for tax purposes, primarily in international
businesses. Excluding special items in both years, the effective tax
rate was 31.5% in the first nine months of fiscal 2002 compared to
31.6% for the comparable period last year.
Net Earnings
Net earnings in the third quarter of fiscal 2002 of $6.0 million or
$0.40 per diluted share compared to net earnings of $8.6 million, or
$0.56 per diluted share last year. The decreased earnings were
primarily attributable to lower sales, a reduced gross margin
percentage and increased R&D expenses, as discussed above.
Net earnings in the first nine months of fiscal 2002 were $7.7 million
or $0.51 per diluted share compared to $22.9 million or $1.48 per
diluted share last year. Excluding special items in both years, net
earnings for the first nine months of fiscal 2002 were $17.1 million or
$1.13 per diluted share compared to $22.5 million or $1.46 per diluted
share in the first nine months last year. The decreased earnings were
primarily attributable to lower sales, a reduced gross margin
percentage and increased SG&A expenses, as discussed above.
Liquidity and Capital Resources
Working capital was $118.4 million at March 31, 2002, compared to $129.7
million at June 30, 2001. The current ratio was 3.4:1 compared to 3:5:1 at
June 30, 2001. The decrease in working capital was primarily the result of
a decrease in cash and short term investments ($16.6 million), partially
offset by a decrease in current liabilities ($2.8 million) and an increase
in prepaid expenses and other current assets ($1.3 million).
In the first nine months of fiscal 2002, cash provided by operations was
$8.8 million compared to $5.3 million last year. The increase is primarily
attributable to a decrease in accounts receivable and inventories. Net cash
provided by investing activities was $1.1 million, attributable to
maturities of investments of $66.3 million, offset by $60.0 million
purchases of investments and the purchase of $5.2 million of property,
plant and equipment. Net cash used in financing activities was $10.2
million, due to stock repurchases of $8.9 million and $2.2 million
dividends paid, offset by stock option activity of $0.9 million.
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.
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 were able to 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 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 was not 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 contains forward-looking statements that involve risks
and uncertainties that could cause actual results to 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 our control, including the possibility that
market conditions may change, particularly as the result of competitive
activity in the Cardiac Assist, Vascular Sealing and other markets served
by the Company, the Company's dependence on certain suppliers for Patient
Monitoring, Cardiac Assist and VasoSeal products and the Company's ability
to gain market acceptance for new products. Additional risks are the
possibility that FDA will not approve PMA applications for new VasoSeal
products, the possibility that the new technique for VasoSeal, MHT, will
not significantly bolster VasoSeal's competitive position, the possibility
that the Company will not achieve success through direct selling of
InterVascular products in the U.S., the ability of the Company to
successfully introduce new products, continued demand for the Company's
products generally, rapid and significant changes that characterize the
medical device industry and the ability to continue to respond to such
changes, the uncertain timing of regulatory approvals, as well as other
risks detailed 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.
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 March 31, 2002, we had a notional amount of $7.8 million of foreign
exchange forward contracts outstanding, which were in Euros and British pounds.
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.
Part II:
Item 1. Legal Proceedings.
By Opinion and Order dated April 1, 2002, the United States
District Court for the District of New Jersey dismissed the
federal court action commenced by David B. Shaev against
Lawrence Saper, et al., Case No. 01-CV-3744. In dismissing the
action, the Court held that Datascope's Proxy Statement dated
October 27, 2000, did not contain materially false or
misleading statements about the plan under which Mr. Saper
received a bonus. The Court declined to exercise its
supplemental jurisdiction over the remaining state law claims
and dismissed the remainder of the action without prejudice.
The New York state court action commenced by Mr. Shaev against
Mr. Saper and others remains pending.
By notice of appeal dated April 23, 2002, Mr. Shaev appealed
from each and every part of the Opinion and Order dismissing
the Complaint.
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.
Datascope Corp. and Subsidiaries
Statements of Consolidated Earnings
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------------------------------------------------------
2002 2001 2002 2001
---------------- ---------------- -------------- --------------
Net Sales $ 230,600 $ 226,600 $ 81,400 $ 82,200
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 94,961 90,240 34,867 32,528
Research and development
expenses 18,843 18,815 6,947 6,511
Selling, general and
administrative expenses 92,824 87,016 31,179 31,228
Restructuring charges 11,463 -- -- --
--------- --------- --------- ---------
218,091 196,071 72,993 70,267
--------- --------- --------- ---------
Operating Earnings 12,509 30,529 8,407 11,933
Other (Income) Expense:
Interest income (1,440) (2,800) (394) (812)
Interest expense 50 22 11 13
Other, net 364 (211) (6) 170
--------- --------- --------- ---------
(1,026) (2,989) (389) (629)
--------- --------- --------- ---------
Earnings Before Taxes on Income 13,535 33,518 8,796 12,562
Taxes on Income 5,880 10,628 2,770 3,922
--------- --------- --------- ---------
Net Earnings $ 7,655 $ 22,890 $ 6,026 $ 8,640
========= ========= ========= =========
Earnings Per Share, Basic $ 0.52 $ 1.55 $ 0.41 $ 0.58
========= ========= ========= =========
Weighted average common
shares outstanding, Basic 14,805 14,815 14,778 14,790
========= ========= ========= =========
Earnings Per Share, Diluted $ 0.51 $ 1.48 $ 0.40 $ 0.56
========= ========= ========= =========
Weighted average common
shares outstanding, Diluted 15,099 15,463 14,950 15,405
========= ========= ========= =========
See notes to consolidated financial statements
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
March 31, June 30,
2002 2001
--------------- ---------------
Assets (unaudited) (a)
Current Assets:
Cash and cash equivalents $ 5,183 $ 5,545
Short-term investments 16,391 32,669
Accounts receivable less allowance for
doubtful accounts of $1,149 and $1,350 75,798 75,712
Inventories 56,384 55,261
Prepaid expenses and other current assets 13,771 12,472
--------------- ---------------
Total Current Assets 167,527 181,659
Property, Plant and Equipment, net of accumulated
depreciation of $57,360 and $52,422 90,218 90,634
Long-Term Investments 24,154 14,134
Other Assets 25,652 23,908
--------------- ---------------
$ 307,551 $ 310,335
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 15,676 $ 18,987
Accrued expenses 18,469 14,211
Accrued compensation 10,939 14,248
Deferred revenue 4,020 4,498
--------------- ---------------
Total Current Liabilities 49,104 51,944
Other Liabilities 15,087 14,913
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, 17,706 and 17,508 shares 177 175
Additional paid-in capital 72,071 69,148
Treasury stock at cost, 2,928 and 2,713 shares (85,895) (77,038)
Retained earnings 267,063 261,625
Accumulated other comprehensive loss (10,056) (10,432)
--------------- ---------------
243,360 243,478
--------------- ---------------
$ 307,551 $ 310,335
=============== ===============
(a) Derived from audited financial statements
See notes to consolidated financial statements
Datascope Corp. and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31
--------------------------------
2002 2001
-------------- --------------
Operating Activities:
Net cash provided by operating activities $ 8,827 $ 5,281
------------- -------------
Investing Activities:
Capital expenditures (5,171) (8,355)
Proceeds from sale of Oakland facility -- 1,112
Purchases of investments (60,013) (37,290)
Maturities of investments 66,271 50,656
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Net cash provided by investing activities 1,087 6,123
------------- -------------
Financing Activities:
Treasury shares acquired under repurchase programs (8,857) (8,070)
Exercise of stock options and other 899 1,079
Cash dividends paid (2,217) (2,076)
------------- -------------
Net cash used in financing activities (10,175) (9,067)
------------- -------------
Effect of exchange rates on cash (101) 325
------------- -------------
(Decrease) Increase in cash and cash equivalents (362) 2,662
Cash and cash equivalents, beginning of period 5,545 3,138
------------- -------------
Cash and cash equivalents, end of period $ 5,183 $ 5,800
============= =============
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 3,275 $ 11,589
------------- -------------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 5,925 $ 5,868
------------- -------------
See notes to consolidated financial statements
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 March 31, 2002, the statements of
consolidated earnings for the three and nine month periods ended March 31, 2002
and 2001 and the statements of cash flows for the nine month periods ended March
31, 2002 and 2001 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, 2001. The results of operations for the period ended March 31, 2002 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.
------------ ------------
March 31, June 30,
2002 2001
------------ ------------
Materials $26,000 $24,550
Work in Process 9,265 10,185
Finished Goods 21,119 20,526
------------ ------------
$56,384 $55,261
============ ============
3. Stockholders' Equity
Changes in the components of stockholders' equity for the nine months ended
March 31, 2002 were as follows:
Net earnings $7,655
Foreign currency translation adjustments 376
Common stock and additional paid-in
capital effects of stock option activity 2,925
Cash dividends on common stock (2,217)
Purchases under stock repurchase plans (8,857)
------------
Total decrease in stockholders' equity ($118)
============
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:
--------------------------------- ------------------------------------------------------------------------------------
For Three Months Ended March 31, 2002 March 31, 2001
--------------------------------- ------------------------------------------------------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
---------
------------ ------------ ------------ ------------- ------------- -----------
Earnings available to
common shareholders $6,026 14,778 $0.41 $8,640 14,790 $0.58
Diluted EPS
Options issued to employees -- 172 (0.01) -- 615 (0.02)
------------ ------------ ------------ ------------- ------------- -----------
Earnings available to
common shareholders
plus assumed conversions $6,026 14,950 $0.40 $8,640 15,405 $0.56
============ ============ ============ ============= ============= ===========
--------------------------------- ------------------------------------------------------------------------------------
For Nine Months Ended March 31, 2002 March 31, 2001
--------------------------------- ------------------------------------------------------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
---------
------------ ------------ ------------ ------------- ------------- -----------
Earnings available to
common shareholders $7,655 14,805 $0.52 $22,890 14,815 $1.55
Diluted EPS
Options issued to employees -- 294 (0.01) -- 648 (0.07)
------------ ------------ ------------ ------------- ------------- -----------
Earnings available to
common shareholders
plus assumed conversions $7,655 15,099 $0.51 $22,890 15,463 $1.48
============ ============ ============ ============= ============= ===========
5. Comprehensive Income
In accordance with Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", we disclose comprehensive income and its components. For
the three and nine month periods ended March 31, 2002 and 2001 our comprehensive
income was as follows:
Nine Months Ended Three Months Ended
-------------------------- ---------------------------
3/31/02 3/31/01 3/31/02 3/31/01
------------ ------------ ------------- -------------
Net earnings $7,655 $22,890 $6,026 $8,640
Foreign currency translation
gain (loss) 376 (1,848) (544) (1,484)
------------ ------------ ------------- -------------
Total comprehensive income $8,031 $21,042 $5,482 $7,156
============ ============ ============= =============
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.
Cardiac Collagen
Assist/ Products/ Corporate
Monitoring Vascular and
Products Grafts Other (a) Consolidated
----------------------------------------------------- -------------- -------------- -------------- ----------------
Three months ended March 31, 2002
-----------------------------------------------------
Net sales to external customers $59,816 $21,369 $215 $81,400
-------------- -------------- -------------- ----------------
Operating earnings $4,745 $1,808 $1,854 $8,407
-------------- -------------- -------------- ----------------
-----------------------------------------------------
Three months ended March 31, 2001
-----------------------------------------------------
Net sales to external customers $59,517 $22,448 $235 $82,200
-------------- -------------- -------------- ----------------
Operating earnings $6,425 $4,769 $739 $11,933
-------------- -------------- -------------- ----------------
-----------------------------------------------------
Nine months ended March 31, 2002
-----------------------------------------------------
Net sales to external customers $171,429 $58,432 $739 $230,600
-------------- -------------- -------------- ----------------
Operating earnings $16,784 $5,902 $1,286 $23,972
-------------- -------------- -------------- ----------------
-----------------------------------------------------
Nine months ended March 31, 2001
-----------------------------------------------------
Net sales to external customers $165,426 $60,375 $799 $226,600
-------------- -------------- -------------- ----------------
Operating earnings $16,329 $11,888 $2,312 $30,529
-------------- -------------- -------------- ----------------
-----------------------------------------------------------------------------------------------------------------------------
Reconciliation to consolidated earnings Nine Months Ended Three Months Ended
before income taxes : 3/31/02 3/31/01 3/31/02 3/31/01
----------------------------------------------------- -------------- -------------- -------------- ----------------
Consolidated operating earnings $23,972 $30,529 $8,407 $11,933
Interest income, net 1,390 2,778 383 799
Other (expense) income (364) 211 6 (170)
Restructuring charges (11,463) -- -- --
-------------- -------------- -------------- ----------------
Consolidated earnings before taxes $13,535 $33,518 $8,796 $12,562
============== ============== ============== ================
(a) Net sales of life science products by Genisphere are included within
Corporate and Other.
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
7. Goodwill and Other Intangible Assets
Early Adoption of Financial Accounting Standard No. 142
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible
Assets" (SFAS No. 142), in June 2001. This statement provides guidance on how to
account for existing goodwill and intangible assets from completed acquisitions.
In accordance with the early adoption provision of this statement, we adopted
SFAS No. 142 in the first quarter fiscal 2002. We discontinued the amortization
of goodwill and determined there was no impairment in the carrying value of our
existing goodwill ($4.1 million).
The following table presents our earnings and earnings per share on a proforma
basis (including special items in both years) as though goodwill amortization
had not been recorded in the prior year.
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------------------------------------------
2002 2001 2002 2001
------------ ------------ ------------- ------------
Net earnings:
Reported net earnings $7,655 $22,890 $6,026 $8,640
Add back goodwill amortization -- 369 -- 123
------------ ------------ ------------- ------------
Adjusted net earnings $7,655 $23,259 $6,026 $8,763
============ ============ ============= ============
Basic earnings per share:
Reported earnings per share $0.52 $1.55 $0.41 $0.58
Goodwill amortization -- 0.03 -- 0.01
------------ ------------ ------------- ------------
Adjusted earnings per share $0.52 $1.58 $0.41 $0.59
============ ============ ============= ============
Diluted earnings per share:
Reported earnings per share $0.51 $1.48 $0.40 $0.56
Goodwill amortization -- 0.03 -- 0.01
------------ ------------ ------------- ------------
Adjusted earnings per share $0.51 $1.51 $0.40 $0.57
============ ============ ============= ============
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
8. Restructuring Charges
In the first and second quarters of fiscal 2002, the company recorded
restructuring charges totaling $11.4 million, ($5.1 million in the first quarter
and $6.3 million in the second quarter). The restructuring charges consisted of
the following.
First Quarter
o severance expenses, asset writedowns and exit costs related to the closure
of the VasoSeal manufacturing and R&D facility in Vaals, The Netherlands
and
o severance expenses for employee terminations in New Jersey facilities.
By the end of the fourth quarter, the manufacture of VasoSeal products will be
centralized in the Mahwah, New Jersey VasoSeal facility. The Vaals facility was
put up for sale at the end of April and will be formally closed by the end of
the fourth quarter. The Company received FDA clearance for manufacturing at the
Mahwah facility, which also houses VasoSeal R&D, warehousing and administration.
Headcount reductions, primarily in the Netherlands, totaled 110 people, or 8% of
the Company's worldwide employment. All of the New Jersey based employees left
the company effective September 30, 2001. Approximately 85% of the Vaals
employees left the Company by the end of April and the remaining employees will
be leaving by the end of June 2002.
Second Quarter
o workforce reductions in VasoSeal and Patient Monitoring
o costs associated with discontinuing the coronary stent sales business in
Europe, including the resulting impairment of our investments in AMG and
QualiMed, and
o closure of an unprofitable Cardiac Assist direct sales operation in a
European country.
Based on the highly competitive stent market in Europe and an
analysis of the future economic contributions of the stent business, the Company
decided to exit the coronary stent business. In conjunction with this decision,
Datascope decided not to exercise the option to purchase the remaining 70% of
the equity of AMG and QualiMed and to discontinue support to these businesses.
As a consequence of these decisions, and the resulting impact on the operations
of AMG and QualiMed, the company determined that there has been an other than
temporary decline in the value of these investments. As a result, the company
has adjusted the carrying value of these investments to their net realizable
value by writing off its 30% equity investment in these two companies. Datascope
will continue to sell peripheral stent products in Europe through its
subsidiary, InterVascular, Inc. The Cardiac Assist direct sales operation in a
European country was closed because it was unprofitable. The company will
distribute its Cardiac Assist products through a distributor in this country.
The restructuring charge in the second quarter includes severance expenses for
41 people, or 3% of the company's worldwide employment. Substantially all of the
terminated employees left the company effective December 31, 2001.
The workforce reductions will not have any significant impact on our operations.
Severance accrued for terminated employees will be utilized by the end of fiscal
2003. A summary of the restructuring charges and remaining liability at March
31, 2002 is shown below.
CA Office
Vaals U.S. Stent Closure
Plant Workforce Business European
Exit Costs Reductions Exit Costs Country Total
------------ ------------ ------------ ------------ ------------
Q1 Fiscal 2002 restructuring charges $3,570 $1,562 -- -- $5,132
Q2 Fiscal 2002 restructuring charges 354 986 4,900 91 6,331
------------ ------------ ------------ ------------ ------------
Total restructuring charges 3,924 2,548 4,900 91 11,463
Utilized through March 31, 2002 2,285 1,529 4,133 84 8,031
------------ ------------ ------------ ------------ ------------
Remaining liability at March 31, 2002 $1,639 $1,019 $767 $7 $3,432
============ ============ ============ ============ ============
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
9. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). This statement provides guidance on how to
account and report for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. We do not expect this
statement to have a material impact on our financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). This statement provides
guidance on accounting and reporting for long-lived assets to be held and used,
disposed of by sale and disposed of other than by sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. We do not expect
this statement to have a material impact on our financial statements.
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: May 15, 2002