UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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 000-06516
DATASCOPE CORP.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2529596
-------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 Philips Parkway, Montvale, New Jersey 07645-9998
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 391-8100
-------------------------------------------------------------------------------
(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
----- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES X NO
----- ------
Number of Shares of Company's Common Stock outstanding as of April 30, 2004:
14,790,467.
Datascope Corp.
Form 10-Q Index
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2004 and June 30, 2003 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit 31.1. Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2. Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1. Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Datascope Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
March 31, June 30,
2004 2003
----------- ---------
(a)
Assets
Current Assets:
Cash and cash equivalents $ 11,340 $ 10,572
Short-term investments 37,489 27,878
Accounts receivable less allowance for
doubtful accounts of $2,253 and $2,020 68,590 73,924
Inventories, net 51,858 49,409
Prepaid expenses and other current assets 17,786 15,733
--------- ---------
Total Current Assets 187,063 177,516
Property, Plant and Equipment, net of accumulated
depreciation of $74,190 and $68,431 87,910 89,607
Long-term Investments 43,551 36,827
Other Assets 41,512 34,882
--------- ---------
$ 360,036 $ 338,832
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 16,929 $ 13,137
Accrued expenses 17,698 14,064
Accrued compensation 14,575 14,579
Deferred revenue 3,757 4,362
--------- ---------
Total Current Liabilities 52,959 46,142
Other Liabilities 21,649 21,015
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, 17,916 and 17,750 shares 179 178
Additional paid-in capital 77,905 73,319
Treasury stock at cost, 3,126 and 2,981 shares (92,500) (87,423)
Retained earnings 305,414 292,912
Accumulated other comprehensive loss:
Cumulative translation adjustments (2,694) (4,435)
Minimum pension liability adjustments (2,876) (2,876)
--------- ---------
Total Stockholders' Equity 285,428 271,675
--------- ---------
$ 360,036 $ 338,832
========= =========
(a) Derived from consolidated audited financial statements
See notes to condensed consolidated financial statements
1
Datascope Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net Sales $ 253,800 $ 239,200 $ 89,900 $ 84,700
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 105,044 100,542 36,992 35,968
Research and development
expenses 23,683 21,787 8,413 7,495
Selling, general and
administrative expenses 101,313 95,568 34,332 32,250
--------- --------- --------- ---------
Subtotal 230,040 217,897 79,737 75,713
Gain on legal settlement -- (3,028) -- --
--------- --------- --------- ---------
230,040 214,869 79,737 75,713
--------- --------- --------- ---------
Operating Earnings 23,760 24,331 10,163 8,987
Other (Income) Expense:
Interest income (1,408) (1,152) (564) (520)
Interest expense -- 1 -- --
Other, net 258 176 256 137
--------- --------- --------- ---------
(1,150) (975) (308) (383)
--------- --------- --------- ---------
Earnings Before Taxes on Income 24,910 25,306 10,471 9,370
Taxes on Income 7,971 8,260 3,351 2,999
--------- --------- --------- ---------
Net Earnings $ 16,939 $ 17,046 $ 7,120 $ 6,371
========= ========= ========= =========
Earnings Per Share, Basic $ 1.15 $ 1.15 $ 0.48 $ 0.43
========= ========= ========= =========
Weighted average common
shares outstanding, Basic 14,780 14,775 14,789 14,769
========= ========= ========= =========
Earnings Per Share, Diluted $ 1.12 $ 1.15 $ 0.47 $ 0.43
========= ========= ========= =========
Weighted average common
shares outstanding, Diluted 15,108 14,840 15,157 14,818
========= ========= ========= =========
See notes to condensed consolidated financial statements
2
Datascope Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
-------------------------------------------
2004 2003
------------------- -------------------
(As restated
See note 9)
Operating Activities:
Net cash provided by operating activities $ 33,231 $ 31,384
------------------- -------------------
Investing Activities:
Capital expenditures (3,115) (4,168)
Purchases of investments (63,089) (43,885)
Maturities of investments 46,753 31,519
Capitalized software (4,458) (3,434)
Purchased technology and licenses (1,858) (133)
Equity investments (500) (450)
------------------- -------------------
Net cash used in investing activities (26,267) (20,551)
------------------- -------------------
Financing Activities:
Treasury shares acquired under repurchase programs (5,077) (657)
Exercise of stock options and other 4,081 253
Cash dividends paid (4,437) (2,217)
------------------- -------------------
Net cash used in financing activities (5,433) (2,621)
------------------- -------------------
Effect of exchange rates on cash (763) (956)
------------------- -------------------
Increase in cash and cash equivalents 768 7,256
Cash and cash equivalents, beginning of period 10,572 5,548
------------------- -------------------
Cash and cash equivalents, end of period $ 11,340 $ 12,804
=================== ===================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 7,307 $ 6,890
------------------- -------------------
Non-cash investing and financing activities:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 5,499 $ 5,129
------------------- -------------------
Purchased technology milestone accrued $ 2,000 $ --
------------------- -------------------
See notes to condensed consolidated financial statements
3
Datascope Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands except per share data)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed unaudited consolidated financial statements include
the accounts of Datascope Corp. and its subsidiaries (the "Company" - which may
be referred to as "our", "us" or "we"). These statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim information, and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for interim periods are not necessarily indicative of results that may
be expected for the full year. The presentation of certain prior year
information has been reclassified to conform with the current year presentation.
Preparation of the Company's financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts in
the financial statements and accompanying notes. Actual results could differ
from those estimates. For further information, refer to the consolidated
financial statements and Notes included in the Company's Annual Report on
Form 10-K/A for the fiscal year ended June 30, 2003.
Stock-Based Compensation
We continue to account for our employee stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees." Under this opinion, 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.
As required by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," as amended, the fair value of option
grants is estimated on the date of grant using an option-pricing model. The
following table illustrates the effect on net earnings and earnings per share if
we had applied the fair value recognition provisions of SFAS No. 123 to our
stock-based compensation. These pro forma amounts may not be representative of
the effects on net earnings in future years since options generally vest over
several years and additional awards may be made each year.
Nine Months Ended Three Months Ended
March 31, March 31,
----------------------- ----------------------
2004 2003 2004 2003
------- --------- ------ ---------
Net earnings - as reported $16,939 $17,046 $7,120 $ 6,371
Add: Total stock based employee compensation
expense included in determination of net
income as reported -- -- -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (2,602) (2,611) (956) (935)
------- ------- ------ ---------
Net earnings - pro forma $14,337 $14,435 $6,164 $ 5,436
======= ======= ====== =========
Earnings per share:
Basic - as reported $ 1.15 $ 1.15 $ 0.48 $ 0.43
======= ======= ====== =========
Basic - pro forma $ 0.97 $ 0.98 $ 0.42 $ 0.37
======= ======= ====== =========
Diluted - as reported $ 1.12 $ 1.15 $ 0.47 $ 0.43
======= ======= ====== =========
Diluted - pro forma $ 0.95 $ 0.97 $ 0.41 $ 0.37
======= ======= ====== =========
4
Datascope Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands except per share data)
1. Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation (Continued)
For purposes of the pro forma disclosures, the weighted average fair values of
options granted for the three months ended March 31, 2004 and 2003 were $12.14
and $8.26, and for the nine months ended March 31, 2004 and 2003 were $11.90 and
$9.18, respectively.
The fair values of options granted were determined using the Black-Scholes
option-pricing model with the following assumptions:
Three and Nine Months Ended
March 31,
---------------------------
2004 2003
--------- ---------
Dividend yield 0.58% 0.76%
Volatility 33% 34%
Risk-free interest rate 2.97% 2.90%
Expected life 5.2 Years 5.2 Years
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board issued SFAS No. 132
(revised 2003) "Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of FASB Statements No. 87, 88 and 106," ("SFAS No. 132
(revised)"). This Statement revises employers' disclosures about pension plans
and other postretirement benefit plans. SFAS No. 132 (revised) retains the
disclosure requirements contained in SFAS No. 132, which it replaces. It
requires additional disclosures to those in the original SFAS No. 132 about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. SFAS No.
132 (revised) is effective for fiscal years ending after December 15, 2003 and
for interim periods beginning after December 15, 2003. Based on these effective
dates, we are providing the additional interim disclosures as of this quarter
ending March 31, 2004 (See Note 7) and will provide annual disclosures
beginning with our fiscal year ending June 30, 2004.
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46R (FIN 46R), "Consolidation of Variable Interest Entities."
FIN 46R replaces the same titled FIN 46 that was issued in January 2003. FIN 46R
identifies when entities must be consolidated with the financial statements of a
company where the investors in an entity do not have the characteristics of a
controlling financial interest or the entity does not have sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support. Application of this Interpretation applies to our financial
statements beginning January 1, 2004. The adoption of FIN 46R did not have a
material impact on our consolidated financial statements.
2. Inventories, Net
Inventories, net are stated at the lower of cost or market, with cost determined
on a first-in, first-out basis.
--------- --------
March 31, June 30,
2004 2003
--------- --------
Materials $21,976 $20,523
Work in Process 9,508 8,093
Finished Goods 20,374 20,793
-------- --------
$51,858 $49,409
======== ========
5
Datascope Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands except per share data)
3. Stockholders' Equity
Changes in the components of stockholders' equity for the nine months ended
March 31, 2004 were as follows:
Net earnings $16,939
Foreign currency translation adjustments 1,741
Common stock and additional paid-in
capital effects of stock option activity 4,587
Cash dividends on common stock (4,437)
Purchases under stock repurchase plans (5,077)
-------
Total increase in stockholders' equity $13,753
=======
4. Earnings Per Share
The reconciliation of Basic Earnings Per Share to Diluted Earnings Per Share for
the three and nine months ended March 31, 2004 and 2003 is as follows:
------------------------------ -------------------------------------- ---------------------------------------
For Nine Months Ended March 31, 2004 March 31, 2003
------------------------------ -------------------------------------- ---------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
--------- -------- ------ --------- -------- ------- ---------
Earnings available to
common shareholders $16,939 14,780 $ 1.15 $17,046 14,775 $ 1.15
Diluted EPS
-----------
Options issued to employees -- 328 0.03 -- 65 --
------- ------- -------- ------- ------- --------
Earnings available to
common shareholders $16,939 15,108 $ 1.12 $17,046 14,840 $ 1.15
======= ======= ======== ======= ======= ========
------------------------------ -------------------------------------- ---------------------------------------
For Three Months Ended March 31, 2004 March 31, 2003
------------------------------ -------------------------------------- ---------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
--------- -------- ------ --------- -------- ------- ---------
Earnings available to
common shareholders $7,120 14,789 $ 0.48 $6,371 14,769 $ 0.43
Diluted EPS
-----------
Options issued to employees -- 368 0.01 -- 49 --
------ ------ -------- ------ ------ --------
Earnings available to
common shareholders $7,120 15,157 $ 0.47 $6,371 14,818 $ 0.43
====== ====== ======== ====== ====== ========
5. Comprehensive Income
Our comprehensive income for the three and nine month periods ended March 31,
2004 and 2003 was as follows:
Nine Months Ended Three Months Ended
--------------------- ----------------------
3/31/04 3/31/03 3/31/04 3/31/03
------- ------- ------- -------
Net earnings $16,939 $17,046 $ 7,120 $ 6,371
Foreign currency translation gain (loss) 1,741 1,932 (343) 623
------- ------- ------- -------
Total comprehensive income $18,680 $18,978 $ 6,777 $ 6,994
======= ======= ======= =======
6
Datascope Corp. and Subsidiaries
Notes to Condensed 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
Interventional Products / Vascular Grafts.
The Cardiac Assist / Monitoring Products segment includes electronic
intra-aortic balloon pumps and catheters that are used in the treatment of
cardiovascular disease and electronic physiological monitors that provide for
patient safety and management of patient care.
The Interventional Products / Vascular Grafts segment includes extravascular
hemostasis devices which are used to seal arterial puncture wounds to stop
bleeding after cardiovascular catheterization procedures, dialysis access
products 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 Interventional
Assist / Products / Corporate
Monitoring Vascular and
Products Grafts Other (a) Consolidated
--------- -------------- ---------- ------------
---------------------------------
Nine months ended March 31, 2004
---------------------------------
Net sales to external customers $202,546 $ 50,218 $ 1,036 $253,800
-------- -------- -------- --------
Operating earnings (loss) $ 26,504 ($ 3,725) $ 981 $ 23,760
-------- -------- -------- --------
---------------------------------
Nine months ended March 31, 2003
---------------------------------
Net sales to external customers $184,770 $ 53,494 $ 936 $239,200
-------- -------- -------- --------
Operating earnings (b) $ 20,497 $ 430 $ 3,404 $ 24,331
-------- -------- -------- --------
---------------------------------
Three months ended March 31, 2004
---------------------------------
Net sales to external customers $ 71,846 $ 17,628 $ 426 $ 89,900
-------- -------- -------- --------
Operating earnings (loss) $ 9,385 ($ 1,711) $ 2,489 $ 10,163
-------- -------- -------- --------
---------------------------------
Three months ended March 31, 2003
---------------------------------
Net sales to external customers $ 66,688 $ 17,701 $ 311 $ 84,700
-------- -------- -------- --------
Operating earnings (loss) $ 9,035 ($ 1,187) $ 1,139 $ 8,987
-------- -------- -------- --------
------------------------------------------------------------------------------------------------------------
Reconciliation to consolidated earnings Nine Months Ended Three Months Ended
before income taxes : 3/31/04 3/31/03 3/31/04 3/31/03
--------------------------------------- -------- ---------- --------- ---------
Consolidated operating earnings $ 23,760 $ 24,331 $ 10,163 $ 8,987
Interest income, net 1,408 1,151 564 520
Other (expense) income (258) (176) (256) (137)
-------- -------- -------- --------
Consolidated earnings before taxes $ 24,910 $ 25,306 $ 10,471 $ 9,370
======== ======== ======== ========
(a) Net sales of life science products by Genisphere are included within
Corporate and Other.
(b) Operating earnings for Corporate and Other for the nine months ended March
31, 2003 includes a gain on legal settlement of $3.0 million.
7
Datascope Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands except per share data)
7. Defined Benefit Retirement Plans
U.S. and International
We have defined benefit pension plans designed to provide retirement benefits to
substantially all of our employees. Pension benefits are based on years of
service, compensation and social security benefits. Funding for the U.S. plan is
within the range prescribed under the Employee Retirement Income Security Act of
1974. Funding policies for the international plans are based on local statutes.
The components of net pension expense of our U.S. and international defined
benefit pension plans are shown below:
Nine Months Ended Three Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
------- ------- ------- -------
Service Cost $ 2,132 $ 1,883 $ 769 $ 633
Interest Cost 2,249 2,268 811 763
Expected return on assets (2,276) (2,161) (821) (727)
Amortization of net loss and unrecognized
prior service cost 368 51 133 17
Amortization of the remaining unrecognized net
obligation 33 55 12 19
------- ------- ------- -------
Net pension expense $ 2,506 $ 2,096 $ 904 $ 705
======= ======= ======= =======
Contributions $ 90 $ 2,593 $ 83 $ 582
======= ======= ======= =======
Supplemental Retirement Plans
We have noncontributory, unfunded supplemental defined benefit retirement plans
for the Chairman and Chief Executive Officer, Mr. Lawrence Saper, and certain
current and former key officers. Life insurance has been purchased to recover a
portion of the net after tax cost for these supplemental retirement plans.
The components of net pension expense of the supplemental defined benefit
pension plans are shown below:
Nine Months Ended Three Months Ended
March 31, March 31,
------------------- -------------------
2004 2003 2004 2003
----- ----- ----- -----
Service Cost $ 279 $ 237 $ 93 $ 79
Interest Cost 529 521 176 173
Amortization of net loss (gain) 11 (234) 4 (78)
Amortization of unrecognized prior service cost 17 35 6 12
----- ----- ----- -----
Net pension expense $ 836 $ 559 $ 279 $ 186
===== ===== ===== =====
8
Datascope Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands except per share data)
8. Acquired Intangible Assets
The following is a summary of our intangible assets and goodwill.
March 31, June 30,
Intangible Assets 2004 2003
--------------------------- ------- -------
Purchased technology and licenses, gross $6,363 $2,505
Accumulated amortization (125) (65)
------- -------
Purchased technology and licenses, net $6,238 $2,440
======= =======
The balances in purchased technology and licenses, primarily represent
milestones for the ProLumen thrombectomy device, purchased from Rex Medical LP.
Amortization expense for the nine month periods ended March 31, 2004 and 2003
was $60 and $35, respectively.
At March 31, 2004, estimated future amortization expense of intangible assets
subject to amortization is as follows: $170 for the remaining three months of
fiscal 2004 and approximately $670, $670, $660 and $630 for fiscal years 2005,
2006, 2007, and 2008, respectively.
March 31, June 30,
Goodwill 2004 2003
------------------------ ------- -------
Goodwill, gross $8,421 $8,421
Accumulated amortization (4,356) (4,356)
------- -------
Goodwill, net $4,065 $4,065
======= =======
There was no acquired goodwill and no change in the carrying value of existing
goodwill during the nine months ended March 31, 2004. Amortization of goodwill
was discontinued upon the adoption of SFAS No. 142 in fiscal year 2002. The
Company's annual impairment test is performed during the fourth quarter of its
fiscal year. There has been no impairment of goodwill based on appropriate
testing and analysis performed since the initial test for impairment in the
fourth quarter of fiscal 2002.
Of the $4.1 million in net goodwill, $1.8 million is included in the
Interventional Products / Vascular Grafts segment and the remaining $2.3 million
is in Corporate and Other.
Intangible assets and goodwill are included in other assets on the accompanying
condensed consolidated balance sheets.
9. Restatement of Cash Flow Statement, Nine Months Ended March 31, 2003
Subsequent to the issuance of its condensed consolidated financial statements
for the period ended March 31, 2003, the Company determined that cash flows
associated with purchased technology, capitalized software and other
individually insignificant items, should be classified as investing activities
rather than as operating activities in its condensed consolidated statements of
cash flows.
As a result, cash flows provided by operating activities for the nine months
ended March 31, 2003 have been increased by $4.0 million and cash flows used for
investing activities for the nine months ended March 31, 2003 have been
increased by $4.0 million from the amounts previously reported. Such restatement
does not change our statement of earnings or balance sheet and, accordingly, has
had no effect on previously reported net income, earnings per share or net
worth.
9
Datascope Corp. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
As discussed in Note 9 to the Notes to the Condensed Consolidated Financial
Statements, "Restatement of Cash Flow Statements," the condensed
consolidated statement of cash flows for the nine months ended March 31,
2003 has been restated to change the classification of payments for
purchased technology, capitalized software and other individually
insignificant items. Such restatement does not change our income statement
or balance sheet and, accordingly, has had no effect on previously reported
net income, earnings per share or net worth. Amounts affected by this
restatement included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" have
been appropriately revised.
Business Overview
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. We have four
product lines that are aggregated into two reportable segments, Cardiac
Assist / Monitoring Products and Interventional Products / Vascular Grafts.
Our products are sold worldwide by direct sales employees and independent
distributors.
We have continued our focus on new product development and have increased
our investment in research and development during the first nine months of
fiscal 2004. Datascope's financial position continued to strengthen in the
first nine months of fiscal 2004, with cash and marketable investments
increasing $17.1 million to $85.4 million at March 31, 2004. The increase
resulted primarily from positive cash flow from operating activities.
Results of Operations
The following table shows the comparison of net earnings and earnings per
diluted share for the third quarter and nine month periods of fiscal 2004
and 2003.
(Dollars in millions, except EPS)
---------------------------------------------------------------------
Nine Months Ended Three Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Net Earnings(1) $ 16.9 $ 17.0 $ 7.1 $ 6.4
Earnings per share, diluted(1) $1.12 $1.15 $0.47 $0.43
Net Sales
Net sales of $89.9 million in the third quarter and $253.8 million in the
first nine months of fiscal 2004 increased 6% compared to the third quarter
and first nine months of fiscal 2003.
Sales of the Cardiac Assist / Monitoring Products segment were $71.8
million in the third quarter in fiscal 2004 compared to $66.7 million
in the same period last year and $202.5 million in the first nine
months of fiscal 2004 compared to $184.8 million last year.
Cardiac assist product sales in the third quarter of fiscal 2004
increased 7% to $33.8 million, reflecting continued higher sales
of intra-aortic balloon (IAB) catheters and pumps and favorable
foreign exchange translation of $0.9 million. Sales of the
premium-priced FidelityTM 8Fr. IAB catheter continued to increase,
accounting for 85% of total IAB catheter sales in the third
quarter. The new CS100TM intra-aortic balloon pump, Datascope's
first fully automatic pump, was launched globally in September
2003 and has rapidly replaced the Company's 98XT model. Increased
purchases of pumps by the Company's Japanese distributor and
higher shipments to international markets also contributed to
increased pump sales. In the first nine months of fiscal 2004
sales of cardiac assist products were $94.6 million compared to
$85.9 million last year.
--------
(1) Net earnings and earnings per share in the nine month period of fiscal
year 2003 shown above include a gain on legal settlement of $1.9
million after tax or $0.13 per diluted share.
10
Sales of patient monitoring products rose 8% to $38.0 million, the
thirteenth consecutive quarter of increased sales compared to the
prior year's quarter. The increase was attributable to higher
sales of bedside monitors, including the recently introduced
Spectrum(TM) and Trio(TM) monitors, and favorable foreign exchange
translation of $1.0 million. Sales of patient monitoring products
in the first nine months of fiscal 2004 were $107.9 million
compared to $98.9 million last year.
In February, the Company received clearance to market the Trio
monitor in the United States market. The Trio is a portable
patient monitor that targets price-sensitive markets estimated at
$80 million in annual worldwide sales. These markets include
surgery center, general hospital and outpatient applications. The
Trio features full monitoring capabilities including ECG,
respiration, blood pressure, oxygen saturation and temperature. It
also provides one of the largest, highest resolution displays in a
compact, highly portable package with optional battery power for
patient transport. The Trio was introduced in international
markets in the third quarter of last fiscal year.
Sales of the Interventional Products / Vascular Grafts segment were
$17.6 million compared to $17.7 million in the third quarter and $50.2
million in the first nine months of fiscal 2004 compared to $53.5
million last year.
Sales of the Interventional Products (IP) division were $9.4
million in the third quarter, compared to $9.8 million last year,
a decline of 4% despite a 12% drop in sales of vascular closure
devices. IP sales benefited from sales of Safeguard(TM), an
innovative dressing designed to maintain hemostasis after arterial
catheterization procedures, that was launched in the second
quarter. In the first nine months of fiscal 2004 sales of IP
division products were $28.0 million compared to $31.9 million
last year.
The Company entered the dialysis access market in the U.S. with
the launch of the ProLumen(TM) thrombectomy device. Thrombectomy
is the process of removing blood clots from blocked dialysis
access sites. An estimated 290,000 people require dialysis access,
with this number increasing at a rate of 6% annually. In the U.S.,
thrombectomy procedures are performed primarily by interventional
radiologists, a current and well-established sales call point for
the IP division. ProLumen is designed to quickly and effectively
clear clotted grafts in an estimated $37 million annual market for
such devices in the United States. Shipments began at the end of
the third quarter and the Company is pleased with the market
response to date.
Sales of InterVascular, Inc.'s products were $8.2 million compared
to $7.9 million last year, with foreign exchange contributing $0.6
million to this year's results. Excluding foreign exchange, sales
declined 4% due to lower selling prices in certain European
markets and lower shipments to the Company's distributor in Japan.
In March, the Company resubmitted its 510(k) notification to the
FDA for regulatory clearance to market InterGard(R) Silver grafts
in the United States. In the first nine months of fiscal 2004,
sales of InterVascular products were $22.2 million compared to
$21.6 million last year.
11
Sales of Genisphere products of $0.4 million in the third quarter
and $1.0 million in the first nine months of fiscal 2004,
increased $0.1 million compared to the corresponding periods last
year, attributable to sales of new products. Genisphere continued
to pursue its marketing strategy, to target major academic
institutions and the research and development department of
pharmaceutical and biotechnology companies.
The weaker U.S. dollar compared to the Euro and the British Pound
increased total sales by approximately $2.5 million in the third
quarter of fiscal 2004 and $5.7 million for the first nine months of
fiscal 2004 ($1.9 million and $4.0 million for the Cardiac Assist /
Monitoring Products segment and $0.6 million and $1.7 million for the
Interventional Products / Vascular Grafts segment for the third quarter
and first nine month periods, respectively).
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage was 58.9% for the third quarter and 58.6%
for the first nine months of fiscal 2004 compared to 57.5% and 58.0%
for the corresponding periods last year. The increase in the gross
margin percentage was primarily due to an improved gross margin
percentage in the Cardiac Assist / Monitoring Products segment, as a
result of cost reduction programs and sales of new products with higher
margins.
Research and Development (R&D)
We continued our Companywide focus on new product development and
improvements of existing products. Spending on R&D reflects investment
in new product development programs, sustaining R&D on existing
products, regulatory compliance and clinical evaluations. R&D expenses
increased 12% to $8.4 million in the third quarter of fiscal 2004,
equivalent to 9.4% of sales compared to $7.5 million or 8.8% of sales
in the third quarter last year. R&D expenses increased 9% to $23.7
million in the first nine months of fiscal 2004, equivalent to 9.3% of
sales compared to $21.8 million, or 9.1% of sales for the same period
last year.
R&D expenses for the Cardiac Assist / Monitoring Products segment
increased $0.4 million or 9% to $5.1 million in the third quarter and
$0.6 million or 4% to $14.8 million in the first nine months of fiscal
2004. Last year, R&D expenses in Cardiac Assist were lower due to
capitalization of software development expenses for the CS100 pump,
which reached technological feasibility in the third quarter last year.
R&D expenses for the Interventional Products / Vascular Grafts segment
increased $0.2 million or 11% to $2.4 million in the third quarter and
$0.9 million or 15% to $6.8 million in the first nine months of fiscal
2004, with the increases primarily due to new product development
projects in InterVascular.
The balance of consolidated R&D is in Corporate and Other and amounted
to $0.9 million in the third quarter and $2.1 million in the first nine
months of fiscal 2004.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses increased 6% to $34.3 million in the third quarter of
fiscal 2004, or 38.2% of sales compared to $32.3 million or 38.1% of
sales in the third quarter last year. In the first nine months of
fiscal 2004, SG&A expenses increased 6% to $101.3 million, or 39.9% of
sales, compared to $95.6 million, or 40.0% of sales, for the same
period last year.
12
SG&A expenses for the Cardiac Assist / Monitoring Products segment
increased $3.1 million or 14% to $25.1 million in the third quarter of
fiscal 2004 and $6.8 million or 11% to $69.2 million in the first nine
months of fiscal 2004. The increases were primarily attributable to
higher selling expenses as a result of filling open positions, higher
commission expense on higher sales and unfavorable foreign exchange
translation.
SG&A expenses for the Interventional Products / Vascular Grafts segment
increased $0.4 million or 3% to $12.5 million in the third quarter due
to expenses related to the integration of the clinical specialist staff
and territory managers to create a larger direct sales organization in
the IP division. SG&A expenses decreased $0.4 million or 1% in the
first nine months of fiscal 2004 compared to the corresponding period
last year due to lower selling expenses in the IP division.
Segment SG&A expenses include fixed corporate G&A charges that are
offset in Corporate and Other.
The weaker U.S. dollar compared to the Euro and the British Pound
increased SG&A expenses by approximately $1.4 million in the third
quarter and $3.7 million for the first nine months of fiscal 2004.
Gain on Legal Settlement
On July 21, 1999, Datascope Corp. instituted patent infringement
litigation relating to a vascular sealing method against Vascular
Solutions, Inc. in the United States District Court, District of
Minnesota. In that litigation, Datascope's complaint alleged that the
manufacture, use and/or sale of Vascular Solutions' Duett device
infringed Datascope's United States Patent No. 5,725,498. At the end of
November 2002, the parties settled the matter. Pursuant to the
settlement, Vascular Solutions paid Datascope $3.75 million and
Datascope granted Vascular Solutions a limited, non-exclusive patent
license. In the second quarter of fiscal 2003, we recorded an after-tax
gain on the settlement, net of related legal expenses, of $1.9 million
or $0.13 per diluted share.
Other Income and Expense
Interest income was $0.6 million in the third quarter compared to $0.5
million last year, with the increase primarily resulting from a higher
average portfolio balance, partially offset by a decrease in the
average yield from 2.9% to 2.5%. Interest income was $1.4 million in
the first nine months of fiscal 2004 compared to $1.2 million in the
same period last year with the increase due to similar reasons
discussed above.
Income Taxes
Our effective tax rate is based on expected income, statutory tax rates
and tax planning opportunities available to us in the various
jurisdictions in which we operate. In the third quarter and first nine
months of fiscal 2004, the consolidated effective tax rate was 32.0%
for both periods, compared to 32.0% and 32.6% for the corresponding
periods last year. The effect on the consolidated tax rate of the gain
on legal settlement was 0.6% for the first nine months of last year.
Datascope's tax rates differed from the United States federal statutory
rate of 35% in all above periods due primarily to tax rate benefits of
earnings from operations in lower-tax jurisdictions and the U.S.
benefit of the extraterritorial income exclusion.
13
Net Earnings
Net earnings were $7.1 million or $0.47 per diluted share in the third
quarter of fiscal 2004 compared to $6.4 million, or $0.43 per diluted
share for the same period last year. The increased earnings and
earnings per share in the third quarter of fiscal 2004 was primarily
attributable to the increased gross margin on higher sales and an
improved gross margin percentage in the Cardiac Assist / Monitoring
Products segment, partially offset by increased R&D and SG&A expenses.
Net earnings in the first nine months of fiscal 2004 were $16.9 million
or $1.12 per diluted share compared to $17.0 million, or $1.15 per
diluted share last year. The decreased earnings in the first nine
months of fiscal 2004 primarily reflect the positive impact on earnings
last year of the gain on legal settlement ($1.9 million or $0.13 per
diluted share) and increased R&D and SG&A expenses, partially offset by
an increased gross margin from higher sales in the Cardiac Assist /
Monitoring Products segment.
Liquidity and Capital Resources
Working capital was $134.1 million at March 31, 2004, compared to
$131.4 million at June 30, 2003. The current ratio declined to 3.5:1
from 3.8:1 at June 30, 2003 primarily due to an increase in current
liabilities. The increase in working capital was primarily the result
of an increase in current assets ($9.5 million), partially offset by
the increase in current liabilities ($6.8 million).
Our primary source of funds continues to be cash generated from
operating activities in the first nine months of fiscal 2004. Cash
provided by operating activities was $33.2 million compared to $31.4
million last year. The primary sources of cash from operating
activities were net earnings. The increase in cash flow from operations
was primarily attributable to an increase in accrued and other
liabilities, partially offset by an increase in accounts receivable and
other assets.
At March 31, 2004, approximately one-half of our cash and marketable
investments were held by our European subsidiaries. These funds are
available for use by our U.S. operations; however, they would be
subject to additional U.S. tax upon repatriation to the United States.
Net cash used in investing activities in the first nine months of
fiscal 2004 was $26.3 million attributable to purchases of investments
of $63.1 million, capitalized software of $4.5 million, property, plant
and equipment of $3.1 million, purchased technology and licenses of
$1.9 million and equity investments of $0.5 million. Partially
offsetting the above was $46.8 million for maturities of investments.
Net cash used in financing activities was $5.4 million due to $4.4
million dividends paid and stock repurchases of $5.1 million (about
146,000 shares), offset by stock option activity of $4.1 million.
On August 18, 2003, the Board of Directors declared a regular quarterly
dividend of $0.05 per share and a special dividend of $0.15 per share,
payable on October 1, 2003 to stockholders of record on September 2,
2003. The special dividend amounted to $2.2 million.
On December 16, 2003, the Board of Directors declared a regular
quarterly dividend of $0.05 per share payable on January 15, 2004 to
stockholders of record as of December 26, 2003.
14
On February 19, 2004, the Board of Directors declared a quarterly cash
dividend of $0.05 per share payable on April 2, 2004 to stockholders of
record as of March 5, 2004.
We have available lines of credit totaling $99.0 million, with interest
payable at each lender's prime rate. We did not have any borrowings at
March 31, 2004 or June 30, 2003. Of the total available, $25 million
expires in October 2004, $23.6 million expires in November 2004 and $25
million expires in March 2005. These lines are renewable annually at
the option of the banks, and we plan to renew them. We also have $25.4
million in lines of credit with no expiration date.
We believe that our existing cash balances, future cash generated from
operations and existing credit facilities will be sufficient to meet
our projected working capital, capital and investment needs. The
moderate rate of current U.S. inflation has not significantly affected
the Company.
Information Concerning Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations 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 markets served by
the Company, the Company's dependence on certain unaffiliated suppliers
(including single source manufacturers) for Patient Monitoring, Cardiac
Assist and VasoSeal products and the Company's ability to gain market
acceptance for new products. Additional risks are 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.
Critical Accounting Policies and Estimates
As discussed in Note 1 to the Condensed Consolidated Financial Statements,
our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses for each period.
Management regularly evaluates its estimates and assumptions on an on-going
basis and adjusts as necessary to accurately reflect current conditions. These
estimates and assumptions are based on current and historical experience, on
information from third party professionals and on various other factors that are
believed to be reasonable under the circumstances. Actual results could differ
from those estimates. Management believes that the following are its critical
accounting policies and estimates:
o Revenue Recognition
We recognize revenue and all related costs, including warranty costs,
when title and risk of loss passes to the customer and collectibility of
the sales price is reasonably assured. Revenue is recognized for products
shipped FOB shipping point when they leave our premises. Revenue is
recognized for products shipped FOB destination when they reach 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. We record estimated sales
returns as a reduction of net sales in the same period that the related
revenue is recognized. Historical experience is used to estimate an
accrual for future returns relating to recorded sales, as well as
estimated warranty costs. Revenue for service repairs and maintenance is
recognized after service has been completed, and service contract revenue
is recognized ratably over the term of the contract. For certain
products, revenue is recognized individually for delivered components
when undelivered components, such as installation, are not essential to
their functionality. Post shipment obligations for training commitments
are considered perfunctory, and sales are recognized when delivered with
provision for incremental costs.
o Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
This allowance is used to state trade receivables at estimated net
realizable value. We rely on prior experience to estimate cash which
ultimately will be collected from the gross receivables balance at
period-end. Such amount cannot be known with certainty at the financial
statement date. We maintain a specific allowance for customer accounts
that will likely not be collectible due to customer liquidity issues. We
also maintain a general allowance for estimated future collection losses
on existing receivables, determined based on historical trends.
o Inventory Valuation
We value our inventories at the lower of cost or market. Cost is
determined by the "first-in, first-out" (FIFO) method. Inventory reserves
are recorded to report inventory at its estimated fair market value.
A reserve is recorded for inventory specifically identified as slow-
moving or obsolete. In addition, a reserve is recorded based upon our
historical experience with inventory becoming obsolete due to age, changes
in technology and other factors.
o Goodwill Valuation
Goodwill represents the excess of the cost over the fair value of net
assets acquired in business combinations. Goodwill is not amortized and
is subject to the impairment rules of SFAS No. 142, "Accounting for
Goodwill and Other Intangible Assets," which we adopted in the first
quarter of fiscal 2002. Goodwill is tested for impairment on an annual
basis or more frequently if changes in circumstances or the occurrence
of events suggest an impairment may exist. We determine the fair value
of our reporting units using estimates of projected cash flows.
o Income Taxes
We operate in multiple tax jurisdictions with different tax rates and
must determine the allocation of income to each of these jurisdictions
based on estimates and assumptions. In the normal course of business, we
will undergo scheduled reviews by taxing authorities regarding the amount
of taxes due. These reviews include questions regarding the timing and
amount of deductions and the allocation of income among various tax
jurisdictions. Tax reviews frequently require an extended period of time
to resolve and may result in income tax adjustments if changes to the
allocation are required between jurisdictions with different tax rates.
o Pension Plan Actuarial Assumptions
We sponsor defined benefit pension plans covering substantially all of
our employees who meet the applicable eligibility requirements. We use
several actuarial and other statistical factors which attempt to estimate
the ultimate expense and liability related to our pension plans. These
factors include assumptions about discount rate, expected return on plan
assets and rate of future compensation increases. In addition, our
actuarial consultants also utilize subjective assumptions, such as
withdrawal and mortality rates, to estimate these factors. The actuarial
assumptions may differ materially from actual results due to the changing
market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants. These differences,
depending on their magnitude, could have a significant impact on the
amount of pension expense we record in any particular period.
Recent Accounting Pronouncements
In December 2003, the FASB issued SFAS No. 132 (revised 2003)
"Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of FASB Statements No. 87, 88 and 106," ("SFAS
No. 132 (revised)"). This Statement revises employers' disclosures
about pension plans and other postretirement benefit plans. SFAS No.
132 (revised) retains the disclosure requirements contained in SFAS No.
132, which it replaces. It requires additional disclosures to those in
the original Statement 132 about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and
other defined benefit postretirement plans. SFAS No. 132 (revised) is
effective for fiscal years ending after December 15, 2003 and for
interim periods beginning after December 15, 2003. Based on these
effective dates, we have provided the additional interim disclosures
beginning with our third quarter ending March 31, 2004 and will provide
the annual disclosures beginning with our fiscal year ending June 30,
2004.
15
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46R (FIN 46R), "Consolidation of Variable Interest
Entities." FIN 46R replaces the same titled FIN 46 that was issued in
January 2003. FIN 46R identifies when entities must be consolidated with
the financial statements of a Company where the investors in an entity
do not have the characteristics of a controlling financial interest or
the entity does not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support. Application of this Interpretation applies to our financial
statements beginning January 1, 2004. The adoption of FIN 46R did not
have an impact on our consolidated financial statements.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Due to the global nature of our operations, including the sale and purchase
of products in foreign currencies, 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 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. A portion of the net foreign transaction gain or
loss is reported in our consolidated statement of earnings in cost of sales
and the balance in other income and expense.
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 a result,
no foreign currency transaction gains or losses were recorded in
accumulated other comprehensive loss for the three and nine month periods
ended March 31, 2004 and 2003.
As of March 31, 2004, we had a notional amount of $14.9 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 United States dollars at maturity, at rates agreed to when the contract
is signed.
Item 4. Controls and Procedures
Subsequent to March 31, 2004, the Company determined that cash flows
associated with payments for purchased technology, capitalized software and
other individually insignificant items should have been classified as
investing activities rather than as operating activities in its condensed
consolidated statements of cash flows. Once the Company identified the
situation, it notified its independent auditors, outside counsel and audit
committee. The change in classification was attributable to inadvertent
human error, which the Company does not believe is indicative of a material
weakness in our internal controls. The Company is in the process of
implementing additional control procedures to address this matter for
future filings.
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures as of the
end of the period covered by this report. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls
over financial reporting or in other factors that would significantly
affect the internal controls over financial reporting during the
Registrant's most recent fiscal quarter.
17
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
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.
The Shaev litigation is described in our annual report on Form 10-K/A
for the fiscal year ended June 30, 2003. In this matter, discovery is
still in progress and mediation was conducted in March 2004. As a
result of the discussions during the mediation, the parties are
discussing various forms of settlement.
The Sanmina - SCI litigation is described in our annual report on Form
10-K/A for the fiscal year ended June 30, 2003. In this matter,
discovery is still in progress, mediation was held on May 10, 2004 and
the parties agreed to exchange a limited amount of discovery material
before another mediation, to discuss settlement, is scheduled.
On December 2, 2003, a former Datascope employee, Michael Barile, filed
a complaint in the Superior Court of New Jersey, Law Division, Bergen
County, against Datascope Corp. and various John Does seeking, inter
alia, indemnification from the Company of approximately $1 million in
legal fees and expenses he allegedly incurred in defending a criminal
action brought against him by the United States Attorney's Office for
the District of Maryland, as well as additional damages Mr. Barile
alleges he suffered as a result of such prosecution. In response, the
Company has filed an answer denying the allegations of the complaint
and has brought counterclaims against Mr. Barile seeking damages
resulting from Mr. Barile's improper conduct as an employee of
Datascope. The Company believes it has meritorious counterclaims and
meritorious defenses to Mr. Barile's claims and intends to defend and
prosecute this action vigorously. Mr. Barile has replied to the
Company's counterclaims by denying them. Mediation was held on April
28, 2004 and the parties agreed to exchange a limited amount of
discovery material before another mediation, to discuss settlement, is
scheduled.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
31.1 Certification of the Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and
Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K. During the quarter for which this report on
Form 10-Q is filed, the Registrant filed a Form 8-K dated January
29, 2004, pertaining to the Earnings Release of Datascope Corp.
dated January 28, 2004.
18
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATASCOPE CORP.
Registrant
By: /s/ Lawrence Saper
---------------------------------
Lawrence Saper
Chairman of the Board and Chief
Executive Officer
By: /s/ Murray Pitkowsky
---------------------------------
Murray Pitkowsky
Senior V.P., Chief Financial Officer
and Treasurer
Dated: May 17, 2004
19