10-Q 1 b316649_10q.txt 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 December 31, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________________ to __________________ Commission File Number 0-6516 DATASCOPE CORP. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2529596 -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 Philips Parkway, Montvale, New Jersey 07645-9998 -------------------------------------------------------------------------------- (Address of principal executive offices) (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 -------- -------- Number of Shares of Company's Common Stock outstanding as of January 31, 2002: 14,778,199. Datascope Corp. and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Second quarter and first six months of fiscal 2002 compared to the corresponding periods last year. Net Sales Net sales of $78.3 million in the second quarter and $149.2 million in the first six months of fiscal 2002 increased 3% compared to the second quarter and first six months of fiscal 2001. Sales of the Cardiac Assist/Monitoring Products segment were $59.3 million compared to $55.7 million in the second quarter and $111.6 million in the first six months of fiscal 2002 compared to $105.9 million last year. In the second quarter of fiscal 2002 sales of Cardiac Assist products decreased 6% to $27.8 million, primarily attributable to a decline in revenue producing shipments of intra-aortic balloon pumps in the U.S. and a corresponding increase in non-revenue pump shipments linked to long-term, balloon catheter contracts. In the second quarter of fiscal 2002, international sales of Cardiac Assist products increased 5%. In the first six months of fiscal 2002 sales of Cardiac Assist products were $54.1 million compared to $56.0 million last year. In February 2002, Datascope plans to launch the Fidelity 8 Fr., a next generation intra-aortic balloon (IAB) that sets a new standard of performance. The new product makes it possible to obtain a high fidelity blood pressure waveform, makes insertion easier and provides greater pushability and trackability. The Fidelity 8 Fr. has a patented co-lumen construction with a central blood lumen that is substantially larger than any other 8 Fr. IAB. The larger lumen creates the high fidelity advantage when measuring pressure. In addition, the Fidelity product features a polymer shaft that requires 30% less insertion force and accepts the largest and most supportive guidewire of any 8 Fr. IAB. Patient Monitoring sales increased 20% over last year to $31.4 million, even after allowing for a relatively easy comparison with last year's weak quarter. Led by strong demand for Passport 2(R) portable bedside monitors, Datascope's leading monitoring product, all major monitoring products contributed to sales growth. Sales of Patient Monitoring products in the first six months of fiscal 2002 were $57.4 million compared to $49.8 million last year, for the same reasons discussed above. Sales of the Collagen Products / Vascular Grafts segment were $18.8 million compared to $20.1 million in the second quarter and $37.1 million in the first six months of fiscal 2002 compared to $37.9 million last year. Sales of VasoSeal(R) arterial puncture sealing devices declined 9% to $12.9 million from $14.2 million last year, reflecting continuing competitive market conditions and loss of market share. However, Datascope believes that new products and improvements relating to its VasoSeal product line currently in the regulatory or development pipeline will, upon release, significantly strengthen VasoSeal's competitive position in both the diagnostic and interventional markets. For the first six months of fiscal 2002 sales of VasoSeal were $25.6 million compared to $27.4 million for the corresponding period last year. International sales of InterVascular, Inc. increased 22% compared to last year's second quarter, reflecting continued strong demand in European markets. Total InterVascular sales in the second quarter, however, decreased 1% to $5.6 million as sales in the U.S. declined sharply because our distributor, whose termination became effective at the end of December 2001, placed no orders in the second quarter. As planned, Datascope began selling InterVascular products through its dedicated direct sales organization in the U.S. in January 2002. The direct sales market launch is off to a good start and the company is optimistic about its future growth opportunity in the $130 million U.S. market for vascular grafts. For the first six months of fiscal 2002 InterVascular sales were $11.0 million compared to $10.2 million last year, with the increase due to higher international sales. The slightly weaker U.S. dollar compared to major European currencies increased total sales by approximately $0.3 million in the second quarter of fiscal 2002. For the first six months of fiscal 2002, the stronger U.S. dollar decreased total sales by $0.1 million. Gross Profit (Net Sales Less Cost of Sales) The gross profit percentage was 58.9% for the second quarter and 59.7% for the first six months of fiscal 2002, compared to 60.5% and 60.0% for the corresponding periods last year. The gross profit percentage in the second quarter and first six months of fiscal 2002 was primarily impacted by a less favorable sales mix, as a result of increased sales of lower margin patient monitoring products. Research and Development (R&D) R&D expenses, as a percentage of sales, were 7.7% for the second quarter and 8.0% for the first six months of fiscal 2002, compared to 7.9% and 8.5% for the corresponding periods last year. R&D expenses were $6.0 million in the second quarter and $11.9 million in the first six months of fiscal 2002 compared to $6.0 million and $12.3 million for the corresponding periods last year. The reduced level of R&D expenses in the first six months of fiscal 2002 was primarily impacted by a more selective assessment of R&D projects, primarily in Collagen Products and Patient Monitoring, effective cost management in material procurement, outsourcing projects and staffing more productively. Selling, General & Administrative Expenses (SG&A) SG&A expenses, as a percentage of sales were 43.0% in the second quarter and 41.3% in the first six months of fiscal 2002 compared to 37.9% and 38.6% for the corresponding periods last year. SG&A expenses were $33.7 million in the second quarter and $61.6 million in the first six months of fiscal 2002 compared to $28.8 million and $55.8 million for the corresponding periods last year. The increase in SG&A expenses 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 o increased corporate expenses. The weaker U.S. dollar compared to major European currencies increased SG&A expenses by approximately $0.2 million in the second quarter of fiscal 2002. In the first six months of fiscal 2002, the stronger U.S. dollar decreased SG&A expenses by approximately $0.1 million. 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. The manufacture of VasoSeal products will be centralized in the Mahwah, New Jersey VasoSeal facility by the end of the third quarter, after which the Vaals facility will be closed and sold. 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. The Vaals employees will leave the company over the next three months. Second Quarter o workforce reductions in VasoSeal and Patient Monitoring o costs associated with discontinuing the coronary stent sales business in Europe, including the 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 second quarter compared to $0.9 million last year. The decline in interest income in the second quarter of fiscal 2002 was the result of a lower average portfolio balance (from $58.1 million to $34.8 million) and a decrease in the average yield from 6.1% to 4.3%. Interest income was $1.0 million in the first six months of fiscal 2002 compared to $2.0 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 second quarter of fiscal 2002, and $358 thousand pre tax, equivalent to $0.02 per share after tax for the first six months of fiscal 2002. There was no impairment of goodwill based on appropriate testing and analysis. Income Taxes The consolidated effective tax rate in the second quarter of fiscal 2002 was significantly impacted by expenses related to the restructuring programs that were not deductible for tax purposes, primarily in international businesses. Excluding special items in both years (the restructuring charges in fiscal 2002 and the gain on facility in fiscal 2001), the effective tax rate was 31.5% in the second quarter and first six months of fiscal 2002 compared to 32.0% and 31.8% for the comparable periods last year. Net Earnings The second quarter of fiscal 2002 showed a net loss of $1.7 million or $0.12 per diluted share compared to net earnings of $8.2 million, or $0.53 per diluted share last year. The diluted loss per share shown in our press release dated January 23, 2002 of $0.11, inadvertently included an antidilutive effect of $0.01. According to generally accepted accounting principles, when the diluted earnings per share calculation is antidilutive (increases basic earnings per share or decreases basic loss per share), diluted earnings per share should be reported equal to basic earnings per share. Net earnings in the first six months of fiscal 2002 were $1.6 million or $0.11 per diluted share compared to $14.3 million or $0.92 per diluted share last year. Excluding special items in both years, net earnings were $4.5 million or $0.30 per diluted share in the second quarter and $11.1 million or $0.73 per diluted share in the first six months of fiscal 2002, compared to $8.2 million or $0.53 per diluted share and $13.9 million or $0.90 per diluted share for the corresponding periods last year. The decreased earnings were primarily attributable to slower sales growth, a lower gross margin percentage and increased SG&A expenses, as discussed above. Liquidity and Capital Resources Working capital was $126.7 million at December 31, 2001, compared to $129.7 million at June 30, 2001. The current ratio was 3.7:1 compared to 3.5:1 at June 30, 2001. The decrease in working capital was primarily the result of a decrease in accounts receivable ($7.0 million) and cash and short term investments ($3.8 million), partially offset by a decrease in accounts payable ($7.5 million). In the first six months of fiscal 2002, cash provided by operations was $8.1 million compared to $5.5 million last year. The increase is primarily attributable to a decrease in accounts receivable. Net cash provided by investing activities was $5.6 million, attributable to maturities of investments of $54.7 million, offset by $44.9 million purchases of investments and the purchase of $4.2 million of property, plant and equipment. Net cash used in financing activities was $9.4 million, due to stock repurchases of $8.8 million and $1.5 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 the company will not realize the expected savings from the restructuring programs, the possibility that the company's competitive position will not strengthen as a result of introducing the Fidelity 8 Fr. IAB, the possibility that new vascular sealing products and improvements relating to the VasoSeal product line will not strengthen the company's competitive position in both the diagnostic and interventional markets, 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 December 31, 2001, we had a notional amount of $8.8 million of foreign exchange forward contracts outstanding, all of which were in European currencies. The foreign exchange forward contracts generally have maturities that do not exceed 12 months and require us to exchange foreign currencies for U.S. dollars at maturity, at rates agreed to when the contract is signed. Datascope Corp. and Subsidiaries Consolidated Balance Sheets (In thousands)
Dec 31, June 30, 2001 2001 --------------- --------------- Assets (unaudited) (a) Current Assets: Cash and cash equivalents $ 9,594 $ 5,545 Short-term investments 24,825 32,669 Accounts receivable less allowance for doubtful accounts of $1,158 and $1,350 68,705 75,712 Inventories 58,183 55,261 Prepaid expenses and other current assets 11,815 12,472 --------------- --------------- Total Current Assets 173,122 181,659 Property, Plant and Equipment, net of accumulated depreciation of $56,880 and $52,422 91,553 90,634 Long-Term Investments 12,130 14,134 Other Assets 23,145 23,908 --------------- --------------- $ 299,950 $ 310,335 =============== =============== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 11,515 $ 18,987 Accrued expenses 19,370 14,211 Accrued compensation 11,440 14,248 Deferred revenue 4,099 4,498 --------------- --------------- Total Current Liabilities 46,424 51,944 Other Liabilities 14,902 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, 17,704 and 17,508 shares 177 175 Additional paid-in capital 72,011 69,148 Treasury stock at cost, 2,925 and 2,713 shares (85,828) (77,038) Retained earnings 261,776 261,625 Accumulated other comprehensive loss (9,512) (10,432) --------------- --------------- 238,624 243,478 --------------- --------------- $ 299,950 $ 310,335 =============== ===============
(a) Derived from audited financial statements See notes to consolidated financial statements Datascope Corp. and Subsidiaries Statements of Consolidated Earnings (In thousands, except per share amounts) (Unaudited)
Six Months Ended Three Months Ended December 31, December 31, ------------------------------------------------------------------------ 2001 2000 2001 2000 ---------------- ---------------- -------------- -------------- Net Sales $ 149,200 $ 144,400 $ 78,300 $ 76,100 ---------------- ---------------- -------------- -------------- Costs and Expenses: Cost of sales 60,094 57,712 32,188 30,050 Research and development expenses 11,896 12,304 5,992 6,048 Selling, general and administrative expenses 61,645 55,788 33,698 28,848 Restructuring charges 11,463 -- 6,331 -- ------------------------------------------------------------------------ 145,098 125,804 78,209 64,946 ---------------- ---------------- -------------- -------------- Operating Earnings 4,102 18,596 91 11,154 Other (Income) Expense: Interest income (1,046) (1,988) (389) (890) Interest expense 39 9 14 7 Other, net 370 (381) 190 27 ------------------------------------------------------------------------ (637) (2,360) (185) (856) ---------------- ---------------- -------------- -------------- Earnings Before Taxes on Income 4,739 20,956 276 12,010 Taxes on Income 3,110 6,706 1,981 3,843 ---------------- ---------------- -------------- -------------- Net Earnings (Loss) $ 1,629 $ 14,250 $ (1,705) $ 8,167 ================ ================ ============== ============== Earnings (Loss) Per Share, Basic $ 0.11 $ 0.96 $ (0.12) $ 0.55 ================ ================ ============== ============== Weighted average common shares outstanding, Basic 14,778 14,827 14,773 14,796 ================ ================ ============== ============== Earnings (Loss) Per Share, Diluted $ 0.11 $ 0.92 $ (0.12) $ 0.53 ================ ================ ============== ============== Weighted average common shares outstanding, Diluted 15,140 15,490 14,773 15,385 ================ ================ ============== ==============
See notes to consolidated financial statements Datascope Corp. and Subsidiaries Statements of Consolidated Cash Flows (Dollars in thousands) (Unaudited)
Six Months Ended December 31 --------------------------------- 2001 2000 -------------- -------------- Operating Activities: Net cash provided by operating activities $ 8,105 $ 5,455 -------------- -------------- Investing Activities: Capital expenditures (4,221) (5,924) Proceeds from sale of Oakland facility -- 1,112 Purchases of marketable securities (44,888) (28,891) Maturities of marketable securities 54,737 36,842 -------------- -------------- Net cash provided by investing activities 5,628 3,139 -------------- -------------- Financing Activities: Treasury shares acquired under repurchase programs (8,790) (6,484) Exercise of stock options and other 840 319 Cash dividends paid (1,478) (596) -------------- -------------- Net cash used in financing activities (9,428) (6,761) -------------- -------------- Effect of exchange rates on cash (256) (272) -------------- -------------- Increase in cash and cash equivalents 4,049 1,561 Cash and cash equivalents, beginning of period 5,545 3,138 -------------- -------------- Cash and cash equivalents, end of period $ 9,594 $ 4,699 ============== ============== Supplemental Cash Flow Information Cash (refunded) paid during the period for: Income taxes $ (791) $ 7,792 -------------- -------------- Non-cash transactions: Net transfers of inventory to fixed assets for use as demonstration equipment $ 4,386 $ 4,047 -------------- --------------
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 December 31, 2001, the statements of consolidated earnings for the three and six month periods ended December 31, 2001 and 2000 and the statements of cash flows for the six month periods ended December 31, 2001 and 2000 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 December 31, 2001 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. --------------------------------- Dec 31, June 30, 2001 2001 ------------ ------------ Materials $24,811 $24,550 Work in Process 9,863 10,185 Finished Goods 23,509 20,526 ------------ ------------ $58,183 $55,261 ============ ============ 3. Stockholders' Equity Changes in the components of stockholders' equity for the six months ended December 31, 2001 were as follows: Net earnings $1,629 Foreign currency translation adjustments 920 Common stock and additional paid-in capital effects of stock option activity 2,865 Cash dividends on common stock (1,478) Purchases under stock repurchase plans (8,790) ------------ Total decrease in stockholders' equity ($4,854) ============ 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 December 31, 2001 December 31, 2000 --------------------------------- -------------------------------------------------------------------------------------- Net Per Share Net Per Share Basic EPS Earnings Shares Amount Earnings Shares Amount --------- ------------ ------------ ------------ ------------ ------------ ----------- Earnings (loss) available to common shareholders ($1,705) 14,773 ($0.12) $8,167 14,796 $0.55 Diluted EPS Options issued to employees -- -- -- -- 589 (0.02) ------------ ------------ ------------ ------------ ------------ ----------- Earnings (loss) available to common shareholders plus assumed conversions ($1,705) 14,773 ($0.12) (a) $8,167 15,385 $0.53 ============ ============ ============ ============ ============ =========== --------------------------------- -------------------------------------------------------------------------------------- For Six Months Ended December 31, 2001 December 31, 2000 --------------------------------- -------------------------------------------------------------------------------------- Net Per Share Net Per Share Basic EPS Earnings Shares Amount Earnings Shares Amount --------- ------------ ------------ ------------ ------------ ------------ ----------- Earnings available to common shareholders $1,629 14,778 $0.11 $14,250 14,827 $0.96 Diluted EPS Options issued to employees -- 362 -- -- 663 (0.04) ------------ ------------ ------------ ------------ ------------ ----------- Earnings available to common shareholders plus assumed conversions $1,629 15,140 $0.11 $14,250 15,490 $0.92 ============ ============ ============ ============ ============ ===========
(a) The diluted loss per share shown in our press release dated January 23, 2002 of $0.11 inadvertently included an antidilutive effect of $0.01. According to generally accepted accounting principles, when the diluted earnings per share calculation is antidilutive, (increases basic earnings per share or decreases basic loss per share), diluted earnings per share should be reported equal to basic earnings per share. 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 six month periods ended December 31, 2001 and 2000 our comprehensive income was as follows:
Six Months Ended Three Months Ended -------------------------- -------------------------- 12/31/01 12/31/00 12/31/01 12/31/00 ------------ ------------ ------------ ------------ Net earnings (loss) $1,629 $14,250 ($1,705) $8,167 Foreign currency translation gain (loss) 920 (364) (442) 1,278 ------------ ------------ ------------ ------------ Total comprehensive income $2,549 $13,886 ($2,147) $9,445 ============ ============ ============ ============
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 December 31, 2001 ----------------------------------------------------- Net sales to external customers $59,302 $18,750 $248 $78,300 -------------- -------------- -------------- ---------------- Operating earnings $5,981 $1,461 ($1,020) $6,422 -------------- -------------- -------------- ---------------- ----------------------------------------------------- Three months ended December 31, 2000 ----------------------------------------------------- Net sales to external customers $55,720 $20,078 $302 $76,100 -------------- -------------- -------------- ---------------- Operating earnings $6,704 $3,699 $751 $11,154 -------------- -------------- -------------- ---------------- ----------------------------------------------------- Six months ended December 31, 2001 ----------------------------------------------------- Net sales to external customers $111,613 $37,063 $524 $149,200 -------------- -------------- -------------- ---------------- Operating earnings $12,039 $4,094 ($568) $15,565 -------------- -------------- -------------- ---------------- ----------------------------------------------------- Six months ended December 31, 2000 ----------------------------------------------------- Net sales to external customers $105,909 $37,927 $564 $144,400 -------------- -------------- -------------- ---------------- Operating earnings $9,904 $7,119 $1,573 $18,596 -------------- -------------- -------------- ----------------
----------------------------------------------------------------------------------------------------------------------------- Reconciliation to consolidated earnings Six Months Ended Three Months Ended before income taxes : 12/31/01 12/31/00 12/31/01 12/31/00 ----------------------------------------------------- -------------- -------------- -------------- ---------------- Consolidated operating earnings $15,565 $18,596 $6,422 $11,154 Interest income, net 1,007 1,979 375 883 Other (expense) income (370) 381 (190) (27) Restructuring charges (11,463) -- (6,331) -- -------------- -------------- -------------- ---------------- Consolidated earnings before taxes $4,739 $20,956 $276 $12,010 ============== ============== ============== ================
(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 is 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.
Six Months Ended Three Months Ended December 31, December 31, ------------------------------------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------- ------------ Net earnings: Reported net earnings (loss) $1,629 $14,250 ($1,705) $8,167 Add back goodwill amortization -- 246 -- 123 ------------ ------------ ------------- ------------ Adjusted net earnings (loss) $1,629 $14,496 ($1,705) $8,290 ============ ============ ============= ============ Basic earnings per share: Reported earnings (loss) per share $0.11 $0.96 ($0.12) $0.55 Goodwill amortization -- 0.02 -- 0.01 ------------ ------------ ------------- ------------ Adjusted earnings (loss) per share $0.11 $0.98 ($0.12) $0.56 ============ ============ ============= ============ Diluted earnings per share: Reported earnings (loss) per share $0.11 $0.92 ($0.12) $0.53 Goodwill amortization -- 0.02 -- 0.01 ------------ ------------ ------------- ------------ Adjusted earnings (loss) per share $0.11 $0.94 ($0.12) $0.54 ============ ============ ============= ============
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. The manufacture of VasoSeal products will be centralized in the Mahwah, New Jersey VasoSeal facility by the end of the third quarter, after which the Vaals facility will be closed and sold. The company has received FDA clearance for manufacturing at the Mahwah facility. Headcount reductions 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. The Vaals employees will leave the Company over the next three months. Second Quarter o workforce reductions in VasoSeal and Patient Monitoring o costs associated with discontinuing the coronary stent sales business in Europe, including the 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. A summary of the restructuring charges and remaining liability at December 31, 2001 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 December 31, 2001 2,144 889 4,011 -- 7,044 ------------ ------------ ------------ ------------ ------------ Remaining liability at December 31, 2001 $1,780 $1,659 $889 $91 $4,419 ============ ============ ============ ============ ============
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 October 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. Part II: Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of shareholders of Datascope Corp. was held on December 11, 2001 and the following matters were voted upon: To approve the election of George Heller to serve as a Class I member of the Datascope Corp. board of directors until the 2004 annual meeting of shareholders and until the election and qualification of his successor. For: 12,452,127 Withheld: 1,248,601 To approve the election of Alan B. Abramson to serve as a Class I member of the Datascope Corp. board of directors until the 2004 annual meeting of shareholders and until the election and qualification of his successor. For: 12,517,933 Withheld: 1,182,795 To approve the election of William L. Asmundson to serve as a Class I member of the Datascope Corp. board of directors until the 2004 annual meeting of shareholders and until the election and qualification of his successor. For: 12,517,633 Withheld: 1,183,095 David Altschiller, Joseph Grayzel, M.D., Arno Nash and Lawrence Saper also continued to serve as members of the Datascope Corp. board of directors after the annual meeting. Proposal to approve the Datascope Corp. Amended and Restated 1995 Stock Option Plan. For: 8,861,042 Against: 2,395,208 Abstain: 838,489 Broker Non-Votes: 1,605,989 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. 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: February 14, 2002