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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-6516
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DATASCOPE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2529596
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14 PHILIPS PARKWAY
MONTVALE, NEW JERSEY 07645
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 391-8100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(Title of Class)
Common Stock, par value $.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes [X] [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of the common stock held by persons other than
affiliates of the registrant, as of September 15, 1997, is approximately
$292,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of September 15, 1997, is as follows:
CLASS NUMBER OF SHARES
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Common Stock, par value $.01 per
share 16,028,883
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant's proxy statement in connection with its 1997 annual meeting
of shareholders (the "Proxy Statement") is incorporated by reference into Part
III.
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PART I
This Report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate," "anticipate,"
"believe," "target," "plan," "project" or "continue" or the negatives thereof or
other variations thereon or similar terminology. These statements appear in a
number of places in this Report on Form 10-K and include statements regarding
the intent, belief or current expectations of Datascope Corp. (the "Company"),
that relate to, among other things, trends affecting the Company's financial
condition or results of operations and the Company's business and strategies.
Readers are cautioned that any such forward-looking statement is not a guarantee
of future performance and involves risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking
statement as a result of many important factors. Many of these important factors
are outside of the Company's control, including competitive factors and changes
in government regulation. The accompanying information contained in this Report
on Form 10-K, including, without limitation, the information set forth below
under Item 1 regarding the description of the business of the Company and under
Item 7 concerning "Management's Discussion and Analysis of Financial Condition
and Results of Operations," identifies additional important factors that could
cause such differences. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
ITEM 1. BUSINESS.
The Company manufactures proprietary products for clinical health care
markets in interventional cardiology, radiology, anesthesiology, cardiovascular
and vascular surgery and for use in emergency rooms and intensive care units.
The Company's products are distributed worldwide by direct sales personnel and
independent distributors. The Company was organized as a New York corporation in
1964 and was reincorporated in Delaware in 1989.
The Company's business is primarily conducted through its four operating
divisions, Cardiac Assist, Patient Monitoring, Collagen Products and
InterVascular. The Company's core businesses are cardiac assist systems
(intra-aortic balloon pump, or "IABP", systems) and multi-function patient
monitoring devices. The Company's Collagen Products Division manufactures and
sells the VasoSeal(R) Vascular Hemostasis Device ("VHD"). On September 29, 1995,
the Food and Drug Administration (the "FDA") approved the VasoSeal Pre-Market
Approval Application, making it the first device of its kind to be approved in
the United States. The VasoSeal device can rapidly seal arterial punctures after
procedures requiring femoral arterial catheterization, including balloon
angioplasty, diagnostic angiography and the use of stents, and can result in
reduced time to hemostasis, reduced time to ambulation and increased patient
satisfaction. The Collagen Products Division also manufactures other hemostatic
products that are utilized during surgical procedures. See " -- Collagen
Products". InterVascular manufactures and sells a proprietary line of knitted
and woven polyester vascular grafts and patches for reconstructive vascular and
cardiovascular surgery.
The following table sets forth the relative contribution of the Company's
principal classes of products to total sales for the periods indicated:
FISCAL YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
---- ---- ----
Cardiac Assist..................................... 46% 51% 52%
Patient Monitoring................................. 39% 37% 38%
Collagen Products.................................. 8% 4% 3%
Vascular Grafts.................................... 7% 8% 7%
Cardiac Assist. The Company is widely recognized as the leading
manufacturer and distributor of IABP systems. IABP therapy increases the heart's
output and the supply of oxygen-rich blood to the heart, while reducing the
heart muscle's workload and its oxygen demand. IABP therapy is used to stabilize
heart function
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in instances of cardiogenic shock, before and after open heart surgery and in
the management of heart failure. IABP also plays an important role in supporting
acute angioplasty intervention, especially in the high risk patient. It is also
used to relieve refractory unstable angina and to correct certain instances of
medically resistant cardiac arrhythmias.
The Company, a pioneer in IABP technology, introduced the first balloon
catheter capable of percutaneous insertion (by arterial puncture through the
skin), an innovation which eliminated the need for surgical insertion and
expanded the market for IABP products from cardiac surgery to the interventional
cardiology market. The Company has continued to refine its IABP technology and
to introduce new designs.
The Company manufactures a broad line of disposable intra-aortic balloon
("IAB") catheters for use with balloon pumps. The Company offers IAB catheters
that permit sheathless insertion. Sheathless insertion results in a 30%
reduction of the cross-sectional-indwelling area occupied by the catheter
compared to insertion using a 10Fr. Sheath. This means less obstruction to blood
flow and better peripheral circulation. In May 1997, the Company introduced in
both the United States and Europe a new 25cc IAB specifically designed for use
with patients who are 5 feet or less in height.
In fiscal 1994, the Company began shipping the System 97 "Small
Wonder"(TM), a compact IABP designed for use either at bedside or in transport.
The System 97 has the most advanced features and performance of any console
balloon pump now being sold, including a built-in computer modem that provides
telephone transmission of data for remote diagnosis. In addition, the System 97
has been designed in a compact form to utilize less floor space than competing
systems. The Company believes that the market for small IABPs accounts for more
than two-thirds of the total IABP market.
In August 1996, Datascope introduced the System 96 intra-aortic balloon
pump at the European Society of Cardiology conference. The System 96 was
designed to address the need for a simple, yet cost-effective pump in markets
outside the United States. The System 96 incorporates many of the advanced
features seen in earlier pumps and provides the performance and flexibility
hospitals expect in a variety of clinical situations.
In September 1997, Datascope introduced the new System 97e with CardioSync
software at the European Society of Cardiology conference. CardioSync software
is designed to assist as many beats as possible in the presence of complex
cardiac rhythms in both ECG and pressure trigger modes. System 97e users can
optimize beat-to-beat support with minimal user intervention. Worldwide
shipments are expected to begin in late October 1997.
In September 1997, Datascope introduced the new FlexiSheath(TM)
Percutaneous Catheter Introducer in Japan and in the European Community. FDA
approval is pending. The FlexiSheath has exceptional kink resistence, allowing
it to easily navigate tortuous vessels. In addition, the transition of the
FlexiSheath from the dilator to the sheath is very smooth, allowing easy
insertion. The FlexiSheath has the same diameter as Datascope's standard
introducer sheath, providing the same insertion profile.
Patient Monitoring. The Company manufactures and markets a broad line of
physiological monitors designed to provide for patient safety and management of
patient care. The Company's monitors are capable of continuous and simultaneous
measurement of multiple parameters, and are used in operating rooms, emergency
rooms, critical care units, post-anesthesia care units and recovery rooms,
intensive care units, and labor and delivery rooms.
The Company manufactures the PASSPORT(R) monitor, a portable,
battery-powered, multi-parameter patient monitor that offers the features of a
traditional bedside monitor, including measurement of electrocardiogram ("ECG"),
blood pressure, temperature, respiration and pulse oximetry, in a transportable
unit that can move with the patient to different settings in the hospital. The
Company's Passport(R) XG monitor features a larger and brighter screen than
competitive portable monitors. In January 1997, the Company introduced the
Passport(R) XG-CD monitor with a color display. The Company also offers the
PASSPORT EL monitor, with a large electroluminescent display panel providing a
wide viewing angle.
The Passport has five lead ECG capability for better detection of the onset
of cardiac ischemia. A basic version of the Passport is also available
containing only ECG, temperature, and pressure. The basic Passport is
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designed to allow customers to purchase the monitor at a lower price, and
upgrade as their needs warrant. In addition, a remote color display option was
added to the Passport, which permits the remote viewing of patient information
in operating rooms and other environments.
The Company plans to continue introducing upgrades to its Passport
monitors, subject to FDA 510(k) registration. These upgrades include a new
five-agent, automatic-identification gas module.
In addition, the Company offers the VISA(TM) central station monitor, which
can be connected with up to eight Passport monitors. The VISA central station
can communicate using hard wire, or a mix of ambulatory and telemetry
communication, simultaneously. In ambulatory communication, information is
transmitted from the Passport monitor attached to the patient. These various
communications options allow the patient to receive continuous care in the
appropriate facility location (bedside or other location, for example, the X-ray
suite). In addition, a clinical or hospital information interface capability was
added to the VISA, providing the user with the capability of communicating
patient demographic and clinical information from the VISA to their clinical or
hospital information system.
In fiscal 1996, the Company began selling the new Accutorr(R) Plus
non-invasive blood pressure ("NIBP") monitor in international markets. The
Accutorr Plus measures NIBP, pulse oximetry and temperature. The Accutorr Plus
is the first NIBP monitor with an integrated patient database that provides
automatic record keeping on up to 100 measures. The Accutorr Plus is expected to
be introduced in the U.S. after the requisite 510(k) clearance is obtained.
All of the monitoring product lines offered by the Company include versions
that can monitor blood oxygen saturation. This feature uses the proprietary
FLEXISENSOR(R) sensor and SENSOR GUARD(R) sensor, which offer a low cost
disposable sensor system for pulse oximetry.
Collagen Products. The Company's Collagen Products Division manufactures
and sells two principal product lines: (1) the VasoSeal(R) VHD device, which can
rapidly seal femoral arterial punctures after catheterization procedures,
including balloon angioplasty and diagnostic angiography, and (2) other
hemostatic products that are utilized during surgery. In 1997, physicians will
perform approximately 3,200,000 angiography and 700,000 balloon angioplasty
procedures in both interventional cardiology and radiology in the United States,
according to industry estimates. Based on currently approved indications for
use, the above procedures represent the potential market for VasoSeal in the
United States and are growing at an estimated 12% and 6% annual rate for balloon
angioplasty and diagnostic angiography, respectively.
On September 29, 1995, the VasoSeal device was approved by the FDA for sale
in the United States for coronary procedures, making it the first device of its
kind to be approved in the United States. The Company believes that the VasoSeal
device has created an entirely new market for improved management of arterial
puncture wounds made for catheterization procedures.
The initial FDA approval for the VasoSeal device covered the claims of
reduced time to hemostasis and immediate removal of the sheath used during
certain coronary procedures, which is now left in place for around 4 hours. In
August 1996, the FDA approved revised VasoSeal labeling that includes the claim
that patients can be ambulated significantly earlier when using the VasoSeal
device, rather than under conventional clinical practice using manual or
mechanical compression. As an example, in the clinical study submitted to
support the new labeling, 80% of angiography patients receiving the VasoSeal
device were able to ambulate within 1 hour following removal of the catheter
sheath, compared with 4 to 6 hours under standard clinical practice.
Early ambulation made possible by the VasoSeal device should result, the
Company believes, in significant potential cost savings for hospitals because
patients can be moved to lower, potentially less costly levels of care. In
addition, human and material resources are reduced, which results in improved
hospital efficiencies. At present, upon removal of the catheterization sheath,
the patient typically requires prolonged manual compression at the arterial
puncture site followed by the application of a pressure dressing, sand bag or
other mechanical compression device. In addition, the patient is required to
remain in bed for several hours or even overnight. Clinical studies have shown
that the VasoSeal device can cause rapid sealing at the arterial puncture site,
eliminating the need for prolonged compression, which allows the patient to get
out of bed more
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quickly. The ability to claim early ambulation and its potential to lower cost
and increase revenue should accelerate the VasoSeal device's penetration of the
vascular sealing market in the United States.
In December 1996, the FDA approved the VasoSeal device for use in
diagnostic and interventional radiology procedures. In April 1997, the Company
received FDA approval to market the VasoSeal device for use following stent
implantation. Stents, which are devices that support the arterial wall, are
implanted in conjunction with approximately 45-50% of the 700,000 coronary and
peripheral balloon angioplasty procedures performed annually in the United
States. The VasoSeal device was the first vascular closure device approved in
the United States for use after stent implantation.
In September 1997, the FDA approved deployment of the VasoSeal device by
health care professionals other than physicians. In addition to physicians, the
VasoSeal device may now be deployed by nurses and technicians who have
participated in a VasoSeal training program. The Company believes that this
latest approval will further enhance the market penetration of the VasoSeal
device.
The Company has had extensive experience with the VasoSeal device in Europe
since 1992. During calendar years 1993 through 1995, the Company received
regulatory approvals to market the VasoSeal device in Canada, Australia, Italy,
Spain and the Netherlands. In September 1994, the Company received regulatory
approval to market the VasoSeal device in Japan. However, the Company is
awaiting approval for insurance reimbursement in Japan. Until such time, market
penetration may be limited. In addition, registration activity (CE Mark) is
proceeding for distribution throughout Europe.
The Collagen Products Division also manufactures a collagen hemostatic pad
and a fibrillar collagen hemostat which are sold in the United States and
abroad. These products are used to control bleeding during surgery.
InterVascular. The Company's InterVascular subsidiary manufactures and
distributes a proprietary line of knitted and woven polyester vascular grafts
and patches for reconstructive vascular and cardiovascular surgery.
InterGard(TM) is InterVascular's collagen coated graft. With the recent approval
of InterGard in both the U.S. and Japan, InterGard is now sold in all major
world markets.
InterVascular continues to market its FDA approved uncoated grafts,
including the ULP, in the U.S. and Japan. The ULP is the first graft of its kind
to be approved with the claim that preclotting is not necessary. In Europe,
InterVascular also produces a small caliber, collagen coated graft,
InterGard(TM) Ultra Thin, specifically for the peripheral market, which together
with the rest of the InterGard coated products is gaining acceptance as an
effective alternative to the market leader, PTFE (Teflon(R)), in this clinical
application.
In November 1996, the French Government imposed a 40% price reduction on
vascular graft products; international sales currently account for the bulk of
InterVascular sales and France is its single largest market. Sales growth is
expected to resume from a lower sales base created by the price reduction and
favorable sales comparisons are anticipated later in fiscal 1998 now that the
InterGard(TM) collagen-coated grafts have received marketing clearance in Japan
and the United States.
RESEARCH AND DEVELOPMENT
For the three years ended June 30, 1997, 1996 and 1995 the Company spent
approximately $26,815,000, $24,275,000 and $19,400,000, respectively, on
research and development relating to the development of new products and the
improvement of existing products. The increase in research and development
expenditures reflects the Company's continuing efforts to develop new products
such as the VasoSeal device and to expand existing product lines. The Company
has established relationships with several teaching hospitals for the purpose of
clinically evaluating new products, and also has consulting arrangements with
physicians and scientists in the areas of research, product development and
clinical evaluation.
MARKETS AND SALES
The Company's products are sold throughout the world through its own direct
sales organization and through independent distributors. The Company's worldwide
sales organization employs over 300 people
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consisting of sales representatives, sales managers, clinical education
specialists and sales support personnel. The Company's worldwide clinical
education staff, most of whom are critical care and catheterization lab nurses,
conducts seminars and provides in-service training to nurses and physicians on a
continuing basis. The Company provides support services, including warranty
service, invoicing and inventory support, to its worldwide sales organization.
The Company's cardiac assist products are sold primarily to major hospitals
with open-heart surgery and balloon angioplasty facilities and to community
hospitals with cardiac catheterization laboratories. More recently sales have
been made, to a growing degree, to a broader range of hospitals, where IABP is
used for temporary support to the patient's heart prior to transport to a major
hospital center where definitive procedures, such as balloon angioplasty or open
heart surgery, can be conducted.
The Company's monitors are used in hospital operating rooms, emergency
rooms, critical care units, post-anesthesia care units and recovery rooms,
intensive care units, and labor and delivery rooms. The Company's collagen
products are sold to both interventional cardiology and radiology labs, both in
the hospital and within freestanding diagnostic facilities.
The Company provides service and maintenance to purchasers of its products
under warranty, and thereafter on a contract basis. The Company employs service
representatives in the United States and Europe and maintains service facilities
in the United States, the Netherlands, France, Germany and the United Kingdom.
Service revenues accounted for approximately 7% of the Company's revenues in
fiscal 1997. The Company conducts regional service seminars throughout the
United States for its customers and their biomedical engineers and service
technicians.
During the three fiscal years ended June 30, 1997, 1996 and 1995, foreign
sales represented approximately 31%, 36% and 34%, respectively, of the Company's
total sales. The Company is continuing to actively expand its international
presence. The Company has subsidiaries in the United Kingdom, France, Germany
and the Netherlands, and InterVascular has subsidiaries in France, Italy and
Germany. Because a portion of the Company's foreign sales are made in foreign
currencies, the Company bears the risk of adverse changes in exchange rates for
such sales. Reference is made to Notes 2 and 8 to the Financial Statements for
additional information with respect to the Company's foreign operations. The
Company's sales are broadly based and no customer accounts for more than 10% of
its total sales.
COMPETITION
The Company believes that the choice among competing products is generally
made on the basis of product performance, features, price and service. In
general, price has become an important factor in hospital purchasing patterns as
a result of cost containment pressures on the health care industry, including
Federal and State regulations limiting reimbursement for services provided to
Medicare and Medicaid patients. Many companies, some of which are substantially
larger than the Company, are engaged in manufacturing competing products. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" for a discussion of the impact of competition on the Company's sales
in the last fiscal year.
SUPPLIERS
The Company's products are made of components which it fabricates or which
are usually available from existing and alternate sources of supply. Certain
components are purchased from single or preferred sources of supply. The use of
single or preferred sources of supply by the Company increases its exposure to
price increases and production delays. In addition, certain suppliers have been
contemplating, and in a few cases have begun, reducing or eliminating sales of
their products to medical device manufacturers. The Company is unable to predict
whether or not additional suppliers will withhold their products from medical
device manufacturers. The Company has not thus far experienced any material
disruption or delay in processing its components. A small number of the
Company's monitoring products are manufactured by unaffiliated companies.
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PATENTS
The Company holds a number of United States and foreign patents. In
addition, various patent applications have been filed and are pending. The
Company does not believe the expiration or invalidity of any of its patents
would have a material adverse effect on its business as currently conducted. See
"Legal Proceedings."
EMPLOYEES
The Company currently employs approximately 1,200 persons. The Company
believes its relationship with its employees is satisfactory.
REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by the FDA and, in some instances, by state and foreign governmental
authorities. The Medical Device Amendment of 1976 and the Safe Medical Device
Act of 1990, amendments to the Federal Food, Drug and Cosmetics Act of 1938 (the
"Act"), require manufacturers of medical devices to comply with certain controls
that regulate the composition, labeling, testing, manufacturing and distribution
of medical devices. FDA regulations known as "Current Good Manufacturing
Practices for Medical Devices" provide standards for the designing,
manufacturing, packaging, labeling, storing, installing and servicing of medical
devices. Facilities used by the Company to manufacture or assemble the Company's
products are subject to routine FDA inspections. The FDA may also conduct
investigations and evaluations of the Company's products at its own initiative
or in response to customer complaints or reports of malfunctions. The FDA also
has the authority to require manufacturers to recall or correct marketed
products which it believes do not comply with the requirements of the Act.
Under the Act, all medical devices are classified as Class I, Class II, or
Class III devices. In addition to the above requirements, Class II devices must
comply with pre-market notification (510(k)) regulations and with performance
standards or special controls established by the FDA. Subject to certain
exceptions, a Class III device must receive pre-market approval ("PMA") from the
FDA before it can be commercially distributed in the United States. The
Company's principal products are designated as Class II and Class III devices.
The Company believes that the trend is toward increasing regulation of
device manufacturers. The process of obtaining requisite FDA approvals for new
products and improvements to existing products is taking longer. The FDA has
also intensified its surveillance and enforcement activities related to medical
device manufacturers.
In the normal course of business, the Company conducts regulatory audits of
its operations. In December 1993 the Company informed the FDA that in the course
of a regulatory audit conducted by the Company, certain irregularities were
found in the HEMAGUARD PMA. Following that disclosure, the FDA inspected certain
clinical facilities which were involved in developing the data used in the
HEMAGUARD PMA and, in connection therewith, issued warning letters to two of
those facilities. See "Business -- InterVascular."
In October 1994, the Company put a U.S. shipment hold on the Point of View
monitor after an internal audit disclosed a regulatory issue concerning data
submitted to the FDA and, in the fourth quarter of fiscal 1995, the Company
commenced a voluntary recall of the Point of View monitor. The Company met with
the FDA to discuss the issues and to present additional relevant data.
In April 1995, the FDA decided to apply the provisions of the Application
Integrity Policy ("AIP") to products manufactured by the Company's Patient
Monitoring Division and InterVascular, Inc. The AIP generally provides that
substantive review of marketing applications are suspended pending an assessment
by the FDA of the validity of the data contained in such applications. The AIP
resulted in longer time frames for product approvals for the affected business
units. In October 1996 the FDA advised the Company that it has satisfied the
requirements of the AIP. As a result, the FDA resumed its review of all pending
and future marketing submissions for products manufactured by the Company's
Patient Monitoring Division and InterVascular subsidiary.
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In April 1995, the FDA also requested verification by an independent
auditor of certain data relating to the PMA for the VasoSeal device, which has
been provided.
The Company also receives inquiries from the FDA and other agencies and
from time to time it may disagree with positions of members of the staffs of
those agencies. To date the resolutions of such disagreements with the staffs of
the FDA and other agencies have not resulted in material expenditures by the
Company.
The Company is also subject to certain federal, state and local
environmental regulations. The cost of complying with these regulations has not
been, and the Company does not expect them to be, material to the Company's
operations.
HEALTH CARE REFORM
The U.S. Congress is currently considering a number of different proposals
for health care reform. The Company believes that concerns about potential
health care reform legislation have slowed the domestic sales of medical devices
generally. Management of the Company cannot predict at this time what impact, if
any, the adoption by the United States Congress of health care reform
legislation would have on the business of the Company.
ITEM 2. PROPERTIES.
The following table sets forth information with respect to the real
property owned or leased by the Company and its subsidiaries which the Company
considers material to its business.
OWNERSHIP OR
EXPIRATION
LOCATION GENERAL CHARACTER AND USE OF PROPERTY DATE OF LEASE
- ------------------------- -------------------------------------- ---------------------
Montvale, New Jersey..... 38,000 sq. feet, used as the Company's Owned
corporate headquarters and as offices
for the Collagen Products Division
Paramus, New Jersey...... 35,600 sq. feet, used for offices by December 31, 1998
the Patient Monitoring Division and with option to renew
for the corporate service facility
Paramus, New Jersey...... 72,700 sq. feet, used for research and December 31, 1998
development and the manufacture of with option to renew
instrumentation systems
Fairfield, New Jersey.... 75,000 sq. feet, used for offices by Owned
the Cardiac Assist Division and in the
manufacture of disposable products
Clearwater, Florida...... 25,000 sq. feet, used by InterVascular Leased until October
for offices and in the manufacture of 31, 2000 with an
vascular grafts option to purchase
La Ciotat, France........ 18,000 sq. feet, used by InterVascular Owned
for the production of vascular grafts
Vaals, The Netherlands... 17,500 sq. feet, used in the Owned
manufacture of, and for research and
development relating to, collagen
products
Hoevelaken, The 12,700 sq. feet, used for sales and Owned
Netherlands............ service offices
The Company also leases space for offices in various locations in the
United States and for its offices in England, France and Germany. The Company
believes that its facilities and the equipment located therein are in good
working condition and are adequate for its needs.
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ITEM 3. LEGAL PROCEEDINGS.
On December 22, 1981, the Company instituted patent infringement litigation
relating to an intra-aortic balloon catheter against SMEC, Inc. ("SMEC") in the
United States District Court for the District of New Jersey (the "Court"). The
Court rendered a decision on September 24, 1984 that one of the Company's
patents for the percutaneous intra-aortic balloon catheter is valid and was
infringed by SMEC. Certain claims of a second patent for the intra-aortic
balloon catheter system were held to be invalid. After the United States Court
of Appeals for the Federal Circuit upheld the lower court's decision, a separate
trial was held on the amount to which the Company was entitled as damages from
SMEC, and damages were awarded to the Company.
In August 1990, SMEC filed for protection under Chapter 11 of the Federal
Bankruptcy Code. In that bankruptcy proceeding, at the request of the Company, a
trustee was appointed for SMEC so that the debtor, SMEC, would no longer be in
possession of its assets. The trustee then filed an action in the Tennessee
Bankruptcy Court against Peter Schiff, principal stockholder and officer of
SMEC, to recover from him assets belonging to SMEC. The bankruptcy proceeding
was thereafter converted to a case under Chapter 7. In July 1991, the Company
and the SMEC trustee initiated litigation in State Court in Massachusetts
against Boston Scientific Corporation and IABP Corp. for the wrongful
acquisition of SMEC assets.
Datascope settled the Massachusetts action in the fourth quarter of fiscal
1993. In addition, in the fourth quarter of fiscal 1993, the trustee settled the
Massachusetts action and the trustee's settlement was approved by the Bankruptcy
Court in Tennessee. In connection with the settlement by the trustee, Boston
Scientific Corporation and IABP Corp. made a payment to the trustee for the
benefit of the bankruptcy estate of SMEC.
A complaint was filed on June 7, 1995 by the Trustee in Bankruptcy for SMEC
in the United States Bankruptcy Court for the Middle District of Tennessee
seeking a judgment against the Company, Boston Scientific Corporation and IABP
Corp. for actual damages in the amount of $6 million. The suit also seeks
recovery of treble damages, punitive damages, pre and post judgment interest and
attorney fees. The suit accuses the Company and Boston Scientific Corporation of
entering into an elaborate scheme to defraud the trustee in the SMEC bankruptcy
case and seeks recovery under theories of breach of fiduciary duty, fraud,
conversion, RICO, and an impermissible postpetition transfer of property by the
bankruptcy estate. In effect, the suit is a collateral attack on the order of
dismissal entered in the Massachusetts case. The Company denies the Trustee's
charges and intends to vigorously defend the lawsuit.
On November 5, 1993, plaintiff Merrill Rotter commenced an action in the
United States District Court for the District of New Jersey against the Company
and Lawrence Saper, its Chief Executive Officer. That action was consolidated
with subsequent related litigation, and culminated in the filing of a First
Consolidated and Amended Class Action Complaint on March 31, 1994 (hereinafter
referred to as the "First Consolidated Complaint"). The Company and Mr. Saper
moved to dismiss the First Consolidated Complaint on May 16, 1994. While the
motion to dismiss was pending, a related class action lawsuit was filed and
consolidated on June 13, 1994 in the United States District Court for the
District of New Jersey. Plaintiffs filed a Second Consolidated and Amended Class
Action Complaint, superseding the First Consolidated Complaint, on August 30,
1994 (hereinafter referred to as the "Second Consolidated Complaint").
The plaintiffs alleged, in substance, that Datascope and Lawrence Saper
made material misrepresentations and omissions concerning the VasoSeal device's
safety, efficacy, potential profitability and likelihood of FDA approval, in
violation of Section 10(b) of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5 promulgated thereunder. Plaintiffs also alleged securities laws
violations relating to alleged insider trading by Mr. Saper. The plaintiffs
sought unspecified damages plus interest and costs and expenses incurred in the
litigation, including reasonable attorneys' fees and experts' fees and other
costs and disbursements. The Company and Mr. Saper moved to dismiss the Second
Consolidated Complaint on October 11, 1994. The motion was granted in part, and
denied in part on April 10, 1995. On January 22, 1996, the Court granted
plaintiffs' motion for certifying a class consisting of all purchasers of
Datascope common stock during the period from November 6, 1991 through and
including September 1, 1993. In November 1996, the parties entered into a
settlement, subject to court approval, which has cost the Company approximately
$5.6 million, plus legal expenses. The class action settlement was approved by
the court in February 1997.
8
10
On March 4, 1996, the Company announced that Quinton Instrument Company and
Sherwood Medical Company had filed a complaint in the United States District
Court for the Eastern District of Virginia alleging that the VasoSeal device
infringes on certain patents owned by Quinton. The complaint sought a permanent
injunction as well as an unspecified amount of monetary damages. The matter was
settled by allowing all parties to market their respective vascular hemostasis
products with covenants against future litigation.
The Company is subject, in the ordinary course of its business, to product
liability litigation. The Company believes it has meritorious defenses in all
material pending lawsuits and that it maintains adequate insurance against any
potential liability. The Company receives comments and recommendations with
respect to its products from the staff of the FDA and from other agencies on an
on-going basis. The Company may or may not agree with such comments and
recommendations; however, the Company is not a party to any formal regulatory
administrative proceedings. See "Business -- Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of Security Holders in the fourth
quarter of fiscal 1997.
ITEM 4a. EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth the names, ages and positions and offices
with the Company held by the Company's present executive officers:
POSITIONS AND OFFICES
NAME AGE PRESENTLY HELD
------------------------------------- ------- --------------------------------------
Lawrence Saper....................... 69 Chairman of the Board, President and
Chief Executive Officer
Murray Pitkowsky..................... 66 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
John Gilbert......................... 40 Vice President; President, Collagen
Products Division
Timothy J. Haines.................... 40 Vice President, International
Distribution and Markets
Stanton Rowe......................... 46 Vice President, Business Development
Jason Sholder........................ 52 Vice President; President, Cardiac
Assist Division
Donald Southard...................... 51 Division Vice President; President,
Patient Monitoring Division
Donald Southard...................... 51 Vice President; President, Patient
Monitoring Division
Russell D. Van Zandt................. 56 Vice President; President,
InterVascular, Inc.
S. Arieh Zak, Esq.................... 36 Vice President, Regulatory Affairs and
Corporate Counsel
9
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's common stock is traded over-the-counter and is listed on the
NASDAQ National Market. (NASDAQ symbol: DSCP). The following table sets forth,
for each quarter period during the last two fiscal years, the high and low sale
prices as reported by NASDAQ.
FISCAL YEAR HIGH LOW
----------------------------------------------------------------------- ---- ---
1996
First Quarter.......................................................... 21 1/2 15 3/4
Second Quarter......................................................... 27 1/4 19 1/2
Third Quarter.......................................................... 25 1/2 20 1/2
Fourth Quarter......................................................... 24 17
1997
First Quarter.......................................................... 18 3/8 15 1/4
Second Quarter......................................................... 21 1/2 15 1/4
Third Quarter.......................................................... 24 3/4 17 5/8
Fourth Quarter......................................................... 21 1/4 17 1/2
As of September 15, 1997, there were approximately 930 holders of record of
the Company's common stock.
DIVIDEND POLICY
The Company has never paid any cash dividends to its shareholders and
presently intends to continue its policy of retaining its earnings for facility
expansion, acquisitions and working capital purposes.
RECENT SALES OF UNREGISTERED SECURITIES
On May 20, 1997 the Compensation Committee of the Board of Directors of the
Company authorized the grant pursuant to the Datascope Corp. 1995 Stock Option
Plan, to 22 employees of the Company, of options to purchase an aggregate of
85,000 shares of Common Stock at an exercise price of not less than the average
of the high and low sale price of the Common Stock as quoted on the NASDAQ
National Market on such date. On May 20, 1997 the Board of Directors of the
Company also authorized the grant to two consultants to the Company of options
to purchase an aggregate of 3,600 shares of Common Stock at an exercise price of
not less than the average of the high and low sale price of the Common Stock as
quoted on the NASDAQ National Market on such date.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information for the fiscal
years 1993 through 1997 has been derived from the consolidated financial
statements of the Company for those years, which have been audited by Deloitte &
Touche, LLP, independent certified public accountants, whose report for fiscal
years 1995 through 1997 is included elsewhere herein. All such information is
qualified by reference to the financial statements included elsewhere herein.
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12
SELECTED FINANCIAL INFORMATION
EARNINGS STATEMENT DATA:
(in thousands, except per share data)
YEAR ENDED JUNE 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Net sales........................... $225,600 $211,300 $195,700 $182,800 $166,000
-------- -------- -------- -------- --------
Cost of sales....................... 80,606 75,000 69,506 64,953 59,023
Cost of sales, point of view
charge............................ -- 9,600 -- -- --
Research and development............ 26,815 24,275 19,400 18,765 16,704
Selling, general and
administrative.................... 96,151 89,708 84,249 78,208 72,205
Settlements of litigation........... 8,554 (10,691) -- -- --
Gain on sale of assets of
Angioplasty Division.............. -- -- -- -- (3,152)
-------- -------- -------- -------- --------
212,126 187,892 173,155 161,926 144,780
-------- -------- -------- -------- --------
Operating earnings.................. 13,474 23,408 22,545 20,874 21,220
Other (income) expense:
Interest income................... (4,744) (4,226) (2,855) (1,608) (1,376)
Interest expense.................. 18 50 55 24 19
Other, net........................ 380 743 366 353 500
-------- -------- -------- -------- --------
(4,346) (3,433) (2,434) (1,231) (857)
-------- -------- -------- -------- --------
Earnings before taxes on income..... 17,820 26,841 24,979 22,105 22,077
Taxes on income..................... 3,716 6,424 7,640 6,437 6,337
-------- -------- -------- -------- --------
Net earnings........................ $ 14,104 $ 20,417 $ 17,339 $ 15,668 $ 15,740
======== ======== ======== ======== ========
Earnings per share:
Primary and fully diluted......... $ 0.86 $ 1.24 $ 1.07 $ 0.97 $ 0.97
BALANCE SHEET DATA:
(in thousands)
JUNE 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Total assets........................ $237,862 $234,464 $206,863 $185,421 $158,001
Long-term debt...................... -- -- -- -- --
Working capital..................... 123,716 121,359 110,744 102,943 96,475
Stockholders' equity................ 192,243 181,680 163,319 144,062 127,777
Cash dividends...................... -- -- -- -- --
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
DATASCOPE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Excluding special items, net earnings for fiscal 1997 were $19.2 million
compared to $18.1 million last year, equivalent to $1.17 per share versus $1.10
per share, respectively.
Net earnings for fiscal 1997 including special charges of $5.1 million
after tax or $0.31 per share amounted to $14.1 million or $0.86 per share,
compared to $20.4 million or $1.24 per share in fiscal 1996 which included
special income of $2.3 million after tax or $0.14 per share. Fiscal 1995 net
earnings were $17.3 million or $1.07 per share. The special items included in
fiscal 1997 and 1996 earnings were as follows:
FY 1997
1) Shareholder class action securities lawsuit settlement expense of $5.6M
or $3.3M after tax, equivalent to $0.20 per share.
2) Quinton patent infringement lawsuit settlement expense of $3.0M or $1.8M
after tax, equivalent to $0.11 per share.
FY 1996
1) Income of $10.7 million or $7.9 million after tax, equivalent to $0.47
per share, from the settlement of litigation against several former
InterVascular employees and certain other defendants.
2) A write-off of $9.6 million or $5.6 million after tax, equivalent to
$0.34 per share, for excess and obsolete inventory and other costs
related to the point of view(R) (POV) monitor.
COMPARISON OF RESULTS -- FISCAL 1997 VS. FISCAL 1996
Net sales in fiscal 1997 were $225.6 million, an increase of 7% compared to
sales of $211.3 million in fiscal 1996.
The following table shows the comparison of sales by product line over the
past three fiscal years.
SALES BY PRODUCT LINE
(DOLLARS IN MILLIONS)
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
------ ------ ------
Cardiac Assist................................... $103.0 $107.8 $101.2
% change from prior year....................... (4)% 7% 17%
% of total sales............................... 46% 51% 52%
Patient Monitoring............................... $ 87.8 $ 77.6 $ 74.8
% change from prior year....................... 13% 4% (8)%
% of total sales............................... 39% 37% 38%
Vascular Grafts.................................. $ 15.9 $ 17.8 $ 14.7
% change from prior year....................... (11)% 21% 37%
% of total sales............................... 7% 8% 7%
Collagen Products................................ $ 18.9 $ 8.1 $ 5.0
% change from prior year....................... 131% 62% 38%
% of total sales............................... 8% 4% 3%
Total Sales...................................... $225.6 $211.3 $195.7
% change from prior year....................... 7% 8% 7%
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Cardiac Assist product sales decreased in fiscal 1997 reflecting the
intensified worldwide competitive environment. Increased unit shipments of both
intra-aortic balloons and pumps were offset by lower prices required to maintain
the Company's dominant market position. Although the Company expects the
competitive environment to continue, it expects to strengthen its position with
new product introductions in fiscal 1998.
Sales of Patient Monitoring products grew in fiscal 1997, reflecting strong
domestic sales growth of the Passport(R)XG line of portable monitors, introduced
in June 1996, and higher sales of VISA(TM) central station monitors. The Company
believes that its Passport monitors continued to gain market share throughout
fiscal 1997 and has expanded its product line further with the introduction of
the Passport XG-CD model, with a color display screen for better viewing and
acuity, in the third quarter of fiscal 1997.
Sales of vascular grafts declined in fiscal 1997 despite higher unit graft
shipments due to a price reduction of 40% imposed by the French Government on
vascular grafts in November 1996, an unfavorable foreign exchange impact and
lower sales to the Japanese distributor which reduced its inventory of uncoated
grafts while awaiting approval for InterGard(TM)collagen-coated grafts. Japanese
regulatory approval for InterGard was received in August 1997. Higher U.S. graft
sales were attributable to sales of InterGard grafts to Impra, the new U.S.
distributor, in the fourth quarter of fiscal 1997, upon receiving Food and Drug
Administration (FDA) approval in May of 1997.
In August 1996, the FDA approved revised VasoSeal(R) labeling that includes
the claim that patients who receive the VasoSeal device can be ambulated
significantly earlier, rather than under conventional clinical practice using
manual or mechanical compression. The Company believes that early ambulation
made possible by the VasoSeal device should result in significant potential cost
savings for hospitals because patients can be moved to lower, less costly levels
of care. In addition, human and material resources are reduced, which results in
improved hospital efficiencies. The ability to claim early ambulation and its
potential to lower cost and increase revenue should assist the VasoSeal device
in the vascular sealing market in the U.S.
In December 1996, the FDA approved the VasoSeal device for use in
diagnostic and interventional radiology procedures. In April 1997, the Company
received FDA approval to market the VasoSeal device for use following stent
implantation. Stents, which are devices that support the arterial wall, are
implanted in conjunction with approximately 45-50% of the 700,000 coronary and
peripheral balloon angioplasty procedures performed annually in the United
States. The VasoSeal device was the first vascular closure device approved in
the United States for use after stent implantation.
Sales of the VasoSeal device in fiscal 1997, predominately in the U.S.,
grew to $17.9 million in the first full year of sales. The annualized rate of
U.S. sales of the VasoSeal device was $23 million in the fourth quarter of 1997.
The Company continues to expand its direct U.S. sales and marketing organization
to meet the growing demand for vascular sealing devices. The Company also
anticipates receiving approval (CE Mark) to sell the VasoSeal device in the
European common market in fiscal 1998.
The foreign exchange rate effect of the stronger U.S. dollar compared to
major European currencies decreased total sales by approximately $1.6 million in
fiscal 1997 compared to fiscal 1996.
Cost of Sales was 35.7% of sales in fiscal 1997 compared to 35.5% in fiscal
1996 (excluding the special charge applicable to the POV monitor) with the
slight increase primarily attributable to lower selling prices for cardiac
assist and vascular graft products partially offset by improved manufacturing
efficiencies for the VasoSeal device. Fiscal 1996 cost of sales was 40.0%
including the POV special charge.
Higher research and development expenses of 11% in fiscal 1997 resulted
primarily from increased staffing and increased use of outside technical
resources to accelerate new product development in all businesses.
Selling, general and administrative expenses (SG&A) increased 7% primarily
as a result of the buildup of the U.S. marketing and selling organization for
the VasoSeal device and increased staffing of the Patient Monitoring field sales
force. Partially offsetting the above increases were lower legal fees in fiscal
1997 as fiscal 1996 included legal fees for the Quinton patent suit.
13
15
The strengthening of the U.S. dollar compared to major European currencies
decreased SG&A expenses by approximately $1.1 million in fiscal 1997 compared to
fiscal 1996.
The higher interest income in fiscal 1997 compared to fiscal 1996 was
attributable to an increase in the investment portfolio from cash generated by
operations and an increase in interest rates.
The Company enters into foreign exchange forward contracts to hedge a major
portion of its foreign currency exposures, primarily related to certain
receivables denominated in foreign currencies. The hedging has reduced the
Company's exposure to fluctuations in foreign currencies. The net foreign
exchange transaction gain or loss is reported in other income and expense.
Foreign exchange forward contracts outstanding at June 30, 1997 totaled $612
thousand, all of which were in European currencies, with maturities that do not
exceed twelve months.
The consolidated effective tax rate for fiscal 1997 was 20.9% compared to
23.9% for fiscal 1996. The tax rate in both years was lower than the federal
statutory tax rate primarily as a result of the tax benefit from the Foreign
Sales Corporation, earnings in an international tax exempt industrial zone and
interest income exempt from federal income tax. The lower tax rate in fiscal
1997 compared to fiscal 1996 was primarily attributable to the reinstatement of
the federal R&D tax credit in July 1996 and higher state R&D tax credits as a
result of increased R&D spending in fiscal 1997.
Excluding special items in both years, net earnings in fiscal 1997 were 6%
higher compared to fiscal 1996 primarily as a result of increased earnings from
higher U.S. sales of the VasoSeal device, lower corporate legal expenses and
increased interest income earned on investments.
COMPARISON OF RESULTS -- FISCAL 1996 VS. FISCAL 1995
Net earnings for fiscal 1996 amounted to $20.4 million or $1.24 per share,
compared to $17.3 million or $1.07 per share in fiscal 1995. Excluding the two
special items in fiscal 1996 noted earlier, net earnings for fiscal 1996 were
$18.1 million compared to $17.3 million in fiscal 1995, equivalent to $1.10 per
share versus $1.07 per share, respectively.
In 1996, net sales were $211.3 million, an increase of 8% compared to sales
of $195.7 million in 1995.
Cardiac Assist product sales increased in fiscal 1996 due to higher
worldwide unit shipments of intra-aortic balloons. The rate of sales growth of
intra-aortic balloons slowed during fiscal 1996, reflecting the general pressure
on physicians and hospital managers to reduce cost, increasing competitive
pressure primarily in the form of free intra-aortic balloons for evaluation
offered by competitors and somewhat lower prices. Sales of balloon pumps were
flat in fiscal 1996 compared to fiscal 1995, as a result of the increased
competition and constraints on medical costs causing price reductions, increased
sales of lower priced reconditioned pumps and increased shipments of balloon
pumps under terms that result in future revenues.
Patient Monitoring product sales reflected a 4% increase in fiscal 1996.
However, despite strong international sales growth, excluding the negative
effect of the U.S. POV monitor recall in fiscal 1995, patient monitoring sales
declined 1% in fiscal 1996 primarily because of the lack of new products.
The Company devoted significant resources to regulatory issues and
independent regulatory audits during fiscal 1996 and made substantial progress
with respect to the Application Integrity Policy (AIP) that was imposed by the
Food and Drug Administration in April 1995, and subsequently lifted in October
1996, removing a key constraint to the introduction of new products and
consequent sales growth in the U.S. for both the Patient Monitoring Division and
InterVascular, Inc.
In the fourth quarter of fiscal 1996 the Company recorded a write-off of
$9.6 million, or $5.6 million after tax, for excess and obsolete inventory and
other costs related to the POV monitor, since it was unlikely the product would
be reintroduced because of the time and cost required to make the POV
competitive in the U.S. market.
14
16
Sales of vascular grafts increased in fiscal 1996 due to international
sales growth of InterVascular's collagen coated vascular graft, InterGard. The
Company continued its efforts to obtain regulatory approval for the InterGard in
Japan and the U.S.
The growth in Collagen Product sales in fiscal 1996 was attributable to
sales of the VasoSeal device in the U.S. which reached an annualized sales rate
in excess of $8 million based upon fourth quarter sales of the VasoSeal device,
which represented the second full quarter of sales in the U.S. The Company
expanded the U.S. direct marketing organization in fiscal 1996 to meet expected
demand.
The foreign exchange rate effect of the weaker U.S. dollar compared to
major European currencies increased total sales by approximately $0.7 million in
fiscal 1996 compared to fiscal 1995.
Cost of Sales (excluding the impact of the POV charge) was 35.5% of sales
in fiscal 1996 and fiscal 1995. In fiscal 1996 a more favorable sales mix
resulting from greater sales of higher margin disposable products was offset by
the effect of lower average selling prices for cardiac assist and patient
monitoring products. Including the POV charge in fiscal 1996, cost of sales was
40.0%.
R&D expenses increased 25%, attributable to increased activity to
accelerate the introduction of new products. Cardiac Assist R&D expense
increased primarily due to the development of the System 96 intra-aortic balloon
pump for the international market and new balloon catheter developments. Higher
R&D in the Patient Monitoring Division was primarily attributable to development
expenses for enhanced versions of the Accutorr(R) and Passport monitors and
expenditures for outside technical resources to augment the internal R&D staff.
InterVascular R&D expenses increased primarily as a result of expenditures for
French International Organization for Standardization validation, increased
staffing and expenses in the U.S. for Good Manufacturing Practices validation.
Selling, general and administrative expenses increased 7%, primarily due to
start-up costs associated with the market introduction of the VasoSeal device,
including the buildup of the U.S. field sales and training organization, and
higher international sales and marketing expenses in the Cardiac Assist Division
and InterVascular, Inc.
The weakening of the U.S. dollar compared to major European currencies
increased SG&A expenses by approximately $550 thousand in fiscal 1996 compared
to fiscal 1995.
The higher interest income in fiscal 1996 compared to fiscal 1995 was
attributable to an increase in the investment portfolio, as cash was generated
from operations, and an increase in interest rates.
Foreign exchange forward contracts outstanding at June 30, 1996 totaled
$419 thousand, all of which were in European currencies, with maturities that do
not exceed 12 months.
The consolidated effective tax rate for fiscal 1996 was 23.9% compared to
30.6% for fiscal 1995. The lower tax rate in fiscal 1996 was primarily
attributable to the favorable tax effect of higher operating earnings in an
international tax exempt industrial zone, including income from settlement of
litigation.
Excluding the special charge of $5.6 million applicable to the POV
write-off and the $7.9 million income from the settlement of litigation, net
earnings in fiscal 1996 exceeded fiscal 1995 by 5%. Results of operations for
fiscal 1996 reflect the impact of competitive pressures in the Company's core
businesses, Patient Monitoring and Cardiac Assist, and increased R&D expenses in
all businesses to accelerate the introduction of new products.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued its strong financial position in fiscal 1997. Working
capital at June 30, 1997 was $123.7 million or $2.4 million higher than at June
30, 1996. At June 30, 1997 the current ratio was 4.8:1 compared to 3.9:1 last
year, with the increase primarily attributable to the reduction of accrued
expenses related to both the POV write-off and payment of Quinton patent suit
legal fees incurred in fiscal 1996, partially offset by a $7.5 million reduction
in short-term investments, as more funds were invested long-term (up to 5
years).
15
17
In May 1996 the Company announced a stock repurchase program of up to $20
million to buy shares of its common stock from time to time subject to market
conditions and other relevant factors affecting the Company. Through June 30,
1997, the Company purchased $4.2 million of stock under the repurchase program.
Cash provided by operations was $8.3 million in fiscal 1997. Cash was used
to purchase $5.3 million of equipment and to purchase $2.5 million of Company
stock under the stock repurchase program, with the balance invested in short-
and long-term investments.
Cash provided by operations was $25.0 million in fiscal 1996. Cash was used
to purchase $5.0 million of equipment and to purchase $1.7 million of Company
stock under the stock repurchase program, with the balance invested in short-
and long-term investments.
Cash provided by operations was $26.4 million in fiscal 1995. Cash was used
to purchase $6.2 million of equipment, with the balance invested in short- and
long-term investments.
Management believes that the Company's financial resources are sufficient
to meet its projected cash requirements.
The moderate rate of U.S. inflation during the past three fiscal years has
not significantly affected the Company.
This Management's Discussion includes forward-looking statements that are
subject to uncertainty because of the possibility that market conditions may
change, particularly as a result of the introduction of new cardiac assist
products by competitors and because the timing of regulatory approvals is
uncertain. Furthermore, there can be no assurance that recent sales and earnings
growth trends will continue.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" (SFAS No. 129) specify
guidelines as to the method of computation as well as presentation and
disclosure requirements for earnings per share (EPS). The objective of these
statements is to simplify the calculation and to make the U.S. standard for
computing EPS more compatible with the EPS standards of other countries and with
that of the International Accounting Standards Committee. These statements will
apply to fiscal years 1998 and 1999, respectively. SFAS Nos. 128 and 129 will
have an impact on the Company's EPS calculation and disclosure requirements but
management cannot predict the outcome at this time.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) will apply to fiscal year 1999 and
establishes standards for reporting, classifying and displaying comprehensive
income and its components in a full set of financial statements. Comprehensive
income items include all nonowner changes in equity during a period.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) will apply to
fiscal year 1999 and requires additional reporting on revenues, expenses, profit
or loss and assets on the operating segments of a business.
Adoption of SFAS Nos. 130 and 131 will expand the Company's current
disclosure requirements.
PART III
ITEMS 10, 11, 12 AND 13.
Except for the information included in Item 4a of this report, the
information called for by Items 10, 11, 12 and 13 of this Form 10-K is
incorporated by reference to those portions of the Company's 1997 Proxy
Statement which contain such information.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are filed on the pages listed below, as part of Part II, Item 8 of
this report:
PAGE
---------
Report of Independent Auditors................................................... F-1
Consolidated balance sheets -- June 30, 1997 and 1996............................ F-2
Statements of consolidated earnings -- Years ended June 30, 1997, 1996 and
1995........................................................................... F-3
Statements of consolidated stockholders' equity -- Years ended June 30, 1997,
1996 and 1995.................................................................. F-4
Statements of consolidated cash flows -- Years ended June 30, 1997, 1996 and
1995........................................................................... F-5
Notes to consolidated financial statements....................................... F-6-F-19
2. Financial Statement Schedules
II -- Valuation and Qualifying Accounts......................................... S-1
All other schedules have been omitted because they are inapplicable, or not
required, or the information is included in the financial statements or notes
thereto.
3. Exhibits
2. Agreement and Plan of Merger, dated as of October 25, 1989, by and between the
registrant and Datascope New York (incorporated by reference to Exhibit 2 to the
registrant's Registration Statement on Form 8-B, filed with the Commission on
January 4, 1990 (the "Form 8-B")).
3.1 Restated Certificate of Incorporation as filed with the Secretary of State of the
State of Delaware on October 30, 1989 (incorporated by reference as Exhibit 3.1 to
the Form 8-B).
3.2 By-Laws, as currently in effect (incorporated by reference to Exhibit 3.2 to Annual
Report on Form 10-K for fiscal year ended June 30, 1993 (the "1993 10-K")).
4.1 Specimen of certificate of Common Stock (incorporated by reference to Exhibit 4.2 to
the Form 8-B).
4.2 Form of Certificate of Designations of the Registrant's Series A Preferred Stock
(incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on
Form 8-A, filed with the Commission on May 31, 1991 (the "May 31, 1991 Form 8-A")).
4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company and
Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 2.1
to the May 31, 1991 Form 8-A).
10.1* 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2.1 to the
Form 8-B).
10.2* Stock Option Agreements, dated November 30, 1982, between David Altschiller, William
Asmundson, Alan Patricof and Norman Schneider, respectively, and the registrant
(incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
10.3* Stock Option Agreement, dated December 7, 1988 between Joseph Grayzel, M.D. and the
registrant (incorporated by reference to Exhibit 10.6 to the 1989 10-K).
10.4* Stock Option Agreements, dated as of March 1, 1990, between David Altschiller,
William Asmundson, Joseph Grayzel, Alan Patricof and Norman Schneider, respectively,
and the registrant (incorporated by reference to Exhibit 10.9 to Annual Report on
Form 10-K for the fiscal year ended June 30, 1990).
10.5* Stock Option Agreement, dated as of September 28, 1990, between David Altschiller
and the registrant (incorporated by reference to Exhibit 10.8 to the 1991 10-K).
10.6* Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4 to
Registration Statement on Form S-8 (File No. 333-00537) filed January 30, 1996 with
the Commission).
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19
10.7* Amendment No. 1 to Datascope Corp. 1995 Stock Option Plan (incorporated by reference
to Exhibit 4 to Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(File No. 333-00537) filed February 21, 1996 with the Commission).
10.8* Agreement, dated as of July 1, 1996, by and between Datascope Corp. and Lawrence
Saper.
10.9* Split-Dollar Agreement made as of July 25, 1994 by and among Datascope Corp.,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper
Family 1994 Trust UTA. dtd. 6/28/94 (incorporated by reference to Exhibit 10.15 to
Annual Report on Form 10-K for fiscal year ended June 30, 1996 (the "1996 10-K")).
10.10* Modification Agreement made as of July 25, 1994 by and among Datascope Corp.,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper
Family 1994 Trust UTA. dated 6/28/94 (incorporated by reference to Exhibit 10.16 to
1996 10-K).
10.11* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash,
Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Metropolitan Life
Insurance Company Insurance Policy No. 940 750 122UM in favor of Datascope Corp.
(incorporated by reference to Exhibit 10.17 to 1996 10-K).
10.12* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash,
Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Security Mutual Life
Insurance Company of New York Insurance Policy No. 11047711 in favor of Datascope
Corp. (incorporated by reference to Exhibit 10.18 to 1996 10-K).
21. Subsidiaries.
23. Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K
N/A
(c) Management contracts or compensatory plans or arrangements required to
be filed as an exhibit pursuant to Item 14(c) are denoted by an (*)
18
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATASCOPE CORP.
By: /s/ LAWRENCE SAPER
------------------------------------
Lawrence Saper
Chairman of the Board and President
Date: September 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------------------------------------- -------------------------------- -------------------
/s/ LAWRENCE SAPER Chairman of the Board, President September 29, 1997
- ---------------------------------------- and Director (Principal
Lawrence Saper Executive Officer)
/s/ MURRAY PITKOWSKY Senior Vice President, Chief September 29, 1997
- ---------------------------------------- Financial Officer, Secretary
Murray Pitkowsky and Treasurer
/s/ ALAN ABRAMSON Director September 29, 1997
- ----------------------------------------
Alan Abramson
/s/ DAVID ALTSCHILLER Director September 29, 1997
- ----------------------------------------
David Altschiller
/s/ WILLIAM ASMUNDSON Director September 29, 1997
- ----------------------------------------
William Asmundson
/s/ JOSEPH GRAYZEL Director September 29, 1997
- ----------------------------------------
Joseph Grayzel, M.D.
/s/ GEORGE HELLER Director September 29, 1997
- ----------------------------------------
George Heller
/s/ ARNO NASH Director September 29, 1997
- ----------------------------------------
Arno Nash
19
21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Datascope Corp.
Montvale, New Jersey
We have audited the accompanying consolidated balance sheets of Datascope
Corp. and its subsidiaries (the "Company") as of June 30, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a)(2).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Datascope Corp. and its
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considering in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------------------------------------
New York, New York
July 29, 1997
F-1
22
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30,
---------------------
1997 1996
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 2,597 $ 2,574
Short-term investments (Note 2)...................................... 57,338 64,805
Accounts receivable, less allowance for doubtful accounts of $922 and
$1,198............................................................ 52,240 50,559
Inventories (Note 3)................................................. 34,604 34,757
Prepaid expenses and other current assets............................ 9,485 10,743
-------- --------
Total Current Assets......................................... 156,264 163,438
Property, Plant and Equipment, net (Note 4)............................ 44,742 43,973
Non-Current Marketable Securities (Note 2)............................. 25,902 17,364
Other Assets........................................................... 10,954 9,689
-------- --------
$237,862 $234,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................... $ 6,650 $ 6,664
Accrued expenses (Note 6)............................................ 15,755 23,372
Accrued compensation................................................. 9,336 9,946
Taxes on income (Note 5)............................................. 807 2,097
-------- --------
Total Current Liabilities.................................... 32,548 42,079
Other Liabilities (Note 9)............................................. 13,071 10,705
Commitments and Contingencies (Notes 2, 7, 9 and 10)
Stockholders' Equity (Note 7):
Preferred stock, par value $1.00 per share:
Authorized 5,000,000 shares; Issued, none......................... -- --
Common stock, par value $.01 per share:
Authorized, 45,000,000 shares; Issued and outstanding, 16,245,732
and 16,135,427 shares............................................ 162 161
Additional paid-in capital........................................... 44,266 42,548
Treasury stock at cost, 223,300 and 94,000 shares.................... (4,151) (1,671)
Retained earnings.................................................... 155,868 141,764
Cumulative translation adjustments................................... (3,902) (1,122)
-------- --------
192,243 181,680
-------- --------
$237,862 $234,464
======== ========
See notes to consolidated financial statements
F-2
23
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
----------------------------------
1997 1996 1995
-------- -------- --------
Net Sales.................................................. $225,600 $211,300 $195,700
-------- -------- --------
Costs and Expenses:
Cost of sales............................................ 80,606 75,000 69,506
Cost of sales, point of view charge (Note 12)............ -- 9,600 --
Research and development expenses........................ 26,815 24,275 19,400
Selling, general and administrative expenses............. 96,151 89,708 84,249
Settlements of litigation (Note 12)...................... 8,554 (10,691) --
-------- -------- --------
212,126 187,892 173,155
-------- -------- --------
Operating Earnings......................................... 13,474 23,408 22,545
Other (Income) Expense:
Interest income.......................................... (4,744) (4,226) (2,855)
Interest expense......................................... 18 50 55
Other, net............................................... 380 743 366
-------- -------- --------
(4,346) (3,433) (2,434)
-------- -------- --------
Earnings Before Taxes on Income............................ 17,820 26,841 24,979
Taxes on Income (Note 5)................................... 3,716 6,424 7,640
-------- -------- --------
Net Earnings............................................... $ 14,104 $ 20,417 $ 17,339
======== ======== ========
Earnings Per Share......................................... $ 0.86 $ 1.24 $ 1.07
======== ======== ========
Weighted Average Number of Common and Common Equivalent
Shares Outstanding....................................... 16,367 16,516 16,233
======== ======== ========
See notes to consolidated financial statements
F-3
24
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
COMMON STOCK
------------------- ADDITIONAL TREASURY CUMULATIVE
SHARES PAR PAID-IN RETAINED STOCK TRANSLATION
OUTSTANDING VALUE CAPITAL EARNINGS AT COST ADJUSTMENTS TOTAL
----------- ----- ---------- -------- -------- ----------- --------
Balance, June 30, 1994....... 16,043,411 $ 160 $ 41,605 $104,008 $ -- $(1,711) $144,062
Exercise of stock
options................. 32,445 1 305 306
Tax benefit relating to
exercise of stock
options................. 22 22
Treasury shares acquired
upon exercise of stock
options................. (5,167) (95) (95)
Cancellation of treasury
stock................... (95) 95 --
Currency translation....... 1,685 1,685
Net earnings............... 17,339 17,339
---------- ---- ------- -------- ------- ------- -------
Balance, June 30, 1995....... 16,070,689 161 41,837 121,347 -- (26) 163,319
Exercise of stock
options................. 79,346 1 793 794
Tax benefit relating to
exercise of stock
options................. 226 226
Treasury shares acquired
upon exercise of stock
options................. (14,608) (309) (309)
Cancellation of treasury
stock................... (1) (308) 309 --
Treasury shares acquired
under repurchase
program................. (94,000) (1,671) (1,671)
Currency translation....... (1,096) (1,096)
Net earnings............... 20,417 20,417
---------- ---- ------- -------- ------- ------- -------
Balance, June 30, 1996....... 16,041,427 161 42,548 141,764 (1,671) (1,122) 181,680
Exercise of stock
options................. 113,310 1 1,647 1,648
Tax benefit relating to
exercise of stock
options................. 131 131
Treasury shares acquired
upon exercise of stock
options................. (3,005) (60) (60)
Cancellation of treasury
stock................... (60) 60 --
Treasury shares acquired
under repurchase
program................. (129,300) (2,480) (2,480)
Currency translation....... (2,780) (2,780)
Net earnings............... 14,104 14,104
---------- ---- ------- -------- ------- ------- -------
Balance, June 30, 1997....... 16,022,432 $ 162 $ 44,266 $155,868 $ (4,151) $(3,902) $192,243
========== ==== ======= ======== ======= ======= =======
See notes to consolidated financial statements
F-4
25
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------------------
1997 1996 1995
-------- --------- --------
OPERATING ACTIVITIES:
Net Earnings............................................ $ 14,104 $ 20,417 $ 17,339
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 9,576 8,638 8,246
Provision for supplemental pension................... 897 844 835
Provision for losses on accounts receivable.......... 255 350 494
Deferred income tax (benefit)........................ 1,763 (5,121) (809)
Tax benefit relating to stock options exercised...... 131 226 22
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,603) (5,890) 6,079
Inventories.......................................... (6,271) (2,557) (6,653)
Other assets......................................... (2,090) (748) 225
Accounts payable..................................... 100 (868) (2,085)
Income taxes payable................................. (1,290) (212) (153)
Accrued and other liabilities........................ (6,263) 9,963 2,861
-------- --------- --------
Net cash provided by operating activities....... 8,309 25,042 26,401
-------- --------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............. (5,310) (4,967) (6,166)
Purchases of marketable securities...................... (98,877) (149,698) (86,649)
Maturities of marketable securities..................... 97,806 130,048 67,469
-------- --------- --------
Net cash used in investing activities........... (6,381) (24,617) (25,346)
-------- --------- --------
FINANCING ACTIVITIES:
Exercise of stock options, net.......................... 1,588 485 211
Treasury shares acquired under repurchase program....... (2,480) (1,671) --
-------- --------- --------
Net cash (used in) provided by financing
activities.................................... (892) (1,186) 211
-------- --------- --------
Effect of exchange rates on cash........................ (1,013) 239 (252)
-------- --------- --------
Increase (decrease) in cash and cash equivalents.......... 23 (522) 1,014
Cash and cash equivalents, beginning of period............ 2,574 3,096 2,082
-------- --------- --------
Cash and cash equivalents, end of period.................. $ 2,597 $ 2,574 $ 3,096
======== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................. $ 18 $ 50 $ 55
-------- --------- --------
Income taxes......................................... $ 3,247 $ 11,530 $ 7,654
-------- --------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets for use as
demonstration equipment............................ $ 5,745 $ 3,775 $ 4,389
-------- --------- --------
See notes to consolidated financial statements
F-5
26
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Datascope
Corp. and its subsidiaries (the "Company"). All material intercompany balances
and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
which have original maturities less than 90 days.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Additions and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Asset and accumulated
depreciation accounts are relieved for dispositions, with resulting gains or
losses reflected in earnings. Depreciation of plant and equipment is provided
using the straight-line method over the estimated useful lives of the various
assets, or for leasehold improvements, over the term of the lease, if shorter.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries have been translated at
year-end exchange rates, while revenues and expenses have been translated at
average exchange rates in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
stockholders' equity.
Taxes on Income
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the liability method of accounting for deferred income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates in effect for the years in which the
differences are expected to reverse.
Revenue Recognition
The Company recognizes revenue and all related costs, including warranty,
upon shipment of its products to customers. Revenue for service contracts is
recognized ratably over the term of the contract.
Earnings Per Share
Earnings per share is computed based on the weighted average number of
common shares outstanding during each year after adjustment for the dilutive
effect of stock options.
Other Assets
Goodwill resulting from the purchase of InterVascular, Inc. is being
amortized by the straight-line method over 20 years and is included in other
assets. Unamortized goodwill as of June 30, 1997 and 1996 amounted to $2,546,000
and $2,779,000, respectively.
F-6
27
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
The presentation of certain prior year information has been reclassified to
conform with the current year presentation.
2. FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company's significant
financial instruments at June 30, 1997 were as follows:
CARRYING FAIR
AMOUNT VALUE
-------- -------
(IN THOUSANDS)
Cash and short-term investments.......................... $ 59,935 $59,883
------- -------
Non-current marketable securities........................ $ 25,902 $25,964
------- -------
The fair value of accounts receivable and payable are assumed to equal
their carrying value because of their short maturity.
Fair values of short-term investments are based upon quoted market prices,
including accrued interest, and approximate their carrying values due to their
short maturities. Fair values of non-current marketable securities are also
based upon quoted market prices and include accrued interest.
The Company has determined that its investment portfolio will be
held-to-maturity and is therefore carried at amortized cost.
As of June 30, 1997, the Company's marketable securities were classified as
follows:
GROSS UNREALIZED
AMORTIZED ----------------
SHORT TERM COST GAINS LOSSES FAIR VALUE
- ------------------------------------------------------- --------- ----- ------ ----------
(IN THOUSANDS)
U.S. Treasury Securities............................... $47,698 $ 77 $129 $ 47,646
Tax-Exempt Securities.................................. 9,640 2 2 9,640
------- ---- ---- -------
Short-term total............................. $57,338 $ 79 $131 $ 57,286
======= ==== ==== =======
LONG TERM
- -------------------------------------------------------
U.S. Treasury Securities............................... $18,010 $ 72 $ 58 $ 18,024
Tax-Exempt Securities.................................. 7,892 48 -- 7,940
------- ---- ---- -------
Long-term total.............................. $25,902 $ 120 $ 58 $ 25,964
======= ==== ==== =======
Totals....................................... $83,240 $ 199 $189 $ 83,250
======= ==== ==== =======
Off-Balance-Sheet Risk
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters into
foreign currency forward exchange contracts to hedge foreign
F-7
28
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
currency transactions on a continuing basis for periods consistent with its
committed foreign currency exposures. The effect of this practice is to minimize
the impact of foreign exchange rate movements on the Company's operating
results. The Company's hedging activities do not subject the Company to exchange
rate risk because gains and losses on these contracts offset losses and gains on
the assets, liabilities and transactions being hedged.
As of June 30, 1997, the Company had $0.6 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 the Company to exchange foreign currencies for U.S.
dollars at maturity, at rates agreed to at inception of the contracts.
Concentration of Credit Risk
The Company invests its excess cash primarily in U.S. Treasury and tax
exempt securities. Since the Company holds all short- and long-term securities
until maturity, such investments are subject to little market risk. The Company
has not incurred losses related to these investments.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base.
Ongoing credit evaluations of customers' financial condition are performed. The
Company maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
3. INVENTORIES
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
Materials................................................ $10,917 $15,711
Work in process.......................................... 4,885 7,064
Finished goods........................................... 18,802 11,982
------- -------
$34,604 $34,757
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
Land..................................................... $ 4,059 $ 4,059
Buildings................................................ 22,023 22,284
Machinery, furniture and equipment....................... 56,641 49,859
Leasehold improvements................................... 4,098 4,134
------- -------
86,821 80,336
Less accumulated depreciation and amortization........... 42,079 36,363
------- -------
$44,742 $43,973
======= =======
The Company estimates the useful life of its machinery and equipment at 5
years, furniture at 8 years and buildings at 40 years.
F-8
29
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. TAXES ON INCOME
The provision (benefit) for income taxes consists of the following:
YEAR ENDED JUNE 30,
-----------------------------
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
Current:
Federal....................................................... $ 854 $ 7,402 $6,316
State......................................................... 187 1,696 1,324
Foreign....................................................... 912 2,447 809
------ ------- ------
Total current.............................................. 1,953 11,545 8,449
Deferred:
Federal....................................................... 2,013 (4,021) (695)
State......................................................... 111 (1,100) (114)
Foreign....................................................... (361) -- --
------ ------- ------
Total deferred............................................. 1,763 (5,121) (809)
------ ------- ------
Total taxes on income................................. $3,716 $ 6,424 $7,640
====== ======= ======
The reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
(IN THOUSANDS)
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- --------- ------- --------- ------ ---------
Tax computed at federal statutory rate...... $ 6,237 35.0% $ 9,394 35.0% $8,743 35.0%
(Decrease) increase resulting from:
Benefit attributable to foreign sales
corp. .................................... (787) (4.4) (911) (3.4) (871) (3.5)
State taxes on income, net of federal income
tax benefit............................... 194 1.1 387 1.4 673 2.7
Research and development credit, net........ (414) (2.3) -- -- (221) (0.9)
Income exempt from foreign corporate
taxes..................................... (1,194) (6.7) (2,672) (10.0) (790) (3.1)
Rate differential on foreign income......... 167 0.9 70 0.3 99 0.4
Interest income exempt from federal income
tax....................................... (204) (1.1) (282) (1.0) (267) (1.1)
Other....................................... (283) (1.6) 438 1.6 274 1.1
------- ---- ------- ----- ------ ----
Total taxes on income............. $ 3,716 20.9% $ 6,424 23.9% $7,640 30.6%
======= ==== ======= ===== ====== ====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-9
30
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1997 and 1996 were as follows:
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
(IN THOUSANDS)
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES NET ASSETS LIABILITIES NET
-------- ----------- ------- -------- ----------- -------
Inventories................... $ 3,401 $ -- $ 3,401 $ 4,591 $ -- $ 4,591
Warranty...................... 593 -- 593 451 -- 451
Sales returns & allowances.... 424 -- 424 1,255 -- 1,255
Accrued expenses.............. 609 -- 609 637 -- 637
------- ------ ------- ------- ------ -------
Current.................. 5,027 -- 5,027 6,934 -- 6,934
------- ------ ------- ------- ------ -------
Supplemental pension.......... 4,080 -- 4,080 3,728 -- 3,728
Tax loss carryforwards........ 1,893 -- 1,893 1,838 -- 1,838
Accelerated depreciation...... -- 2,064 (2,064) -- 1,770 (1,770)
Accrued pension expense....... -- 346 (346) -- 323 (323)
Other, net.................... 333 -- 333 224 -- 224
Less: Valuation allowance..... (1,893) -- (1,893) (1,838) -- (1,838)
------- ------ ------- ------- ------ -------
Non-current.............. 4,413 2,410 2,003 3,952 2,093 1,859
------- ------ ------- ------- ------ -------
Total............... $ 9,440 $ 2,410 $ 7,030 $ 10,886 $ 2,093 $ 8,793
======= ====== ======= ======= ====== =======
The net current deferred tax assets have been included in prepaid expenses
and other current assets and the net non-current deferred tax assets have been
included in other assets on the accompanying consolidated balance sheet.
The valuation allowance increased by $55,000 during fiscal 1997 due to the
net increase of foreign and state tax loss carryforwards. The valuation
allowance of $1,893,000 at June 30, 1997 was comprised of tax benefits of
$183,000 of foreign tax loss carryforwards and $1,710,000 of state tax loss
carryforwards. Benefits from foreign tax loss carryforwards of $151,000 expire
during the period 1998 through 2002 and $32,000 may be carried forward
indefinitely. The benefits of state tax loss carryforwards expire during the
period 1998 through 2012. The valuation allowance reduces the deferred tax
assets to managements' best estimate of net deferred tax assets which more
likely than not will be realized.
It has not been necessary to provide for income taxes on cumulative
undistributed earnings of international subsidiaries. These earnings will be
either indefinitely reinvested or remitted substantially free of additional tax.
The Company has a subsidiary in an industrial development zone in Europe.
Profits from manufacturing activities in this zone are exempt from corporation
taxes until August 1999.
F-10
31
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses at June 30, 1997 and 1996 were comprised of the following:
YEAR ENDED JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
Deferred revenue......................................... $ 3,644 $ 4,487
Point of View accrued expenses........................... 1,905 5,500
General expense accruals................................. 10,206 13,385
------- -------
$15,755 $23,372
======= =======
7. STOCK OPTIONS, SHAREHOLDER RIGHTS AND STOCK REPURCHASE PLANS
Stock Option Plans
The Company has two employee stock option plans covering 3,825,000 shares
of common stock and option agreements with certain consultants and members of
the Board of Directors. The plans provide that options may be granted at a price
of 100% of fair market value on date of grant, may be exercised in full or in
installments, at the discretion of the Board of Directors, and must be exercised
within ten years from date of grant.
A summary of activity under the stock option plans is as follows:
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Outstanding at July
1.................... 1,739,844 $16.63 1,434,016 $15.20 1,221,287 $14.49
Granted.............. 492,100 17.88 469,950 19.85 354,750 16.91
Exercised............ (112,625) 14.51 (78,036) 9.74 (37,690) 9.09
Canceled............. (180,825) 18.35 (86,086) 16.70 (104,331) 14.87
--------- --------- ---------
Outstanding at June
30................... 1,938,494 16.92 1,739,844 16.63 1,434,016 15.20
========= ========= =========
Exercisable at June
30................... 1,141,830 $15.88 1,000,654 $15.21 951,831 $14.44
--------- --------- ---------
At June 30, 1997 there were 1,972,344 shares of common stock reserved for
the exercise of stock options.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS No. 123) for fiscal 1997. The
Company continued to account for its stock-based awards using the intrinsic
value method in accordance with APB Opinion No. 25 "Accounting for Stock Issued
to Employees." Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. In accordance with
FAS No. 123 the fair value of option grants is estimated on the date of grant
using an option-pricing model for pro forma footnote purposes. Had the fair
value method of accounting been
F-11
32
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applied to the Company's stock option plans, net income and earnings per share
would have been reported as the following pro forma amounts:
YEAR ENDED JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
Net income as reported................................... $14,104 $20,417
------- -------
Net income pro forma..................................... $12,517 $19,950
------- -------
Earnings per share as reported........................... $ 0.86 $ 1.24
------- -------
Earnings per share pro forma............................. $ 0.76 $ 1.21
------- -------
This pro forma impact only takes into account options granted since July 1,
1996 and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period.
The fair values for both years were determined using the Black-Scholes
option-pricing model with the following assumptions:
YEAR ENDED JUNE 30,
-------------------
1997 1996
------- -------
Dividend yield........................................... None None
Volatility............................................... 33% 33%
Risk-free interest rate.................................. 6.33% 6.42%
Expected life............................................ 4 Years 4 Years
The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 1997.
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE REMAINING EXERCISE EXERCISE
PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- ------------------ --------- ---------------- -------- --------- --------
$ 7.375 -- $13.875 179,144 3.71 $11.51 159,561 $11.22
$14.000 -- $14.000 500,000 6.09 $14.00 500,000 $14.00
$14.250 -- $17.750 650,025 8.47 $16.71 230,503 $16.71
$17.875 -- $31.125 609,325 7.87 $21.14 251,766 $21.82
--------- --- ------ --------- ------
1,938,494 7.23 $16.92 1,141,830 $15.88
Shareholder Rights Plan
Under the terms of the Company's Shareholder Rights Plan, all shareholders
of common stock were issued for each share owned a preferred stock purchase
right entitling them to purchase from the Company one one-thousandth of a share
of Series A Preferred Stock, par value $1.00 per share, at an exercise price of
$300.00. The rights are not exercisable until after the date on which the
Company's right to redeem has expired. The Company may redeem rights for $.01
per right at any time until the 10th business day after the date of a public
announcement (the "Stock Acquisition Date") that a person (the "Acquiring
Person") has acquired ownership of stock having 15 percent or more of the
Company's general voting power.
The plan provides that, after a Stock Acquisition Date, generally each
holder of a right will be entitled to purchase, at the exercise price, a number
of the Company's shares having a market value of twice the exercise price. The
plan also provides that in the event of certain other business combinations,
generally each holder of a right will be entitled to purchase, at the exercise
price, a number of shares of the acquiring company's
F-12
33
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock having a market value of twice the exercise price. Prior to the
acquisition by the Acquiring Person of 50% or more of the Common Stock
outstanding, the Company may exchange the Rights (other than Rights owned by the
Acquiring Person and its affiliates and associates, which will be null and
void), in whole or in part, for Common Stock on the basis of an exchange ratio
of one share of Common Stock for each Right (subject to adjustment). The rights
will expire on June 2, 2001.
Stock Repurchase Plan
On May 3, 1996, the Company announced a stock repurchase program whereby
the Company's Board of Directors authorized the use of up to $20 million to buy
shares of its common stock from time to time, subject to market conditions and
other relevant factors affecting the Company. Share repurchases are planned when
market and business conditions are deemed favorable. As of June 30, 1997, the
Company had repurchased 223,300 shares at a cost of approximately $4,151,000.
F-13
34
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES
The Company develops, manufactures and markets medical systems and devices
which constitute a single business segment. The following information sets forth
geographic information on the Company's sales, profits and assets:
UNITED EUROPEAN
STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
(IN THOUSANDS)
YEAR ENDED JUNE 30, 1997:
Sales to unaffiliated customers........... $192,039 $ 33,561 $ -- $225,600
Transfers between geographic areas........ 14,397 8,683 (23,080) --
-------- ------- -------- --------
Total sales....................... $206,436 $ 42,244 $(23,080) $225,600
======== ======= ======== ========
Operating earnings.......................... $ 9,344 $ 3,998 $ 132 $ 13,474
======== ======= ========
Other income, net........................... 4,346
--------
Earnings before taxes on income............. $ 17,820
========
Assets at June 30, 1997..................... $210,447 $ 30,769 $ (3,354) $237,862
======== ======= ======== ========
YEAR ENDED JUNE 30, 1996:
Sales to unaffiliated customers........... $174,914 $ 36,386 $ -- $211,300
Transfers between geographic areas........ 12,757 8,395 (21,152) --
-------- ------- -------- --------
Total sales....................... $187,671 $ 44,781 $(21,152) $211,300
======== ======= ======== ========
Operating earnings.......................... $ 17,919 $ 4,999 $ 490 $ 23,408
======== ======= ========
Other income, net........................... 3,433
--------
Earnings before taxes on income............. $ 26,841
========
Assets at June 30, 1996..................... $207,553 $ 30,288 $ (3,377) $234,464
======== ======= ======== ========
YEAR ENDED JUNE 30, 1995:
Sales to unaffiliated customers........... $161,534 $ 34,166 $ -- $195,700
Transfers between geographic areas........ 12,714 6,177 (18,891) --
-------- ------- -------- --------
Total sales....................... $174,248 $ 40,343 $(18,891) $195,700
======== ======= ======== ========
Operating earnings.......................... $ 18,235 $ 4,653 $ (343) $ 22,545
======== ======= ========
Other income, net........................... 2,434
--------
Earnings before taxes on income............. $ 24,979
========
Assets at June 30, 1995..................... $181,954 $ 28,265 $ (3,356) $206,863
======== ======= ======== ========
In determining operating earnings, interest income and expense, other
income and expense, and income taxes were excluded.
The Company had export sales, principally to Europe, Canada, Latin America
and the Far East, of $37,471,000, $40,524,000 and $31,951,000 in the years ended
June 30, 1997, 1996 and 1995, respectively.
F-14
35
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSION AND RETIREMENT PLANS
Defined Benefit Plan
The Company has both domestic and foreign defined benefit pension plans
which cover substantially all employees. Pension benefits are based on years of
service, compensation and the primary social security benefits. Funding for the
domestic plan is within the range prescribed under the Employee Retirement
Income Security Act of 1974. Funding for the foreign plan is accomplished
through the purchase of guaranteed insurance contracts. Total pension expense
for the domestic and foreign pension plans was $1,458,000 in 1997, $1,577,000 in
1996 and $1,601,000 in 1995.
Domestic
The components of net pension expense and the funded status of the domestic
defined benefit pension plan are set forth below:
YEAR ENDED JUNE 30,
------------------------------
1997 1996 1995
------- ------ -------
(IN THOUSANDS)
Service cost for benefits earned during the year....... $ 1,304 $1,398 $ 1,444
Interest cost on projected benefit obligation.......... 1,369 1,417 1,339
Actual return on plan assets........................... (1,267) (927) (1,440)
Net amortization and deferral.......................... (284) (588) 16
------- ------ -------
Net periodic pension cost -- domestic................ $ 1,122 $1,300 $ 1,359
======= ====== =======
The Plan's Funded Status was as follows:
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligation
Vested......................................................... $14,251 $12,224
Nonvested...................................................... 1,840 2,286
------- -------
Accumulated benefit obligation................................. 16,091 14,510
Effects of anticipated future compensation increases........... 5,191 6,674
------- -------
Projected benefit obligation................................... 21,282 21,184
Plan assets at fair value...................................... 20,460 18,429
------- -------
Projected benefit obligation in excess of plan assets.......... (822) (2,755)
Unamortized net transition obligation.......................... 467 537
Unrecognized prior service cost................................ 73 (99)
Unrecognized net actuarial loss................................ 1,182 3,159
------- -------
Net prepaid pension cost......................................... $ 900 $ 842
======= =======
The assumptions used to develop the actuarial present value of the
projected benefit obligation are as follows:
1997 1996
---- ----
Weighted average discount rate....................................... 7.25% 7.50%
Rate of increase in compensation levels.............................. 6.00% 6.25%
Expected long-term rate of return on plan assets..................... 8.00% 8.50%
F-15
36
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Plan assets are invested in U.S. Government and corporate securities and
include investments in the Company's common stock of $1,884,000 (96,000 shares)
at June 30, 1997. No dividends are paid on the Company's common stock.
Foreign
Retirement coverage for the foreign employees of the Company is provided,
to the extent deemed appropriate, through separate plans. Funding policies are
based on local statutes. Retirement benefits are based on years of service,
final average earnings and social security benefits.
The components of net pension expense and the funded status of the foreign
defined benefit pension plans are set forth below:
YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Service cost for benefits earned during the year.......... $142 $132 $ 97
Interest cost on projected benefit obligation............. 92 93 65
Estimated return on plan assets........................... (40) (36) (24)
Net amortization and deferral............................. 38 41 27
---- ---- ----
Net periodic pension cost -- foreign................. $232 $230 $165
==== ==== ====
The Plan's Funded Status was as follows:
JUNE 30,
-------------------
1997 1996
------ ------
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligation (fully
vested)........................................................ $ 450 $ 440
------ ------
Projected benefit obligation..................................... 1,239 1,223
Plan assets at fair value........................................ 450 440
------ ------
Projected benefit obligation in excess of plan assets............ (789) (783)
Unamortized net transition obligation............................ 117 151
Unrecognized net actuarial loss.................................. 747 748
------ ------
Net prepaid pension cost.................................... $ 75 $ 116
====== ======
The assumptions used to develop foreign net pension cost and the actuarial
present value of projected benefit obligations are as follows:
1997 1996
---- ----
Weighted average discount rate................................. 7.5 % 7.5 %
Rate of increase in compensation levels........................ 6.0 % 6.0 %
Expected long-term rate of return on plan assets............... 9.0 % 9.0 %
The assets of the foreign defined benefit pension plan are invested in
guaranteed insurance contracts.
Supplemental Retirement Plan
The Company has noncontributory, unfunded supplemental retirement plans for
Mr. Saper and certain other key officers. Life insurance has been purchased by
the Company to recover a substantial portion of the net after tax cost for these
supplemental retirement plans.
F-16
37
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the retirement provision of Mr. Saper's five-year employment
agreement with the Company, Mr. Saper is entitled to receive a lifetime pension
of up to 60% of his average earnings for the three-year period in which Mr.
Saper's compensation was greatest of the ten years immediately preceding his
retirement, but not less than the value of the benefit that would have been
payable had his retirement occurred at age 65. The plan provides survivor
benefits in the form of a $10 million life insurance policy, maintained pursuant
to a split-dollar agreement among Mr. Saper, the Corporation and a trust for the
benefit of Mr. Sapers's family. The supplemental pension expense for Mr. Saper
recognized in the consolidated financial statements was $741,000, $689,000 and
$635,000 for 1997, 1996 and 1995, respectively.
The supplemental retirement plan covering certain other key officers
provides that at age 65, these employees may receive, for a period of up to 15
years, a pension of up to 60% of a predetermined earnings level for the
five-year period prior to retirement. The supplemental pension expense for these
executives recognized in the consolidated financial statements was $156,000,
$155,000 and $200,000 for 1997, 1996 and 1995, respectively.
The actuarial present value of both the accumulated benefit obligation and
projected benefit obligation for the supplemental retirement plans was
$8,328,000 and $7,000,000 for 1997 and 1996, respectively.
The components of the total supplemental pension expense are set forth
below:
YEAR ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
Service cost for benefits earned during the year................... $ 200 $ 277 $ 298
Interest cost on projected benefit obligation...................... 568 624 554
Amortization of prior service cost................................. 841 496 511
Amortization of gain............................................... (712) (553) (528)
----- ----- -----
Total supplemental pension expense....................... $ 897 $ 844 $ 835
===== ===== =====
Savings and Supplemental Retirement Plan
The Company maintains a 401(k) savings and supplemental retirement plan for
eligible domestic employees. This 401(k) plan was established to enhance the
existing retirement plan and to provide an incentive to employees to save and
invest regularly for their retirement. The Company contributions, which were
based on matching 50% of participating employees' contributions up to a maximum
of 6% of compensation, were $1,084,000 for 1997, $976,000 for 1996 and $880,000
for 1995.
10. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum rental commitments under noncancellable operating leases are
as follows:
YEAR (IN THOUSANDS)
------------------------------------------------------- --------------
1998................................................... $3,461
1999................................................... 2,371
2000................................................... 1,297
2001................................................... 535
2002................................................... 166
Thereafter............................................. 317
------
Total future minimum rental payments......... $8,147
======
F-17
38
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense for the years ended June 30, 1997, 1996 and 1995
amounted to approximately $4,266,000, $4,264,000 and $4,241,000, respectively.
Litigation
The Company is subject to litigation in the ordinary course of its
business. The Company believes it has meritorious defenses in all material
pending lawsuits and that the outcome will not have a material adverse effect on
the Company's financial position or results of operations. See Footnote 12 for
further discussion of settlements of litigation.
Credit Arrangements
The Company has lines of credit totaling $50,500,000, borrowings under
which bear interest principally at the lenders' respective prime rates. There
were no short-term borrowings under lines of credit at June 30, 1997 and 1996.
The lines expire as follows: $25,000,000 in December 1997 and $25,000,000 in
March 1998. These lines are renewable annually at the option of the banks. The
Company also has $500,000 in lines of credit with no expiration date.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED JUNE 30, 1997
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales....................... $47,600 $57,600 $57,900 $62,500 $225,600
------- ------- ------- ------- --------
Gross margin.................... $30,951 $37,633 $37,398 $39,012 $144,994
------- ------- ------- ------- --------
Net earnings.................... $(3,298)(A) $ 5,051 $ 5,750 $ 6,601 $ 14,104
------- ------- ------- ------- --------
Earnings per share.............. $ (0.20)(A) $ 0.31 $ 0.35 $ 0.40 $ 0.86
------- ------- ------- ------- --------
YEAR ENDED JUNE 30, 1996
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
Net sales................... $45,900 $52,300 $54,600 $58,500 $211,300
------- ------- ------- ------- --------
Gross margin................ $30,039 $34,441 $35,537 $26,683(C) $126,700
------- ------- ------- ------- --------
Net earnings................ $ 3,102 $12,711(B) $ 5,437 $ (833)(C) $ 20,417
------- ------- ------- ------- --------
Earnings per share.......... $ 0.19 $ 0.76(B) $ 0.33 $ (0.05)(C) $ 1.24
------- ------- ------- ------- --------
- ---------------
(A) Q1 and FY 1997 earnings includes shareholder class action securities lawsuit
settlement expense of $5.6 million before taxes, or $3.3 million after
income tax, equivalent to $0.20 per share, and Quinton patent infringement
lawsuit settlement expense of $3.0 million before taxes, or $1.8 million
after income tax, equivalent to $0.11 per share.
(B) Q2 and FY 1996 earnings includes income from settlement of litigation
before taxes of $10.7 million, or $7.9 million after income tax, equivalent
to $0.47 per share.
(C) Q4 and FY 1996 earnings includes charge for point of view write-off before
taxes of $9.6 million, or $5.6 million after income tax, equivalent to $0.34
per share.
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares outstanding during each period.
F-18
39
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SPECIAL ITEMS
Included in fiscal 1997 earnings were two special items as follows:
Settlement of Shareholder Class Action Securities Lawsuit
The Company settled the shareholder class action securities lawsuit filed
in November 1993. The cost of the settlement, including legal fees, was $5.6
million or $3.3 million after tax, equivalent to $0.20 per share.
Settlement of Patent Infringement Lawsuit
The Company settled the patent infringement lawsuit filed in February 1996
by Quinton Instruments Company and Sherwood Medical Company concerning the
VasoSeal Vascular Hemostasis Device. The settlement allows all parties to market
their respective vascular hemostasis products and includes covenants against
future litigation. The cost of the settlement, including legal fees, was $3.0
million or $1.8 million after tax, equivalent to $0.11 per share.
Included in fiscal 1996 earnings were two special items as follows:
Income from Settlement of Litigation
The Company settled all litigation brought by its wholly-owned
subsidiaries, InterVascular, Inc. and InterVascular S.A. (France), against
several former employees and certain other defendants. Income from the
settlement of litigation, net of related expenses, was $10.7 million or $7.9
million after tax, equivalent to $0.47 per share.
Point of View Charge
The Company wrote off approximately $9.6 million or $5.6 million after tax,
equivalent to $0.34 per share, for excess and obsolete inventory and other costs
related to the point of view(R) monitor.
F-19
40
DATASCOPE CORP. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN D COLUMN E
- ----------------------------------- ------------ COLUMN C ---------- ----------
-------------------------
ADDITIONS
-------------------------
(1) (2)
CHARGED TO DEDUCTIONS
BALANCE AT CHARGED TO OTHER FROM BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS-- RESERVES-- CLOSE OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------------------------------- ------------ ---------- ---------- ---------- ----------
YEAR ENDED JUNE 30, 1997
Allowance for doubtful accounts.... $1,198 $226 $ -- $502(A) $ 922
====== ==== ==== ==== ======
Reserve for warranty costs......... 810 -- -- 110(A) 700
====== ==== ==== ==== ======
YEAR ENDED JUNE 30, 1996
Allowance for doubtful accounts.... $1,273 $357 $ -- $432(A) $1,198
====== ==== ==== ==== ======
Reserve for warranty costs......... 750 60 -- -- 810
====== ==== ==== ==== ======
YEAR ENDED JUNE 30, 1995
Allowance for doubtful accounts.... $1,188 $494 $ -- $409(A) $1,273
====== ==== ==== ==== ======
Reserve for warranty costs......... 450 300 -- -- 750
====== ==== ==== ==== ======
- ---------------
(A) Write-offs
S-1
41
EXHIBIT INDEX
EXHIBITS
2. Agreement and Plan of Merger, dated as of October 25, 1989, by and between the
registrant and Datascope New York (incorporated by reference to Exhibit 2 to the
registrant's Registration Statement on Form 8-B, filed with the Commission on
January 4, 1990 (the "Form 8-B"))...............................................
3.1 Restated Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware on October 30, 1989 (incorporated by reference as Exhibit
3.1 to the Form 8-B)............................................................
3.2 By-Laws, as currently in effect (incorporated by reference to Exhibit 3.2 to
Annual Report on Form 10-K for fiscal year ended June 30, 1993 (the "1993
10-K")).........................................................................
4.1 Specimen of certificate of Common Stock (incorporated by reference to Exhibit
4.2 to the Form 8-B)............................................................
4.2 Form of Certificate of Designations of the Registrant's Series A Preferred Stock
(incorporated by reference to Exhibit 2.2 to the Company's Registration
Statement on Form 8-A, filed with the Commission on May 31, 1991 (the "May 31,
1991 Form 8-A"))................................................................
4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company and
Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit
2.1 to the May 31, 1991 Form 8-A)...............................................
10.1* 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2.1 to
the Form 8-B)...................................................................
10.2* Stock Option Agreements, dated November 30, 1982, between David Altschiller,
William Asmundson, Alan Patricof and Norman Schneider, respectively, and the
registrant (incorporated by reference to Exhibit 10.5 to Annual Report on Form
10-K for the fiscal year ended June 30, 1989 (the "1989 10-K")).................
10.3* Stock Option Agreement, dated December 7, 1988 between Joseph Grayzel, M.D. and
the registrant (incorporated by reference to Exhibit 10.6 to the 1989 10-K).....
10.4* Stock Option Agreements, dated as of March 1, 1990, between David Altschiller,
William Asmundson, Joseph Grayzel, Alan Patricof and Norman Schneider,
respectively, and the registrant (incorporated by reference to Exhibit 10.9 to
Annual Report on Form 10-K for the fiscal year ended June 30, 1990).............
10.5* Stock Option Agreement, dated as of September 28, 1990, between David
Altschiller and the registrant (incorporated by reference to Exhibit 10.8 to the
1991 10-K)......................................................................
10.6* Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4
to Registration Statement on Form S-8 (File No. 333-00537) filed January 30,
1996 with the Commission).......................................................
10.7* Amendment No. 1 to Datascope Corp. 1995 Stock Option Plan (incorporated by
reference to Exhibit 4 to Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 (File No. 333-00537) filed February 21, 1996 with the
Commission).....................................................................
10.8* Agreement, dated as of July 1, 1996, by and between Datascope Corp. and Lawrence
Saper...........................................................................
10.9* Split-Dollar Agreement made as of July 25, 1994 by and among Datascope Corp.,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the
Saper Family 1994 Trust UTA. dtd. 6/28/94 (incorporated by reference to Exhibit
10.15 to Annual Report on Form 10-K for fiscal year ended June 30, 1996 (the
"1996 10-K"))...................................................................
10.10* Modification Agreement made as of July 25, 1994 by and among Datascope Corp.,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the
Saper Family 1994 Trust UTA. dated 6/28/94 (incorporated by reference to Exhibit
10.16 to 1996 10-K).............................................................
10.11* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen
Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Metropolitan
Life Insurance Company Insurance Policy No. 940 750 122UM in favor of Datascope
Corp. (incorporated by reference to Exhibit 10.17 to 1996 10-K).................
10.12* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen
Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Security
Mutual Life Insurance Company of New York Insurance Policy No. 11047711 in favor
of Datascope Corp. (incorporated by reference to Exhibit 10.18 to 1996 10-K)....
21. Subsidiaries....................................................................
23. Consent of Deloitte & Touche LLP................................................
Management contracts or compensatory plans or arrangements required to be
filed as an exhibit pursuant to Item 14(c) are denoted by an (*)
S-2