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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20212
ARROW INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1969991
(State of Incorporation) (I.R.S. Employer Identification No.)
2400 Bernville Road
Reading, Pennsylvania 19605
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (610) 378-0131
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class: on Which Registered:
-------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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.[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 1, 1997 was approximately $354,235,644.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING ON NOVEMBER 1,
1997 WAS 23,225,726.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on January 21, 1998, which will be filed with the
Securities and Exchange Commission within 120 days after August 31, 1997, are
incorporated by reference in Part III of this report.
Item 1. BUSINESS:
Certain of the information contained in this Form 10-K, including the
discussion which follows in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" found in Item 7 of this Report, contain
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from such forward-looking statements,
carefully review this Report, including Exhibit 99.1 hereto, as well as other
information contained in Arrow International, Inc.'s periodic reports filed with
the Securities and Exchange Commission (the "SEC" or "Commission").
Arrow International, Inc. (together with its subsidiaries, "Arrow" or the
"Company") was incorporated as a Pennsylvania corporation in 1975. Arrow
develops, manufactures and markets a broad range of clinically advanced,
disposable catheters and related products for critical and cardiac care. The
Company's critical care products are used principally for central vascular
access for administration of fluids, drugs, and blood products, patient
monitoring and diagnostic purposes, as well as for pain management. These
products are used by anesthesiologists, critical care specialists, surgeons,
cardiologists, nephrologists and emergency and trauma physicians and other
health care providers. Arrow's cardiac care products are used by interventional
cardiologists, interventional radiologists and electrophysiologists for such
purposes as the diagnosis and treatment of heart and vascular disease and to
provide short-term cardiac assist following cardiac surgery, serious heart
attack or balloon angioplasty.
Arrow's critical care products, which were originally introduced in 1977,
accounted for 84.4%, 82.2% and 82.2% of net sales in fiscal 1997, 1996 and 1995,
respectively. The majority of these products are vascular access catheters and
related devices which consist principally of the following: the Arrow-Howes(TM)
Multi-Lumen Catheter, a catheter equipped with three or four channels that
enables the simultaneous administration of multiple critical care therapies
through a single puncture site; double-and single-lumen catheters which are
designed for use in a variety of clinical procedures; the ARROWg+ard(TM)
antiseptic surface treatment that is applied to many of the Company's vascular
access catheters to reduce the risk of catheter-related infection; percutaneous
sheath introducers, which are used as a means for inserting cardiovascular and
other catheterization devices into the vascular system during critical care
procedures; radial artery catheters, which are used for measuring arterial blood
pressure and taking blood samples; and FlexTip Plus(TM) epidural catheters,
which are designed to minimize indwelling complications associated with
conventional epidural catheters.
In April 1995, the Company expanded its critical care product line by
acquiring Therex Limited Partnership ("Therex"), a company engaged in the
development, manufacture and marketing of implantable constant flow drug
delivery pumps and a broad line of implantable vascular access ports used for
the infusion of certain drugs over an extended period of time in connection with
the treatment of cancer, other chronic diseases and chronic pain. The Company
received FDA marketing clearance in March 1996 for its Model 3000 Constant Flow
Implantable Pump for the administration of the chemotherapy drug, 2-Deoxy 5-
Flourouridine (FUDR), for the treatment of liver cancer. The Company received
additional FDA marketing clearance for the Model 3000 pump for the
administration of morphine to treat malignant pain in February 1997 and to treat
intractable pain with morphine in September 1997. In July 1997, the Company
further expanded its critical care product line by acquiring the implantable
constant flow drug delivery pump product business of Strato/Infusaid Inc., a
former subsidiary of Pfizer, Inc., ("Strato/Infusaid").
In August 1997, the Company received FDA marketing clearance for its
Percutaneous Thrombolytic Device ("PTD") which is designed for clearance of
thrombosed hemodialysis grafts in chronic hemodialysis patients. This
mechanical rotating device, patented by Johns Hopkins University and exclusively
licensed by the Company, has shown effective graft de-clotting results in a 122
patient human clinical trial, when compared with a commonly used thrombolysis
method for dissolving these clots. The Company believes that this device
provides a cost-effective alternative means for clearing these grafts, which
occur an average of once each year in a large
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ITEM 1. BUSINESS (CONTINUED):
percentage of the estimated 185,000 U.S. patients currently undergoing chronic
hemodialysis treatment.
Arrow's cardiac care products accounted for 15.6%, 17.5% and 17.6% of net
sales in fiscal 1997, 1996 and 1995, respectively. These products include
cardiac assist products, such as intra-aortic balloon pumps and catheters, which
are used primarily to augment temporarily the pumping capability of the heart
following cardiac surgery, serious heart attack or balloon angioplasty;
electrophysiology products, such as pacing and mapping catheters, which are used
primarily to provide temporary pacing of the heart and to map the electrical
signals which activate the heart; the Berman(TM) Angiographic Catheter, which is
used for pediatric cardiac angiographic procedures; and other cardiac care
products, such as the Super Arrow-Flex(TM) sheath, which provides a kink-
resistant passageway for the introduction of cardiac and other catheters into
the vascular system. The Company entered the cardiac care market in 1987 through
the purchase of certain assets from Critikon, Inc. and, in February 1994,
expanded into the field of cardiac assist by acquiring the intra-aortic balloon
pump and catheter business of Kontron Instruments, Inc. ("Kontron Instruments").
In March 1995, the Company extended its line of electrophysiology products
by entering into agreements with Cardiac Pathways Corporation ("Cardiac
Pathways") for certain distribution and manufacturing rights to Cardiac
Pathways' Trio/Ensemble(TM) mapping catheter system used for the diagnosis of
certain cardiac tachyarrhythmias (conditions involving abnormal, potentially
life-threatening electrical signals in the heart). The Company's distribution
rights are worldwide, with the exception of Japan and certain countries in
Europe, where Cardiac Pathways had distribution arrangements already in place.
The Company received FDA marketing clearance for the Trio/Ensemble(TM) mapping
catheter system in December 1995. In connection with these agreements, the
Company also acquired an equity interest in Cardiac Pathways, representing
approximately 6.4% of the currently outstanding common stock of Cardiac
Pathways.
The Company received FDA marketing clearance in May 1996 for its
Narrow-Flex(TM) reduced diameter (8 Fr.) intra-aortic balloon catheter based on
new, patented construction technology. The Company believes this catheter is the
smallest available with full 40cc balloon augmentation capability, the same
degree of heart pumping augmentation that previously had been available only
through the use of larger diameter catheters. This smaller diameter catheter
takes up less space in the femoral artery than previously available catheters
and, therefore, is designed to improve blood circulation to the lower
extremities. Reduced blood flow to the leg is a major complication of intra-
aortic balloon pumping.
SALES AND MARKETING
Arrow markets its products to physicians and hospitals through a combination
of direct selling and independent distributors. Within each hospital, marketing
efforts are targeted to those physicians, including critical care specialists,
cardiologists, anesthesiologists, interventional radiologists,
electrophysiologists and surgeons, most likely to use the Company's products.
Arrow's products are generally sold in the form of pre-sterilized procedure kits
containing the catheters and virtually all of the related medical components and
accessories needed by the clinician to prepare for and perform the intended
medical procedure. Additional sales revenue is derived from equipment provided
for use in connection with certain of the Company's disposable products.
In fiscal 1997, 1996 and 1995, 63.8%, 61.8% and 64.3%, respectively, of the
Company's net sales were to U.S. customers. In this market, approximately 78%
of the Company's fiscal 1997 revenue was generated by its direct sales force.
The remainder resulted from shipments to independent distributors. For the
majority of such distributors, the Company's products represent a principal
product line. Direct selling generally generates higher gross profit margins
than sales made through independent distributors.
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ITEM 1. BUSINESS (CONTINUED):
Internationally, the Company sells its products through ten direct sales
subsidiaries serving markets in Japan, Germany, the Netherlands, France, Spain,
Greece, Africa, Canada, Mexico and the Czech Republic. As of November 1, 1997,
independent distributors in 66 additional countries service the remainder of the
world.
To support growth in international sales, the Company operates a 40,000
square foot manufacturing facility in Chihuahua, Mexico and, in January 1996,
completed construction of a 65,000 square foot manufacturing and research
facility in the Czech Republic, which began shipments in the fourth quarter of
fiscal 1996.
Revenues, profitability and identifiable assets attributable to significant
geographic areas are presented in Note 12 to the Company's consolidated
financial statements, included herein.
In general, Arrow does not produce against a backlog of customer orders;
production is based primarily on the level of inventories of finished products
and projections of future customer demand with the objective of shipping from
stock upon receipt of orders. No single customer accounts for a material part
of the Company's sales. Usage of the Company's products by hospitals and
physicians has not been materially influenced by seasonal factors.
Rapid growth in U.S. health care costs, coupled with a lack of access by
some U.S. citizens to adequate health care, has resulted in numerous legislative
initiatives in the U.S. Congress during the last several years. While none of
these initiatives have to date resulted in substantive legislation, the intent
of these initiatives was, generally, to expand health care coverage for the
uninsured and reduce the rate of growth of total health care expenditures. In
addition, certain states have made significant changes to their Medicaid
programs and have adopted various measures to expand coverage and limit costs.
Implementation of government health care reform and other efforts to control
costs may limit the price of, or the level at which reimbursement is provided
for, the Company's products. The increased emphasis in the U.S. on health care
cost containment has resulted in reduced growth in demand for certain of the
Company's products in markets where Arrow has 80% or greater market shares, and
protecting that market share has affected the Company's pricing in some
instances. The Company presently believes that this emphasis is increasing the
importance of competitive prices and may continue to reduce the U.S. growth rate
for certain of the Company's products. The Company anticipates that Congress,
state legislatures, foreign governments and the private sector will continue to
review and assess alternative health care delivery and payment systems. The
Company cannot predict what additional legislation or regulation, if any,
relating to the health care industry may be enacted in the future or what impact
the adoption of any federal, state or foreign health care reform, private sector
reform or market forces may have on its business. No assurance can be given
that any such reforms will not have a material adverse effect on the medical
device industry in general, or the Company in particular.
RESEARCH AND PRODUCT DEVELOPMENT
Arrow is engaged in ongoing research and development to introduce clinically
advanced new products, to enhance the effectiveness, ease of use, safety and
reliability of its existing products and to expand the clinical applications for
which use of its products is appropriate. The principal focus of the Company's
research and development effort is to identify and analyze the needs of
physicians in critical and cardiac care medicine, and to develop products that
address these needs. The Company views ideas submitted by physicians and other
health care professionals as an important source of potential research and
development projects. The Company believes that these end-users are often in the
best position to conceive of new products and to recommend ways to improve the
performance of existing products. Most of the Company's principal products and
product improvements have resulted from collaborative efforts with physicians,
other health care professionals or other affiliated entities. For certain
proprietary ideas, the Company pays royalties to such persons, and in many
instances,
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ITEM 1. BUSINESS (CONTINUED):
incorporates such person's name in the tradename or trademark for the specific
product. The Company also utilizes other outside consultants, inventors and
medical researchers to carry on its research and development effort and sponsors
research through medical associations and at various universities and teaching
hospitals.
In addition, in recent years, the Company has pursued research and
development of certain specialized products in collaboration with other medical
device manufacturers. Certain of the Company's strategic acquisitions and
investments have provided the basis for its introduction of significant new
products. For example, the Company's acquisition of the intra-aortic balloon
pump and catheter business of Kontron Instruments significantly expanded its
business in cardiac care. The Company believes that its investment in Cardiac
Pathways will enhance its presence in the field of electrophysiology, and that
the Company's acquisition of Therex, augmented by the acquisition of the
Strato/Infusaid implantable constant flow drug delivery pump product line, has
provided it with a new product offering of implantable drug delivery devices
representing an important addition to its critical care product line. Where
appropriate, the Company plans to continue to complement its internal research
and development efforts with similar acquisitions and collaborative
arrangements.
Research and development expenses totaled $15.9 million (6.5% of net sales),
$14.1 million (6.1% of net sales) and $11.3 million (5.3% of net sales) in
fiscal 1997, 1996 and 1995, respectively. Such amounts were used to develop new
products, improve existing products and implement new technology to produce
these products.
Since 1988, the Company has been developing the Arrow(R)-Fischell Pullback
Atherectomy Catheter (the "PAC") for the removal of atherosclerotic plaque. The
Company acquired certain patents relating to the technology underlying the PAC
in 1990. In conjunction with the acquisition, the Company entered into a
research and development agreement under which the Company was required to make
certain payments upon the PAC's achievement of specified development milestones.
In July 1995, the Company amended this agreement to modify the terms of payment
of, and recognize as pre-paid royalties, such milestone payments thereunder.
Since December 1994, the Company has been conducting human clinical trials
outside the U.S. using the PAC in coronary arteries and, in March 1995, the
Company received FDA approval under an Investigational Device Exemption ("IDE")
to conduct Phase I human clinical trials in the U.S. for use of the PAC in
treating atherosclerosis of coronary arteries. Cardiologists have expressed
interest in using the device for removing plaque at arterial junctions
(bifurcations) and for clearing restenosed stents. For treatment of coronary
arteries, the device has to date been used successfully in approximately 120
cases internationally and 60 cases in the U.S. Phase I clinical trials. The
Company anticipates that a multi-center clinical trial of the PAC for clearing
restenosed stents will begin in Europe in fiscal 1998.
The Company has been developing the ACAT(TM)1, a smaller and lighter intra-
aortic balloon pump to augment temporarily the pumping capability of the heart
following cardiac surgery, serious heart attack or balloon angioplasty. In
fiscal 1997, the Company introduced this pump in certain international markets
and submitted a 510(k) application for FDA marketing clearance for sale of this
pump in the U.S., which clearance is currently expected in fiscal 1998.
The Company began conducting clinical trials under an IDE in August 1996 for
a catheter device which uses microwave energy for the ablation of cardiac tissue
responsible for ventricular tachycardia. The microwave ablation catheter's
radiative heating mechanism is potentially capable of creating deeper, wider
lesions than currently marketed radio frequency ablation catheters, which
lesions electrophysiologists indicate are necessary for the effective treatment
of ventricular tachycardia using ablation therapy. This microwave ablation
catheter also incorporates several advanced features that are designed to permit
continuous monitoring of catheter/tissue interface temperature, reduce the risk
of tissue overheating and enhance maneuverability of the catheter to facilitate
proper placement in the heart. In June 1996, the
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ITEM 1. BUSINESS (CONTINUED):
Company acquired additional exclusive, worldwide rights with respect to the
technology underlying its microwave ablation catheter program.
In January 1994, the Company formed a cooperative relationship with
Pennsylvania State University's Hershey Medical School for the commercial
development of a fully implantable long-term Left Ventricular Assist Device
("LVAD"). Although LVADs are currently used to provide short-term cardiac
assist to patients awaiting heart transplants, the Company's efforts are aimed
at developing a fully implantable device to provide long-term cardiac assist for
patients having insufficient ventricular heart function. In contrast to
currently marketed LVADs, the LVAD currently under development by the Company is
not intended merely as a bridge to heart transplant, but is designed, upon
receipt of necessary regulatory approvals, to serve as a long-term cardiac
assist device for certain patients. The Hershey Medical School LVAD has been in
development for over fifteen years and has undergone extensive preclinical
studies and testing. The LVAD being developed is electrically driven by a
wearable battery pack transmitting power non-invasively through the skin to an
implanted receiving coil that maintains a charge in batteries incorporated into
the device. These implanted batteries are capable of maintaining LVAD function
for approximately 45 minutes without the aid of any external power source. In
fiscal 1997, the Company began long-term durability testing of its LVAD, which
must be satisfactorily completed before Phase I human clinical trials under an
IDE can be commenced in the U.S. In addition, the Company will conduct
additional animal trials in the U.S. and Europe in fiscal 1998 and currently
anticipates the first human implant of the device in Europe in late 1998.
There can be no assurance that the FDA or any foreign government regulatory
authority will grant the Company authorization to market products under
development or, if such authorization is obtained, that such products will prove
competitive when measured against other available products.
ENGINEERING AND MANUFACTURING
Arrow has developed the core technologies that the Company believes are
necessary for it to design, develop and manufacture complex, high quality
catheter-related medical devices. This technological capability has enabled the
Company to develop internally many of the major components of its products and
reduce its unit manufacturing costs. To further help reduce manufacturing costs
and improve efficiency, the Company has increasingly automated the production of
its high-volume products and plans to continue to make significant capital
expenditures to promote efficiency and reduce operating costs.
Raw materials and purchased components essential to Arrow's business have
typically been available within the lead times required by the Company and,
consequently, procurement has not historically posed any significant problems in
the operation of the Company's business. Although the Company currently
maintains only one supplier for certain of its out-sourced components, it has
identified alternative vendors for most of these items and, therefore, does not
believe that it is dependent on any single supplier for major raw materials or
components.
PATENTS, TRADEMARKS, PROPRIETARY RIGHTS AND LICENSES
Arrow believes that patents and other proprietary rights are important to
its business. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. Arrow currently holds numerous U.S. patents and patent
applications, as well as several foreign patents and patent applications which
relate to aspects of the technology used in certain of the Company's products,
including its radial artery catheter, percutaneous sheath introducer and
interventional diagnostic catheter products. There can be no assurance that
patent applications filed by the Company will result in the issuance of patents
or that any patents owned by or licensed to the Company will provide competitive
advantages for the Company's products or will not be challenged or circumvented
by others.
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ITEM 1. BUSINESS (CONTINUED):
In addition, Arrow is a party to several license agreements with unrelated
third parties pursuant to which it has obtained, for varying terms, the
exclusive rights to certain patents held by such third parties in consideration
for royalty payments. Many of the Company's major products, including its
Arrow-Howes(TM) Multi-Lumen Catheters and antiseptic surface treatment for
catheters, have been developed pursuant to such license agreements. The Company
has in the past granted rights in certain patents relating to its Arrow-Howes
(TM) Multi-Lumen Catheters to others in consideration for royalty payments. The
Company also has certain proprietary rights to aspects of the technology,
including certain U.S. patents, used in the PAC. See "Research and Product
Development". All of the existing patents owned by or licensed to the Company
relating to its major products expire after October 2001. The U.S. patent
licensed to the Company relating to its Arrow-Howes(TM) Multi-Lumen Catheter
expired in February 1995. Since the expiration of this patent, the Company has
not experienced significant new competition in this market, and the Company does
not presently believe that such competition will have a material adverse effect
on the Company's business, financial condition or results of operations for the
foreseeable future.
From time to time, the Company is subject to legal actions involving patent
and other intellectual property claims. Based upon information presently
available to the Company, the Company knows of no legal actions involving patent
claims that are currently pending or threatened against the Company. Arrow owns
a number of registered trademarks in the United States and, in addition, has
obtained registration in many of its major foreign markets for the trademark
ARROW(R) and certain other trademarks. In recent years, Arrow Electronics,
Inc., a publicly traded manufacturer of electronic and computer-related products
("Arrow Electronics"), filed notices of opposition to the Company's applications
for the trademark ARROW(R) in the United States, South Africa, Israel, Korea,
Portugal, Taiwan and Thailand and sought to cancel the Company's registration in
Poland. The basis for Arrow Electronics' objection was the use of such trademark
for catheter systems with electronic controls or displays (e.g., the Company's
KAAT II PLUS(TM) intra-aortic balloon pump). Subsequent to the opposition in
the United States, on December 1, 1995, the Company filed a civil action against
Arrow Electronics in the United States District Court in Philadelphia ("the
Action") alleging trademark infringement and unfair competition arising out of
Arrow Electronics' sales in the medical field. By declaratory judgment, the
Company sought to have its rights in such trademark confirmed. In the Action,
Arrow Electronics asserted counterclaims of trademark and trade name
infringement and unfair competition against the Company and sought a declaratory
judgment that the Company is not entitled to registration for the same reasons
raised in its U.S. opposition. Decisions were rendered in favor of the Company
in the oppositions to the Korean and Taiwan applications and in the cancellation
action in Poland; appeals were filed by Arrow Electronics to both such
decisions. A decision adverse to the Company was rendered in Thailand. In
January 1997, the Company reached a settlement with Arrow Electronics which
resolved this dispute, without payment by either party to the other, in a manner
which is not expected to have a material adverse effect on the Company's
business, financial condition or results of operations.
GOVERNMENT REGULATION
As a manufacturer of medical devices, the Company is subject to extensive
regulation by, among other governmental entities, the FDA and the corresponding
agencies of states and foreign countries in which the Company sells its
products. These regulations govern the introduction of new medical devices, the
observance of certain standards with respect to the manufacture, testing and
labeling of such devices, the maintenance of certain records, the tracking of
such devices and other matters. Failure to comply with applicable federal, state
or foreign laws or regulations could subject the Company to enforcement action,
including product seizures, recalls, withdrawal of clearances or approvals, and
civil and criminal penalties, any one or more of which could have a material
adverse effect on the Company. In recent years, the FDA has pursued a more
rigorous enforcement program to ensure that regulated businesses, like the
Company's, comply with applicable laws and regulations. The Company believes
that it is in substantial compliance with such governmental regulations.
However,
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ITEM 1. BUSINESS (CONTINUED):
federal, state and foreign laws and regulations regarding the manufacture and
sale of medical devices are subject to future changes. No assurance can be
given that such changes will not have a material adverse effect on the Company.
On occasion, the Company has received notifications, including warning
letters, from the FDA of alleged deficiencies in the Company's compliance with
FDA requirements. The Company believes that it has been able to address or
correct such deficiencies. In addition, from time to time the Company has
recalled, or issued safety alerts on, certain of its products. No such warning
letter, recall or safety alert has had a material adverse effect on the Company,
but there can be no assurance that a warning letter, recall or safety alert
would not have such an effect in the future.
Like other medical device manufacturers, the Company in recent years has
experienced extended delays in obtaining FDA clearance or approval to market new
products in the U.S. The FDA review process may continue to delay the Company's
new product introductions in the future. It is possible that delays in receipt
of, or failure to receive, any necessary clearance or approval could have a
material adverse effect on the Company.
COMPETITION
Arrow faces substantial competition from a number of other companies in the
market for catheters and related medical devices and equipment, including
companies with greater financial and other resources. In addition, in response
to increased concern about the rising costs of health care, U.S. hospitals and
physicians are placing increasing emphasis on cost-effectiveness in the
selection of products to perform medical procedures. The Company believes that
its products compete primarily on the basis of product differentiation and
quality and that its comprehensive manufacturing capability enables it to
expedite the development and market introduction of new products and to reduce
manufacturing costs, thereby permitting more effective responses to competitive
pricing in an environment where the Company's ability to increase prices is
limited.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. In the course of its
business, Arrow is involved in the handling, storing and disposal of materials
which are classified as hazardous. In June 1989, the Company was notified that
it was among the potentially responsible parties under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), for the costs of investigating or remediating contamination at a
waste recycling, treatment and disposal facility. The Company was notified by
the U.S. Environmental Protection Agency ("EPA") in September 1995 of the means
by which it may resolve its alleged liability with respect to the conduct of a
remedial investigational feasibility study at this facility and of the
opportunity to participate with other small waste contributors to this facility
in a de minimis settlement which the EPA believes is likely to be appropriate
for this facility. In December 1995, the Company indicated its interest in
entering into such a de minimis settlement, and this case has not been active
since such date insofar as it involves the Company.
In November 1991, the EPA made a formal request for information regarding
the nature of the Company's waste that was transported to a municipal landfill
which is included on the National Priority List under CERCLA. In October 1997,
the Company received notification from the EPA that it is a potentially
responsible party in connection with environmental contamination at this
landfill. No determination has yet been made as to allocation of responsibility
for such actions at this landfill. Previously, in June 1994, the Company,
together with 16 other parties, was named in a complaint filed by a group of
five companies seeking to recover costs incurred as a result of an EPA order
directing such companies to take certain response actions in connection with
this landfill. Although technically CERCLA imposes strict joint and several
liability for the
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ITEM 1. BUSINESS (CONTINUED):
costs of investigating and remediating certain contaminated properties, such as
this landfill, the extent of each responsible parties' financial contribution is
expected to be based on the number and financial strength of these parties and
the volume and types of waste attributable to each party. Although the costs of
investigation, study and remediation at this site may be substantial, based on
present information regarding the volume and nature of the waste it allegedly
disposed of at the landfill and the large number of other potentially
responsible parties named by the EPA, many of which the Company believes have
sufficient financial resources to pay such costs, the Company has concluded that
its share of the liability for such matters will not have a material adverse
effect on its business, financial condition or results of operations. Therefore,
the Company has not accrued any amounts toward such liability.
The Company believes that its operations comply in all material respects
with applicable environmental laws and regulations. While the Company continues
to make capital and operational expenditures for protection of the environment,
it does not anticipate that these expenditures will have a material adverse
effect on its business, financial condition or results of operations.
PRODUCT LIABILITY AND INSURANCE
The design, manufacture and marketing of medical devices of the types
produced by the Company entail an inherent risk of product liability. The
Company's products are often used in intensive care settings with seriously ill
patients. While the Company believes that, based on claims made against the
Company in the past, the amount of product liability insurance maintained by the
Company has been adequate, there can be no assurance that the amount of such
insurance will be sufficient to satisfy claims made against the Company in the
future or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.
EMPLOYEES
As of November 1, 1997, Arrow had 2,264 full-time employees. All of the
Company's hourly-paid manufacturing employees at the Company's Reading and
Wyomissing, Pennsylvania facilities are represented by the United Steelworkers
of America AFL-CIO, Local 8467 (the "Union"). The Company and the Union are
currently operating under a three-year agreement that expires in September 2000.
The Company has never experienced an organized work stoppage or strike and
considers its relations with its employees to be good.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages and positions as of
November 1, 1997 are listed below. All executive officers are elected or
appointed annually and serve at the discretion of the Board of Directors. There
are no family relationships among the executive officers of the Company.
Name Age Current Position
- ------------------------ --- ------------------------
Marlin Miller, Jr. 65 President
Raymond Neag 66 Executive Vice President
John H. Broadbent, Jr. 59 Vice President-Finance
and Treasurer
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ITEM 1. BUSINESS (CONTINUED):
EXECUTIVE OFFICERS (CONTINUED):
T. Jerome Holleran 61 Secretary
Philip B. Fleck 53 Vice President-Research
and Manufacturing
Paul L. Frankhouser 52 Vice President-Marketing
Thomas D. Nickel 58 Vice President-Regulatory Affairs
and Quality Assurance
Mr. Miller has served as President and Chief Executive Officer and a director
of the Company since it was founded in 1975. Mr. Miller is also President and a
director of Arrow Precision Products, Inc. ("Precision"), a corporation
controlled by principal shareholders of the Company, and in fiscal 1997 devoted
approximately 5% of his business time to Precision. He is a director of
Carpenter Technology Corporation, a manufacturer of specialty steel, and
CoreStates Financial Corp., a financial institution.
Mr. Neag has served as Executive Vice President since April 1992 and prior
thereto served as Senior Vice President of the Company. Mr. Neag has been an
officer and a director of the Company since it was founded in 1975. Mr. Neag
also serves as Secretary and a director of Precision.
Mr. Broadbent has served as Vice President - Finance, Treasurer and a
director of the Company since it was founded in 1975. Mr. Broadbent also serves
as Vice President-Finance, Treasurer and a director of Precision, and in fiscal
1997 devoted approximately 5% of his business time to Precision.
Mr. Holleran has served as Secretary and a director of the Company since its
founding in 1975 and, until September 1997, also served as a Vice President.
From February 1986 to September 1997, Mr. Holleran was also Vice President,
Chief Operating Officer and a director of Precision. In fiscal 1997 Mr. Holleran
devoted approximately 95% of his business time to Precision and approximately 5%
of his business time to Arrow. From 1991 to 1996 Mr. Holleran served as
President of Endovations, Inc., a subsidiary of Precision that manufactured and
marketed certain gastroenterological medical products, until the sale in June
1996 of a portion of the Endovations business to the Company and the remainder
to an unrelated third party. Since July 1996, Mr. Holleran has served as
President of Precision Medical Products, Inc., a former subsidiary of Precision,
which was acquired effective August 29, 1997 by certain employees of Precision,
including Mr. Holleran.
Mr. Fleck has served as Vice President - Research and Manufacturing of the
Company since June 1994. From 1986 to June 1994, Mr. Fleck served as Vice
President - Research and Engineering of the Company. From 1975 to 1986, Mr.
Fleck served as Engineering Manager of the Company.
Mr. Frankhouser has served as Vice President-Marketing of the Company since
1986. From 1980 to 1986, Mr. Frankhouser served as Manager of Marketing of the
Company.
Mr. Nickel has served as Vice President-Regulatory Affairs and Quality
Assurance of the Company since 1991. From 1986 to 1991, Mr. Nickel served as
Director of Regulatory Affairs and Quality Assurance of the Company.
(10)
ITEM 2. PROPERTIES:
The Company's corporate headquarters and principal research center are
located in Reading, Pennsylvania in a 165,000 square foot facility completed in
January 1992. This facility, which also includes manufacturing space, is
located on 126 acres.
Other major properties owned by the Company include a 130,000 square foot
manufacturing and warehousing facility in Asheboro, North Carolina; a 145,000
square foot manufacturing facility in Wyomissing, Pennsylvania (of which
approximately 34,000 square feet was leased through August 1997 to Precision); a
40,000 square foot manufacturing facility in Chihuahua, Mexico; a 49,000 square
foot manufacturing and warehouse facility in Mount Holly, New Jersey; and a
65,000 square foot manufacturing and research facility in the Czech Republic,
which became operational in January 1996.
In addition, the Company leases a 55,000 square foot manufacturing facility
in Everett, Massachusetts, a 12,000 square foot manufacturing facility in
Walpole, Massachusetts and, as a result of the acquisition of the implantable
constant flow drug delivery pump business of Strato/Infusaid, a 56,000 square
foot facility in Norwood, Massachusetts. The Company also leases sales offices
and warehouse space in Canada, France, Germany, Japan, South Africa, the
Netherlands, Spain and Greece, sales office space in Mexico and warehouse space
in California.
The Company considers all of its facilities to be in good condition and
adequate to meet the present and reasonably foreseeable needs of the Company.
ITEM 3. LEGAL PROCEEDINGS:
The Company is a party to certain legal actions arising in the ordinary
course of its business. Based upon information presently available to the
Company, the Company believes that it has adequate legal defenses or insurance
coverage for these actions and that the ultimate outcome of these actions will
not materially adversely affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1997, through the solicitations of proxies or otherwise.
(11)
PART II
ITEM 5. MARKETS FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS:
The Company's common stock has traded publicly on the Nasdaq National Market
System under the symbol "ARRO" since June 9, 1992, the date that its common
stock was initially offered to the public. The table below sets forth the high
and low sale prices of the Company's common stock as reported by the Nasdaq
National Market System and the quarterly dividends per share declared by the
Company during the last eight fiscal quarters:
Quarter Ended High Low Dividends
=================== ====== ====== =========
August 31, 1997 32 1/4 26 3/4 $.045
May 31, 1997 36 1/2 28 1/2 .045
February 28, 1997 35 1/4 26 1/2 .045
November 30, 1996 35 1/4 25 .040
August 31, 1996 40 3/8 21 $.040
May 31, 1996 45 38 1/2 .040
February 29, 1996 46 3/4 35 .040
November 30, 1995 48 3/4 38 3/4 .035
As of November 1, 1997, there were approximately 924 registered shareholders
of the Company's common stock.
(12)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
August 31, 1997, 1996, 1995, 1994 and 1993 have been derived from the Company's
audited consolidated financial statements. The consolidated financial
statements of the Company as of August 31, 1997 and 1996 and for each of the
three years in the period ended August 31, 1997 together with the notes thereto
and the related report of Coopers & Lybrand L.L.P., independent accountants, are
included elsewhere herein. The following data should be read in conjunction
with the Company's audited consolidated financial statements, the notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere herein.
1997 1996 1995 1994 1993
-------- -------- --------- --------- ---------
(In thousands, except per share amounts)
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales $245,889 $229,945 $213,014 $178,777 $150,157
Cost of goods sold 110,811 107,272 100,343 86,586 73,640
Gross profit 135,078 122,673 112,671 92,191 76,517
Operating expenses
Research, development and engineering 15,871 14,106 11,305 10,462 9,578
Selling, general, and administrative 57,444 54,154 48,119 37,453 30,555
Total operating expenses 73,315 68,260 59,424 47,915 40,133
Operating income 61,763 54,413 53,247 44,276 36,384
Other expenses (income), net 2,031 2,300 (569) (812) (879)
Income before income taxes 59,732 52,113 53,816 45,088 37,263
Provision for income taxes 22,997 19,282 19,374 16,232 13,564
-------- -------- -------- -------- --------
Net income $ 36,735 $ 32,831 $ 34,442 $ 28,856 $ 23,699
======== ======== ======== ======== ========
Net income per common share $1.58 $1.41 $1.52 $1.29 $1.06
======== ======== ======== ======== ========
Cash dividends declared per common
share $.175 $.155 $.135 $.115 $.095
Weighted average shares outstanding 23,227 23,230 22,684 22,394 22,355
BALANCE SHEET DATA:
Working capital $ 81,460 $ 55,086 $ 52,863 $ 32,437 $ 29,730
Total assets 320,373 299,421 262,510 209,720 141,003
Notes payable and current maturities of
long-term debt 24,653 34,001 23,508 18,580 4,554
Long-term debt, excluding current maturities 12,043 15,988 20,463 32,003 2,794
Shareholders' equity 245,917 219,773 190,937 132,803 106,362
(13)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
The following discussion includes certain forward-looking statements.
Such forward-looking statements are subject to a number of factors, including
material risks, uncertainties and contingencies, which could cause actual
results to differ materially from the forward-looking statements. For a
discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see Exhibit 99.1 to this Report
and the Company's periodic reports and other documents filed with the
Commission.
RESULTS OF OPERATIONS
The following table presents for the three years ended August 31, 1997
statements of income expressed as a percentage of net sales and the period-to-
period changes in the dollar amounts of the respective line items.
Period-to-Period
Percentage of Net Sales Percentage Increase
-------------------------- ---------------------
1997 1996 1995
Year ended August 31, vs vs vs
----------------------
1997 1996 1995 1996 1995 1994
----- ------ ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 6.9% 7.9% 19.2%
Gross profit 54.9 53.3 52.9 10.1 8.9 22.2
Operating expenses:
Research, development and
engineering 6.5 6.1 5.3 12.5 24.8 8.1
Selling, general and
administrative 23.4 23.5 22.6 6.1 12.5 28.5
----- ----- ----- ---- ---- ----
Operating income 25.1 23.7 25.0 13.5 2.2 20.3
Other expenses (income), net 0.8 1.0 (0.3) * * *
Income before income taxes 24.3 22.7 25.3 14.6 (3.2) 19.4
Provision for income taxes 9.4 8.4 9.1 19.3 (0.5) 19.4
----- ----- ----- ---- ---- ----
Net income 14.9 14.3 16.2 11.9 (4.7) 19.4
* Not a meaningful comparison
(14)
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by $15.9 million, or 6.9%, to $245.9 million in fiscal 1997
from $229.9 million in fiscal 1996. Net sales represent gross sales invoiced to
customers, plus royalty income, less certain related charges, including freight
costs, discounts, returns and other allowances. This increase was due primarily
to an increase in unit shipments of central venous catheters, including
increased shipments of ARROWg+ard(TM) Blue(R) antiseptic surface treated
catheter products, pain management catheters, and implantable constant flow drug
delivery pumps. Sales of critical care products increased 9.6% to $207.3 million
from $189.1 million in fiscal 1996. Sales of cardiac care products decreased
4.5% to $38.4 million from $40.3 million in the previous year, due primarily to
decreased shipments of intra-aortic balloon pump and catheter products in Japan,
where the Company is transitioning from a dealer to direct sales. International
sales increased by $1.4 million, and represented 36.2% of net sales, excluding
royalty income, in fiscal 1997, compared to 38.2% in the prior year, principally
as a result of growth in shipments of multi-lumen catheters, offset by the
effect of the stronger U.S. dollar on sales in significant foreign markets and
by reduced shipments of intra-aortic balloon pump and catheter products in
Japan. The percentage of net sales attributable to the Company's direct sales
force decreased in fiscal 1997 to approximately 74% from approximately 75% in
fiscal 1996, principally as a result of the effect of the stronger U.S. dollar
on sales in significant foreign markets where the Company has direct sales
subsidiaries.
This increase in net sales was lower than the Company anticipated due to
decreased shipments of intra-aortic balloon products, the strength of the U.S.
dollar in significant foreign markets and slower than expected new product
introductions. Health care cost containment initiatives in the U.S. have
reduced growth in demand in markets where Arrow has 80% or greater market
shares, and protecting that market share has affected the Company's pricing in
some instances. The Company anticipates increased U.S. sales of several
products in fiscal 1998; however, U.S. demand for certain of the Company's core
products is expected to remain sluggish. The Company also anticipates that
fiscal 1998 international sales will grow more rapidly than U.S. sales due to
rising demand in several regions of the world, supported by increased production
in the Company's Mexico and Czech Republic manufacturing facilities and the
completion of the transition from dealer to direct sales of intra-aortic balloon
products in Japan. Continued strengthening of the U.S. dollar, however, would
adversely affect this expectation. A return to the Company's traditionally
higher rates of sales growth is dependent on demand for its new products now in
various stages of market introduction, as well as timely receipt of required
regulatory approvals and timely completion of research and development programs.
Gross profit increased 10.1% to $135.1 million in fiscal 1997 from $122.7
million in fiscal 1996. As a percentage of net sales, gross profit improved to
54.9% in fiscal 1997 from 53.3% in the prior year, due primarily to the
reduction in manufacturing costs resulting from increased production at the
Company's manufacturing facilities in Mexico and the Czech Republic and
increased sales of higher margin ARROWg+ard(TM) Blue(R) antiseptic surface
treated catheter products, offset by the unfavorable impact of currency
translations of foreign sales.
Research, development and engineering expenses in fiscal 1997 increased by 12.5%
to $15.9 million from $14.1 million in fiscal 1996. As a percentage of net
sales, these expenses increased to 6.5% in fiscal 1997, compared to 6.1% in
fiscal 1996. These expenses increased primarily as a result of development
expenses related to several new products, including the Company's Left
Ventricular Assist Device ("LVAD").
Selling, general and administrative expenses increased by 6.1% to $57.4 million
during fiscal 1997 from $54.1 million in the previous year, and decreased as a
percentage of net sales to 23.4% in fiscal 1997, compared to 23.5% in fiscal
1996. This percentage decrease was due primarily to successful efforts to
restrain the growth in these expenditures in view of the prior year's expansion
of the Company's U.S. salesforces and Japanese and European direct sales
subsidiaries.
(15)
FISCAL 1997 COMPARED TO FISCAL 1996 (CONTINUED):
Principally due to the above factors, operating income increased 13.5% to $61.8
million in fiscal 1997 from $54.4 million in fiscal 1996.
Other expenses (income), net, decreased to $2.0 million in fiscal 1997 from $2.3
million in fiscal 1996, due to a reduction in interest expense, offset by
increased losses due to foreign exchange translation. Other expenses (income),
net, consists principally of interest expense and foreign exchange gains and
losses associated with the Company's direct sales subsidiaries. Aggregate
foreign exchange (gains) and losses in fiscal 1997 and 1996 were $2.0 million
and $0.9 million, respectively, including (gains) and losses relating to foreign
currency contracts of ($2.4) and ($1.5) million, respectively.
As a result of the factors discussed above, income before income taxes increased
in fiscal 1997 by 14.6% to $59.7 million from $52.1 million in fiscal 1996. The
effective income tax rate increased to 38.5% in fiscal 1997 from 37.0% in fiscal
1996, principally as a result of the provision for taxes in certain state and
international jurisdictions.
Net income in fiscal 1997 increased by 11.9% to $36.7 million from $32.8 million
in fiscal 1996. As a percentage of net sales, net income represented 14.9% in
fiscal 1997 compared to 14.3% in the previous year.
Net income per common share increased to $1.58 for fiscal 1997, an increase of
$0.17, or 11.9%, per share, from $1.41 per share in fiscal 1996. Weighted
average common shares outstanding decreased to 23,227,102 in fiscal 1997 from
23,229,687 in fiscal 1996 as a result of the forfeiture of unvested restricted
stock awards by certain former employees.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased by $16.9 million, or 7.9%, to $229.9 million in fiscal 1996
from $213.0 million in fiscal 1995. This increase was due primarily to an
increase in unit volume in the Company's major product lines, including
increased shipments of ARROWg+ard(TM) Blue(R) antiseptic surface treated
catheter products. Sales of critical care products increased 8.1% to $189.1
million from $175.0 million in fiscal 1995. Sales of cardiac care products
increased 7.4% to $40.3 million from $37.5 million in the previous year.
International sales increased by $11.8 million, or 15.5%, to 38.2% of net sales,
excluding royalty income, in fiscal 1996, compared to 35.7% in the prior year,
principally as a result of growth in shipments of multi-lumen catheters and
intra-aortic balloon catheters. The percentage of net sales attributable to the
Company's direct sales force increased in fiscal 1996 to approximately 75% from
approximately 72% in fiscal 1995, principally as a result of the Company's
gradual conversion of dealer-based sales to direct sales.
This increase in net sales was lower than the Company anticipated due to an
unforeseen reduction in the rate of growth in the U.S. market for certain high
volume products, the strength of the U.S. dollar, particularly against the
Japanese yen, and slower than anticipated new product introductions. Health
care cost containment initiatives in the U.S. reduced growth in demand in
markets where Arrow has 80% or greater market shares, and protecting that market
share affected the Company's pricing in some instances.
Gross profit increased 8.9% to $122.7 million in fiscal 1996 from $112.7 million
in fiscal 1995. As a percentage of net sales, gross profit improved to 53.3% in
fiscal 1996 from 52.9% in the prior year, due primarily to the reduction in
manufacturing costs resulting from the Company's new sterilization facility
which does not require the use of freon gas, operating efficiencies created by
increased production at the Company's manufacturing facility in Mexico and
increased sales of higher margin ARROWg+ard(TM) Blue(R) antiseptic surface
treated catheter
(16)
FISCAL 1996 COMPARED TO FISCAL 1995 (CONTINUED):
products. This increase was lower than the Company anticipated due principally
to the unfavorable impact of currency translations of foreign sales.
Research, development and engineering expenses in fiscal 1996 increased by 24.8%
to $14.1 million from $11.3 million in fiscal 1995. As a percentage of net
sales, these expenses increased to 6.1% in fiscal 1996, compared to 5.3% in
fiscal 1995. These expenses increased primarily as a result of development
expenses related to certain products of Therex, which was acquired in April
1995, and certain cardiac assist products.
Selling, general and administrative expenses increased by 12.5% to $54.1 million
during fiscal 1996 from $48.1 million in the previous year, and increased as a
percentage of net sales to 23.5% in fiscal 1996, compared to 22.6% in fiscal
1995. This percentage increase was due primarily to additions to the domestic
direct sales force to replace a distributor in the New England area, the
expansion of the Company's Japanese and European sales subsidiaries and the
addition of expenses related to Therex.
Principally due to the above factors, operating income increased 2.2% to $54.4
million in fiscal 1996 from $53.2 million in fiscal 1995.
Other expenses (income), net, increased to $2.3 million in fiscal 1996 from
($0.6) million in fiscal 1995. Other expenses (income), net, consists
principally of interest expense and foreign exchange gains and losses associated
with the Company's direct sales subsidiaries. Aggregate foreign exchange
(gains) and losses in fiscal 1996 and 1995 were $0.9 million and ($3.1) million,
including (gains) and losses relating to foreign currency contracts of ($1.5)
and ($0.7) million, respectively.
As a result of the factors discussed above, income before income taxes decreased
in fiscal 1996 by 3.2% to $52.1 million from $53.8 million in fiscal 1995. The
effective income tax rate increased to 37.0% in fiscal 1996 from 36.0% in fiscal
1995, principally as a result of generating a larger proportion of earnings in
higher tax jurisdictions and the reduction in the benefit of the research and
development tax credit prior to its reinstatement on July 1, 1996.
Net income in fiscal 1996 decreased by 4.7% to $32.8 million from $34.4 million
in fiscal 1995. As a percentage of net sales, net income represented 14.3% in
fiscal 1996 compared to 16.2% in the previous year.
Net income per common share decreased to $1.41 for fiscal 1996, a decrease of
$.11, or 6.9% per share, from $1.52 per share in fiscal 1995. Weighted average
common shares outstanding increased to 23,229,687 in fiscal 1996 from 22,684,480
in fiscal 1995 as a result of the issuance on April 7, 1995 of 325,000 shares of
common stock in connection with the acquisition of Therex and the issuance on
May 8, 1995 of 500,000 shares of common stock in an underwritten public offering
by the Company.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended August 31, 1997, net cash provided by operations was $35.1
million, an increase of $3.6 million from the prior year. This increase was due
primarily to an increase in net income. Accounts receivable increased by $10.4
million for the year ended August 31, 1997, compared to a $6.8 million increase
in the prior year. Accounts receivable, measured in days sales outstanding,
increased to 87 days at August 31, 1997, from 76 days at August 31, 1996, due
principally to an increase in the collection period for both U.S. and
international sales.
(17)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
Net cash used in the Company's investing activities decreased to $16.3 million
in fiscal 1997 from $38.5 million in the prior year, principally as a result of
the completion in fiscal 1996 of the construction and equipping of the Company's
new manufacturing and research facility in the Czech Republic.
Net cash used in financing activities increased to $17.4 million in fiscal 1997,
compared to providing $2.4 million in fiscal 1996. This change resulted
principally from a decrease in short term borrowings and repayment of long-term
debt.
As of August 31, 1997, the Company had U.S. bank credit facilities providing a
total of $50.0 million in available revolving credit for general business
purposes, of which $31.1 million remained unused. In addition, certain of the
Company's foreign subsidiaries have revolving credit facilities totaling the
U.S. dollar equivalent of $11.8 million, of which $8.7 million remained unused
as of August 31, 1997. Combined borrowing under these credit facilities
decreased $5.7 million and increased $13.2 million during the years ended August
31, 1997 and 1996, respectively.
During fiscal 1997, 1996 and 1995, the percentage of the Company's sales
invoiced in currencies other than the U.S. dollar was 26.8%, 27.0% and 25.1%,
respectively. In addition, a small part of the Company's cost of goods sold is
denominated in foreign currencies. As a partial hedge against adverse
fluctuations in exchange rates, the Company periodically enters into foreign
currency exchange contracts with certain major financial institutions. By their
nature, all such contracts involve risk, including the risk of nonperformance by
counterparties. Accordingly, losses relating to these contracts could have a
material adverse effect upon the Company's business, financial condition and
results of operations. Based upon the Company's knowledge of the financial
condition of the counterparties to its existing forward contracts, the Company
believes that it does not have any material exposure to any individual
counterparty. The Company's policy prohibits the use of derivative instruments
for speculative purposes. As of November 1, 1997, outstanding foreign currency
exchange contracts totaling the U.S. dollar equivalent of $24.1 million mature
at various dates through August 1998. The Company expects to continue to
utilize foreign currency exchange contracts to manage its exposure, although
there can be no assurance that the Company's efforts in this regard will be
successful.
Based upon its present plans, the Company believes that its working capital,
operating cash flow and available credit sources will be adequate to repay
current portions of long-term debt, to finance currently planned capital
expenditures and to meet the currently foreseeable liquidity needs of the
Company.
During the periods discussed above, the overall effects of inflation and
seasonality on the Company's business were not significant.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED:
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128). FAS 128 is designed to improve the Earnings Per Share (EPS) information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. The statement is effective
for financial statements for periods ending after December 15, 1997, with prior
periods restated to comply with the new standard at that time. If the new
standard had been effective for the year ended August 31, 1997, there would have
been no significant change in earnings per share as presented in the
accompanying consolidated statements of income.
Continued
(18)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
About Capital Structure" (FAS 129). FAS 129 establishes standards for
disclosing information about an entity's capital structure. The statement is
effective for financial statements for periods ending after December 15, 1997.
The Company does not anticipate the adoption of this new standard to have a
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The statement is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company does not anticipate the adoption of this
new standard to have a material effect on the Company's consolidated financial
statements.
In June 1997, The Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 establishes revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. FAS 131 requires entity-wide
disclosure of information about revenues from different products and services
and geographic areas. The statement is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company does not anticipate
the adoption of this new standard to have a material effect on the Company's
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Company prior to its Annual Report on Form 10-K for the
fiscal year ended August 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a) (1) and (2).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information regarding directors and nominees for directors of the Company,
as well as certain other information required by this item, will be included in
the Company's Proxy Statement to be issued in connection with its 1998 Annual
Meeting of Shareholders (the "Proxy Statement"), and is incorporated herein by
reference. The information regarding executive officers required by this item
is contained herein in Part I under the caption "Executive Officers".
(19)
PART III
ITEM 11. EXECUTIVE COMPENSATION:
Information regarding executive compensation of Arrow's directors and
executive officers will be included in the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Information regarding beneficial ownership of the Company's common stock by
certain beneficial owners and by management of the Company will be included in
the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Information regarding certain relationships and related transactions with
management of the Company will be included in the Proxy Statement and is
incorporated herein by reference.
(20)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K:
(a) (1) The following financial statement schedule of the Company is filed as part of this Form 10-K.
Page
----
1. Report of Independent Accountants 23
2. Consolidated Balance Sheets at
August 31, 1997 and 1996 24,25
3. Consolidated Statements of Income
for the years ended August 31, 1997,
1996 and 1995 26
4. Consolidated Statements of Cash Flows
for the years ended August 31, 1997,
1996 and 1995 27,28
5. Consolidated Statements of Changes in
Shareholders' Equity for the years ended
August 31, 1997, 1996 and 1995 29-31
6. Notes to Consolidated Financial Statements 32-50
(a) (2) The following financial statement schedules of the Company are filed as part of this
Form 10-K:
Page
----
1. Report of Independent Accountants on
Financial Statement Schedule 51
2. Schedule II - Valuation and Qualifying Accounts 52
Other statements and schedules are not presented because they are either not
required or the information required by statements or schedules is presented
elsewhere.
(a) (3) See Exhibit Index on pages 53 through 62 hereof for a list of the
Exhibits filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K:
None
(21)
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.
ARROW INTERNATIONAL, INC.
By: /s/ John H. Broadbent, Jr.
--------------------------
John H. Broadbent, Jr.
Vice President-Finance
and Treasurer
Dated: November 26, 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/ Marlin Miller, Jr. Director, President and November 26, 1997
- ---------------------------- Chief Executive Officer
(Marlin Miller, Jr.) (Principal Executive
Officer)
/s/ Raymond Neag Director, Executive November 26, 1997
- ---------------------------- Vice President
(Raymond Neag)
/s/ John H. Broadbent, Jr. Director, Vice President- November 26, 1997
- ---------------------------- Finance and Treasurer
(John H. Broadbent, Jr.) (Principal Financial
Officer and Principal
Accounting Officer)
/s/ T. Jerome Holleran Director, Secretary November 26, 1997
- ----------------------------
(T. Jerome Holleran)
/s/ Robert L. McNeil, Jr. Director November 26, 1997
- ----------------------------
(Robert L. McNeil, Jr.)
/s/ Richard T. Niner Director November 26, 1997
- ----------------------------
(Richard T. Niner)
/s/ George W. Ebright Director November 26, 1997
- ----------------------------
(George W. Ebright)
/s/ Alan M. Sebulsky Director November 26, 1997
- ----------------------------
(Alan M. Sebulsky)
/s/ John E. Gurski Director November 26, 1997
- ----------------------------
(John E. Gurski)
(22)
Coopers
& Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Arrow International, Inc.:
We have audited the accompanying consolidated balance sheets of Arrow
International, Inc. as of August 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended August 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arrow
International, Inc. as of August 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended August 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 29, 1997
(23)
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands, Except Share Amounts)
August 31,
----------------------
1997 1996
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,276 $ 4,807
Accounts receivable, less allowance for doubtful accounts
of $855 and $774 in 1997 and 1996, respectively 60,801 50,093
Inventories 57,334 43,509
Prepaid expenses and other 8,729 9,575
Deferred income taxes 2,833 2,709
-------- --------
Total current assets 135,973 110,693
-------- --------
Property, plant and equipment:
Land and improvements 5,384 5,520
Buildings and improvements 70,067 71,674
Machinery and equipment 70,974 65,457
Construction-in-progress 24,642 15,900
-------- --------
171,067 158,551
Less accumulated depreciation (60,474) (49,552)
-------- --------
110,593 108,999
-------- --------
Goodwill, net of accumulated amortization of $9,024
and $6,730 in 1997 and 1996, respectively 48,720 51,754
Intangible and other assets, net of accumulated amortization of
$8,684 and $6,894 in 1997 and 1996, respectively 24,430 27,975
Deferred income taxes 657 -
-------- --------
Total assets $320,373 $299,421
======== ========
See notes to consolidated financial statements
Continued
(24)
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, continued
(All Dollar Amounts in Thousands, Except Share Amounts)
August 31,
----------------------
1997 1996
----------- ---------
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 2,675 $ 6,293
Notes payable 21,978 27,708
Accounts payable 9,983 8,079
Accrued liabilities 6,856 6,297
Accrued compensation 9,945 5,493
Accrued income taxes 3,076 1,738
-------- --------
Total current liabilities 54,513 55,607
Long-term debt 12,043 15,988
Accrued postretirement benefit obligation 7,900 7,577
Deferred income taxes - 476
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
5,000,000 shares authorized;
none issued - -
Common stock, no par value;
50,000,000 shares authorized;
issued 26,478,813 shares in
1997 and 1996 45,603 45,580
Retained earnings 216,173 183,502
Less treasury stock at cost:
3,252,687 and 3,249,914 shares
in 1997 and 1996, respectively (8,374) (8,308)
Cumulative translation adjustment (5,088) (532)
Unearned compensation (239) (469)
Unrealized holding loss on marketable securities (2,158) -
-------- --------
Total shareholders' equity 245,917 219,773
-------- --------
Total liabilities and shareholders' equity $320,373 $299,421
======== ========
See notes to consolidated financial statements
(25)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All Dollar Amounts in Thousands, Except per Share Amounts)
for the years ended August 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
Net sales $245,889 $229,945 $213,014
Cost of goods sold 110,811 107,272 100,343
-------- -------- --------
Gross profit 135,078 122,673 112,671
-------- -------- --------
Operating expenses:
Research, development and engineering 15,871 14,106 11,305
Selling, general and administrative 57,444 54,154 48,119
-------- -------- --------
73,315 68,260 59,424
-------- -------- --------
Operating income 61,763 54,413 53,247
-------- -------- --------
Other expenses (income):
Interest expense, net of amounts capitalized 897 1,849 1,974
Interest income (894) (611) (239)
Other, net 2,028 1,062 (2,304)
-------- -------- --------
2,031 2,300 (569)
-------- -------- --------
Income before income taxes 59,732 52,113 53,816
Provision for income taxes 22,997 19,282 19,374
-------- -------- --------
Net income $36,735 $32,831 $34,442
======== ======== ========
Net income per common share $ 1.58 $ 1.41 $ 1.52
=========== =========== ===========
Cash dividends per common share $ .175 $ .155 $ .135
=========== =========== ===========
Weighted average common shares outstanding 23,227,102 23,229,867 22,684,480
=========== =========== ===========
See notes to consolidated financial statements
(26)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollar Amounts in Thousands)
for the years ended August 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
Cash flows from operating activities:
Net income $ 36,735 $ 32,831 $ 34,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10,959 9,746 8,087
Amortization of intangible assets and goodwill 4,083 3,637 3,378
Amortization of unearned compensation 197 210 226
Deferred income taxes (1,257) 1,171 2,113
Other (2,679) (157) 304
Changes in operating assets and liabilities:
Accounts receivable (10,422) (6,819) (8,178)
Inventories (7,751) (9,623) (7,225)
Prepaid expenses and other 1,073 (769) (3,325)
Accounts payable and accrued liabilities 2,170 1,931 (2,094)
Accrued compensation 696 (771) 1,115
Accrued income taxes 1,338 143 67
-------- -------- --------
Total adjustments (1,593) (1,301) (5,532)
-------- -------- --------
Net cash provided by operating activities 35,142 31,530 28,910
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (12,637) (22,724) (17,275)
Increase in intangible and other assets (1,643) (15,826) (5,330)
Cash paid for businesses acquired, net (2,002) - (6,442)
-------- -------- --------
Net cash used in investing activities (16,282) (38,550) (29,047)
-------- -------- --------
Cash flows from financing activities:
(Decrease) increase in notes payable (5,730) 13,168 3,453
Proceeds from new borrowings - 12,037 4,967
Principal payments of long-term debt,
including current maturities (7,563) (19,187) (15,033)
Proceeds from issuance of common stock - - 15,293
Dividends paid (4,065) (3,601) (3,083)
Purchase of treasury stock (33) (43) (24)
-------- -------- --------
Net cash (used in) provided by
financing activities (17,391) 2,374 5,573
-------- -------- --------
Net change in cash and cash equivalents 1,469 (4,646) 5,436
Cash and cash equivalents at beginning of year 4,807 9,453 4,017
-------- -------- --------
Cash and cash equivalents at end of year $ 6,276 $ 4,807 $ 9,453
======== ======== ========
See notes to consolidated financial statements
Continued
(27)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(All Dollar Amounts in Thousands)
for the years ended August 31,
------------------------------
1997 1996 1995
--------- --------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 897 $ 1,849 $ 1,974
Income taxes $21,092 $17,305 $19,449
Supplemental schedule of noncash investing and financing activities:
During 1997, 1996 and 1995, the Company assumed liabilities in conjunction with
the purchase of certain intangible assets as follows:
Estimated fair value of assets acquired $ 6,051 $ - $19,488
Fair value of common stock issued - - 11,253
Cash paid for assets, net of cash acquired 2,002 - 6,442
------- ------- -------
Liabilities assumed $ 4,049 $ - $ 1,793
======= ======= =======
Cash paid for businesses acquired:
Working capital $ 2,002 $ - $ (61)
Property, plant and equipment - - 150
Goodwill - - 6,353
------- ------- -------
$ 2,002 $ - $ 6,442
======= ======= =======
See notes to consolidated financial statements
(28)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued
for the years ended August 31, 1995, 1996 and 1997
(All Dollar Amounts in Thousands, Except per Share Amounts)
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- ------- --------- --------- -------- --------- --------------- ------------
Balance, August 31, 1996 26,478,813 $45,580 $183,502 3,249,914 $(8,308) $(469) $ - $ (532)
Cash dividends on common
stock, $.175 per share (4,064)
Registration costs
Purchase of treasury stock 1,213 (33)
Forfeiture of restricted stock
by terminated employees 1,560 (33) 33
Amortization of unearned
compensation 197
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 23
Unrealized loss on marketable
securities, net of taxes
($1,425) (2,158)
Translation adjustments (4,556)
Net income 36,735
---------- ------- -------- --------- ------- -------- -------------- ----------
Balance, August 31, 1997 26,478,813 $45,603 $216,173 3,252,687 $(8,374) $(239) $(2,158) $(5,088)
========== ======= ======== ========= ======= ======== ============== ===========
See notes to consolidated financial statements
Continued
(29)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued
for the years ended August 31, 1995, 1996 and 1997
(All Dollar Amounts in Thousands, Except per Share Amounts)
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
-------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- -------- --------- --------- -------- --------- -------------- ------------
Balance, August 31, 1995 26,478,813 $45,608 $154,272 3,247,805 $(8,240) $(703) $ - $ -
Cash dividends on common
stock, $.155 per share (3,601)
Registration costs (109)
Purchase of treasury stock 1,009 (44)
Forfeiture of restricted stock by
terminated employees 1,100 (24) 24
Amortization of unearned
compensation 210
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 81
Translation adjustments (532)
Net income 32,831
---------- ------- -------- --------- ------- -------- -------------- ----------
Balance, August 31, 1996 26,478,813 $45,580 $183,502 3,249,914 $(8,308) $(469) $ - $ (532)
========== ======= ======== ========= ======= ======== ============== ===========
See notes to consolidated financial statements
Continued
(30)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended August 31, 1995, 1996 and 1997
(All Dollar Amounts in Thousands, Except per Share Amounts)
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- ------- --------- --------- -------- --------- -------------- -----------
Balance, August 31, 1994 25,653,813 $19,035 $122,913 3,245,462 $(8,184) $(961) $ - $ -
Cash dividends on common
stock, $.135 per share (3,083)
Issuance of common stock 825,000 26,546
Purchase of treasury stock 883 (24)
Forfeiture of restricted stock by
terminated employees 1,460 (32) 32
Amortization of unearned
compensation 226
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 27
Net income 34,442
---------- ------- -------- --------- ------- -------- -------------- -----------
Balance, August 31, 1995 26,478,813 $45,608 $154,272 3,247,805 $(8,240) $(703) $ - $ -
========== ======= ======== ========= ======= ======== ============== ===========
See notes to consolidated financial statements
Continued
(31)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies:
General:
Arrow International, Inc. develops, manufactures and markets a broad range of
clinically advanced, disposable catheters and related products for critical care
and interventional medical procedures.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Arrow
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
to the fiscal 1997 presentation.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents. The Company's cash
management program utilizes zero balance accounts. Accordingly, all book
overdraft balances have been reclassified to accounts payable and amounted to
$5,467 at August 31, 1997. The carrying amount of cash and cash equivalents
approximated fair value.
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, 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.
Inventory Valuation:
Inventories are valued at lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
Long Lived Assets:
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of". FAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write down is required. Upon adoption of this
statement, the Company determined that no impairment loss needs to be recognized
for applicable assets of continuing operations as of August 31, 1997.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method. Upon
retirement, sale or other disposition, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included in operations.
Capitalized Interest:
Interest is capitalized as part of the historical cost of certain property,
plant and equipment constructed by the Company for its own use. The amount of
interest capitalized is based on a weighted average of the interest rates of
outstanding borrowings during the construction period.
Continued
(32)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies (Continued):
Goodwill:
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized using the straight-line method over 25 years.
Management reviews the carrying amount of goodwill at each balance sheet date to
assess the continued recoverability based upon such factors as future gross cash
flows and operating results from the related asset, future asset utilization and
changes in market conditions. The Company believes that no impairment of
goodwill existed at August 31, 1997 and 1996.
Intangible and Other Assets:
Intangible and other assets, net, include certain assets acquired resulting from
business acquisitions and investments and are being amortized using the
straight-line method over their estimated periods of benefits, of 5 to 17 years.
Management reviews the carrying amount of intangible and other assets each
balance sheet date to assess their continued recoverability based upon such
factors as future gross cash flows and operating results from the related asset,
future asset utilization and changes in market conditions. The Company believes
that no impairment of intangible and other assets existed at August 31, 1997 and
1996.
Marketable Equity Securities:
The Company adopted Statement of Financial Accounting Standards No. 115 (FAS
115), "Accounting for Certain Investments in Debt and Equity Securities".
Marketable securities are carried at fair market value, with unrealized holding
gains and losses, net of tax, reported as a separate component of shareholders'
equity. The fair market value of securities held at August 31, 1997 was $6,374
and the unrealized holding loss was $2,158.
Financial Instruments:
The Company enters into foreign currency exchange forward contracts, which are
derivative financial instruments, with certain major financial institutions to
reduce the effect of fluctuating exchange rates, primarily on U.S. dollar cash
inflows resulting from the collection of intercompany receivables denominated in
foreign currencies. Effective fiscal 1997, the Company classified a portion of
certain Intercompany receivables as long-term investments. The foreign exchange
translation effect related to the investment is included in the cumulative
translation adjustment section of shareholders' equity. Such transactions occur
throughout the year and are probable, but not firmly committed. Forward
contracts are marked to market each accounting period, and the resulting gains
or losses on these contracts are recorded in Other Income / Expense of the
consolidated statements of income. Realized gains and losses on these contracts
are offset by the assets, liabilities and transactions being hedged. The
Company does not use financial instruments for trading or speculative purposes.
Revenue Recognition:
Revenue is recognized at the time products are shipped and title has passed to
the customer. Net sales represent gross sales invoiced to customers, plus
royalty income, less certain related charges, including freight costs,
discounts, returns and other allowances.
Income Taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using current tax rates.
Continued
(33)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies (Continued):
Income Taxes (Continued):
Undistributed earnings of the Company's foreign subsidiaries are indefinitely
reinvested and amounted to $7,268 and $6,588 at August 31, 1997 and 1996,
respectively. No deferred taxes have been provided on these earnings.
Foreign Currency Translation:
During fiscal 1996 most of the Company's foreign subsidiaries used the U.S.
dollar as the functional currency. Monetary assets and liabilities were
translated at year-end exchange rates and inventories, property and nonmonetary
assets and liabilities at historical rates. Income and expense accounts were
translated at the average rates in effect during the year, except that
depreciation, amortization and cost of sales were translated at historical
rates. Adjustments resulting from the translation of the entities were included
in "Other expenses (income)" of the consolidated statements of income. Foreign
subsidiaries that used the local currency as the functional currency translate
all assets and liabilities at year-end exchange rates, all income and expense
accounts at average rates and record adjustments from the translation in a
separate component of shareholders' equity. Gains and losses resulting from
transactions of the Company and its foreign subsidiaries were included in "Other
expenses (income)".
During fiscal 1997 most of the Company's foreign subsidiaries used their local
currency as the functional currency and translated all assets and liabilities at
year-end exchange rates, all income and expense accounts at average rates and
recorded adjustments from the translation in a separate component of
shareholders' equity. The foreign subsidiaries that still used the U.S. dollar
as the functional currency translated monetary assets and liabilities at year-
end exchange rates and inventories, property and nonmonetary assets and
liabilities at historical rates. Income and expense accounts were translated at
the average rates in effect during the year, except that depreciation,
amortization and cost of sales were translated at historical rates. Adjustments
resulting from the translation of the entities were included in "Other expenses
(income)" of the consolidated statements of income. Gains and losses resulting
from transactions of the Company and its foreign subsidiaries were included in
"Other expenses (income)". Aggregate foreign exchange (gains) and losses were
$1,996, $919 and ($3,090) for the years ended August 31, 1997, 1996 and 1995,
respectively.
Concentration of Credit Risk:
Concentration of credit risk with respect to trade receivables is limited due to
both the large number of customers and their geographic dispersion. As of
August 31, 1997 and 1996, the Company had no significant concentrations of
credit risk.
Postretirement Benefits Other Than Pensions:
Postretirement health care and life insurance benefits are recorded using the
accrual method of accounting based on actuarially determined costs which are
recognized over the period from the date of hire to the full eligibility date of
employees who are expected to qualify for such benefits.
2. Business Acquisitions:
On April 7, 1995, the Company acquired all of the partnership interests of
Therex Limited Partnership ("Therex"), for approximately $6,300 in cash and
325,000 shares of common stock based on the closing price of $34 5/8 per share
as reported by the Nasdaq Stock Market on the date of acquisition. Therex is
engaged in the manufacture and marketing of implantable, constant flow delivery
pumps and a broad
Continued
(34)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
2. Business Acquisitions (Continued):
line of implantable vascular access ports. The acquisition has been accounted
for using the purchase method of accounting. The cost of the acquisition has
been allocated on the basis of the fair market value of the assets acquired and
the liabilities assumed. The excess of the purchase price over the estimated
fair market value of the net assets acquired of approximately $17,631 was
recognized as goodwill and is being amortized over a period of 25 years. Pro
forma results of operations are not significant.
On July 15, 1997, the Company expanded its critical care product line by
acquiring the implantable constant flow drug delivery pump product business of
Strato/Infusaid Inc., a former subsidiary of Pfizer, Inc. The acquisition has
been accounted for using the purchase method of accounting. In conjunction with
the acquisition, the Company anticipates that the manufacturing operations for
these products will be discontinued, effective on or about November 30, 1997,
and accrued compensation of $3,464 has been recorded for employee terminations.
The cost of the acquisition has been allocated on the basis of the estimated
fair market value of the assets acquired, $6,051 and the liabilities assumed,
$4,049. Pro forma results of operations are not significant.
3. Stock Option Plans:
The Company has adopted two stock plans, the 1992 Stock Incentive Plan (the
"1992 Plan"), which was adopted on April 1, 1992, and the Directors Stock
Incentive Plan (the "Directors Plan"), which was approved by the shareholders on
January 17, 1996. The 1992 Plan authorizes the granting of stock options, stock
appreciation rights and restricted stock. The Directors Plan authorizes the
granting of a maximum of 100,000 non-qualified stock options. Under the
Directors Plan, members of the Board of Directors of the Company and its
subsidiaries are eligible to participate if they are not also employees or
consultants of the Company or its subsidiaries, were not shareholders at the
time of the Company's initial public offering on June 9, 1992 and do not serve
on the Board as representatives of the interest of shareholders who have made an
investment in the Company. The Directors Plan authorizes an initial grant of an
option to purchase 5,000 shares of common stock upon each eligible director's
initial election to the Board and the grant of an additional option to purchase
500 shares of common stock on the date each year when directors are elected to
the Board.
The Company follows the provision of Accounting Principles Board (APB) No. 25,
"Accounting for Stock Issued to Employees", and related interpretations, which
require compensation expense for options to be recognized only if the market
price of the underlying stock exceeds the exercise price on the date of grant.
Accordingly, the Company has not recognized compensation expense for its options
granted during the 1997 and 1996 fiscal years.
On December 1, 1993 and February 11, 1994, the Company issued 44,900 and 8,200
shares, respectively, of restricted common stock to certain employees pursuant
to the 1992 Plan. The market value of the shares awarded, based on the closing
price of $20 3/4 and $23 1/8 per share, as reported by the Nasdaq stock market
on the dates of the awards, was $932 and $190, respectively. The transactions
were recorded as unearned compensation in a separate component of shareholders'
equity and are being amortized to expense over the five year vesting period.
Continued
(35)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
3. Stock Option Plans (Continued):
On January 17, 1996, options to purchase 171,700 shares of the Company common
stock were granted to key employees of the Company pursuant to the 1992 Plan.
The option price per share was $38, the fair market value of the common stock of
the Company on the date the options were granted. The options expire ten years
from the grant date. The options vest ratably over five years at one year
intervals from the grant date and become exercisable at any time once vested.
On January 15, 1997 and January 17, 1996, options to purchase 10,500 and 5,000
shares, respectively, of the Company common stock were granted to directors of
the Company pursuant to the Directors Plan. The option price per share for the
1997 and 1996 awards were $29 1/4 and $38, respectively, the fair market value
of the common stock of the Company on the date the options were granted. The
options expire ten years from the grant date. The options vest fully one year
from the grant date and become exercisable at any time once vested.
Stock option activity for the years ended August 1997, 1996 and 1995 is
summarized below:
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
1997 Price 1996 Price 1995 Price
-------- -------- ------- -------- ------ --------
Outstanding at
September 1 176,700 $38.00 0 - 0 -
Granted 10,500 $29.25 176,700 $38.00 0 -
Exercised 0 - 0 - 0 -
Terminated (12,780) $38.00 0 - 0 -
------- ------- ----
Outstanding at
August 31 174,420 $37.47 176,700 $38.00 0 -
Exercisable at
August 31 37,120 $38.00 0 - 0 -
Stock options outstanding at August 31, 1997 are summarized below:
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ------------------------ ----------- ---------------- -------- ----------- --------
$29.25-$38.00 174,420 8.44 years $37.47 37,120 $38.00
The Company adopted the disclosure provisions of FAS No. 123, "Accounting for
Stock-Based Compensation". As permitted under FAS 123, the Company continues to
apply the existing
Continued
(36)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
3. Stock Options Plans (Continued):
accounting rules under APB No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made as if the
fair value method in measuring compensation cost for stock options granted
subsequent to December 15, 1995, had been applied.
The per share weighted average value of stock options granted in 1997 and 1996
was $13.88 and $15.50, respectively. The fair value was estimated as of the
grant date using the Black-Scholes option pricing model with the following
average assumption:
1997 1996
-------- --------
Risk-free interest rate 5.17% 5.26%
Dividend yield 0.58% 0.58%
Volatility factor 40.00% 40.00%
Expected lives 4 years 5 years
Had compensation expense for stock options granted in 1997 and 1996 been
recorded based on the fair market value at the grant date, the Company's net
income and earnings per share, net of income tax effects, for the years ended
August 31, 1997 and 1996 would have been reduced to the pro forma amounts
indicated below:
1997 1996
------- -------
Net income applicable to common shareholders
As reported $36,735 $32,831
Pro forma $36,375 $32,615
Net income per common share
As reported $ 1.58 $ 1.41
Pro forma $ 1.57 $ 1.40
The pro forma effects are not representative of the effects on reported net
income for future years, as most of the stock option grants vest in cumulative
increments over a period of five years.
4. Related Party Transactions:
Certain of the Company's facilities, personnel and services are being utilized
by Arrow Precision Products, Inc. ("Precision"). Precision is related to the
Company through common ownership. The Company charged Precision $379, $478 and
$367 for the cost of such utilization during the years ended August 31, 1997,
1996 and 1995, respectively. The Company made purchases from Precision
amounting to $1,199, $1,222 and $1,085 for the years ended August 31, 1997, 1996
and 1995, respectively. In addition, the Company made payments on behalf of
Precision related to certain costs incurred by Precision for which the Company
was reimbursed, amounting to $891, $974 and $1,025 during the years ended August
31, 1997, 1996 and 1995, respectively. The Company had a net receivable from
Precision of $190 and $107 at August 31, 1997 and 1996, respectively.
In June 1996, the Company purchased for $1,135 certain assets from a subsidiary
of Precision that manufactured and marketed gastroenterological medical
products. Effective August 29, 1997, Precision Medical Products, Inc., the
wholly owned and remaining operating subsidiary of Precision, was acquired by a
company formed by certain management employees of Precision.
Continued
(37)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
5. Rent Expense:
The Company leases certain warehouses and production facilities, office
equipment and vehicles under leases with varying terms.
Rent expense under operating leases totaled $3,201, $3,094 and $2,684 for the
years ended August 31, 1997, 1996 and 1995, respectively. Following is a
schedule by year showing future minimum rentals under operating leases.
Year Ending August 31, Total
---------------------- -------
1998 $ 3,184
1999 1,989
2000 1,171
2001 801
2002 627
Thereafter 728
-------
$8,500
======
6. Inventories:
Inventories are summarized as follows:
August 31,
----------------
1997 1996
------- -------
Finished goods $20,718 $16,878
Semi-finished goods 13,906 10,010
Work-in-process 9,900 7,107
Raw materials 12,810 9,514
------- -------
$57,334 $43,509
======= =======
7. Credit Facilities:
As of August 31, 1997 and 1996, the Company had U.S. bank credit facilities
providing a total of $50,000 and $55,000, in revolving credit for general
business purposes of which $18,902 and $24,023 were outstanding, respectively.
Interest rate terms for both U.S. and foreign bank credit facilities are based
on either bids provided by the bank or the prime rate, London Interbank Offered
Rates (LIBOR) or Certificate of Deposit rates, plus applicable margins. Certain
of these borrowings, primarily those with U.S. banks, are due on demand.
Interest is payable monthly during the revolving credit period. At August 31,
1997 and 1996, the weighted average interest rates on short-term borrowings were
5.7% and 5.6%, respectively. At August 31, 1997 and 1996, certain of the
Company's foreign subsidiaries had available revolving credit facilities, at
market rates of interest, totaling the U.S. dollar equivalent of $11,791 and
$8,894, under which $3,076 and $3,685 was outstanding, respectively. The
Company is required to maintain a ratio of total liabilities to tangible net
worth (total assets less total liabilities and intangible assets) of no more
than 1.5 to 1 and a working capital ratio of 1.25 to 1 or greater. At August
31, 1997 and 1996, the carrying amount of short-term borrowings approximated
fair value and the Company was in compliance with its lending agreements and
convenants.
Continued
(38)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
8. Accrued Compensation:
The components of accrued compensation at August 31, 1997 and 1996 are as
follows:
1997 1996
------ ------
Accrued vacation pay $2,929 $2,480
Accrued payroll 5,016 1,149
Accrued productivity plan compensation 1,683 1,772
Other 317 92
------ ------
$9,945 $5,493
====== ======
Continued
(39)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
9. Long-Term Debt:
Long-term debt consists of the following:
August 31,
1997 1996
------- -------
Bank note payable in July 2001, plus interest at
a quoted fixed rate or at a variable rate based upon
LIBOR plus 0.75%. As of August 31, 1997 the interest rate
is fixed at 4.19% through July 1998. At August 31, 1996, the
interest rate was at a variable rate of 6.47% $ 9,828 $12,037
Industrial Development Authority Bonds, $3,500
face amount, subject to mandatory annual sinking
fund payments of $200 from December 1989 through
December 1998; and $300 from December 1999 through
December 2003; plus interest at a variable rate ranging
from 3.35% to 5.00% in 1997 and from 2.85% to 5.50% in 1996 1,900 2,100
Bank note payable in equal quarterly installments
of $500 through May 1998, plus interest at a variable
rate based upon LIBOR plus 0.875%, 6.53% and 6.49%
at August 31, 1997 and 1996, respectively 1,500 3,500
Bank note payable in quarterly installments of
$104 through March 1999, plus interest at a fixed
rate, 1.34% and 4.20% at August 31, 1997 and
1996, respectively 725 2,019
Bank note payable in monthly installments
of $5 through October 2001, plus interest at
a fixed rate, currently 1.50% at August 31, 1997 268 -
Bank note payable in equal quarterly installments of
$1,250, paid February 1997, plus interest at a variable
rate based upon the London Interbank Offered Rate
(LIBOR) plus 0.875%, previously 6.47% at February 28, 1997 - 2,500
Individual, $1,500 face amount, noninterest bearing;
due in semi-annual installments of $62, paid July 1997,
net of imputed interest of $81 at 8.72% - 125
Bank note payable in October 1997, plus interest at
a fixed rate, currently 4.20% at August 31, 1997 497 -
------- -------
Total debt $14,718 $22,281
Less current maturities 2,675 6,293
------- -------
$12,043 $15,988
======= =======
Continued
(40)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
9. Long-Term Debt (Continued):
The Industrial Development Authority Bonds are collateralized by a $1,927 letter
of credit and the Company's headquarters, research and development, and
manufacturing facility in Reading, PA. The Company also has a U.S. dollar
equivalent of irrevocable standby letters of credit totaling $4,604 related to
subsidiary indebtedness and workers compensation insurance coverage. The annual
commitment fees associated with the letters of credit were 0.70% per annum at
August 31, 1997.
Following is a schedule by year showing maturities of long-term debt for each of
the five years in the period ending August 31, 2002:
Year Ending August 31, Total
- ------------------------------ -------
1998 $ 2,675
1999 567
2000 360
2001 10,188
2002 328
Thereafter 600
-------
$14,718
=======
Total interest costs for fiscal 1997, 1996 and 1995 were $2,510, $3,170 and
$3,055, respectively, of which $1,613, $1,321 and $1,081, respectively, were
capitalized.
At August 31, 1997 and 1996, the carrying amount of long term debt approximated
fair value.
10. Income Taxes:
The provision (benefit) for income taxes consists of:
1997
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
Current $19,953 $3,499 $ (287) $23,165
Deferred (148) (20) - (168)
------- ------ ------ -------
$19,805 $3,479 $ (287) $22,997
======= ====== ====== =======
1996
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
Current $15,459 $1,405 $1,247 $18,111
Deferred 1,030 141 - 1,171
------- ------ ------ -------
$16,489 $1,546 $1,247 $19,282
======= ====== ====== =======
1995
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
Current $13,714 $1,203 $2,344 $17,261
Deferred 1,855 258 - 2,113
------- ------ ------ -------
$15,569 $1,461 $2,344 $19,374
======= ====== ====== =======
Continued
(41)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
10. Income Taxes (Continued):
Research and development tax credits were $509, $88 and $463 in fiscal 1997,
1996 and 1995, respectively.
Deferred taxes are recorded based upon differences between financial statement
and tax bases of assets and liabilities. The following deferred taxes and
balance sheet classifications are recorded as of August 31, 1997 and 1996:
Deferred tax assets (liabilities): 1997 1996
-------- --------
Accounts receivable $ 293 $ 266
Inventories 1,826 1,578
Marketable securities 1,425 -
Property, plant and equipment (4,395) (3,530)
Intangible assets 1,362 912
Accrued liabilities (1,204) (903)
Accrued compensation 859 730
Postretirement benefits other than pensions 3,324 3,180
------- -------
$ 3,490 $ 2,233
======= =======
Balance Sheet classification:
Current deferred tax assets $ 2,833 $ 2,709
Non current deferred tax assets 657 -
Non current deferred tax liabilities - (476)
------- -------
$ 3,490 $ 2,233
======= =======
The sources of significant temporary differences which gave rise to deferred taxes and their effects
were as follows:
1997 1996 1995
------- ------- -------
Depreciation and amortization $ 410 $ 1,731 $ 1,307
Marketable securities (1,425) - -
Common stock issued
to employees 21 94 26
Accrued vacation pay (150) (15) (140)
Inventories (248) (1,759) (399)
Postretirement benefits
and other liabilities (145) (150) (154)
Intangible assets - 735 1,365
Other 280 535 108
------- ------- -------
$(1,257) $ 1,171 $ 2,113
======= ======= =======
Continued
(42)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
10. Income Taxes (Continued):
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective tax rate expressed as a percentage of income from
operations before income taxes:
1997 1996 1995
----- ----- -----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.8 1.9 2.2
Foreign statutory tax rates differential 1.8 3.0 2.3
Foreign sales corporation (2.9) (3.3) (2.5)
Research and development tax credit (1.0) - (1.0)
Other 1.8 .4 -
---- ---- ----
Effective tax rate 38.5% 37.0% 36.0%
==== ==== ====
11. Retirement Benefits:
Pension Plans:
The Company has three noncontributory pension plans that cover substantially all
employees. Benefits under the plans are based upon an employee's compensation
and years of service and, where applicable, the provisions of negotiated labor
contracts. It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws and
regulations plus such additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. The projected unit credit method is
utilized for determination of actuarial amounts.
The following tables set forth the plan's funded status and amounts recognized
in the Company's balance sheet at August 31, 1997 and 1996:
Assets Accumulated
Exceeded Accumulated Benefits Exceed
Benefits Assets
1997 1996 1997 1996
---------- ---------- --------- ---------
Actuarial present value
of benefit obligations:
Vested $(11,598) $(10,630) $ (9,530) $ (7,501)
Nonvested (61) (120) (586) (503)
-------- -------- -------- --------
Accumulated benefit obligation (11,659) (10,750) (10,116) (8,004)
Effect of projected future
salary increases (32) - (5,810) (5,321)
-------- -------- -------- --------
Projected benefit obligation (11,691) (10,750) (15,926) (13,325)
Less plan assets at fair value 23,491 19,461 14,648 10,346
-------- -------- -------- --------
Plan assets in excess of (less than)
projected benefit obligation 11,800 8,711 (1,278) (2,979)
Unrecognized net (gain) (6,436) (4,153) (2,617) (723)
Unrecognized net obligation (455) (532) 1,635 1,495
-------- -------- -------- --------
Prepaid pension asset (liability) $ 4,909 $ 4,026 $ (2,260) $ (2,207)
======== ======== ======== ========
Continued
(43)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
11. Retirement Benefits (Continued):
Net periodic pension cost includes the following components:
1997 1996 1995
-------- -------- --------
Service cost $ 1,560 $ 1,577 $ 1,278
Interest cost 1,903 1,701 1,501
Actual return on plan assets (7,395) (3,455) (2,686)
Net amortization and deferral 4,391 924 482
------- ------- -------
Net periodic pension cost $ 459 $ 747 $ 575
======= ======= =======
In both 1997 and 1996, the discount rates and rates of increases of future
compensation levels used in determining the actuarial present value of projected
benefit obligations were 8.0% and 5.0%. In both 1997 and 1996, the expected
long-term rates of return on assets were 9.5%.
Plan assets consist principally of U.S. government securities, short-term
investments, other equity securities and cash equivalents.
Postretirement Benefits Other Than Pensions:
The Company provides limited amounts of postretirement health and life insurance
benefit plan coverage for substantially all of its employees. The determination
of postretirement benefit cost for postretirement health benefit plans is based
on comprehensive hospital, medical, surgical, and dental benefit provisions.
The determination of postretirement benefit cost for postretirement life
insurance benefits is based on stated policy amounts.
For the years ended August 31, 1997, 1996 and 1995, respectively, the components
of periodic expense for the postretirement benefits are as follows:
1997 1996 1995
----- ----- -----
Service cost - benefits earned during year $ 297 $ 305 $ 297
Interest cost on postretirement
benefit obligation 257 300 280
----- ----- -----
Total expense $ 554 $ 605 $ 577
===== ===== =====
Continued
(44)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
11. Retirement Benefits (Continued):
At August 31, 1997 and 1996, respectively, the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded,
are as follows:
1997 1996
----- -----
Accumulated postretirement
benefit obligation:
Retirees and dependents $ 1,529 $ 1,645
Fully eligible active plan participants 1,278 1,157
Other active participants 3,048 2,426
----- -----
Excess of accumulated postretirement
benefit obligation over assets 5,855 5,228
Unrecognized prior service cost 879 963
Unrecognized gain 1,467 1,646
----- -----
Liability included on the balance sheet 8,201 7,837
Less current portion 301 260
----- -----
Noncurrent liability $ 7,900 $ 7,577
======== ========
The assumed discount rate at the beginning and end of the year used to measure
the accumulated postretirement benefit obligation was 8.00% and 7.75%,
respectively. The annual rate of increase in the per capita cost of covered
health care benefits was assumed to be 8.0% in 1998; the rate was assumed to
decrease gradually to 5.0% over the next 11 years and remain level thereafter.
An increase of one percentage point in the assumed health care cost trend rates
for each future year would have increased the aggregate of the service and
interest cost components of 1997 and 1996 net periodic postretirement benefit
cost by $99 and $92, respectively and would have increased the accumulated
postretirement benefit obligation as of August 31, 1997 and 1996 by $689 and
$654, respectively.
Savings Plan:
The Company has a defined contribution savings plan that covers substantially
all of its eligible U.S. employees. The purpose of the plan is generally to
provide additional financial security to employees during retirement.
Participants in the savings plan may elect to contribute, on a before-tax basis,
a certain percent of their annual earnings with the Company matching a portion
of these contributions. Expense under the plan was $789, $737 and $657 for the
fiscal years ended August 31, 1997, 1996 and 1995, respectively.
Continued
(45)
12. Geographical Information:
The following tables present information about operations in certain
significant geographic areas:
1997
------------------------------------------------------------------
United Asia and Other
States Africa Europe Foreign Eliminations Consolidated
-------- -------- -------- ------- ------------- -------------
Sales to unaffiliated
customers $180,074 $29,223 $30,547 $6,045 - $245,889
Transfers between
geographic areas 52,023 - - - $(52,023) -
-------- ------- ------- ------ -------- ------------
Total revenue $232,097 $29,223 $30,547 $6,045 $(52,023) $245,889
======== ======= ======= ====== ======== ============
Operating income $ 60,904 $ 1,160 $ (90) $ 212 $ 61,763
======== ======= ======= ======
Other expense, net (2,031)
------------
Income from operations
before income taxes $ 59,732
============
Identifiable assets at
August 31 $342,121 $12,338 $40,919 $4,547 $(79,552) $320,373
======== ======= ======= ====== ======== ============
1996
------------------------------------------------------------------
United Asia and Other
States Africa Europe Foreign Eliminations Consolidated
-------- -------- ------- ------- ------------ ------------
Sales to unaffiliated
customers $167,914 $30,550 $26,092 $5,389 - $229,945
Transfers between
geographic areas 44,071 - - - $(44,071) -
-------- ------- ------- ------ -------- ------------
Total revenue $211,985 $30,550 $26,092 $5,389 $(44,071) $229,945
======== ======= ======= ====== ======== ============
Operating income $ 51,534 $ 1,078 $ 1,589 $ 212 $ 54,413
======== ======= ======= ======
Other expense, net (2,300)
------------
Income from operations
before income taxes $ 52,113
============
Identifiable assets at
August 31 $305,726 $12,187 $41,843 $4,141 $(64,476) $299,421
======== ======= ======= ====== ======== ============
1995
------------------------------------------------------------------
United Asia and Other
States Africa Europe Foreign Eliminations Consolidated
-------- -------- ------- ------- ------------ ------------
Sales to unaffiliated
customers $159,705 $29,809 $19,506 $3,994 - $213,014
Transfers between
geographic areas 31,513 - - - $(31,513) -
-------- ------- ------- ------ -------- ------------
Total revenue $191,218 $29,809 $19,506 $3,994 $(31,513) $213,014
======== ======= ======= ====== ======== ============
Operating income $ 46,855 $ 4,927 $ 1,003 $ 462 $ 53,247
======== ======= ======= ======
Other income, net 569
------------
Income from operations
before income taxes $ 53,816
============
Identifiable assets at
August 31 $275,064 $13,251 $22,520 $3,365 $(51,690) $262,510
======== ======= ======= ====== ======== ============
Export sales for domestic operations to unaffiliated customers were $28,410,
$25,562 and $22,531 for the years ended August 31, 1997, 1996 and 1995,
respectively.
Continued
(46)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
13. Foreign Exchange Contracts:
During fiscal 1997 and 1996, the percentage of the Company's sales invoiced in
currencies other than U.S. dollars was 26.8% and 27.0%, respectively. In
addition, a small part of the Company's cost of goods sold is denominated in
foreign currencies. The Company enters into foreign currency forward contracts,
which are derivative financial instruments, with major financial institutions to
reduce the effect of fluctuating exchange rates, primarily on U.S. dollar cash
inflows resulting from the collection of intercompany receivables denominated in
foreign currencies. Such transactions occur throughout the year and are
probable, but not firmly committed. Forward contracts are marked to market each
accounting period, and the resulting gains or losses on these contracts are
recorded in Other Income / Expense of the consolidated statements of income.
Realized gains and losses on these contracts are offset by the assets,
liabilities and transactions being hedged. The Company does not use financial
instruments for trading or speculative purposes. The Company expects to
continue to utilize foreign currency exchange contracts to manage its exposure,
although there can be no assurance that the Company's efforts in this regard
will be successful.
At August 31, 1997, the Company had forward exchange contracts to sell foreign
currencies which mature at various dates through December 1997. The following
table identifies forward exchange contracts to sell foreign currencies at August
31, 1997 and 1996 as follows:
August 31, 1997 August 31, 1996
U. S. Dollar equivalents U. S. Dollar equivalents
------------------------ ----------------------------
Notional Fair Market Notional Fair Market
Amounts Value Amounts Value
---------- ------------ ----------- ---------------
Foreign currency:
Japanese yen $ 6,410 $ 6,210 $ 8,677 $ 8,261
German marks 2,926 2,762 4,521 4,553
French francs 1,751 1,707 2,581 2,565
Spanish pesetas 2,531 2,489 3,176 3,198
Canadian dollars 2,176 2,161 550 548
Greek drachmas 1,394 1,407 1,245 1,265
Mexican peso 1,109 1,151 - -
African rand 1,470 1,492 - -
Netherlands guilder 994 983 - -
------- ------- ------- -------
$20,761 $20,362 $20,750 $20,390
======= ======= ======= =======
14. Contingencies:
The Company is a party to certain legal actions arising in the ordinary course
of its business. Based upon information presently available, the Company
believes it has adequate legal defenses or insurance coverage for these actions
and that the ultimate outcome of these actions would not have a material effect
on the Company's financial position or results of operations.
Continued
(47)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
15. Statements of Financial Accounting Standards not yet Adopted:
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128). FAS 128 is designed to improve the Earnings Per Share (EPS) information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. The statement is effective
for financial statements for periods ending after December 15, 1997, with prior
periods restated to comply with the new standard at that time. If the new
standard had been effective for the year ended August 31, 1997, there would have
been no significant change in earnings per share as presented in the
accompanying consolidated statements of income.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
About Capital Structure" (FAS 129). FAS 129 establishes standards for
disclosing information about an entity's capital structure. The statement is
effective for financial statements for periods ending after December 15, 1997.
The Company does not anticipate the adoption of this new standard to have a
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The statement is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company does not anticipate the adoption of this
new standard to have a material effect on the Company's consolidated financial
statements.
In June 1997, The Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 establishes revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. FAS 131 requires entity-wide
disclosure on information about revenues from different products and services
and geographic areas. The statement is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company does not anticipate
the adoption of this new standard to have a material effect on the Company's
consolidated financial statements.
Continued
(48)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
16. Summary of Quarterly Results (unaudited):
Quarterly financial results for the year ended August 31, 1997 are as follows:
Quarter
--------
11-30-96 2-28-97 5-31-97 8-31-97
--------- -------- -------- --------
Net sales $ 59,190 $ 61,965 $ 62,107 $ 62,627
Cost of goods sold 27,405 27,978 27,900 27,528
--------- -------- -------- --------
Gross profit 31,785 33,987 34,207 35,099
Operating expenses
Research, development
and engineering 3,808 3,993 4,090 3,981
Selling, general and
administrative 13,960 14,336 14,366 14,781
Operating income 14,017 15,658 15,751 16,337
Other expenses (income) 552 598 313 568
Income before income
taxes 13,465 15,060 15,438 15,769
Provision for income taxes 5,184 5,798 5,944 6,071
Net income $ 8,281 $ 9,262 $ 9,494 $ 9,698
Net income per common
share $.36 $.40 $.41 $.42
Weighted average common
shares outstanding (000's) 23,229 23,227 23,226 23,226
Continued
(49)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
16. Summary of Quarterly Results (unaudited)(Continued):
Quarterly financial results for the year ended August 31, 1996 are as follows:
Quarter
-----------------------------------------------
11-30-95 2-29-96 5-31-96 8-31-96
-------- ------- ------- -------
Net sales $54,511 $58,779 $57,548 $59,107
Cost of goods sold 24,829 27,556 27,772 27,114
------- ------- ------- -------
Gross profit 29,682 31,223 29,776 31,993
Operating expenses
Research, development
and engineering 3,159 3,240 3,631 4,075
Selling, general and
administrative 13,169 12,729 13,660 14,596
Operating income 13,354 15,254 12,485 13,322
Other expenses (income) 215 671 844 572
Income before income
taxes 13,139 14,583 11,641 12,750
Provision for income taxes 4,861 5,396 4,307 4,717
Net income $ 8,278 $ 9,187 $ 7,334 $ 8,033
Net income per common
share $ .36 $ .40 $ .32 $ .35
Weighted average common
shares outstanding (000's) 23,231 23,230 23,229 23,229
Continued
(50)
Coopers
& Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Arrow International, Inc.:
Our report on the consolidated financial statements of Arrow International, Inc.
is included on page 23 of this Form 10-K. In connection with our audit of such
consolidated financial statements, we have also audited the related financial
statement schedule listed in the index on page 21 of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the basic financial statement taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 29, 1997
(51)
SCHEDULE II
ARROW INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Column A) (Column B) (Column C) (Column D) (Column E)
----------- ---------- ---------- ---------- -----------
Additions
---------------------
Charges / Charged
Balance at (Credits) to to Other Balance at
Beginning Cost and Accounts Deductions End
Description of Period Expenses (Describe) (Describe)(1) of Period
- ------------------------------------- ---------- --------- --------- -------- ----------
For the year ended August 31, 1995:
Accounts receivable:
Allowance for doubtful accounts $ 760 $ (110) - - $ 650
========== ========= ========= =========== =========
Investment, at cost:
Valuation reserve $ 780 - - - $ 780
========== ========= ========= =========== =========
For the year ended August 31, 1996:
Accounts receivable:
Allowance for doubtful accounts $ 650 $ 150 - $ 26 $ 774
========== ========= ========= =========== =========
Investment, at cost:
Valuation reserve $ 780 - - $ 780 $ -
========== ========= ========= =========== =========
For the year ended August 31, 1997:
Accounts receivable:
Allowance for doubtful accounts $ 774 $ 195 - $ 114 $ 855
========== ========= ========= =========== =========
(1) Deductions represent write-off of accounts receivable and investment.
(52)
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
3.1 Restated Articles of Incorporation of the Incorporated by reference from Exhibit 3.1
Company. to the Company's Annual Report on Form
10-K for the fiscal year ended August 31,
1992
3.2 By-laws of the Company, as amended and Incorporated by reference from Exhibit 3.4
restated. to the Company's Registration Statement on
Form S-1 File No. 33-47163 ("Registration
Statement")
4.1 Form of Common Stock certificate. Incorporated by reference from Exhibit 4.1
to the Company's Registration Statement
10.1 1992 Stock Incentive Plan. Incorporated by reference from Exhibit
10.1 to the Company's Registration
Statement
10.2 Investment Plan - 401(k). Incorporated by reference from Exhibit
10.2 to the Company's Registration
Statement
10.3.1 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Salaried Employees of the Company, 10.3 to the Company's Registration
effective September 1, 1989. Statement
10.3.2 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Salaried Employees of the Company, 10.3.2 to the Company's Annual Report on
effective September 1, 1989, as amended. Form 10-K for the year ended August 31, 1993
(the "1993 Form 10-K")
10.4 Amended and Restated Restricted Stock Incorporated by reference from Exhibit
Bonus Plan. 10.4 to the Company's Registration
Statement
10.5 Split Dollar Life Insurance Agreements, Incorporated by reference from Exhibit
dated December 16, 1991, between the 10.5 to the Company's Registration
Company and James H. Miller, as Trustee Statement
under the provisions of a certain
Irrevocable Trust Agreement with
Marlin Miller, Jr. dated December 13, 1991.
(53)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.6 Split Dollar Life Insurance Agreements, Incorporated by reference from Exhibit
dated December 16, 1991, between the 10.6 to the Company's Registration
Company and Raymond Neag Irrevocable Statement
Trust, dated October 11, 1991, Evelyn
Neag, Trustee.
10.7 Split Dollar Life Insurance Agreements, Incorporated by reference from Exhibit
dated December 16, 1991, between the 10.7 to the Company's Registration
Company and Robert E. Gedney, as Trustee Statement
under the provisions of a certain
Irrevocable Trust Agreement with John H.
Broadbent, Jr. dated December 13, 1991.
10.8 Split Dollar Life Insurance Agreements, Incorporated by reference from Exhibit
dated December 16, 1991 between the 10.8 to the Company's Registration
Company and Donald M. Mewhort, as Trustee Statement
under Agreement of Trust dated October 8,
1991, created by T. Jerome Holleran,
Settlor (the "Holleran Split Dollar Life
Insurance Agreements").
10.8.1 Assignment, dated April 24, 1992, of the Incorporated by reference from Exhibit
rights and obligations under the Holleran 10.8.1 to the Company's Registration
Split Dollar Life Insurance Agreements Statement
from the Company to Arrow Precision
Products, Inc.
10.9 License Agreement, dated October 23, 1981, Incorporated by reference from Exhibit
between Dr. Ketan Shevde and the Company. 10.9 to the Company's Registration
Statement
10.10 License Agreement, dated January 18, 1992, Incorporated by reference from Exhibit
between Innovation Associates, Inc. and 10.10 to the Company's Registration
the Company. Statement
10.11 License Agreement, dated March 28, 1991, Incorporated by reference from Exhibit
between Daltex Medical Sciences, Inc. and 10.11 to the Company's Registration
the Company. Statement
10.11.1 Modification Agreement, dated October 25, Incorporated by reference from Exhibit
1995, to License Agreement between Daltex 10.11.1 to the Company's Form 10-Q for the
Medical Sciences, Inc. and the Company. third quarter period ended May 31, 1997
(54)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- --------------------------------------------
10.11.2 Second Modification Agreement, dated May Incorporated by reference from Exhibit
30, 1997, to License Agreement between 10.11.2 to the Company's Form 10-Q for the
Daltex Medical Sciences, Inc. and the third quarter period ended May 31, 1997
Company.
10.12 Agreement and Compromise and Release, Incorporated by reference from Exhibit
dated November 30, 1988, between Michael 10.12 to the Company's Registration
A. Berman, Critikon, Inc. and the Company. Statement
10.13 License Agreement, dated April 15, 1982, Incorporated by reference from Exhibit
between Dr. Randolph M. Howes and the 10.13 to the Company's Registration
Company, as amended pursuant to the Statement
Addendum to License Agreement, dated
August 26, 1986, among Dr. Randolph M.
Howes, Janice Kinchen Howes and the
Company, and the Second Addendum to
License Agreement, dated October 9, 1990,
among Dr. Randolph M. Howes, Janice
Kinchen Howes, Baham & Anderson and the
Company.
10.14 License Agreement, dated September 16, Incorporated by reference from Exhibit
1988, between J. Daniel Raulerson and the 10.14 to the Company's Registration
Company, as amended pursuant to Addendum Statement
to License Agreement, dated November 27,
1989, between J. Daniel Raulerson and the
Company.
10.15 License Agreement, dated February 24, Incorporated by reference from Exhibit
1984, between Blair Medical Products, Inc. 10.15 to the Company's Registration
and the Company. Statement
10.16 Stock Purchase Agreement, dated October Incorporated by reference from Exhibit
24, 1990, among Robert E. Fischell, 10.16 to the Company's Registration
Standard Associates, Cymed Ventures, Inc., Statement
Arrow International Investment Corp. and
the Company.
10.17 License Agreement, dated October 24, 1990, Incorporated by reference from Exhibit
between Medical Innovative Technologies 10.17 to the Company's Registration
R&D Limited Partnership and the Company. Statement
(55)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.18 Research and Development Agreement, dated Incorporated by reference from Exhibit
October 24, 1990, between Medical 10.18 to the Company's Registration
Innovative Technologies R&D Limited Statement
Partnership and the Company.
10.19 License Agreement, dated February 24, Incorporated by reference from Exhibit
1992, between Cathco, Inc. and the Company. 10.19 to the Company's Registration
Statement
10.20 Settlement Agreement, dated September 30, Incorporated by reference from Exhibit
1991, among Dr. Randolph M. Howes, Janice 10.20 to the Company's Registration
Kinchen Howes, Baham & Anderson, the Statement
Company and Baxter Health Care Corporation
and related License Agreement, dated
September 30, 1991, among Dr. Randolph M.
Howes, Janice Kinchen Howes, Baham &
Anderson, the Company and Baxter Health
Care Corporation.
10.21 Agreement between the Company, Arrow Incorporated by reference from Exhibit
Precision Products, Inc. and United 10.21 to the Company's Annual Report on
Steelworkers of America AFL/CIO Local 8467. Form 10-K for the year ended August 31,
1994 (the "1994 Form 10-K")
10.22 Extension of Lease Agreement between Incorporated by reference from Exhibit
Indian Mills Associates and the Company, 10.22 to the Company's Registration
dated December 4, 1991, extending the Statement
Lease, dated February 5, 1988, between
Lyco Associates and the Company.
10.23.1 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the Wyomissing 10.23 to the Company's Registration
Plant of the Company, effective September Statement
1, 1989.
10.23.2 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the Wyomissing 10.23.2 to the Company's 1993 Form 10-K
Plant of the Company, effective September
1,1989, as amended.
10.24.1 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the North 10.24 to the Company's Registration
Carolina and New Jersey Plants of the Statement
Company, effective September 1, 1989.
(56)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.24.2 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the North 10.24.2 to the Company's 1993 Form 10-K
Carolina and New Jersey Plants of the
Company, effective September 1, 1989, as
amended.
10.25.1 Loan Agreement, dated January 3, 1986, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.1 to the Company's Registration
Limited, Arrow International Export Statement
Corporation, and Hamilton Bank.
10.25.2 First Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 18, 1987, among the Company, Arrow 10.25.2 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.3 Second Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 31, 1988, among the Company, Arrow 10.25.3 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.4 Third Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 31, 1989, among the Company, Arrow 10.25.4 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.5 Fourth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 30, 1990, among the Company, Arrow 10.25.5 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.6 Fifth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 1, 1991, among the Company, Arrow 10.25.6 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.7 Sixth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
July 15, 1991, among the Company, Arrow 10.25.7 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
(57)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.25.8 Seventh Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
September 6, 1991, among the Company, 10.25.8 to the Company's Registration
Arrow Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.9 Eighth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
February 21, 1992, among the Company, 10.25.9 to the Company's Registration
Arrow Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.10 Letters of Amendment, dated April 10, Incorporated by reference from Exhibit
1992, and May 19, 1992, to Loan Agreement 10.25.17 to the Company's Registration
between the Company and Hamilton Bank. Statement
10.25.11 Ninth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
May 27, 1992, among the Company, Arrow 10.25.18 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.12 Letter Agreement, dated February 25, 1993, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.12 to the 1994 Form 10-K
Limited, Arrow International Export
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.13 Letter Agreement, dated January 31, 1994, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.13 to the 1995 Form 10-K
Limited, Arrow International Export
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.14 Letter Agreement, dated March 6, 1995, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.14 to the 1995 Form 10-K
Limited, Arrow International Export
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.15 Letter Agreement, dated November 14, 1995, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.15 to the 1995 Form 10-K
Limited, Arrow International Export
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
(58)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.25.16 Letter Agreement, dated February 23, 1996, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.16 to the Company's Form 10-Q for
Limited, Arrow International Export the second quarter period ended February
Corporation, and CoreStates Hamilton Bank, 29, 1996
and Note relating thereto
10.25.17 Letter Agreement, dated January 29, 1996 Incorporated by reference from Exhibit
among the Company and First Union National 10.25.17 to the Company's Form 10-Q for
Bank, and note relating thereto the second quarter period ended February
29, 1996
10.25.18 Letter Agreement, dated July 11, 1996, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.18 to the Company's Annual Report on
Limited, Arrow International Export Form 10-K for the fiscal year ended August
Corporation, and CoreStates Hamilton Bank, 31, 1996 (the "1996 Form 10-K")
and Note relating thereto
10.26.1 Installment Sale Agreement between Berks Incorporated by reference from Exhibit
County Industrial Development Authority 10.25.10 to the Company's Registration
and the Company, dated as of December 1, Statement
1988.
10.26.2 Indenture of Trust between Berks County Incorporated by reference from Exhibit
Industrial Development Authority and 10.25.11 to the Company's Registration
Bankers Trust Company, as trustee, dated Statement
as of December 1, 1988.
10.26.3 Irrevocable Direct Pay Letter of Credit, Incorporated by reference from Exhibit
dated December 28, 1988, issued for the 10.25.12 to the Company's Registration
benefit of Bankers Trust Company, as Statement
trustee under the Indenture of Trust, for
the account of the Company.
10.26.4 Letter of Credit Note from the Company Incorporated by reference from Exhibit
payable to the order of Hamilton Bank, 10.25.13 to the Company's Registration
dated December 28, 1988. Statement
10.26.5 Letter of Credit Reimbursement Agreement Incorporated by reference from Exhibit
between the Company and Hamilton Bank, 10.25.14 to the Company's Registration
dated as of December 1, 1988. Statement
(59)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- ------------------------------------------- -------------------------------------------
10.26.6 Accommodation Mortgage, Security Agreement Incorporated by reference from Exhibit
and Second Assignment of Installment Sale 10.25.15 to the Company's Registration
Agreement, dated as of December 15, 1988, Statement
by and among Berks County Industrial
Development Authority, the Company and
Hamilton Bank.
10.27 Variable Amount Grid Note Agreement, dated Incorporated by reference from Exhibit
May 8, 1991, between the Company and First 10.25.16 to the Company's Registration
Union National Bank. Statement
10.28 Purchase Agreement, dated January 20, Incorporated by reference from Exhibit
1984, between the Company and Arrow 10.26 to the Company's Registration
Research Partners. Statement
10.29 Form of Research and Development Incorporated by reference from Exhibit
Agreement, dated August 2, 1982, between 10.27 to the Company's Registration
the Company and Arrow Research Partners. Statement
10.30 Arrow International, Inc. Profit Sharing Incorporated by reference from Exhibit
Plan 10.30 to the Company's Registration
Statement
10.31 Agreement, dated May 19, 1992, between the Incorporated by reference from Exhibit
Company and Arrow Precision Products, Inc. 10.32 to the Company's Registration
Statement
10.32 Agreement, dated September 22, 1993, among Incorporated by reference from Exhibit
Microwave Medical Systems, Inc., the 10.32 to the Company's 1993 Form 10-K
Company and Kenneth L. Carr.
10.33 License and Exclusive Supply Agreement, Incorporated by reference from Exhibit
dated September 22, 1993, between 10.33 to the Company's 1993 Form 10-K
Microwave Medical Systems, Inc. and the
Company.
10.34 Stock Purchase Agreement, dated as of Incorporated by reference from Exhibit 2
January 28, 1994 between Kontron to the Company's Current Report on Form
Instruments Holding N.V. and the Company. 8-K filed with the Securities and Exchange
Commission on February 18, 1994
(60)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- --------------------------------------------- -----------------------------------------
10.35 Loan Agreement, dated as of February 8, Incorporated by reference from Exhibit
1994, among the Company, Arrow Medical 10.35 to the 1994 Form 10-K
Products, Limited, Arrow International
Export Corporation, and CoreStates Hamilton
Bank, and Notes relating thereto.
10.36 Loan Agreement, dated February 8, 1994, Incorporated by reference from Exhibit
between the Company and First Union National 10.36 to the 1994 Form 10-K
Bank of North Carolina, and Note relating
thereto.
10.37 Loan Agreement between Arrow Japan KK and Incorporated by reference from Exhibit
the Bank of Tokyo (with English translation). 10.37 to the Company's Current Report on
Form 8-K filed with the Securities and
Exchange Commission on April 10, 1995
("the 1995 Form 8-K")
10.38 Thoratec Laboratories Corporation Incorporated by reference from Exhibit
International Medical Products Distributor 10.38 to the 1995 Form 8-K
Agreement, dated as of January 19, 1995,
between Thoratec Laboratories Corporation
and the Company.
10.39 Series F Preferred Stock Purchase Agreement, Incorporated by reference from Exhibit
dated as of March 8, 1995, between Cardiac 10.39 to the 1995 Form 8-K
Pathways Corporation and the Company.
10.40 Manufacturing and Supply Agreement, dated as Incorporated by reference from Exhibit
of March 8, 1995, between Cardiac Pathways 10.40 to the 1995 Form 8-K
Corporation and the Company.
10.41 International Distributor Agreement, dated Incorporated by reference from Exhibit
as of March 8, 1995, between Cardiac 10.41 to the 1995 Form 8-K
Pathways Corporation and Arrow.
10.42 Purchase Agreement, dated as of April 7, Incorporated by reference from Exhibit
1995, among the Company, TLP Acquisition 10.39 to the 1995 Form 8-K
Corp., Therex Corporation, Therex Limited
Partnership Holding Corporation and each of
the other persons signatory thereto.
(61)
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- --------------- --------------------------------------------- -----------------------------------------
10.43 Amendment, dated July 27, 1995, to License Incorporated by reference from Exhibit
Agreement, dated October 24, 1990, between 10.43 to the 1995 Form 10-K
Medical Innovative Technologies R&D Limited
Partnership and the Company.
10.44 Amendment, dated July 27, 1995, to Research Incorporated by reference from Exhibit
and Development Agreement, dated October 24, 10.44 to the 1995 Form 10-K
1990, between Medical Innovative
Technologies R&D Limited Partnership and the
Company.
10.45 Amended and Restated License Agreement dated Incorporated by reference from Exhibit
May 24, 1996, between Microwave Medical 10.45 to the Company's Form 10-Q for the
Systems, Inc. and the Company. third quarter period ended May 31, 1996
10.46 Loan Agreement, dated July 11,1996, between Incorporated by reference from Exhibit
AMH (Arrow Medical Holdings) B.V. and 10.46 to the 1996 Form 10-K
CoreStates Bank, N.A., and Note relating
thereto.
10.47 Directors Stock Incentive Plan Incorporated by reference from
Exhibit 10.47 to the 1996 Form 10-K
10.48 Purchase Agreement, dated June 1, 1996, Incorporated by reference from
between Arrow Tray Products, Inc. (formerly Exhibit 10.48 to the 1996 Form 10-K
known as Endovations, Inc.) and the Company.
18 Preferability Letter of Coopers & Lybrand Incorporated by reference from Exhibit
L.L.P. 18 to the 1994 Form 10-K
21 Subsidiaries of the Company. Filed with this report
23 Consent of Coopers & Lybrand L.L.P. Filed with this report
27 Financial Data Schedule EDGAR
99.1 Cautionary Statement for Purposes of the Page 65 of this report
Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995.
(62)