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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-06516
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DATASCOPE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-2529596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway
Montvale, New Jersey 07645
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 391-8100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
(Title of Class)
Common Stock, par value $0.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes |X| 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 approximate aggregate market value of the common stock held by non-
affiliates of the registrant as of August 7, 2002 was approximately
$296 million. As of August 7, 2002, there were 14,778,356 outstanding shares
of the registrant's common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission no later than October 28, 2002 pursuant to Regulation
14A of the Securities Exchange Act of 1934 is incorporated by reference in
Items 10 through 13 of Part III of this Form 10-K.
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Table of Contents
Page
----
Part I
Item 1. Business ..................................................... 3
Item 2. Properties ................................................... 13
Item 3. Legal Proceedings ............................................ 14
Item 4. Submission of Matters to a Vote of Security Holders .......... 15
Item 4A. Executive Officers of the Company ............................ 15
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ..................................................... 16
Item 6. Selected Financial Data ...................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 26
Item 8. Financial Statements and Supplementary Data .................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................... 26
Part III
Item 10. Directors and Executive Officers of the Registrant ........... 27
Item 11. Executive Compensation ....................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management .................................................. 27
Item 13. Certain Relationships and Related Transactions ............... 27
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K ......................................................... 28
PART I
This Report on Form 10-K contains statements that constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate," "anticipate,"
"believe," "target," "plan," "project" or "continue" or the negatives thereof
or other variations thereon or similar terminology. These statements appear in
a number of places in this Report on Form 10-K and include statements
regarding our intent, belief or current expectations that relate to, among
other things, trends affecting our financial condition or results of
operations and our business and strategies. We may make additional written or
oral forward-looking statements from time to time in filings with the
Securities and Exchange Commission or otherwise. Forward-looking statements
speak only as of the date the statement is made. Readers are cautioned that
these forward-looking statements are not a guarantee of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of many
important factors. Many of these important factors cannot be predicted or
quantified and are outside of our control, including competitive factors,
changes in government regulation and our ability to introduce new products.
The accompanying information contained in this Report on Form 10-K, including,
without limitation, the information set forth below under Item 1 regarding the
description of our business and under Item 7 concerning "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
identifies additional important factors that could cause these differences. We
do not undertake to publicly update or revise our forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied in this Report on Form 10-K will not be realized. All
subsequent written and oral forward-looking statements attributable to us or
persons acting for or on our behalf are expressly qualified in their entirety
by this section.
Item 1. Business.
Summary
Datascope Corp. is a diversified medical device company that manufactures
and markets proprietary products for clinical health care markets in
interventional cardiology and radiology, cardiovascular and vascular surgery,
anesthesiology, emergency medicine and critical care. We have four product
lines that are aggregated into two reportable segments, Cardiac Assist/
Monitoring Products and Collagen Products/Vascular Grafts. Operating data for
each segment for the last three fiscal years is set forth in footnote 9 to the
Consolidated Financial Statements. Our products are distributed worldwide by
direct sales employees and independent distributors. Originally organized as a
New York corporation in 1964, we reincorporated in Delaware in 1989.
Below is a summary of our four product lines:
o Cardiac Assist. Datascope is a leader and pioneer in intra-aortic balloon
(IAB) therapy (counterpulsation) and products including IAB pumps and
catheters. The intra-aortic balloon system is used for the treatment of
high-risk cardiac conditions resulting from ischemic heart disease and
heart failure. Patients experiencing acute coronary syndromes such as
acute myocardial infarction, cardiogenic shock and unstable angina may
require IAB therapy to support and stabilize their cardiac status. IAB
therapy is also used for high-risk patients who require revascularization
procedures such as angioplasty or coronary artery bypass procedures
including both on-pump and off-pump techniques.
o Patient Monitoring. We manufacture and market a broad line of
physiological monitors designed to provide for patient safety and
management of patient care. Our monitors are capable of continuous and
simultaneous measurement of many different vital signs. These monitors
are used in operating rooms, emergency rooms, critical care units, post-
anesthesia care units and recovery rooms, intensive care units, labor and
delivery rooms and magnetic resonance imaging, or MRI, units.
o Collagen Products. Our collagen products and related technology are used
to seal arterial puncture wounds and to stop bleeding after
catheterization procedures. We manufacture and sell the VasoSeal line of
vascular sealing devices. VasoSeal(R) VHD was the first vascular sealing
device approved in the United States. The VasoSeal devices provide for
reduced time to hemostasis of the arterial puncture wound, reduced time
to ambulation, cost savings and increased patient satisfaction. Unlike
many other vascular sealing products, VasoSeal works extravascularly,
meaning that the sealing is accomplished on the outside
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of the artery and no foreign objects remain inside of the artery. In
addition, the Collagen Products Division manufactures surgical hemostatic
agents, under the brand name FirstStop, used to stop bleeding during
surgery.
o Vascular Grafts. Our InterVascular subsidiary markets and sells a
proprietary line of knitted and woven polyester vascular grafts and
patches for reconstructive vascular and cardiovascular surgery. Vascular
grafts are used to replace diseased arteries. InterVascular also
distributes peripheral vascular stents. Stents are used to treat vascular
disease non-surgically.
The following table shows the percentage of sales by major product line as a
percentage of total sales for the last three years:
Fiscal Year Ended
June 30,
-------------------
2002 2001 2000
---- ---- ----
Cardiac Assist .................................. 36% 38% 39%
Patient Monitoring .............................. 39% 35% 35%
Collagen Products ............................... 17% 19% 19%
Vascular Grafts ................................. 8% 8% 7%
Glossary: We have prepared this short glossary to help you understand our
product lines.
Angiogram is a series of X-ray visualizations of the heart and blood vessels.
A radiopaque substance, that is, a material that does not allow the passage of
X-rays through it, is injected into a vein or artery, and X-ray pictures are
then taken in rapid succession. The series of pictures produced reveals the
size and shape of veins or arteries in organs and tissues. An angiogram is
used as a diagnostic tool with certain diseases such as arteriosclerosis. Also
known as cardiac catheterization, this is considered the most accurate test
for ischemic heart disease.
Angioplasty is the reconstruction of blood vessels, usually damaged by
atherosclerosis. If the arteries in question are in the heart, a coronary
bypass operation may be recommended. However, the nonsurgical method of
balloon angioplasty is often employed, especially when only one vessel is
blocked.
Arteriosclerosis, often called "hardening of the arteries," is an arterial
disorder characterized by a progressive thickening and hardening of the walls
of the arteries. This causes a decrease in or loss of blood circulation. The
most common form of arteriosclerosis is atherosclerosis, which is
characterized by the deposition of fatty substances in large and medium-sized
arteries, such as those that lead to the heart and brain. Atherosclerosis and
its complications are a major cause of death in the United States. Heart and
brain disease are often the direct result of this accumulation of fatty
substances that impair the arteries' ability to nourish vital body organs.
Balloon Angioplasty, also known as percutaneous transluminal coronary
angioplasty (PTCA), is a nonsurgical method of clearing coronary and other
arteries blocked by atherosclerotic plaque, fibrous and fatty deposits on the
walls of arteries. A catheter with a balloon-like tip is threaded up from the
arm or groin through the artery until it reaches the blocked area. The balloon
is then inflated, flattening the plaque and increasing the diameter of the
blood vessel opening. The arterial passage is thus widened or dilated. Balloon
angioplasty has evolved to include direct coronary stenting in greater than
70% of angioplasty procedures to prevent recoil or abrupt closure of the
artery post dilatation.
Coronary Stenting provides mechanical scaffolding that eliminates abrupt
vessel closure or recoil associated with balloon angioplasty.
Coronary Artery Bypass Grafting (CABG) is a surgical procedure for bypassing
coronary artery blockage. This procedure can be performed on-pump (using
cardiopulmonary bypass) or off-pump (without cardiopulmonary bypass).
Hemostasis is the stopping of bleeding, either by physiological properties of
coagulation and vasoconstriction or by surgical or mechanical means.
Below is a more detailed description of our product lines:
Cardiac Assist. We are a leader and pioneer in intra-aortic balloon therapy
(counterpulsation) and products. Counterpulsation therapy is used to support
and stabilize heart function. This therapy increases the heart's output and
the supply of oxygen-rich blood to the heart's coronary arteries while
reducing the heart muscle's workload and its oxygen demand. Intra-aortic
balloons and pumps are used in counterpulsation therapy for high-risk cardiac
patients suffering from ischemic heart disease and heart failure. These
products and therapy may be used
4
before or during CABG or PTCA procedures for hemodynamic support. We produce a
line of disposable intra-aortic balloon catheters that serve as the pumping
device within the patient's aorta. We introduced the first balloon catheter
capable of percutaneous insertion. This innovation eliminated the need for
surgical insertion. As a result, the market for cardiac assist products
expanded from open-heart surgery to interventional cardiology. We continue to
advance our cardiac assist technology and to introduce new products.
Intra-Aortic Balloon Pumps
We manufacture and market the following intra-aortic balloon pumps:
Product Features Significant Developments
------- -------- ------------------------
System 98XT o CardioSync(TM)(2) software with o United States and European market
improved algorithms to provide introduction in December 2000
enhanced counterpulsation therapy
o Japanese market introduction in July
o Faster pneumatics 2001
o Further reduction in required user
intervention
System 98 o Larger display o Approval to distribute in Japan
received in March 1999
o Better automation
o Distribution began in 1998 in the
o Features make balloon pumping therapy United States and European Union
simpler to administer and faster to
initiate
System 97e o Uses CardioSync Software, which o Distribution began in 1998 worldwide
assists as many heartbeats as
possible in the presence of complex o Introduced in 1997 at the European
heart rhythms Society of Cardiology Conference
o Beat-to-beat support can be
optimized with minimal user
intervention
o Built-in modem
o Contains diagnostic software,
which enables us to service the unit
by modem
Intra-Aortic Balloon Catheters
We manufacture a broad line of disposable intra-aortic balloon catheters for
use with intra-aortic balloon pumps in support of counterpulsation therapy.
In February 2002, Datascope launched its Fidelity(TM) intra-aortic balloon
catheter. We believe that Fidelity provides superior performance to all other
8 French ("Fr.") catheters in the market. Fidelity also offers the largest
central lumen (0.030) for consistent, clear arterial waveforms which results
in better delivery of counterpulsation therapy for the patient and easier
patient management for the healthcare provider. A new polymer design enables
Fidelity to insert easily and navigate tortuous anatomies. Once inserted,
physicians have the longest insertable length available on the market to
ensure optimal balloon placement. Fidelity is available in 25cc, 34cc and 40cc
balloon options.
The Profile(TM) 8 Fr., launched in July 1998, was the first true 8 Fr. intra-
aortic balloon catheter. The folded balloon membrane diameter is the same as
the diameter of the catheter itself. Prior to introduction of the Profile 8
Fr., there was not an intra-aortic balloon catheter available that was small
enough to fit through a standard 8 Fr. (2.64 mm) sheath used for the
angioplasty/stent procedure. Use of the Profile 8 Fr. reduces possible
vascular complications when compared to larger catheters. The Profile 8 Fr.
can also be inserted without a sheath. This combination of sheathless
insertion and smaller sized catheter (8 Fr.) reduces the cross sectional area
occupied by the catheter in the artery. This reduction results in less
obstruction to blood flow around the outside of the catheter and a potential
reduction in ischemic complications.
In addition, we manufacture a complete line of intra-aortic balloon
catheters to accommodate counterpulsation therapy in both the adult and
pediatric population. We are also the sole manufacturer of
5
catheters available for pediatric patients in the 2.5cc, 5cc, 7cc, 12cc and
20cc volumes. Our 9.5 Fr. intra-aortic balloon catheters are available in
25cc, 34cc and 40cc volumes. A 50cc volume is also available for patients who
are taller than 6 feet.
Clinical Support. We provide the following clinical and educational services
to our customers:
o Telemedicine via our PC-IABP products which offers remote pump monitoring
o 24 hour clinical support
o On-site training and education for all personnel involved with patient
care
o Comprehensive educational materials for hospital staff, patient and
family
o Consultative services to help hospitals maximize the goals of
counterpulsation therapy within the hospital network
o The Benchmark(R) Registry--a comprehensive registry database to assist
hospitals worldwide in tracking and comparing outcomes of
counterpulsation therapy administered to their patients. This enables our
customers to demonstrate and measure the clinical benefits of the therapy
Markets, Sales and Competition. Our cardiac assist products are sold
primarily to major hospitals with open-heart surgery and balloon angioplasty
facilities and community hospitals with cardiac catheterization laboratories.
Our cardiac assist products have been sold, to a growing degree, to the
broader range of community hospitals, where counterpulsation therapy is used
for temporary support to the patient's heart prior to transport to a major
hospital center where definitive procedures, such as balloon angioplasty or
open-heart surgery, can be conducted. Our main competitor for cardiac assist
products is Arrow International, Inc.
Patient Monitoring. We manufacture and market a broad line of physiological
monitors designed to provide for patient safety and management of patient
care. Our monitors are capable of continuous and simultaneous measurement of
many different vital signs. Our monitors are used in operating rooms,
emergency rooms, critical care units, post-anesthesia care units and recovery
rooms, intensive care units, labor and delivery rooms and MRI, or magnetic
resonance imaging, units.
Patient Monitors
Our line of patient monitors and their significant features are as follows:
PASSPORT(R)2
o Portable and bedside use with color or monochrome display and 6 traces
o Built in power supply
o Fold-away bed rail hook, battery and lightweight design ensures
portability
o Specialized graph trend of heart rate, respiration and pulse oximetry for
neonatal applications
o Oridion Microstream(R)(1) CO2 with unique FilterLines(R) that adapt to any
patient for easy CO2 monitoring
o Optional Arrhythmia and ST segment analysis
o Masimo SET(R)(2) or Nellcor(R) Oxismart(R)(3) pulse oximetry
o Telemetry or hardwire communications to our central stations
o Anesthetic gas analysis through the Gas Module II
- ---------------
(1) Microstream and FilterLines are registered trademarks of Oridion Medical
Ltd.
(2) Masimo SET is a registered trademark of Masimo Corporation.
(3) Nellcor and Oxismart are registered trademarks of Mallinckrodt Inc.
6
PatientNet(R)(1)
o Central Station Monitoring system displays up to 16 patients on a single
monitor
o Telemetry system is WMTS (Wireless Medical Telemetry Service) compliant,
operating on a dedicated hospital telemetry bandwidth in the 608-614 MHz
range
o Can support both instrument and ambulatory patient telemetry
o Compatible with our Expert and Passport monitors
o Patient information may be exported to hospital and clinical information
systems
o Employs access point technology which reduces the number of antenna
required in older systems
o SiteLink(R)1 option lets users view information on patients many miles
away. This option allows for long distance consultation by clinicians at
different hospital locations
Accutorr(R) Plus
o First non-invasive blood pressure monitor with an integrated patient
database that automatically records up to 100 patient measurements
o Measures pulse oximetry (or blood oxygen saturation), temperature and
heart rate
o Optional recorder module
o Optional Masimo SET or Nellcor Oxismart Pulse Oximetry
o Long life lithium ion battery technology for up to 8 hours run time
EXPERT(R)
o High-end, modular patient monitor
o Compatible with our VISA and PatientNet central monitoring stations, in
either hardwire or telemetry mode
o Compatible with our Gas Module II gas measurement subsystem
o Integrated patient monitoring system combines modular design with
advanced monitoring features needed in operating rooms, advanced
emergency departments, intensive care and critical care units
MR Monitor
o MRI equipment creates powerful magnetic fields that provide an
incompatible environment for ordinary patient monitors
o The MR monitor effectively measures vital signs of patients undergoing
MRI procedures by incorporating state-of-the-art fiberoptic technology
which is not affected by powerful magnetic fields
Gas Module II
o Anesthetic gas measurement subsystem
o Monitors CO2, oxygen, nitrous oxide and all 5 inhalated anesthetic gases
o Interfaces with the controls and displays of the Passport 2 monitor, for
use in the growing out-patient surgery market
o Interfaces with the controls and displays of the Expert monitor, for use
in main hospital operating rooms
Significant Developments
In the past six years, we have expanded our patient monitoring product line:
o Began shipment of Lithium Ion in the Accutorr Plus product in the first
quarter of fiscal 2001
o Began U.S. shipment of PatientNet Central Stations in the second quarter
of fiscal 2001 and international shipments in the fourth quarter of
fiscal 2001
o Began international shipments of the Passport 2 in the first quarter and
shipments in the U.S. market in the third quarter of fiscal 2000
o Received FDA 510(k) clearance for the Passport 2 in January 2000
o Began United States shipments of the Gas Module II in 1998
o Began United States shipments of the Expert in fiscal 1998
o Received FDA 510(k) clearance of our MR monitor in 1997 and began United
States shipments in 1998
o Introduced Accutorr Plus in international markets in fiscal 1996 and the
United States market in fiscal 1998
- ---------------
(1) PatientNet and SiteLink are registered trademarks of VitalCom, Inc.
7
Markets, Sales and Competition. Our patient monitors are used in hospital
operating rooms, emergency rooms, critical care units, post-anesthesia care
units and recovery rooms, intensive care units, labor and delivery rooms and
MRI units. The Passport 2 allows us to further penetrate into our primary
patient monitoring markets and also to enter new markets, such as the Neonatal
Intensive Care Unit. The PatientNet Central Station network has allowed us to
take advantage of the recent FCC decision to open a dedicated hospital
telemetry bandwidth operating in the 608-614MHz range.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our patient monitoring
products. Our major competitors are Agilent Technologies (owned by Philips
Electronics), G.E. Medical Systems and Datex.
Collagen Products. Our vascular sealing products have revolutionized the
technology that is used to seal arterial punctures to stop bleeding after
catheterization procedures, such as balloon angioplasty, stenting and
diagnostic angiography.
We manufacture and market vascular sealing devices under two brand names,
VasoSeal VHD and VasoSeal ES. These products can rapidly seal arterial
punctures after procedures requiring catheterization. We believe that the
VasoSeal line of vascular sealing products are a better choice for physicians
because, unlike many other vascular sealing products, VasoSeal works
extravascularly, meaning that the sealing is accomplished on the outside of
the artery and no foreign objects remain inside of the artery. The Collagen
Products Division also manufactures surgical hemostatic agents, under the
brand name FirstStop, that are used to stop bleeding during surgery.
VasoSeal(R) VHD and VasoSeal(R) ES (Vascular Hemostasis Devices)
We manufacture and market the VasoSeal VHD extravascular sealing device,
which was the first device of its kind to be approved in the United States,
and a second generation sealing device, known as VasoSeal ES. Prior to the
introduction of VasoSeal VHD in 1995, the only way to stop bleeding to seal
arterial puncture wounds after catheterization procedures was to supplement
the body's natural process of blood clot formation through the use of manual
compression or mechanical means such as a "C" clamp. The concept behind the
VasoSeal device is simple and it does not involve prolonged compression. A
soft collagen plug is placed between the puncture in the artery and the
puncture wound in the skin. Sealing is accomplished on the outside of the
artery. By design, no foreign objects remain inside of the artery. In
addition, the use of our VasoSeal products permits immediate removal of the
sheath used in certain coronary and radiology procedures, rather than leaving
the sheath in place for prolonged periods of time.
The VasoSeal ES device, introduced in the European Union in 1998 and in the
United States in 1999, retains the proprietary, extravascular technology of
our original VasoSeal device. However, the VasoSeal ES device features a "one-
size-fits-all" (5 to 8 Fr.) design that eliminates the physician's need to
measure skin-to-artery distance and the hospital's need to stock multiple
sizes of the device. These features are made possible by VasoSeal ES's unique
locator that provides an easier method for locating the arterial puncture
site. VasoSeal ES is also the first vascular sealing device to have been
approved by the FDA for use in patients with peripheral vascular disease,
which represents a significant portion of the total patient population
undergoing catheterization procedures.
Advantages of VasoSeal
VasoSeal devices offer the following advantages:
o Reduces time to ambulation. Certain patients can be ambulated much
faster, compared to conventional manual or mechanical compression. Faster
ambulation can result in significant potential savings for hospitals
because patients can be moved relatively quickly after catheterization
procedures to lower cost areas in the hospital. Early ambulation lowers
the use of human and material resources, which results in improved
patient management within hospitals
o Provides increased comfort and satisfaction for patients. Many patients
receiving diagnostic or interventional procedures in hospitals are in
poor health, elderly and/or have other medical problems which make it
difficult for them to remain motionless or to lie flat for long periods
of time. Pressure
8
devices, sand bags and manual pressure holds normally associated with
most hospitals' usual method of vascular closure causes further
discomfort to these patients
o Provides a major cost savings for hospitals by freeing up valuable
recovery room beds
o Is approved for use on patients diagnosed with peripheral vascular
disease. As a result, VasoSeal can be used on more patients than other
competitive devices
o Allows the majority of diagnostic angiography patients to be ambulated
safely within 1 hour after the procedure, compared with 4 to 6 hours
under standard clinical practice, which involves manual compression for
vascular closure
o Approved for deployment by healthcare professionals other than physicians
(nurses and technicians), providing a more cost-effective use of hospital
resources
Clinical Education and Support
We offer health care providers the following services in connection with
their use of our VasoSeal devices:
o On-site training and education of all personnel involved with patient
care
o 24 hour clinical support
o Comprehensive educational materials for the staff and patient
o Consultative services to help facilities identify and maximize the goals
and objectives of vascular sealing
Significant Developments
Since 1993 we have achieved the following regulatory and marketing
milestones in connection with our VasoSeal product line:
o A new VasoSeal device, VasoSeal "Low Profile" (VHD), was approved by the
FDA in June 2002. This device was specifically designed to seal the
smaller punctures produced by 4 Fr. and 5 Fr. catheters. The use of these
smaller catheters has significantly increased over the past two years
o In Japan, VasoSeal VHD was cleared for reimbursement for certain
interventional procedures by The Ministry of Health in January 2000
o United States shipments of the VasoSeal ES device began in August 1999
o The VasoSeal ES device was approved by the FDA in December 1998
o In 1998, we began marketing the VasoSeal device in Germany, France and
the United Kingdom
o We received the "CE" mark for the VasoSeal device in 1997 and the
VasoSeal ES device in 1998, which permits us to sell our VasoSeal product
line throughout the European Union
o In 1994, we received regulatory approval to market the VasoSeal device in
Japan
o During calendar years 1993 through 1995, we received regulatory approvals
to market the VasoSeal device in Canada, Australia, Italy, Spain and The
Netherlands
o Pre-Market Approval (PMA) for the VasoSeal device approved by the FDA in
September 1995
The VasoSeal VHD device has received the following additional approvals from
the FDA:
o Approval received in April 2002 for a new VasoSeal VHD and ES deployment
method, the "Modified Hold Technique," which offers the promise of
improved VasoSeal results
o Approval received in August 1999 to market the VasoSeal VHD for use in
patients with peripheral vascular disease
o Approval received in September 1997 for deployment of VasoSeal by nurses
and technicians
o Approval received in April 1997 for use after stent implantation
o Approval received in December 1996 for use of VasoSeal in radiology
procedures
o Approval received in August 1996 for early ambulation in diagnostic
angiography and delayed sheath pull interventional patients
Markets, Sales and Competition. Our VasoSeal line of products is sold to
both interventional cardiology and radiology labs, both in hospitals and in
independent diagnostic facilities. Our VasoSeal products can also be used
following stent implantation. Stents, which are devices that support the
arterial wall, are implanted in over 70% of coronary and peripheral balloon
angioplasty procedures in the United States.
9
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with the VasoSeal VHD and
VasoSeal ES devices. Our competitors are Abbott Laboratories (Perclose), St.
Jude Medical (Angio-Seal), Vascular Solutions, Inc. (Duett), Sutura, Inc.
(Super Stitch) and Marine Polymer Technologies (Syvek Patch).
Vascular Grafts. Our InterVascular Inc. subsidiary manufactures and
distributes a proprietary line of knitted and woven polyester vascular grafts
and patches for reconstructive vascular and cardiovascular surgery. Vascular
grafts are used to replace and bypass diseased arteries. InterVascular also
began distribution of peripheral stents in Europe in late fiscal 2001.
InterVascular began selling products through its dedicated direct sales
organization in the U.S. in January 2002.
Our vascular graft products and their significant features are:
InterGard(R) Knitted Products
o Collagen-coated graft for use in most vascular applications for
reconstruction of abdominal and peripheral arteries
InterGard(R) Woven Products
o Designed primarily for use in thoracic aortic repair and open-heart
surgery
InterGard(R) Silver
o World's only anti-microbial vascular graft
o Designed to prevent post-operative infection of the graft, which occurs
in between 2% and 5% of cases, by using the broad spectrum, anti-
infective properties of silver, which is released from the surface of the
graft onto surrounding tissues following implantation
o Prosthetic graft infections are associated with high morbidity, including
amputation and high mortality
o Infection typically lengthens the hospital stay of a patient by up to 50
days, which results in a significant increase in cost
InterGard Ultra Thin(TM)
o The thinnest knitted polyester collagen coated graft on the market
o Designed specifically for use in the replacement of peripheral arteries
InterGard(R) Heparin
o A heparin bonded collagen coated graft for replacement and bypass of
peripheral arteries
HemaCarotid Patches
o Collagen-coated patches used for repair of carotid and peripheral
arteries
o HemaCarotid patches also manufactured in Ultra Thin version
Significant Developments
In the last few years, we have expanded our vascular graft product line:
o Aortic Arch and Hemabridge (specialty grafts for thoracic aorta repair
and replacement) received FDA approval in March 2002
o InterGard Heparin received FDA approval in January 2001
o InterGard UltraThin was introduced in the United States during fiscal
year 1999
o InterGard Silver received the CE mark in April 1999, for commercial sale
throughout the European Union
o InterGard Woven Products were introduced in the United States during
fiscal year 1999
o Approval of InterGard in both the United States and Japan in fiscal year
1998
Markets, Sales and Competition. Our vascular graft products are sold to
vascular and cardiothoracic surgeons.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our vascular graft products.
Our major competitors are Boston Scientific, Vascutek, Gore and Impra, a
subsidiary of C.R. Bard, Inc.
Life Science Research Products. In 1998, we entered the life science
research market by forming a new subsidiary, Genisphere Inc. Genisphere has
developed reagents based on a new, proprietary class of DNA
10
molecules known as 3DNA(R), or Three Dimensional Nucleic Acid. A reagent is a
biologically or chemically active substance. Genisphere's reagents are used to
detect and measure other biological substances. Our 3DNA-based reagents have
been shown to increase the sensitivity of nucleic acid detection and may also
provide substantially greater sensitivity for the detection of proteins than
was previously possible using conventional assays. Our first products were
probes designed for use in conventional blot assays. Genisphere had an
agreement with Fisher Scientific LLC that provided Fisher with the non-
exclusive right to distribute only Genisphere's first generation blot products
in the U.S. and Puerto Rico. Genisphere terminated its distribution agreement
with Fisher effective in September 2000 because we are no longer actively
promoting the first generation blot products.
Based on our new market entry strategy, our life science research products
will be primarily targeted at the research and development department of
pharmaceutical and biotechnology companies. In this new target market, use of
new research technologies occurs much faster and potential customers are more
highly concentrated and easier to reach, when compared to the mature academic
research market, which was our initial target market. Our first products for
this market are detection systems designed to improve the reliability and
sensitivity of microarray experiments.
A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our life science research
products. Our major competitors include Amersham Pharmacia Biotech,
PerkinElmer Life Sciences Inc., Molecular Probes, Inc. and Clontech
Laboratories Inc., a subsidiary of Becton Dickinson & Co.
Research and Development
We invested approximately $25.7 million in 2002, $24.4 million in 2001 and
$24.4 million in 2000 on research and development of new products and the
improvement of our existing products. We have established relationships with
several teaching hospitals for the purpose of clinically evaluating our new
products. We also have consulting arrangements with physicians and scientists
in the areas of research, product development and clinical evaluation.
Our Marketing and Sales Organization
Our products are sold throughout the world through our own direct sales
organization and through independent distributors. Our worldwide direct sales
organization employs approximately 440 people and consists of sales
representatives, sales managers, clinical education specialists and sales
support personnel. We have a worldwide clinical education staff, most of whom
are critical care and catheterization lab nurses. They conduct seminars and
provide in-service training to nurses and physicians on a continuing basis.
Our sales are broadly based and no customer accounts for more than 10% of our
total sales.
We provide service and maintenance to purchasers of our products under
warranty. After the warranty expires, we provide service and maintenance on a
contract basis. We employ service representatives in the United States and
Europe and maintain service facilities in the United States, The Netherlands,
France, Germany and the United Kingdom. We conduct regional service seminars
throughout the United States for our customers and their biomedical engineers
and service technicians.
International sales as a percentage of our total sales were 30% in 2002, 29%
in 2001 and 29% in 2000. We have subsidiaries in the United Kingdom, France,
Germany, Italy, Belgium, Spain and The Netherlands. Because a portion of our
international sales are made in foreign currencies, we bear the risk of
adverse changes in exchange rates for such sales. Please see Notes 1, 2 and 9
to the Financial Statements for additional information with respect to our
international operations and foreign currency exposures.
Competition
We believe that customers, primarily hospitals and other medical
institutions, choose among competing products on the basis of product
performance, features, price and service. In general, we believe price has
become an important factor in hospital purchasing decisions because of
pressure to cut costs. These pressures on hospitals result from Federal and
State regulations that limit reimbursement for services provided to Medicare
and Medicaid patients. Many companies, some of which are substantially larger
than us, are engaged in
11
manufacturing competing products. We have identified our major competitors in
the above sections which described our product lines.
Suppliers
Our products are made of components which we manufacture or which are
usually available from existing and alternate sources of supply. We purchase
certain components from single or preferred sources of supply. Our use of
single or preferred sources of supply increases our exposure to price
increases and production delays. In the second quarter of fiscal 2001, our
sole supplier of printed circuit boards could not produce the quantities
needed to support planned requirements for Passport 2 patient monitors and
System 98 balloon pumps. During the third quarter of fiscal 2001, this supply
issue was resolved and a second source of supply was added. In addition,
certain of our suppliers have been contemplating, and in a few cases have
begun, reducing or eliminating sales of their products to medical device
manufacturers like us. We are not able to predict whether or not additional
suppliers will withhold their products from medical device manufacturers,
including us. Except as stated above, to date, we have not experienced any
material disruption or delay in processing our components.
Patents
We hold a number of United States and foreign patents. In addition, we also
have filed a number of patent applications that are currently pending. We do
not believe the expiration or invalidity of any of our patents would have a
material adverse effect on our business as currently conducted.
Employees
We currently employ approximately 1,260 people. We believe our relationship
with our employees is good.
Regulation
Our medical devices are subject to regulation by the FDA. In some cases,
they are also subject to regulation by state and foreign governments. The
Medical Device Amendment of 1976 and the Safe Medical Device Act of 1990,
which are amendments to the Federal Food, Drug and Cosmetics Act of 1938,
require manufacturers of medical devices to comply with certain controls that
regulate the composition, labeling, testing, manufacturing and distribution of
medical devices. FDA regulations known as "Current Good Manufacturing
Practices for Medical Devices" provide standards for the design, manufacture,
packages, labels, storage, installation and service of medical devices. Our
manufacturing and assembling facilities are subject to routine FDA
inspections. The FDA can also conduct investigations and evaluations of our
products at its own initiative or in response to customer complaints or
reports of malfunctions. The FDA also has the authority to require
manufacturers to recall or correct marketed products which it believes do not
comply with the requirements of these laws.
Under the Act, all medical devices are classified as Class I, Class II or
Class III devices. In addition to the above requirements, Class II devices
must comply with pre-market notification, or 510(k), regulations and with
performance standards or special controls established by the FDA. Subject to
certain exceptions, a Class III device must receive pre-market approval from
the FDA before it can be commercially distributed in the United States. Our
principal products are designated as Class II and Class III devices.
We also receive inquiries from the FDA and other agencies. Sometimes, we may
disagree with positions of members of the staffs of those agencies. To date,
the resolutions of such disagreements with the staffs of the FDA and other
agencies have not resulted in material cost to us.
We are also subject to certain federal, state and local environmental
regulations. The cost of complying with these regulations has not been, and we
do not expect them to be, material to our operations.
We are also affected by laws and regulations concerning the reimbursement of
our customers' costs incurred in purchasing our medical devices and products.
Healthcare providers that purchase our medical devices and products generally
rely on third-party payors, including the Centers for Medicare and Medicaid
Services (CMS) which administers Medicaid and Medicare, and other types of
insurance programs, to reimburse all or part of the cost of such devices. The
laws and regulations in this area are constantly changing, and we are unable
to predict whether, and the extent to which, we may be affected in the future
by legislative or regulatory developments relating to the reimbursement of our
medical devices and products.
On August 1, 2000, CMS established a product-specific reimbursement system
for devices used in the hospital outpatient setting that provided for
reimbursement for VasoSeal ES and, as of October 1, 2000, for VasoSeal VHD.
Effective April 1, 2001, CMS replaced the product-specific reimbursement
system with a new
12
system that provides reimbursement for specific types of devices, including
vascular closure devices. VasoSeal VHD and ES devices are eligible for
reimbursement under this new system as well. Effective April 1, 2002, CMS
significantly reduced the reimbursement rate for all vascular closure devices.
These special payments may continue until January 1, 2003.
Health Care Reform
We believe that concerns about potential health care reform legislation have
slowed the domestic sales of medical devices generally. Our management cannot
predict at this time what impact, if any, the adoption by the United States
Congress of health care reform legislation will have on our business.
Item 2. Properties.
The following table contains information concerning our significant real
property that we own or lease:
Ownership or
General Character Expiration
Location and Use of Property Date of Lease
- -------- ------------------- -------------
Fairfield, New Jersey 75,000 sq. feet, used for Cardiac Assist facility and Owned
manufacturing of intra-aortic balloons
Hatfield, Pennsylvania 15,000 sq. feet, used for Genisphere research and Leased (until 6/30/11)
development, manufacturing and warehousing
Hoevelaken, The Netherlands 12,700 sq. feet, used for administrative offices and the Owned
European central warehouse
La Ciotat, France 30,000 sq. feet, used by InterVascular for manufacturing Owned--18,000 sq. feet
and warehousing of vascular grafts and administrative Leased--12,000 sq. feet (until
offices 5/30/07)
Mahwah, New Jersey 130,000 sq. feet, used for: Owned
o Patient Monitoring facility--manufacturing and
warehousing of patient monitoring products, research and
development and administrative offices
o Manufacturing of cardiac assist balloon pump systems
Mahwah, New Jersey 90,000 sq. feet, used for: Owned
o Collagen Products facility--manufacturing, warehousing,
research and development and distribution of collagen
products and administrative offices
o Warehousing, packaging and distribution of cardiac assist
and InterVascular products
Montvale, New Jersey 38,000 sq. feet, used for corporate and InterVascular Owned
headquarters
Vaals, The Netherlands 17,500 sq. feet, for sale and not used in current Owned
operations
We also lease office space in the United States, England, France, Italy,
Belgium and Germany. The facility in Vaals, The Netherlands, that was used in
the manufacturing, warehousing and research and development for collagen
products was closed in May 2002 and offered for sale. We believe that our
facilities and equipment are in good working condition and are adequate for
our needs.
13
Item 3. Legal Proceedings.
We are subject, in the ordinary course of our business, to product liability
litigation. We believe we have meritorious defenses in all material pending
lawsuits. We also believe that we maintain adequate insurance against any
potential liability. We receive comments and recommendations with respect to
our products from the staff of the FDA and from other agencies on an on-going
basis. We may or may not agree with these comments and recommendations.
However, we are not a party to any formal regulatory administrative
proceedings.
On July 21, 1999, we instituted patent infringement litigation relating to a
vascular sealing method against Vascular Solutions, Inc. in the United Stated
District Court, District of Minnesota. In that litigation, our complaint
alleges that the manufacture, use and/or sale of Vascular Solutions' Duett
device, infringes our United States Patent No. 5,725,498. We seek relief in
the form of a preliminary and permanent injunction against the marketing and/
or sale of Vascular Solutions' Duett device. On August 19, 2002, the United
States District Court for the District of Minnesota denied Vascular Solutions'
motion for summary judgment and has granted our partial motion for summary
judgment. The matter is scheduled to proceed to trial on the issue of damages.
In December 2000, an action was filed in New York Supreme Court against us
and our board of directors entitled David B. Shaev v. Lawrence Saper, Alan B.
Abramson, David Altschiller, Joseph Grayzel, M.D., George Heller, Arno Nash
and Datascope Corp. The complaint alleges, inter alia, common law claims for
breach of the duty of loyalty and breach of fiduciary duty for approving
allegedly excessive compensation to defendant Saper. By agreement, the time to
respond to this complaint has been extended. We believe that the claims in
this action are wholly without merit and intend to defend this action
vigorously.
In August 2001, an action was filed in United States District Court for the
District of New Jersey against us and our board of directors entitled David B.
Shaev v. Lawrence Saper, Alan B. Abramson, David Altschiller, Joseph Grayzel,
M.D., George Heller, Arno Nash and Datascope Corp. The Complaint alleges,
inter alia, that the directors breached their duties of good faith and loyalty
and that our October 27, 2000 proxy statement omitted material facts, was
coercive and contained materially false and misleading statements. According
to the Complaint, the proxy statement (i) was false insofar as it stated that
we would receive a deduction for federal income tax purposes for Mr. Saper's
bonus compensation, (ii) failed to disclose reasonable estimates of the
bonuses payable and the number of persons eligible under the Management
Incentive Plan and (iii) coercive insofar as it stated that we might grant
Mr. Saper a bonus if the Plan were not approved by the stockholders. The
Complaint also alleges that the defendant directors (i) were negligent since
they knew or should have known that the representations concerning the
deductibility of Mr. Saper's bonus were false and misleading and (ii) breached
their duties of loyalty and good faith by coercing the stockholders to vote
for the plan and by approving the allegedly excessive payments to Mr. Saper.
On April 1, 2002, the District Court granted our motion to dismiss the action,
holding that the proxy statement did not contain materially false or
misleading statements. The Court declined to exercise its supplemental
jurisdiction over the remaining state law claims and dismissed those claims
without prejudice. By notice of appeal dated April 23, 2002, Mr. Shaev
appealed from each and every part of the Opinion and Order dismissing the
Complaint. We believe that the claims in this action are wholly without merit
and intend to defend this action vigorously.
In September 1999, we terminated a distributor agreement with Biomed S.A.
The agreement provided for the distribution of our cardiac products in Spain.
In addition, we also started to market our cardiac products in Spain for
ourselves. In July 2000, Biomed brought an action against us in Spain seeking
to have the Spanish Court declare Biomed an exclusive distributor of our
products. In October 2000, the Spanish Court ruled that Biomed was not an
exclusive distributor of our products in Spain. Subsequent to that ruling,
Biomed commenced a second action against us seeking damages and we have filed
our answer. We believe, as in the first action, we will be successful in this
action filed by Biomed.
14
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders in the fourth
quarter of fiscal year 2002.
Item 4A. Executive Officers of the Company.
The following table sets forth the names, ages, positions and offices of our
executive officers:
Name Age Positions and Offices Presently Held
- ---- --- ------------------------------------
Lawrence Saper........................... 73 Chairman of the Board and Chief Executive Officer
Murray Pitkowsky......................... 71 Senior Vice President and Secretary
Fred Adelman............................. 49 Chief Accounting Officer and Corporate Controller
Nicholas E. Barker....................... 44 Vice President, Design
Gregory Cash............................. 45 Vice President; President InterVascular Inc.
James L. Cooper.......................... 51 Vice President, Human Resources
Thomas Dugan............................. 44 Vice President, Business Development
Leonard S. Goodman....................... 58 Vice President, Chief Financial Officer and Treasurer
Donald Southard.......................... 56 Vice President; President, Patient Monitoring Division
Paul J. Southworth....................... 58 Vice President; President, Cardiac Assist Division
S. Arieh Zak............................. 41 Vice President, Regulatory Affairs and Corporate Counsel
15
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Market Information
Our common stock is traded over-the-counter and is listed on the Nasdaq
National Market. Our Nasdaq symbol is DSCP. The following table sets forth,
for each quarter period during the last two fiscal years, the high and low
sale prices as reported by The Nasdaq Stock Market, and the quarterly
dividends per share declared by the Company.
Fiscal Year High Low Dividends
----------- ---- --- ---------
2001
First Quarter $37.25 $31.13 $0.04
Second Quarter 37.43 30.81 0.05
Third Quarter 38.13 32.50 0.05
Fourth Quarter 46.47 34.06 0.05
2002
First Quarter $46.93 $34.22 $0.05
Second Quarter 40.75 31.50 0.05
Third Quarter 35.65 25.95 0.05
Fourth Quarter 34.21 25.74 0.05
As of August 7, 2002, there were approximately 618 holders of record of our
common stock.
Dividend Policy
On December 7, 1999, the Board of Directors inaugurated quarterly cash
dividends. Our dividend policy is reviewed periodically.
Recent Sales of Unregistered Securities
None.
16
Item 6. Selected Financial Data.
The following table sets forth selected financial data for Datascope as of
the dates and for the periods indicated. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the financial statements and related notes
thereto on pages F-1 to F-25.
SELECTED FINANCIAL INFORMATION
Earnings Statement Data:
(in thousands, except per share data)
Year Ended June 30,
------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net sales.......................... $317,400 $312,800 $301,400 $271,500 $244,700
-------- -------- -------- -------- --------
Cost of sales...................... 133,532 125,030 119,665 106,646 96,024
Research and development........... 25,720 24,402 24,426 28,524 29,781
Selling, general and administrative 126,075 117,571 116,792 105,847 93,940
Special items (A).................. 11,463 -- (3,825) 3,429 --
-------- -------- -------- -------- --------
296,790 267,003 257,058 244,446 219,745
-------- -------- -------- -------- --------
Operating earnings................. 20,610 45,797 44,342 27,054 24,955
Other (income) expense:
Interest income.................. (1,891) (3,669) (3,659) (3,342) (4,972)
Interest expense................. 137 51 21 29 25
Other, net....................... 297 (176) 132 583 187
-------- -------- -------- -------- --------
(1,457) (3,794) (3,506) (2,730) (4,760)
-------- -------- -------- -------- --------
Earnings before taxes on income.... 22,067 49,591 47,848 29,784 29,715
Taxes on income.................... 8,166 15,348 14,773 8,372 8,074
-------- -------- -------- -------- --------
Net earnings....................... $ 13,901 $ 34,243 $ 33,075 $ 21,412 $ 21,641
======== ======== ======== ======== ========
Earnings per share, Basic.......... $ 0.94 $ 2.30 $ 2.18 $ 1.40 $ 1.37
Earnings per share, Diluted........ $ 0.92 $ 2.20 $ 2.06 $ 1.36 $ 1.32
Dividends per share (B)............ $ 0.20 $ 0.19 $ 0.12 -- --
Balance Sheet Data:
(in thousands) Year Ended June 30,
------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total assets....................... $316,022 $310,335 $295,326 $269,453 $253,171
Long-term debt..................... -- -- -- -- --
Working capital.................... 118,241 129,715 120,298 125,261 115,892
Stockholders' equity............... 250,978 243,478 227,286 214,295 201,406
Cash dividends..................... 2,956 2,805 1,809 -- --
- ---------------
(A) Special items include restructuring charges in fiscal 2002 (see Note 13 to
Consolidated Financial Statements), gain on sale of technology in fiscal
2000 and restructuring charges in fiscal 1999.
(B) On December 7, 1999, the Board of Directors inaugurated quarterly cash
dividends.
17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The following table shows the comparison of net earnings and earnings per
diluted share over the past three fiscal years.
(Dollars in millions,
except EPS)
----------------------
Year ended June 30,
----------------------
2002 2001 2000
---- ---- ----
Net Earnings (1) .............................................. $13.9 $34.2 $33.1
Earnings per share, diluted (1) ............................... $0.92 $2.20 $2.06
Comparison of Results--Fiscal 2002 vs. Fiscal 2001
Sales
The following table shows sales by product line over the past three fiscal
years.
Sales by Product Line
(Dollars in millions)
Year ended June 30,
-------------------------
2002 2001 2000
---- ---- ----
Cardiac Assist ............................................. $112.5 $119.0 $117.9
% change from prior year (5)% 1% 6%
% of total sales 36 % 38% 39%
Patient Monitoring ......................................... $125.0 $110.7 $105.2
% change from prior year 13 % 5% 10%
% of total sales 39 % 35% 35%
Collagen Products .......................................... $ 53.4 $ 58.8 $ 57.0
% change from prior year (9)% 3% 32%
% of total sales 17 % 19% 19%
Vascular Grafts ............................................ $ 25.5 $ 23.3 $ 21.0
% change from prior year 10 % 10% 2%
% of total sales 8 % 8% 7%
Genisphere ................................................. $ 1.0 $ 1.0 $ 0.3
% change from prior year -- -- --
% of total sales -- -- --
Total Sales ................................................ $317.4 $312.8 $301.4
% change from prior year 1 % 4% 11%
- ---------------
(1) Net earnings and earnings per share in fiscal years 2002, 2001 and 2000
shown above include the following special items.
Fiscal 2002 Restructuring charges of $9.5 million after tax or $0.63 per
diluted share.
Fiscal 2001 Gain on sale of underutilized facility of $356 thousand after
tax or $0.02 per diluted share.
Fiscal 2000 Gain on sale of technology of $2.5 million after tax or $0.16
per diluted share.
Excluding the special items, net earnings and diluted earnings per share
was $23.4 million or $1.55 per diluted share in fiscal 2002, $33.9 million
or $2.18 per diluted share in fiscal 2001 and $30.6 million or $1.90 per
diluted share in fiscal 2000.
18
Sales of the Cardiac Assist / Monitoring Products segment in fiscal 2002
increased 3% to $237.5 million from $229.7 million last year.
Cardiac Assist
Sales of Cardiac Assist products were $112.5 million, 5% below a year ago,
primarily due to an exceptionally large number of pumps sold last year in the
U.S. to replace discontinued pump models. The worldwide market for intra-
aortic balloon catheters in fiscal 2002 remained essentially unchanged, as
growth in international markets offset a decline in the U.S. market. Our
strong worldwide market share also remained unchanged. Our new IAB catheter,
the Fidelity 8 Fr., which was introduced in February 2002, continues to be
well received by customers and accounted for 27% of all Datascope balloon
catheter unit sales at the end of the fourth quarter, its first full quarter
of sales. The Fidelity catheter is priced at a modest premium to the Profile
catheter which it is intended to replace.
Patient Monitoring
Patient Monitoring sales rose 13% to a record $125.0 million for the year.
This strong sales growth is primarily attributable to increased sales in the
U.S. of wireless monitoring systems and a continued sharp gain in sales of
Masimo SET pulse oximetry sensors. The new wireless systems use a protected
radio band allocated for medical use by the Federal Communications Commission.
Increased sales of Passport 2(R) portable monitors and Accutorr(R) Plus
noninvasive blood pressure monitors also contributed to growth.
Sales of the Collagen Products / Vascular Grafts segment were $78.9 million
compared to $82.1 million last year.
Collagen Products
Sales of VasoSeal(R) arterial puncture sealing devices decreased 10% to
$52.0 million, reflecting competitive market conditions and loss of market
share. VasoSeal's new deployment technique called Modified Hold Technique, or
MHT, introduced to the U.S. market in mid-April 2002, protects the mechanical
seal created by deployment of VasoSeal's collagen plug, thereby largely
eliminating the previous need for post-procedure hold in order to achieve
hemostasis. The apparent usage of VasoSeal in those hospitals certified to
practice MHT is running higher than usage prior to the introduction of MHT.
Retraining physicians for MHT, however, has proved to be more difficult and
time-consuming than previously anticipated and this has slowed the
introduction of MHT to about 13% of hospitals purchasing VasoSeal at June 30,
2002. We believe that MHT will strengthen our competitive position over time
as the training process continues and MHT is introduced to more physicians and
hospitals.
In the fourth quarter, we received the CE mark for VasoSeal Elite, the next
generation of both the ES and VHD products, which embodies a new, proprietary
hemostat that rapidly expands as it comes into contact with blood. Also in the
fourth quarter, we received FDA approval for VasoSeal Low Profile, a downsized
VHD model aimed at the growing market segment for 4 and 5 Fr. diagnostic
procedures.
Sales of collagen hemostats increased 35% to $1.4 million, primarily due to
increased sales in international markets.
Vascular Grafts
Sales of InterVascular, Inc. increased 10% to $25.5 million, reflecting
continued strong demand for the InterGard(R) Silver anti-microbial graft in
international markets and the contribution from sales of peripheral stents.
Total international sales increased 16% for the year. Sales in the U.S.
declined 15% as the result of the termination, effective December 31, 2001, of
InterVascular's former distributor, which placed no orders in the second
quarter upon being notified of its termination. Datascope began selling
InterVascular products through its dedicated direct sales organization in the
U.S. in January 2002.
19
Genisphere
In fiscal 2002, Genisphere continued to pursue its marketing strategy, to
target major academic institutions and the research and development department
of pharmaceutical and biotechnology companies, and sales remained unchanged at
$1.0 million. Investment spending for the development of the Genisphere
business was approximately $1.5 million in fiscal 2002, compared to
$1.0 million in the prior year.
The stronger U.S. dollar compared to major European currencies decreased
consolidated sales by approximately $0.3 million in fiscal 2002 compared to
fiscal 2001.
Costs and Expenses
The gross profit percentage was 57.9% for fiscal 2002 compared to 60.0% last
year. The 2.1 percentage point decline was primarily attributable to a less
favorable sales mix as a result of increased sales of lower margin patient
monitoring products and decreased sales of higher margin cardiac assist and
VasoSeal products.
Research and development (R&D) expenses increased 5% to $25.7 million in
fiscal 2002 compared to $24.4 million and increased as a percentage of sales
to 8.1% in fiscal 2002 compared to 7.8% last year. The increased R&D expenses
reflect our continued companywide focus on new product development and
improvement of existing products. Spending on R&D reflects investment in new
product development programs, regulatory compliance and clinical evaluations.
The increase in R&D expenses were primarily attributable to new product
development projects in the Patient Monitoring and Vascular Graft product
lines.
Selling, general and administrative expenses (SG&A) increased 7% to
$126.1 million in fiscal 2002 compared to $117.6 million last year. As a
percentage of sales, SG&A expenses were 39.7% in fiscal 2002 compared to 37.6%
in fiscal 2001. The increase in SG&A expenses was primarily attributable to:
o investment in building a U.S. direct field force for InterVascular, Inc.
o filling open field sales positions and territory expansions in Cardiac
Assist and Patient Monitoring.
The stronger U.S. dollar compared to major European currencies decreased
SG&A expenses by approximately $0.2 million in fiscal 2002 compared to fiscal
2001.
Restructuring Charges
In the first and second quarters of fiscal 2002, we recorded restructuring
charges totaling $11.4 million ($5.1 million in the first quarter and
$6.3 million in the second quarter). The restructuring charges consisted of
the following.
First Quarter
o severance expenses, asset write-downs, and exit costs related to the
closure of the VasoSeal manufacturing and R&D facility in Vaals, the
Netherlands, and
o severance expenses for employee terminations in New Jersey facilities.
By the end of the fourth quarter, the manufacture of VasoSeal was
centralized in the Mahwah, New Jersey VasoSeal facility and the Vaals facility
was formally closed and put up for sale. We received FDA clearance for
manufacturing at the Mahwah facility, which also houses VasoSeal R&D,
warehousing and administration.
Headcount reductions, primarily in the Netherlands, totaled 110 people, or
8% of our worldwide employment. All of the New Jersey based employees left the
Company effective September 30, 2001. All of the Vaals employees left the
Company by the end of May 2002.
Second Quarter
o workforce reductions in VasoSeal and Patient Monitoring
20
o costs associated with discontinuing the coronary stent sales business in
Europe, including the resulting impairment of our investments in AMG and
QualiMed, and
o closure of an unprofitable Cardiac Assist direct sales operation in a
European country.
Based on the highly competitive stent market in Europe and an analysis of
the future economic contributions of the stent business, we decided to exit
the coronary stent business. In conjunction with this decision, we decided not
to exercise the option to purchase the remaining 70% of the equity of AMG and
QualiMed and to discontinue support to these businesses. As a consequence of
these decisions and the resulting impact on the operations of AMG and
QualiMed, we determined that there has been an other than temporary decline in
the value of these investments. As a result, we adjusted the carrying value of
these investments to their net realizable value by writing off our 30% equity
investment in these two companies. We will continue to sell peripheral stent
products in Europe through our subsidiary, InterVascular, Inc. The Cardiac
Assist direct sales operation in a European country was closed because it was
unprofitable. We will distribute our Cardiac Assist products through a
distributor in this country. The restructuring charge in the second quarter
includes severance expenses for 41 people, or 3% of our worldwide employment.
Substantially all of the terminated employees left the Company effective
December 31, 2001.
The workforce reductions will not have any significant impact on our
operations. The restructuring programs are expected to provide annual cost
savings of approximately $10.0 million.
Interest Income
Interest income for fiscal 2002 was $1.9 million compared to $3.7 million
last year. The decline in interest income in fiscal 2002 was the result of a
lower average portfolio balance (from $60.1 million to $39.8 million) and a
decrease in the average yield from 6.0% to 4.4%.
Other Income
During the first quarter of fiscal 2001, we recorded a pretax gain of $593
thousand, or $0.02 per share after tax, from the sale of an underutilized
facility in Oakland, New Jersey.
Income Taxes
In fiscal 2002 the tax rate was 37.0% compared to 30.9% for last year. The
tax rate in fiscal 2002 significantly increased due to expenses related to the
restructuring programs in the first half of the year that were not deductible
for tax purposes, primarily in international businesses.
The tax rate in both years was favorably impacted by the following:
o the tax benefits from the Foreign Sales Corporation (FSC) and the
Extraterritorial Income Exclusion (which replaced the FSC effective
January 1, 2002)
o income exempt from foreign corporate taxes (resulting from the
implementation of an alternative tax planning strategy in fiscal 2001 for
an international manufacturing facility that was tax exempt until
January 31, 2000).
Excluding the restructuring charge in fiscal 2002 and the special gain in
fiscal 2001, the effective tax rate was 30.3% in fiscal 2002 compared to 30.8%
last year.
Net Earnings
Net earnings were $13.9 million or $0.92 per diluted share in fiscal 2002
compared to $34.2 million or $2.20 per diluted share last year. Excluding the
restructuring charges recorded in fiscal 2002 and the special gain in fiscal
2001, net earnings were $23.4 million or $1.55 per diluted share compared to
$33.9 million or $2.18 per diluted share last year. The decreased earnings in
fiscal 2002 were primarily attributable to:
o slower sales growth
21
o a reduced gross margin percentage resulting primarily from reduced sales
of higher margin products, and
o increased SG&A and R&D expenses, as discussed above.
Foreign Currency
Due to the global nature of our operations, we are subject to the exposures
that arise from foreign exchange rate fluctuations. Our objective in managing
our exposure to foreign currency fluctuations is to minimize net earnings
volatility associated with foreign exchange rate changes. We enter into
foreign currency forward exchange contracts to hedge foreign currency
transactions which are primarily related to certain receivables denominated in
foreign currencies. Our hedging activities do not subject us to exchange rate
risk because gains and losses on these contracts offset losses and gains on
the liabilities and transactions being hedged. A portion of the net foreign
transaction gain or loss is reported in our statement of consolidated earnings
in cost of sales and the balance in other income and expense. We do not use
derivative financial instruments for trading purposes.
As of June 30, 2002, we had a notional amount of $9.0 million of foreign
exchange forward contracts outstanding, all of which were in European
currencies. The foreign exchange forward contracts generally have maturities
that do not exceed 12 months and require us to exchange foreign currencies for
U.S. dollars at maturity, at rates agreed to when the contract is signed.
Comparison of Results--Fiscal 2001 vs. Fiscal 2000
Sales
Sales of the Cardiac Assist / Monitoring Products segment in fiscal 2001
increased 3% to $229.7 million.
Cardiac Assist
Sales of Cardiac Assist products increased 1% to $119.0 million. Sales of
intra-aortic balloon pumps increased 5% as a result of strong customer demand
for the System 98XT, our advanced performance balloon pump launched in the
first quarter of fiscal 2001. Sales of balloon catheters decreased 1% while
unit sales increased slightly. The Profile 8 Fr. catheter continued its strong
growth and market penetration, accounting for 59% of worldwide balloon
catheter unit sales compared to 53% in fiscal 2000.
Patient Monitoring
Patient Monitoring sales rose 5% to $110.7 million driven by strong growth
of the Passport 2 portable bedside monitor and Accutorr Plus noninvasive blood
pressure monitor. Also contributing to growth were increased sales of Masimo
pulse oximetry sensors and new Central Station Monitoring Systems, which
utilize recently introduced telemetry that operates across the full range of
Federal Communications Commission protected medical bands.
Sales of the Collagen Products / Vascular Grafts segment increased 5% in
fiscal 2001 to $82.1 million.
Collagen Products
Sales of VasoSeal arterial puncture sealing devices increased 3% to
$57.8 million, which reflects a decline in U.S. market share, due to
intensified competition and slower than anticipated growth in productivity
from our newly expanded field sales organization. We expanded the field sales
organization, comprised of sales representatives and clinical specialists, by
35% in the second half of fiscal 2001.
Vascular Grafts
InterVascular sales increased 10% to $23.3 million, reflecting continued
international demand for InterGard Silver, the world's first anti-microbial
vascular graft, and a favorable comparison to the depressed prior year when
our U.S. distributor reduced inventory.
22
Genisphere
In fiscal 2001, Genisphere continued to successfully pursue its marketing
strategy, to target major academic institutions and the research and
development department of pharmaceutical and biotechnology companies, and
sales reached $1 million compared to $0.3 million in fiscal 2000. Investment
spending for the development of the Genisphere business was approximately
$1 million in fiscal 2001.
The stronger U.S. dollar compared to major European currencies decreased
consolidated sales by approximately $4.5 million in fiscal 2001 compared to
fiscal 2000.
Costs and Expenses
The gross profit percentage was 60.0% for fiscal 2001 compared to 60.3% in
fiscal 2000, with the slight decrease primarily attributable to lower average
selling prices for certain patient monitoring products.
Research and development (R&D) expenses remained unchanged at $24.4 million
in fiscal 2001 compared to fiscal 2000, with increased development expenses
for the VasoSeal and Cardiac Assist product lines being offset by lower
development expenses in the Patient Monitoring product line. As a percentage
of sales, R&D expenses were 7.8% in fiscal 2001 compared to 8.1% in fiscal
2000.
Selling, general and administrative expenses (SG&A) increased 1% in fiscal
2001 compared to fiscal 2000 primarily as a result of higher selling and
marketing expenses for the Patient Monitoring and Cardiac Assist product lines
and the VasoSeal field organization expansion, partially offset by lower
corporate expenses. As a percentage of sales, SG&A expenses were 37.6% in
fiscal 2001 compared to 38.7% in fiscal 2000.
The stronger U.S. dollar compared to major European currencies decreased
SG&A expenses by approximately $2.9 million in fiscal 2001 compared to fiscal
2000.
Our 30% equity investment in the AMG stent business continued to be modestly
accretive in fiscal 2001. We had an option to purchase the remaining 70% of
AMG and its allied development and manufacturing company until January 30,
2002. In the second half of fiscal 2001, we initiated distribution of AMG's
proprietary coronary and peripheral stents primarily in France. Sales during
fiscal 2001 were not material.
Interest Income
Interest income for fiscal 2001 of $3.7 million was unchanged compared to
fiscal 2000. The average investment portfolio decreased by $6.3 million which
was offset by an increase in the average yield to 6.0% from 5.5%.
Other Income
During the first quarter of fiscal 2001, we recorded a pretax gain of $593
thousand, or $0.02 per share after tax, from the sale of an underutilized
facility in Oakland, New Jersey.
Income Taxes
The consolidated effective tax rate was 30.9% for both fiscal 2001 and
fiscal 2000. The tax rate in both years was lower than the federal statutory
tax rate primarily as a result of:
o the tax benefit from the Foreign Sales Corporation
o income exempt from foreign corporate taxes (resulting from a tax
exemption for an international manufacturing facility until January 31,
2000, and the implementation of an alternative tax planning strategy in
fiscal 2001)
o interest income exempt from federal income taxes
o net effect of research and development credits.
23
Net Earnings
Net earnings were $34.2 million or $2.20 per diluted share in fiscal 2001
compared to $33.1 million or $2.06 per diluted share in fiscal 2000. Excluding
the special items recorded in fiscal 2001 and fiscal 2000, net earnings were
$33.9 million or $2.18 per diluted share compared to $30.6 million or $1.90
per diluted share in fiscal 2000. The increased earnings in fiscal 2001 was
attributable to higher gross margin from increased sales and tight expense
control.
Liquidity and Capital Resources
Working capital at June 30, 2002 was $118.2 million compared to
$129.7 million at June 30, 2001. The current ratio was 3.4:1 compared to 3.5:1
at June 30, 2001. The decrease in working capital was primarily the result of
a decrease in cash and short term investments ($16.8 million), partially
offset by a decrease in current liabilities ($2.6 million).
In fiscal 2002, cash provided by operations was $18.9 million, primarily
attributable to net earnings and depreciation and amortization, partially
offset by increased other assets and a decrease in accounts payable. Net cash
used in investing activities was $7.1 million, primarily attributable to the
purchase of $6.0 million of property, plant and equipment and $1.5 million
equity investments. Net cash used in financing activities was $11.1 million,
attributable to stock repurchases of $9.4 million and $3.0 million dividends
paid, partially offset by $1.3 million cash received from exercise of stock
options.
We purchased about 233,000 of our common shares for approximately
$9.4 million during fiscal year 2002.
Working capital at June 30, 2001 was $129.7 million compared to
$120.3 million and the current ratio was 3.5:1 compared to 3.2:1 in fiscal
2000. Working capital was impacted primarily by: 1) increased accounts
receivable, as a result of higher sales and an increase in days sales
outstanding, and 2) increased inventory to support new product introductions
and for critical patient monitoring and cardiac assist components.
In fiscal 2001, cash provided by operations was $13.0 million, primarily
attributable to net earnings and depreciation and amortization, partially
offset by increased inventories and accounts receivable. Net cash provided by
investing activities was $8.9 million, primarily attributable to maturities of
marketable securities of $68.3 million, partially offset by purchases of
marketable securities of $49.8 million and the purchase of $10.7 million of
property, plant and equipment. Net cash used in financing activities was
$19.8 million, attributable to stock repurchases of $21.8 million and
$2.1 million dividends paid, partially offset by $4.0 million cash received
from exercise of stock options.
In fiscal 2000, cash provided by operations was $49.4 million, attributable
to net earnings, depreciation and amortization and increased accounts payable
and accrued liabilities. Net cash used in investing activities was
$30.2 million, attributable to the purchase of $28.4 million of property,
plant and equipment, primarily for the new Patient Monitoring and Collagen
Products facilities in Mahwah, New Jersey, and a $2.5 million equity
investment in AMG, and an allied company. Net cash used in financing
activities was $20.7 million, attributable to stock repurchases of
$24.2 million and $1.8 million dividends paid, offset by $5.3 million cash
received from exercise of stock options.
We believe that cash generated from operations and cash available under our
credit facilities will be sufficient to meet our projected cash requirements.
The moderate rate of current U.S. inflation has not significantly affected
the Company.
Euro Conversion
As part of the European Economic and Monetary Union (EMU), a single currency
(Euro) replaced the national currencies of most of the European countries in
which we conduct our business. The conversion rates between the Euro and the
participating nations' currencies have been fixed irrevocably as of January 1,
1999. During a transition period from January 1, 1999 to December 31, 2001
parties were able to settle transactions using either Euro or the
participating country's national currency. The participating national
currencies were removed from circulation between January 1, 2002 and June 30,
2002 and replaced by Euro notes and
24
coinage. Full conversion of all affected country operations to the Euro
currency was completed by the time national currencies were removed from
circulation.
Statement Concerning Forward Looking Information
This Management's Discussion and Analysis of Results of Operations and
Financial Condition contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements as a result of many important
factors. Many of these important factors cannot be predicted or quantified and
are outside our control, including the possibility that market conditions may
change, particularly as the result of competitive activity in the Cardiac
Assist, Vascular Sealing and other markets served by the Company, the
Company's dependence on certain suppliers for Patient Monitoring, Cardiac
Assist and VasoSeal products and the Company's ability to gain market
acceptance for new products. Additional risks are the possibility that FDA
will not approve PMA applications for new VasoSeal products, the possibility
that the new technique for VasoSeal, MHT, will not significantly bolster
VasoSeal's competitive position, the possibility that the Company will not
achieve success through direct selling of InterVascular products in the U.S.,
the ability of the Company to successfully introduce new products, continued
demand for the Company's products generally, rapid and significant changes
that characterize the medical device industry and the ability to continue to
respond to such changes, the uncertain timing of regulatory approvals, as well
as other risks detailed in documents filed by Datascope with the Securities
and Exchange Commission.
Critical Accounting Policies
As discussed in Note 1 to the Consolidated Financial Statements, the
Company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses for each period.
Management regularly evaluates its estimates and assumptions. These estimates
and assumptions are based on historical experience, on information from third
party professionals and on various other factors that are believed to be
reasonable under the circumstances. Actual results could differ from those
estimates. Management believes that the following are its critical accounting
policies and estimates: pension plan actuarial assumptions and fair market
valuation of reporting units for goodwill impairment testing.
Recent Accounting Pronouncements
We adopted the Financial Accounting Standards Board Emerging Issues Task
Force Issue 00-10 ("EITF 00-10"), "Accounting for Shipping and Handling Fees
and Costs," in the fourth quarter of 2001. Application of this consensus
resulted in the reclassification of prior period financial results to reflect
shipping and handling fees as revenue and shipping and handling costs as cost
of sales. These amounts were previously recorded in selling, general and
administrative expense. The reclassifications had no effect on operating or
net income.
In the first quarter of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets," ("SFAS No. 142"). The Company discontinued amortizing
goodwill, which amounted to $716 thousand pre tax, equivalent to $0.03 per
share after tax, in fiscal 2002. There was no impairment of goodwill based on
appropriate testing and analysis.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). SFAS No. 143 establishes accounting standards
for recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets. The adoption of this statement is
required in fiscal year 2003 and it is not expected to have a significant
impact on our financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for The Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes
Statement of Financial Accounting Standards No. 121, "Accounting for the
25
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and a portion of APB Opinion No. 30, "Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
SFAS No. 144 establishes a single model for the accounting of asset
impairments and disposals for assets held for use, assets held for sale and
reporting of discontinued operations. The adoption of this statement is
required in fiscal year 2003 and is not expected to have a significant impact
on our financial statements.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," ("SFAS No. 146"). SFAS No. 146 establishes
guidance on the accounting for costs associated with disposal activities
covered by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets," or with exit (or restructuring) activities previously covered
by EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity" (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 nullifies Issue 94-3 in its
entirety. Statement 146 requires that a liability for all costs be recognized
when the liability is incurred and establishes a fair value objective for
initial measurement of the liability. SFAS No. 146 is effective for disposal
activities initiated after December 31, 2002. The adoption of this statement
is not expected to have a significant impact on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Due to the global nature of our operations, we are subject to the exposures
that arise from foreign exchange rate fluctuations. Our objective in managing
our exposure to foreign currency fluctuations is to minimize net earnings
volatility associated with foreign exchange rate changes. We enter into
foreign currency forward exchange contracts to hedge foreign currency
transactions which are primarily related to certain intercompany receivables
denominated in foreign currencies. Our hedging activities do not subject us to
exchange rate risk because gains and losses on these contracts offset losses
and gains on the assets, liabilities and transactions being hedged. A portion
of the net foreign transaction gain or loss is reported in our statement of
consolidated earnings in cost of sales and the balance in other income and
expense. We do not use derivative financial instruments for trading purposes.
As of June 30, 2002, we had a notional amount of $9.0 million of foreign
exchange forward contracts outstanding, all of which were in European
currencies. The foreign exchange forward contracts generally have maturities
that do not exceed 12 months and require us to exchange foreign currencies for
United States dollars at maturity, at rates agreed to when the contract is
signed.
Item 8. Financial Statements and Supplementary Data.
See Financial Statements following Item 14 of this Annual Report on Form 10-
K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
26
PART III
Item 10. Directors and Executive Officers of the Registrant.
Except for the information included in Item 4A of this report, the
information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 2002 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 2002 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 2002 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
The following table provides information as of June 30, 2002 about our
Common Stock that may be issued under our existing equity compensation plans
upon the exercise of stock options or otherwise.
Equity Compensation Plan Information
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
----------------------------------------- -------------------- -------------------- -------------------------
(a) (b) (c)
Equity compensation plans approved by
security holders (1).................... 2,383,496 $31.32 1,001,029
Equity compensation plans not approved by
security holders (1).................... 106,500(2) $22.14 13,221(3)
--------- ---------
Total ................................. 2,489,996 $30.93 1,014,250
- ---------------
(1) See footnote 8 to the Consolidated Financial Statements for a description
of our stock option plans, the compensation plan for non-employee directors
and other option grants to directors.
(2) Includes grants of options to consultants to purchase up to 81,500 shares
of our Common Stock. These options have terms ranging from 5 to 10 years,
with exercise prices ranging from $18.25 to $39.45. Some of these options
vest over time or upon the occurrence of specified events.
(3) Represents shares of common stock reserved for future issuance under the
compensation plan for non-employee directors.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference from our
definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 2002 pursuant to Regulations 14A of the
Securities Exchange Act of 1934.
27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Our consolidated financial statements are filed on the pages listed below,
as part of Part II, Item 8 of this report:
Page
----
Report of Independent Auditors .................................... F-1
Consolidated balance sheets--June 30, 2002 and 2001 ............... F-2
Statements of consolidated earnings--Years ended June 30, 2002,
2001 and 2000.................................................... F-3
Statements of consolidated stockholders' equity--Years ended
June 30, 2002, 2001 and 2000..................................... F-4
Statements of consolidated cash flows--Years ended June 30, 2002,
2001 and 2000.................................................... F-5
Notes to consolidated financial statements ........................ F-6 - F-25
2. Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts .................... S-1
All other schedules have been omitted because they are inapplicable, or not
required, or the information is included in the financial statements or
footnotes.
3. Exhibits
Exhibit No. Document Description
----------- --------------------
3.1 Restated Certificate of Incorporation as filed with the Secretary of
State of the State of Delaware on October 30, 1989, incorporated by
reference as Exhibit 3.1 to the registrant's Registration Statement on
Form 8-B, filed with the Commission in January 1990 (the "Form 8-B").
3.2 By-Laws, incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for fiscal year ended June 30, 1993 (the "1993 10-
K").
4.1 Specimen of certificate of Common Stock, incorporated by reference to
Exhibit 4.2 to the Form 8-B.
4.2 Form of Certificate of Designations of the Company's Series A Preferred
Stock, incorporated by reference to Exhibit 2.2 to the Company's
Registration Statement on Form 8-A, filed with the Commission on May 31,
1991 (the "Form 8-A").
4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company
and Continental Stock Transfer & Trust Company, incorporated by reference
to Exhibit 2.1 to the Form 8-A.
4.4 Form of Amendment to Rights Agreement, dated May 24, 2000, between the
Company and Continental Stock Transfer & Trust Company, incorporated by
reference to Exhibit 2 to the Form 8-A/A, filed with the Commission on
June 1, 2000.
10.1 Datascope Corp. 1981 Incentive Stock Option Plan, incorporated by
reference to Exhibit 10.2.1 to the Form 8-B.
10.2 Datascope Corp. 1995 Stock Option Plan, as amended, incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997 (the "2Q 1997 10-Q").
10.3 Datascope Corp. 1997 Executive Bonus Plan, incorporated by reference to
Exhibit 10.2 to the 2Q 1997 10-Q.
10.4 Datascope Corp. Annual Incentive Plan, incorporated by reference to
Exhibit 10.3 to the 2Q 1997 10-Q.
10.5 Datascope Corp. Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10.4 to the 2Q 1997 10-Q.
10.6 Employment Agreement, dated July 1, 1996, by and between the Company and
Lawrence Saper, incorporated by reference to Exhibit 10.8 to the Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
28
Exhibit No. Document Description
----------- --------------------
10.7 Split-Dollar Agreement, dated July 25, 1994, by and among the Company,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees
of the Saper Family 1994 Trust UTA. dtd. 6/28/94, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K
for fiscal year ended June 30, 1996 (the "1996 10-K").
10.8 Modification Agreement, dated July 25, 1994, by and among the Company,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees
of the Saper Family 1994 Trust UTA. dtd. 6/28/94, incorporated by
reference to Exhibit 10.16 to the 1996 10-K.
10.9 Assignment, dated July 25, 1994, by Carol Saper, Daniel Brodsky and Helen
Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of
Metropolitan Life Insurance Company Insurance Policy No. 940 750 122UM in
favor of the Company, incorporated by reference to Exhibit 10.17 to the
1996 10-K.
10.10 Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and
Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of
Security Mutual Life Insurance Company of New York Insurance Policy No.
11047711 in favor of Datascope Corp., incorporated by reference to
Exhibit 10.18 to the 1996 10-K.
10.11 Stock Option Agreement between the Company and William E. Cohn,
incorporated by reference to Exhibit 4.1 of the Registration Statement on
Form S-8, filed with the Commission on June 20, 2000 (the "June 20, 2000
Form S-8").
10.12 Stock Option Agreement between the Company and Thor W. Nilsen,
incorporated by reference to Exhibit 4.2 of the June 20, 2000 Form S-8.
10.13 Stock Option Agreement between the Company and Robert Getts, Ph.D.,
incorporated by reference to Exhibit 4.3 of the June 20, 2000 Form S-8.
10.14 Stock Option Agreement between the Company and Robert Getts, Ph.D., James
Kadushin and William Ohley, Ph.D., incorporated by reference to Exhibit
4.4 of the June 20, 2000 Form S-8.
10.15 Stock Option Agreement between the Company and Arno Nash and Alan
Abramson, incorporated by reference to Exhibit 4.5 of the June 20, 2000
Form S-8.
10.16 Stock Option Agreement between the Company and Gerald Zemel, M.D. and
Charles Brown, M.D., incorporated by reference to Exhibit 4.6 of the
June 20, 2000 Form S-8.
10.17 Stock Option Agreement between the Company and David Altschiller,
incorporated by reference to Exhibit 4.7 of the June 20, 2000 Form S-8.
10.18 Amendment to Employment Agreement, dated as of May 30, 2000, by and
between Datascope Corp. and Lawrence Saper, incorporated by reference as
to Exhibit 10.22 of the Company's Annual Report on Form 10-K for fiscal
year ended June 30, 2000.
10.19* Series G Preferred Stock Purchase Agreement, dated as of September 14,
2001, by and between Masimo Corporation and Datascope Corp.
10.20* Second Amendment to Employment Agreement, dated as of October 31, 2001,
by and between Datascope Corp. and Lawrence Saper.
10.21 Stock Option Agreement between the Company and William L. Asmundson,
incorporated by reference to Exhibit 10.1 of the Registration Statement
on Form S-8, filed with the Commission on December 19, 2001 (the
"December 19, 2001 Form S-8").
10.22 Stock Option Agreement between the Company and Jorgen K. Winther,
incorporated by reference to Exhibit 10.2 of the December 19, 2001 Form
S-8.
10.23* Third Amendment to Employment Agreement, dated as of March 13, 2002, by
and between Datascope Corp. and Lawrence Saper.
10.24 Stock Option Agreement between the Company and Joseph Grayzel, M.D.,
incorporated by reference to Exhibit 4.11 of the Registration Statement
on Form S-8, filed with the Commission on June 12, 1995.
21.1* Subsidiaries of the Company.
23.1* Consent of Deloitte & Touche LLP.
99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------
*Filed herewith.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See Item 14(a)(3) above.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DATASCOPE CORP.
Date: August 23, 2002 By: /s/ LAWRENCE SAPER
---------------------------------
Lawrence Saper
Chairman of the Board
and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/ LAWRENCE SAPER Chairman of the Board and Chief August 23, 2002
---------------------------------------- Executive Officer (Principal Executive
Lawrence Saper Officer)
/s/ LEONARD S. GOODMAN Vice President, Chief Financial Officer August 23, 2002
---------------------------------------- and Treasurer (Principal Financial
Leonard S. Goodman Officer)
/s/ FRED ADELMAN Chief Accounting Officer and Corporate Controller August 23, 2002
---------------------------------------- (Principal Accounting Officer)
Fred Adelman
/s/ ALAN ABRAMSON Director August 23, 2002
----------------------------------------
Alan Abramson
/s/ DAVID ALTSCHILLER Director August 23, 2002
----------------------------------------
David Altschiller
/s/ WILLIAM ASMUNDSON Director August 23, 2002
----------------------------------------
William Asmundson
/s/ JOSEPH GRAYZEL, M.D. Director August 23, 2002
----------------------------------------
Joseph Grayzel, M.D.
/s/ GEORGE HELLER Director August 23, 2002
----------------------------------------
George Heller
/s/ ARNO NASH Director August 23, 2002
----------------------------------------
Arno Nash
30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Datascope Corp.
Montvale, New Jersey
We have audited the accompanying consolidated balance sheets of Datascope
Corp. and its subsidiaries (the "Company") as of June 30, 2002 and 2001 and
the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 2002. Our
audits also included the financial statement schedule listed in the index at
Item 14 (a) (2). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Datascope Corp. and its
subsidiaries as of June 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2002, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill to conform to Statement of
Financial Accounting Standards No. 142 effective July 1, 2001.
[Deloitte & Touche, LLP Signature]
New York, New York
July 22, 2002
F-1
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
-------------------
2002 2001
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 5,548 $ 5,545
Short-term investments................................. 15,817 32,669
Accounts receivable less allowance for doubtful
accounts of $1,159 and $1,350 ....................... 79,400 75,712
Inventories............................................ 51,930 55,261
Prepaid expenses and other current assets.............. 14,874 12,472
-------- --------
Total Current Assets................................. 167,569 181,659
Property, Plant and Equipment, net ...................... 89,897 90,634
Long-term Investments ................................... 30,525 14,134
Other Assets ............................................ 28,031 23,908
-------- --------
$316,022 $310,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 15,258 $ 18,987
Accrued expenses....................................... 16,393 14,211
Accrued compensation................................... 13,218 14,248
Deferred revenue....................................... 4,459 4,498
-------- --------
Total Current Liabilities............................. 49,328 51,944
Other Liabilities ....................................... 15,716 14,913
Stockholders' Equity
Preferred stock, par value $1.00 per share:
Authorized 5 million shares; Issued, none............. -- --
Common stock, par value $.01 per share:
Authorized, 45 million shares; Issued, 17,724 and
17,508 shares........................................ 177 175
Additional paid-in capital ............................. 72,542 69,148
Treasury stock at cost, 2,946 and 2,713 shares ......... (86,484) (77,038)
Retained earnings ...................................... 272,570 261,625
Accumulated other comprehensive loss ................... (7,827) (10,432)
-------- --------
Total Stockholders' Equity............................ 250,978 243,478
-------- --------
$316,022 $310,335
======== ========
See notes to consolidated financial statements
F-2
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(In thousands, except per share amounts)
Year Ended June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
Net Sales........................................................... $317,400 $312,800 $301,400
-------- -------- --------
Costs and Expenses:
Cost of sales..................................................... 133,532 125,030 119,665
Research and development expenses................................. 25,720 24,402 24,426
Selling, general and administrative expenses...................... 126,075 117,571 116,792
Restructuring charges............................................. 11,463 -- --
Gain on sale of technology........................................ -- -- (3,825)
-------- -------- --------
296,790 267,003 257,058
-------- -------- --------
Operating Earnings.................................................. 20,610 45,797 44,342
Other (Income) Expense:
Interest income.................................................... (1,891) (3,669) (3,659)
Interest expense................................................... 137 51 21
Other, net......................................................... 297 (176) 132
-------- -------- --------
(1,457) (3,794) (3,506)
-------- -------- --------
Earnings Before Taxes on Income..................................... 22,067 49,591 47,848
Taxes on Income..................................................... 8,166 15,348 14,773
-------- -------- --------
Net Earnings........................................................ $ 13,901 $ 34,243 $ 33,075
======== ======== ========
Earnings Per Share, Basic........................................... $ 0.94 $ 2.30 $ 2.18
======== ======== ========
Weighted Average Number of Common Shares Outstanding, Basic......... 14,778 14,904 15,169
======== ======== ========
Earnings Per Share, Diluted......................................... $ 0.92 $ 2.20 $ 2.06
======== ======== ========
Weighted Average Number of Common Shares Outstanding, Diluted....... 15,075 15,547 16,080
======== ======== ========
See notes to consolidated financial statements
F-3
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Shares and dollars in thousands)
Common Stock Treasury Stock Accumulated
-------------- Additional ----------------- Other
Par Paid-in Retained Comprehensive
Shares Value Capital Shares Cost Earnings Loss
------ ----- ---------- ------ -------- -------- -------------
Balance, June 30, 1999 ................... 16,663 $167 $52,410 (1,416) $(31,079) $198,921 $ (6,124)
Net earnings ............................. 33,075
Currency translation ..................... (1,845)
Total comprehensive income ...............
Stock option transactions ................ 365 4 7,740 (2,450)
Tax benefit relating to exercise of stock
options................................. 2,444
Cancellation of treasury stock ........... (1) (2,449) 2,450
Treasury shares acquired under repurchase
programs................................ (733) (24,168)
Cash dividends on common stock ........... (1,809)
------ ---- ------- ------ -------- -------- --------
Balance, June 30, 2000 ................... 17,028 170 60,145 (2,149) (55,247) 230,187 (7,969)
Net earnings ............................. 34,243
Currency translation ..................... (2,463)
Total comprehensive income ...............
Stock option transactions ................ 480 7 12,794 (8,788)
Tax benefit relating to exercise of stock
options................................. 4,995
Cancellation of treasury stock ........... (2) (8,786) 8,788
Treasury shares acquired under repurchase
programs................................ (564) (21,791)
Cash dividends on common stock ........... (2,805)
------ ---- ------- ------ -------- -------- --------
Balance, June 30, 2001 ................... 17,508 175 69,148 (2,713) (77,038) 261,625 (10,432)
Net earnings ............................. 13,901
Currency translation ..................... 2,605
Total comprehensive income ...............
Stock option transactions ................ 216 3 7,833 (6,534)
Tax benefit relating to exercise of stock
options................................. 2,094
Cancellation of treasury stock ........... (1) (6,533) 6,534
Treasury shares acquired under repurchase
programs................................ (233) (9,446)
Cash dividends on common stock ........... (2,956)
------ ---- ------- ------ -------- -------- --------
Balance, June 30, 2002 ................... 17,724 $177 $72,542 (2,946) $(86,484) $272,570 $ (7,827)
====== ==== ======= ====== ======== ======== ========
Total
--------
Balance, June 30, 1999 ................... $214,295
Net earnings ............................. 33,075
Currency translation ..................... (1,845)
--------
Total comprehensive income ............... 31,230
--------
Stock option transactions ................ 5,294
Tax benefit relating to exercise of stock
options................................. 2,444
Cancellation of treasury stock ........... --
Treasury shares acquired under repurchase
programs................................ (24,168)
Cash dividends on common stock ........... (1,809)
--------
Balance, June 30, 2000 ................... 227,286
Net earnings ............................. 34,243
Currency translation ..................... (2,463)
--------
Total comprehensive income ............... 31,780
--------
Stock option transactions ................ 4,013
Tax benefit relating to exercise of stock
options................................. 4,995
Cancellation of treasury stock ........... --
Treasury shares acquired under repurchase
programs................................ (21,791)
Cash dividends on common stock ........... (2,805)
--------
Balance, June 30, 2001 ................... 243,478
Net earnings ............................. 13,901
Currency translation ..................... 2,605
--------
Total comprehensive income ............... 16,506
--------
Stock option transactions ................ 1,302
Tax benefit relating to exercise of stock
options................................. 2,094
Cancellation of treasury stock ........... --
Treasury shares acquired under repurchase
programs................................ (9,446)
Cash dividends on common stock ........... (2,956)
--------
Balance, June 30, 2002 ................... $250,978
========
See notes to consolidated financial statements
F-4
DATASCOPE CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
Year Ended June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
Operating Activities:
Net Earnings................................................................................... $ 13,901 $ 34,243 $ 33,075
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................................ 14,241 13,982 12,931
Provision for supplemental pension........................................................... 501 514 405
Provision for losses on accounts receivable.................................................. 91 34 567
Write-down of facility in Vaals, The Netherlands............................................. 1,807 -- --
Write-off of investments in AMG and QualiMed................................................. 3,247 -- --
Gain on sale of Oakland facility............................................................. -- (593) --
Deferred income tax (benefit)................................................................ (130) 3,240 (433)
Tax benefit relating to stock options exercised.............................................. 2,094 4,995 2,444
Changes in assets and liabilities
Accounts receivable.......................................................................... (2,057) (8,112) (6,228)
Inventories.................................................................................. (2,110) (25,041) (4,073)
Other assets................................................................................. (8,271) (8,839) (2,407)
Accounts payable ............................................................................ (3,981) 4,409 4,266
Income taxes payable......................................................................... -- (2,630) 934
Accrued and other liabilities................................................................ (412) (3,222) 7,890
-------- -------- --------
Net cash provided by operating activities...................................................... 18,921 12,980 49,371
-------- -------- --------
Investing Activities:
Purchases of property, plant and equipment..................................................... (6,001) (10,708) (28,355)
Proceeds from sale of Oakland facility......................................................... -- 1,112 --
Purchases of investments....................................................................... (68,042) (49,775) (94,641)
Maturities of investments...................................................................... 68,503 68,304 95,343
Equity investments............................................................................. (1,554) -- (2,525)
-------- -------- --------
Net cash (used in) provided by investing activities............................................ (7,094) 8,933 (30,178)
-------- -------- --------
Financing Activities:
Exercise of stock options...................................................................... 1,302 4,013 5,294
Treasury shares acquired under repurchase programs............................................. (9,446) (21,791) (24,168)
Cash dividends paid............................................................................ (2,956) (2,066) (1,809)
-------- -------- --------
Net cash used in financing activities.......................................................... (11,100) (19,844) (20,683)
-------- -------- --------
Effect of exchange rates on cash............................................................... (724) 338 (63)
-------- -------- --------
Increase (decrease) in cash and cash equivalents................................................ 3 2,407 (1,553)
Cash and cash equivalents, beginning of year.................................................... 5,545 3,138 4,691
-------- -------- --------
Cash and cash equivalents, end of year.......................................................... $ 5,548 $ 5,545 $ 3,138
======== ======== ========
Supplemental Cash Flow Information
Cash paid during the year for:
Interest..................................................................................... $ 137 $ 51 $ 21
-------- -------- --------
Income taxes................................................................................. $ 7,546 $ 12,334 $ 11,928
-------- -------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets for use as demonstration equipment................ $ 8,024 $ 7,836 $ 6,962
-------- -------- --------
See notes to consolidated financial statements
F-5
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Datascope
Corp. and its subsidiaries (the "Company"--which may be referred to as our, us
or we). All material intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
which have original maturities less than 90 days.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Additions and improvements are capitalized,
while maintenance and repairs are expensed as incurred. Asset and accumulated
depreciation accounts are relieved for dispositions, with resulting gains or
losses reflected in earnings. Depreciation of plant and equipment is provided
using the straight-line method over the estimated useful lives of the various
assets, or for leasehold improvements, over the term of the lease, if shorter.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries have been translated at year-
end exchange rates, while revenues and expenses have been translated at
average exchange rates in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
stockholders' equity.
Taxes on Income
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates in effect for the years in which the
differences are expected to reverse.
Revenue Recognition
We recognize revenue and all related costs, including warranty, when product
is shipped and title passes to the customer. For certain products where we
maintain consigned inventory at customer locations, revenue is recognized at
the time we are notified that the product has been used by the customer.
Revenue for service contracts is recognized ratably over the term of the
contract.
The Company adopted the Financial Accounting Standards Board Emerging Issues
Task Force Issue 00-10 ("EITF 00-10"), "Accounting for Shipping and Handling
Fees and Costs," in the fourth quarter of 2001. Application of this consensus
resulted in the reclassification of prior period financial results to reflect
shipping and handling fees as revenue and shipping and handling costs as cost
of sales. These amounts were previously recorded in selling, general and
administrative expense. The reclassifications had no effect on operating or
net income.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We adopted SAB 101 in the first quarter of fiscal 2001.
The adoption of SAB 101 did not have a significant impact on our financial
statements.
F-6
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies--(Continued)
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," we report basic earnings per share, which is based upon
weighted average common shares outstanding, and diluted earnings per share,
which includes the dilutive effect of stock options outstanding.
Impairment of Long Lived Assets
The recoverability of the excess of cost over fair value of net assets
acquired is evaluated by an analysis of operating results and consideration of
other significant events or changes in the business environment. If we believe
an impairment exists, the carrying amount of these assets is reduced to fair
value as defined in Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of."
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for The Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes
Statement of Financial Accounting Standards No. 121, and a portion of APB
Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 establishes a
single model for the accounting of asset impairments and disposals for assets
held for use, assets held for sale and reporting of discontinued operations.
The adoption of this statement is required in fiscal year 2003 and is not
expected to have a significant impact on our financial statements.
Other Assets
a. Goodwill--Goodwill represents the excess of cost over the fair value of
net assets acquired. Until June 30, 2001 goodwill was amortized using
the straight-line method over periods not exceeding 20 years.
In the first quarter of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and
Other Intangible Assets," ("SFAS No. 142 "). The Company discontinued
amortizing goodwill, which amounted to $716 thousand pre tax, equivalent
to $0.03 per share after tax, in fiscal 2002. There was no impairment of
goodwill based on appropriate testing and analysis.
b. Capitalized Software Development--In accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," costs
incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After
technological feasibility is established, any additional software
development costs are capitalized and included in Other Assets. Software
development costs are amortized using the straight-line method over the
remaining estimated economic life of the product, not to exceed 5 years.
c. Internal Use Capitalized Computer Software Costs--The Company
capitalizes costs incurred to develop internal use computer software
during the application development stage, in accordance with the AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Internal use computer
software costs are amortized on a straight line basis over the remaining
estimated economic life of the software, not to exceed 5 years. Costs
become amortizable as functionality of the computer software is
achieved.
F-7
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies--(Continued)
The carrying value of capitalized software costs is regularly reviewed by
the Company, and a loss would be recognized if the net realizable value falls
below the unamortized cost.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications
The presentation of certain prior year information has been reclassified to
conform with the current year presentation.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). SFAS No. 143 establishes accounting standards
for recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets. The adoption of this statement is
required in fiscal year 2003 and it is not expected to have a significant
impact on our financial statements.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," ("SFAS No. 146"). SFAS No. 146 establishes
guidance on the accounting for costs associated with disposal activities
covered by SFAS No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets, or with exit (or restructuring) activities previously covered by
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity" (including Certain Costs
Incurred in a Restructuring). SFAS No. 146 nullifies Issue 94-3 in its
entirety. Statement 146 requires that a liability for all costs be recognized
when the liability is incurred and establishes a fair value objective for
initial measurement of the liability. SFAS No. 146 is effective for disposal
activities initiated after December 31, 2002. The adoption of this statement
is not expected to have a significant impact on our financial statements.
2. Financial Instruments
The fair value of accounts receivable and payable are assumed to equal their
carrying value because of their short maturity.
Fair values of short-term investments are based upon quoted market prices,
including accrued interest, and approximate their carrying values due to their
short maturities. Fair values of long-term investments, which mature in years
2003 to 2011, are also based upon quoted market prices and include accrued
interest. Investments in preferred stock are carried at cost and evaluated for
impairment.
We determined that our investment portfolio will be held-to-maturity and is
therefore carried at amortized cost.
F-8
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
2. Financial Instruments--(Continued)
As of June 30, 2002, investments were classified as follows:
Gross
Unrealized
Carrying --------------
Short Term Value Gains Losses Fair Value
- ---------- -------- ----- ------ ----------
U.S. Treasury Securities.. $ 7,963 $ 2 $-- $ 7,965
AAA--Rated Corporate Notes 6,826 6 24 6,808
Tax-Exempt Securities..... 1,028 -- -- 1,028
------- ---- --- -------
Short-term total ........ $15,817 $ 8 $24 $15,801
======= ==== === =======
Long Term
- ---------
U.S. Treasury Securities.. $23,414 $252 $ 4 $23,662
AAA--Rate Corporate Notes. 2,111 30 -- 2,141
Preferred Stock........... 5,000 -- -- 5,000
------- ---- --- -------
Long-term total ......... $30,525 $282 $ 4 $30,803
======= ==== === =======
Totals .................. $46,342 $290 $28 $46,604
======= ==== === =======
As of June 30, 2001, investments were classified as follows:
Gross
Unrealized
Carrying --------------
Short Term Value Gains Losses Fair Value
- ---------- -------- ----- ------ ----------
U.S. Treasury Securities.. $28,471 $ 79 $ 57 $28,493
Tax-Exempt Securities..... 4,198 33 -- 4,231
------- ---- ---- -------
Short-term total ........ $32,669 $112 $ 57 $32,724
======= ==== ==== =======
Long Term
- ---------
U.S. Treasury Securities.. $11,800 $143 $140 $11,803
AAA--Rated Corporate Notes 1,326 -- 12 1,314
Tax-Exempt Securities..... 1,008 20 -- 1,028
------- ---- ---- -------
Long-term total ......... $14,134 $163 $152 $14,145
======= ==== ==== =======
Totals .................. $46,803 $275 $209 $46,869
======= ==== ==== =======
Since we hold all short- and long-term securities until maturity, such
investments are subject to little market risk. We have not incurred losses
related to these investments.
Derivative Financial Instruments
We have limited involvement with derivative financial instruments and do not
use them for trading purposes. We utilize foreign currency forward exchange
contracts to mitigate the foreign exchange impact of transaction gains or
losses relating to intercompany receivables. Changes in the fair value of the
derivative financial instruments are recorded in the statement of earnings.
As of June 30, 2002, we had a notional amount of $9.0 million of foreign
exchange forward contracts outstanding, all of which were in European
currencies. The foreign exchange forward contracts generally have maturities
that do not exceed 12 months and require that we exchange foreign currencies
for U.S. dollars at maturity, at rates agreed to at inception of the
contracts. The foreign currency forward exchange contracts are with large
international financial institutions.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as either
assets or
F-9
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
2. Financial Instruments--(Continued)
liabilities in the statement of financial position and measure those
instruments at fair value. We adopted SFAS No. 133 as of July 1, 2000, in
accordance with the deferral provision in SFAS No. 137. The adoption of SFAS
No. 133 did not have a material effect on our financial statements.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising our customer base. Ongoing
credit evaluations of customers' financial condition are performed. We
maintain reserves for potential credit losses and these losses have not
exceeded our expectations.
3. Inventories
June 30,
-----------------
2002 2001
------- -------
Materials ................................................. $21,301 $24,550
Work in process ........................................... 9,228 10,185
Finished goods ............................................ 21,401 20,526
------- -------
$51,930 $55,261
======= =======
4. Property, Plant and Equipment
June 30,
-------------------
2002 2001
-------- --------
Land .................................................... $ 10,232 $ 10,643
Buildings ............................................... 47,536 47,764
Machinery, furniture and equipment ...................... 91,109 83,116
Leasehold improvements .................................. 2,642 1,533
-------- --------
151,519 143,056
Less accumulated depreciation and amortization .......... 61,622 52,422
-------- --------
$ 89,897 $ 90,634
======== ========
Depreciation expense was $13.3 million in 2002, $12.4 million in 2001 and
$11.9 million in 2000. We estimate the useful life of machinery and equipment
at 5 years, furniture at 8 years and buildings at 40 years.
5. Other Assets
Other Assets at June 30, 2002 and 2001 were comprised of the following:
June 30,
-----------------
2002 2001
------- -------
Capitalized software, net of accumulated amortization
$2,743 ($1,798 in 2001) .................................. $11,382 $ 7,375
Cash surrender value of officers' life insurance .......... 9,785 8,920
Goodwill, net of accumulated amortization of $4,561 in
2001 ..................................................... 4,065 6,023
Other non-current assets .................................. 2,799 1,590
------- -------
$28,031 $23,908
======= =======
Amortization of capitalized software costs was $945 thousand in fiscal 2002,
$857 thousand in fiscal 2001 and $428 thousand in fiscal 2000.
F-10
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
5. Other Assets--(Continued)
The decrease in goodwill in fiscal 2002 was due to the write-off of our
investment in AMG and QualiMed (see footnote 13).
In the first quarter of fiscal 2002, we adopted SFAS No. 142, "Accounting
for Goodwill and Other Intangible Assets," and discontinued amortizing
goodwill. The following table presents our earnings per share on a proforma
basis as though goodwill amortization had not been recorded in the prior
years.
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Net earnings:
Reported net earnings ................................................................. $13,901 $34,243 $33,075
Add back goodwill amortization ........................................................ -- 495 437
------- ------- -------
Adjusted net earnings................................................................ $13,901 $34,738 $33,512
======= ======= =======
Basic earnings per share:
Reported earnings per share ........................................................... $ 0.94 $ 2.30 $ 2.18
Add back goodwill amortization ........................................................ -- 0.03 0.03
------- ------- -------
Adjusted earnings per share.......................................................... $ 0.94 $ 2.33 $ 2.21
======= ======= =======
Diluted earnings per share:
Reported earnings per share ........................................................... $ 0.92 $ 2.20 $ 2.06
Add back goodwill amortization ........................................................ -- 0.03 0.02
------- ------- -------
Adjusted earnings per share.......................................................... $ 0.92 $ 2.23 $ 2.08
======= ======= =======
6. Taxes on Income
The provision for taxes on income consisted of the following:
Year Ended June 30,
---------------------------
2002 2001 2000
------ ------- -------
Taxes currently payable:
Federal ................................................................................ $6,794 $ 9,803 $12,479
State .................................................................................. 1,325 754 1,177
Foreign ................................................................................ 177 1,551 1,891
------ ------- -------
Total current......................................................................... 8,296 12,108 15,547
Deferred income taxes:
Federal ................................................................................ 36 2,861 (580)
State .................................................................................. (242) 566 (194)
Foreign ................................................................................ 76 (187) --
------ ------- -------
Total deferred........................................................................ (130) 3,240 (774)
------ ------- -------
Total provision for taxes on income ................................................. $8,166 $15,348 $14,773
====== ======= =======
Amounts are reflected in the preceding table based on the location of the
taxing authorities. As of June 30, 2002 we have not made a U.S. tax provision
for the unremitted earnings of our international subsidiaries. These earnings,
which approximated $49.3 million as of June 30, 2002 are expected, for the
most part, to be permanently reinvested outside of the United States.
We operate a manufacturing facility in an industrial development zone in
Europe. Profits from those manufacturing activities were exempt from
corporation taxes until January 31, 2000. Alternative tax planning strategies
have been implemented to reduce the impact from the expiration of this tax
exemption.
F-11
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
6. Taxes on Income--(Continued)
Reconciliations of the U.S. statutory income tax rate to our effective tax
rate follow:
Year Ended June 30,
-----------------------------------------------------------------
2002 2001 2000
------------------- ------------------- -------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------- ---- ------- ---- ------- ----
Tax computed at federal statutory rate ... $ 7,723 35.0% $17,357 35.0% $16,747 35.0%
(Decrease) increase resulting from:
Benefit from foreign sales corporation
and extraterritorial income exclusion . (1,153) (5.2) (1,066) (2.2) (1,075) (2.2)
State taxes on income, net of federal
income tax benefit .................... 839 3.8 858 1.7 639 1.3
Research and development credit, net .... -- -- (206) (0.4) (278) (0.6)
Income exempt from foreign corporate
taxes ................................. (1,479) (6.7) (1,893) (3.8) (1,119) (2.3)
Rate differential on foreign income(a) .. 1,852 8.4 (236) (0.5) 124 0.3
Interest income exempt from federal
income tax ............................ (37) (0.2) (123) (0.2) (233) (0.5)
Permanent differences ................... 71 0.3 204 0.4 235 0.5
Other ................................... 350 1.6 453 0.9 (267) (0.6)
------- ---- ------- ---- ------- ----
Total provision for taxes on income ... $ 8,166 37.0% $15,348 30.9% $14,773 30.9%
======= ==== ======= ==== ======= ====
- ---------------
(a) Includes effect of non-tax deductible foreign restructuring expenses in
fiscal 2002.
Deferred taxes arise because of different treatment between financial
statement accounting and tax accounting, known as "temporary differences." We
record the tax effect of these temporary differences as "deferred tax assets"
(generally items that can be used as a tax deduction or credit in future
periods) and "deferred tax liabilities" (generally items that we receive a tax
deduction for, but have not yet been recorded in the statement of consolidated
earnings).
F-12
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
6. Taxes on Income--(Continued)
The tax effects of the major items recorded as deferred tax assets and
liabilities are:
June 30,
-----------------------------
2002 2001
------------- -------------
Deferred Tax Deferred Tax
Assets Assets
(Liabilities) (Liabilities)
------------- -------------
Inventories ................................... $ 2,796 $ 2,833
Warranty ...................................... 897 987
Sales returns and allowances .................. (43) (32)
Accrued expenses .............................. (39) (34)
Foreign and state tax credits ................. 937 1,106
Unrealized foreign exchange losses ............ 547 369
Deferred state income taxes ................... (916) (921)
Other ......................................... 477 157
------- -------
Current ...................................... 4,656 4,465
------- -------
Supplemental pension .......................... 4,932 4,746
Tax loss carryforwards ........................ 1,421 1,563
Accelerated depreciation ...................... (5,514) (5,693)
Pension expense ............................... (148) 56
Asset writedowns .............................. 273 397
Other, net .................................... 37 135
Less: Valuation allowance ..................... (1,421) (1,563)
------- -------
Non-current .................................. (420) (359)
------- -------
Total....................................... $ 4,236 $ 4,106
======= =======
The net current deferred tax assets have been included in prepaid expenses
and other current assets and the net non-current deferred tax liabilities have
been included in other liabilities on the accompanying consolidated balance
sheets.
A valuation allowance is recorded because some items recorded as deferred
tax assets may not be realizable. The valuation allowance reduces the deferred
tax assets to our best estimate of net deferred assets which more likely than
not will be realized.
The valuation allowance decreased by $142 thousand during fiscal 2002 due to
the net decrease of foreign and state tax loss carryforwards. The valuation
allowance of $1.4 million at June 30, 2002 was comprised of tax benefits of
$429 thousand of foreign tax loss carryforwards and $992 thousand of state tax
loss carryforwards. Benefits from foreign tax loss carryforwards of $140
thousand expire during the period 2008 through 2009 and $289 thousand may be
carried forward indefinitely. The benefits of state tax loss carryforwards
expire during the period 2005 through 2012.
7. Other Liabilities
Other Liabilities at June 30, 2002 and 2001 were comprised of the following:
June 30,
-----------------
2002 2001
------- -------
Supplemental pension payable .............................. $12,233 $11,767
Non-current deferred income ............................... 1,557 1,783
Other non-current liabilities ............................. 1,926 1,363
------- -------
$15,716 $14,913
======= =======
F-13
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
8. Stock Options, Shareholder Rights and Stock Repurchase Plans
Stock Option Plans
We have two employee stock option plans covering 7,225,000 shares of common
stock as well as option agreements with certain consultants and members of the
board of directors. The plans provide that options may be granted at a price
of 100% of fair market value on date of grant, may be exercised in full or in
installments, at the discretion of the board of directors, and must be
exercised within ten years from date of grant.
A summary of activity under the stock option plans is as follows:
Year Ended June 30,
--------------------------------------------------------------------
2002 2001 2000
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at July 1. 1,985,155 $29.91 2,231,362 $23.92 2,304,256 $20.32
Granted ............. 1,103,750 30.19 625,900 37.62 444,100 36.85
Exercised ........... (369,274) 21.18 (703,571) 18.11 (427,334) 17.68
Canceled ............ (229,635) 34.20 (168,536) 28.57 (89,660) 24.97
--------- --------- ---------
Outstanding at June 30 2,489,996 30.93 1,985,155 29.91 2,231,362 23.92
========= ========= =========
Exercisable at June 30 1,285,005 $28.70 837,411 $23.91 1,270,632 $19.81
--------- --------- ---------
At June 30, 2002 there were 3,491,025 shares of common stock reserved for
stock options.
We adopted Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS No. 123") in fiscal 1997. We continue to
account for our employee stock-based awards using the intrinsic value method
in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees." Under APB Opinion No. 25, because the exercise price of our
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
In accordance with SFAS No. 123 the fair value of option grants is estimated
on the date of grant using an option-pricing model. Had the fair value method
of accounting been applied to our stock option plans, pro forma net income and
earnings per share would have been reported as the following pro forma
amounts:
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Net earnings--as reported .............................................................. $13,901 $34,243 $33,075
------- ------- -------
Net earnings--pro forma ................................................................ $ 7,217 $31,054 $30,307
------- ------- -------
Basic earnings per share--as reported .................................................. $ 0.94 $ 2.30 $ 2.18
------- ------- -------
Basic earnings per share--pro forma .................................................... $ 0.49 $ 2.08 $ 2.00
------- ------- -------
Diluted earnings per share--as reported ................................................ $ 0.92 $ 2.20 $ 2.06
------- ------- -------
Diluted earnings per share--pro forma .................................................. $ 0.48 $ 2.00 $ 1.88
------- ------- -------
This pro forma impact only takes into account options granted since July 1,
1995 and is likely to increase in future years as additional options are
granted and amortized ratably over the respective vesting period.
F-14
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
8. Stock Options, Shareholder Rights and Stock Repurchase Plans--(Continued)
The fair values of option grants were determined using the Black-Scholes
option-pricing model with the following assumptions:
Year Ended June 30,
----------------------------------
2002 2001 2000
--------- --------- ---------
Dividend yield ................................................................... 0.66% 0.51% 0.33%
Volatility ....................................................................... 34% 34% 35%
Risk-free interest rate .......................................................... 3.77% 4.94% 6.17%
Expected life .................................................................... 5.2 Years 5.5 Years 4.5 Years
The weighted average fair value of options granted was $10.91 in 2002,
$14.92 in 2001 and $14.19 in 2000.
The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 2002.
Stock Options
Stock Options Outstanding Exercisable
---------------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Prices Remaining Exercise Exercise
- ------------------------ Options Contractual Life Price Options Price
--------- ---------------- -------- --------- --------
$13.88--$26.03 ........... 379,347 4.31 $20.98 319,947 $21.32
$26.93--$37.00 ........... 1,358,499 9.12 $29.58 722,879 $28.85
$37.03--$41.58 ........... 752,150 8.54 $38.38 242,179 $38.02
--------- ---------
2,489,996 8.21 $30.93 1,285,005 $28.70
========= =========
Shareholder Rights Plan
On May 22, 1991, we adopted a Shareholder Rights Plan. The purpose of the
plan is to prevent us from being the target of an unsolicited tender offer or
unfriendly takeover. On May 16, 2000, we amended the Shareholder Rights Plan
to provide for (i) an extension of the final expiration date of the
Shareholder Rights Plan from June 2, 2001 to June 2, 2011 and (ii) a change in
the purchase price of the rights from $300 to $200 per one one-thousandths of
a share of Series A Preferred Stock, subject to adjustment.
Under the plan, our common stockholders were issued one preferred stock
purchase right for each share of common stock owned by them. Until they are
redeemed by us or expire, each preferred stock purchase right entitles the
holder to purchase .001 share of our Series A Preferred Stock, par value $1.00
per share, at an exercise price of $200. We may redeem the preferred stock
purchase rights for $.01 per right at any time until after the date on which
our right to redeem them has expired. In addition, the preferred stock
purchase rights do not become exercisable until our right to redeem them has
expired. Our right to redeem the preferred stock purchase rights expires on
the 10th business day after the date of a public announcement that a person,
or an acquiring person, has acquired ownership of our stock representing 15
percent or more of our shareholders' general voting power. Before an acquiring
person acquires 50 percent or more of our outstanding common stock, the plan
provides that we may offer to exchange the rights, in whole or in part, on the
basis of an exchange ratio of one share of common stock for each right.
However, any rights owned by the acquiring person and its affiliates and
associates will be null and void and cannot be exchanged for common stock.
The plan also provides that, after the date of a public announcement that a
person has acquired ownership of our stock representing 15 percent or more of
our shareholders' general voting power, generally each holder of a preferred
stock purchase right will have the right to purchase, at the exercise price, a
number
F-15
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
8. Stock Options, Shareholder Rights and Stock Repurchase Plans--(Continued)
of shares of our preferred stock having a market value equal to twice the
exercise price. The plan further provides that if certain other business
combinations occur, generally each holder of a preferred stock purchase right
will have the right to purchase, at the exercise price, a number of shares of
the acquiring person's common stock having a market value of twice the
exercise price.
Stock Repurchase Programs
On May 3, 1996, we announced a stock repurchase program for up to $20 million
of our common stock. We acquired 876,702 shares and completed the program in
fiscal 1999.
We announced a second $20 million stock repurchase program on August 5,
1998. We acquired 832,286 shares and completed this program in fiscal 2000.
On September 14, 1999, we announced a third stock repurchase program for
$30 million. We acquired 841,287 shares and completed the program in fiscal
2001.
A fourth stock repurchase program for $40 million was announced on May 16,
2001. We acquired 395,856 shares through June 30, 2002 at a cost of
$16.5 million.
Stock Compensation Plan for Non-Employee Directors
We have a compensation plan for non-employee directors, which became
effective in calendar year 1998. A summary of this plan is shown below:
o Any member of the board of directors who is not an employee or a
consultant to us or any of our divisions or subsidiaries will receive an
annual retainer (currently $24 thousand) payable in shares of our common
stock.
o Payment of the annual retainer is made in January for the prior calendar
year.
o A non-employee director may elect to defer receipt of the annual retainer
in which case the annual retainer will be paid entirely in shares of our
common stock that will be deposited into a director's account established
under the plan.
o In the case of a non-employee director who does not elect to defer the
retainer (or who has not filed a form of election), 39.6% of the retainer
will be paid in cash (to approximate current federal income tax
liability) and the balance in our common stock.
o Distribution of amounts in a director's account will be made when an
event of distribution occurs, in accordance with the method of
distribution stated in the form of election.
9. Segment Information
Our business is the development, manufacture and sale of medical devices. We
have two reportable segments, Cardiac Assist/Monitoring Products and Collagen
Products/Vascular Grafts.
The Cardiac Assist/Monitoring Products segment includes electronic intra-
aortic balloon pumps and catheters that are used in the treatment of vascular
disease and electronic physiological monitors that provide for patient safety
and management of patient care.
The Collagen Products/Vascular Grafts segment includes extravascular
hemostasis devices, which are used to seal arterial puncture wounds to stop
bleeding after cardiovascular catheterization procedures, and a proprietary
line of knitted and woven polyester vascular grafts and patches for
reconstructive vascular and cardiovascular surgery.
F-16
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
9. Segment Information--(Continued)
We have aggregated our product lines into two segments based on similar
manufacturing processes, distribution channels, regulatory environments and
customers. Management evaluates the revenue and profitability performance of
each of our product lines to make operating and strategic decisions. We have
no intersegment revenue.
Cardiac Collagen
Assist/ Products/ Corporate
Monitoring Vascular and
Products Grafts Other(a) Consolidated
-------- ------- ------- --------
Year ended June 30, 2002
Net sales to external customers $237,560 $78,865 $ 975 $317,400
Operating earnings (b)......... $ 15,071 $ 1,879 $ 3,660 $ 20,610
Assets (d)..................... $184,040 $61,479 $70,503 $316,022
Capital expenditures........... $ 2,862 $ 2,477 $ 662 $ 6,001
Depreciation and amortization.. $ 11,918 $ 1,594 $ 729 $ 14,241
Year ended June 30, 2001
Net sales to external customers $229,670 $82,108 $ 1,022 $312,800
Operating earnings............. $ 23,510 $16,606 $ 5,681 $ 45,797
Assets (d)..................... $181,340 $59,343 $69,652 $310,335
Capital expenditures........... $ 7,013 $ 2,145 $ 1,550 $ 10,708
Depreciation and amortization.. $ 11,277 $ 1,524 $ 1,181 $ 13,982
Year ended June 30, 2000
Net sales to external customers $223,135 $77,997 $ 268 $301,400
Operating earnings (c)......... $ 28,523 $20,986 $(5,167) $ 44,342
Assets (d)..................... $155,088 $52,724 $87,514 $295,326
Capital expenditures........... $ 16,700 $11,014 $ 641 $ 28,355
Depreciation and amortization.. $ 10,316 $ 1,410 $ 1,205 $ 12,931
- ---------------
(a) Net sales of life science products by Genisphere are included within
Corporate and Other. Assets within Corporate and Other include cash,
investments, property, plant and equipment including the corporate
headquarters, goodwill and cash surrender value of officers' life
insurance.
(b) Excluding restructuring expenses in fiscal 2002, operating earnings were
$20.8 million for the Cardiac Assist/Monitoring Products segment,
$7.5 million for the Collagen Products/Vascular Grafts segment and
$3.8 million for Corporate and Other.
(c) Excluding the gain on sale of technology in fiscal 2000, operating earnings
were $17.2 million for the Collagen Products/Vascular Grafts segment.
(d) Assets in the Collagen Products/Vascular Grafts segment include net
goodwill of $1.8 million in 2002 and in 2001 and $2.0 million in 2000.
Assets in Corporate and Other include net goodwill of $2.3 million in 2002,
$4.2 million in 2001 and $4.7 million in 2000.
Reconciliation to consolidated earnings before income taxes:
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Consolidated operating earnings ........................................................ $20,610 $45,797 $44,342
Interest income, net ................................................................... 1,754 3,618 3,638
Other (expense) income ................................................................. (297) 176 (132)
------- ------- -------
Consolidated earnings before taxes ..................................................... $22,067 $49,591 $47,848
======= ======= =======
F-17
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
9. Segment Information--(Continued)
The following table presents net sales by geography based on the location of
the external customer.
Year Ended June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
United States ....................................................................... $221,199 $222,484 $215,009
Foreign countries ................................................................... 96,201 90,316 86,391
-------- -------- --------
Total .............................................................................. $317,400 $312,800 $301,400
======== ======== ========
The following table presents long-lived assets by geography.
June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
United States ....................................................................... $108,493 $101,286 $ 94,608
Foreign countries ................................................................... 9,435 13,256 13,570
-------- -------- --------
Total .............................................................................. $117,928 $114,542 $108,178
======== ======== ========
10. Retirement Benefit Plans
We have various retirement benefit plans covering substantially all U.S. and
international employees. Total expense for the domestic and international
retirement plans was $4.8 million in 2002, $4.3 million in 2001 and
$4.4 million in 2000.
Defined Benefit Plan--U.S.
We have a defined benefit pension plan designed to provide retirement
benefits to substantially all U.S. employees. U.S. pension benefits are based
on years of service, compensation and the primary social security benefits.
Funding for the U.S. plan is within the range prescribed under the Employee
Retirement Income Security Act of 1974.
F-18
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
10. Retirement Benefit Plans--(Continued)
The change in benefit obligation, change in plan assets and funded status of
the U.S. defined benefit pension plan is shown below:
Year Ended June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
Change in Benefit Obligation
- ----------------------------
Pension benefit obligation at beginning of year................................................ $ 34,945 $ 27,914 $ 29,240
Service cost................................................................................... 2,040 1,767 2,018
Interest cost.................................................................................. 2,562 2,192 1,971
Plan curtailment............................................................................... (394) -- --
Actuarial loss (gain).......................................................................... 2,307 3,807 (4,710)
Benefits paid.................................................................................. (781) (735) (605)
-------- -------- --------
Pension benefit obligation at end of year.................................................... $ 40,679 $ 34,945 $ 27,914
======== ======== ========
Change in Plan Assets
- ---------------------
Fair value of plan assets at beginning of year................................................. $ 30,967 $ 28,203 $ 26,444
Actual return on assets........................................................................ 783 2,695 1,614
Employer contributions......................................................................... 1,092 804 750
Benefits paid.................................................................................. (781) (735) (605)
-------- -------- --------
Fair value of plan assets at end of year..................................................... $ 32,061 $ 30,967 $ 28,203
======== ======== ========
Funded Status at June 30,
- ------------------------
Pension benefit obligation..................................................................... $(40,679) $(34,945) $(27,914)
Fair value of plan assets...................................................................... 32,061 30,967 28,203
-------- -------- --------
Funded status--plan assets (less) more than benefit obligation................................. (8,618) (3,978) 289
Unrecognized prior service cost................................................................ 23 25 26
Unrecognized net actuarial loss (gain)......................................................... 5,644 2,049 (1,321)
Unrecognized net obligation remaining at June 30,.............................................. 108 184 254
-------- -------- --------
Accrued pension cost......................................................................... $ (2,843) $ (1,720) $ (752)
======== ======== ========
The components of net pension expense of the U.S. defined benefit pension plan
include the following:
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Pension Expense
- ---------------
Service cost...................................................................................... $ 2,040 $ 1,767 $ 2,018
Curtailment cost.................................................................................. 8 -- --
Interest cost..................................................................................... 2,562 2,192 1,971
Expected return on assets......................................................................... (2,465) (2,258) (2,050)
Amortization of net loss and unrecognized prior service cost...................................... 1 1 1
Amortization of the remaining unrecognized net obligation......................................... 69 71 71
------- ------- -------
Net pension expense............................................................................. $ 2,215 $ 1,773 $ 2,011
======= ======= =======
F-19
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
10. Retirement Benefit Plans--(Continued)
Year Ended June 30,
-------------------
2002 2001 2000
---- ---- ----
Actuarial Assumptions
- ---------------------
Discount rate.............................................................................................. 7.00% 7.25% 7.75%
Salary increase............................................................................................ 6.00% 6.00% 6.00%
Long-term return on assets................................................................................. 7.75% 7.75% 7.75%
Plan curtailment and related cost in fiscal 2002 relate to workforce
reductions (See footnote 13).
Plan assets are invested in U.S. Government and corporate securities and
include investments in our common stock of $2.7 million (96,000 shares) at
June 30, 2002.
Defined Benefit Plans--International
We have international defined benefit pension plans. Retirement benefits are
based on years of service, final average earnings and social security
benefits. Funding policies are based on local statutes and the assets are
invested in guaranteed insurance contracts.
The funded status and components of net pension expense of the international
defined benefit pension plans are shown below:
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Funded Status at June 30,
- ------------------------
Pension benefit obligation........................................................................ $(1,559) $(1,960) $(1,554)
Fair value of plan assets......................................................................... 212 281 272
------- ------- -------
Funded status..................................................................................... (1,347) (1,679) (1,282)
Unrecognized net actuarial loss................................................................... 581 1,052 815
Unrecognized net obligation remaining at June 30,................................................. 8 50 67
------- ------- -------
Accrued pension cost............................................................................ $ (758) $ (577) $ (400)
======= ======= =======
Year Ended June 30,
-------------------
2002 2001 2000
---- ---- ----
Pension Expense
- ---------------
Service cost............................................................................................... $ 77 $159 $192
Interest cost.............................................................................................. 95 129 119
Expected return on assets.................................................................................. (17) (26) (27)
Amortization of net loss and unrecognized prior service cost............................................... 15 28 35
Amortization of the remaining unrecognized net obligation.................................................. 4 17 17
Curtailment / termination cost............................................................................. 70 -- --
---- ---- ----
Net pension expense...................................................................................... $244 $307 $336
==== ==== ====
F-20
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
10. Retirement Benefit Plans--(Continued)
Year Ended June 30,
-------------------
2002 2001 2000
---- ---- ----
Actuarial Assumptions
- ---------------------
Discount rate.............................................................................................. 7.00% 7.25% 7.75%
Salary increase............................................................................................ 6.00% 6.00% 6.00%
Long-term return on assets................................................................................. 7.75% 7.75% 7.75%
Supplemental Retirement Plans
We have noncontributory, unfunded supplemental defined benefit retirement
plans for the Chairman and Chief Executive Officer, Mr. Lawrence Saper, and
certain current and former key officers. Life insurance has been purchased to
recover a portion of the net after tax cost for these supplemental retirement
plans. The assumptions used to develop the supplemental pension cost and the
actuarial present value of the projected benefit obligation are reviewed
annually.
A summary of Mr. Saper's supplemental pension plan is as follows:
o Mr. Saper is entitled to receive a lifetime pension of up to 60% of his
average earnings for the three-year period in which Mr. Saper's
compensation was greatest of the ten years immediately preceding his
retirement.
o The supplemental retirement benefit will not be less than the value of
the benefit that would have been payable had his retirement occurred at
age 65.
o The plan provides survivor benefits in the form of a $10 million life
insurance policy, maintained pursuant to a split-dollar agreement between
us, Mr. Saper and a trust for the benefit of Mr. Saper's family.
The supplemental pension expense for Mr. Saper recognized in the
consolidated financial statements was $262 thousand in 2002, $385 thousand in
2001 and $304 thousand in 2000.
The supplemental retirement plan covering certain former key officers
provides a pension at age 65, for up to 15 years, based on a predetermined
earnings level for the five-year period prior to retirement. The supplemental
retirement benefit for two current officers provides a lifetime retirement
benefit. The supplemental pension expense for these executives recognized in
the consolidated financial statements was $240 thousand in 2002, $129 thousand
in 2001 and $101 thousand in 2000.
F-21
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
10. Retirement Benefit Plans--(Continued)
The change in benefit obligation, funded status and components of net
pension expense of the supplemental defined benefit retirement plans are shown
below:
Year Ended June 30,
-------------------------------
2002 2001 2000
-------- -------- --------
Change in Benefit Obligation
- ----------------------------
Pension benefit obligation at beginning of year................................................ $ 11,945 $ 8,931 $ 8,474
Service cost................................................................................... 278 289 212
Interest cost.................................................................................. 611 682 592
Actuarial (gain) loss.......................................................................... (3,017) 2,078 (312)
Benefits paid.................................................................................. (35) (35) (35)
-------- -------- --------
Pension benefit obligation at end of year.................................................... $ 9,782 $ 11,945 $ 8,931
======== ======== ========
Funded Status at June 30,
- ------------------------
Pension benefit obligation..................................................................... $ (9,782) $(11,945) $ (8,931)
Unrecognized prior service cost................................................................ 190 215 410
Unrecognized net actuarial gain................................................................ (2,641) (37) (2,768)
-------- -------- --------
Accrued pension liability.................................................................... $(12,233) $(11,767) $(11,289)
======== ======== ========
Pension Expense
- ---------------
Service cost................................................................................... $ 278 $ 289 $ 212
Interest cost.................................................................................. 611 682 592
Amortization of net gain....................................................................... (433) (721) (639)
Amortization of unrecognized prior service cost................................................ 46 264 240
-------- -------- --------
Net pension expense.......................................................................... $ 502 $ 514 $ 405
======== ======== ========
Actuarial Assumption
- --------------------
Discount rate.................................................................................. 7.00% 7.25% 7.75%
Defined Contribution Plans
We have defined contribution savings and supplemental retirement plans that
cover substantially all U.S. employees and certain international employees.
The plans provide an incentive to employees to save and invest regularly for
their retirement. In the U.S. we maintain a 401(k) savings and supplemental
retirement plan for eligible domestic employees. The contributions are based
on matching 50% of participating employees' contributions up to a maximum of
6% of compensation. The provisions for the international defined contribution
plans vary by local country. The total expense under these plans was
$1.86 million for 2002, $1.70 million for 2001 and $1.68 million for 2000.
F-22
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
11. Commitments and Contingencies
Leases
Future minimum rental commitments under noncancellable operating leases are
as follows:
Year
----
2003.................................................................. $2,948
2004.................................................................. 2,460
2005.................................................................. 1,520
2006.................................................................. 640
2007.................................................................. 372
Thereafter........................................................... 1,002
------
Total future minimum rental payments............................... $8,942
======
Total rent expense amounted to approximately $3.67 million in 2002,
$3.52 million in 2001 and $5.0 million in 2000. Certain of our leases contain
purchase and/or renewal options.
Litigation
We are subject to litigation in the ordinary course of our business. We
believe we have meritorious defenses in all material pending lawsuits and that
the outcome will not have a material adverse effect on our financial position
or results of operations.
Credit Arrangements
We have lines of credit totaling $100.4 million, with interest payable at
each lender's prime rate. We did not have any borrowings at June 30, 2002 or
June 30, 2001. Of the total available, $25 million expires in October 2002,
$25 million expires in November 2002 and $25 million expires in March 2003.
These lines are renewable annually at the option of the banks, and we plan to
renew them. We also have $25.4 million in lines of credit with no expiration
date.
Rabbi Trust
We have established a trust to hold amounts which may become payable in the
future to certain executives of the Company pursuant to various employment,
supplemental benefit and severance agreements upon a change of control of the
Company. We are obligated to fund the trust upon the occurrence of events
tending to indicate that a future change in control of the Company could
occur.
12. Gain on Sale of Technology
In the third quarter of fiscal 2000 we announced the sale of technology from
a discontinued R&D project at our InterVascular, Inc. subsidiary. The sale
resulted in an after-tax gain of $2.5 million.
13. Restructuring Charge
In the first and second quarters of fiscal 2002, we recorded restructuring
charges totaling $11.4 million ($5.1 million in the first quarter and
$6.3 million in the second quarter). The restructuring charges consisted of
the following.
First Quarter
o severance expenses, asset write-downs and exit costs related to the
closure of the VasoSeal manufacturing and R&D facility in Vaals, the
Netherlands, and
o severance expenses for employee terminations in New Jersey facilities.
By the end of the fourth quarter, the manufacture of VasoSeal was
centralized in the Mahwah, New Jersey VasoSeal facility and the Vaals facility
was formally closed and put up for sale. We received FDA
F-23
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
13. Restructuring Charge--(Continued)
clearance for manufacturing at the Mahwah facility, which also houses VasoSeal
R&D, warehousing and administration.
Headcount reductions, primarily in the Netherlands, totaled 110 people, or
8% of our worldwide employment. All of the New Jersey based employees left the
Company effective September 30, 2001. All of the Vaals employees left the
Company by the end of May 2002.
Second Quarter
o workforce reductions in VasoSeal and Patient Monitoring
o costs associated with discontinuing the coronary stent sales business in
Europe, including the resulting impairment of our investments in AMG and
QualiMed, and
o closure of an unprofitable Cardiac Assist direct sales operation in a
European country.
Based on the highly competitive stent market in Europe and an analysis of
the future economic contributions of the stent business, we decided to exit
the coronary stent business. In conjunction with this decision, we decided not
to exercise the option to purchase the remaining 70% of the equity of AMG and
QualiMed and to discontinue support to these businesses. As a consequence of
these decisions and the resulting impact on the operations of AMG and
QualiMed, we determined that there has been an other than temporary decline in
the value of these investments. As a result, we adjusted the carrying value of
these investments to their net realizable value by writing off our 30% equity
investment in these two companies. We will continue to sell peripheral stent
products in Europe through our subsidiary, InterVascular, Inc. The Cardiac
Assist direct sales operation in a European country was closed because it was
unprofitable. We will distribute our Cardiac Assist products through a
distributor in this country. The restructuring charge in the second quarter
includes severance expenses for 41 people, or 3% of our worldwide employment.
Substantially all of the terminated employees left the Company effective
December 31, 2001.
The workforce reductions will not have any significant impact on our
operations. Severance accrued for terminated employees will be utilized by the
end of fiscal 2003. A summary of the restructuring charges and remaining
liability at June 30, 2002 is shown below.
CA
Vaals Stent Office
Plant US Business Closure
Exit Workforce Exit European
Costs Reductions Costs Country Total
------ ---------- -------- -------- -------
Q1 Fiscal 2002 restructuring charges $3,570 $1,562 $ -- $-- $ 5,132
Q2 Fiscal 2002 restructuring charges 354 986 4,900 91 6,331
------ ------ ------ --- -------
Total restructuring charges......... 3,924 2,548 4,900 91 11,463
Utilized through June 30, 2002...... 3,659 2,046 4,426 91 10,222
------ ------ ------ --- -------
Remaining liability at June 30, 2002 $ 265 $ 502 $ 474 $-- $ 1,241
====== ====== ====== === =======
F-24
DATASCOPE CORP. AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
14. Quarterly Financial Data (Unaudited)
Year Ended June 30, 2002
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
Net sales......................... $70,900 $78,300 $81,400 $86,800 $317,400
------- ------- ------- ------- --------
Gross margin...................... $42,994 $46,112 $46,533 $48,229 $183,868
------- ------- ------- ------- --------
Net earnings (loss)............... $ 3,334 $(1,705) $ 6,026 $ 6,246 $ 13,901
------- ------- ------- ------- --------
Earnings (loss) per share, basic.. $ 0.23 $ (0.12) $ 0.41 $ 0.42 $ 0.94
------- ------- ------- ------- --------
Earnings (loss) per share, diluted $ 0.22 $ (0.12) $ 0.40 $ 0.42 $ 0.92
------- ------- ------- ------- --------
Year Ended June 30, 2001
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
Net sales......................... $68,300 $76,100 $82,200 $86,200 $312,800
------- ------- ------- ------- --------
Gross margin...................... $40,638 $46,050 $49,672 $51,410 $187,770
------- ------- ------- ------- --------
Net earnings...................... $ 6,083 $ 8,167 $ 8,640 $11,353 $ 34,243
------- ------- ------- ------- --------
Earnings per share, basic......... $ 0.41 $ 0.55 $ 0.58 $ 0.77 $ 2.30
------- ------- ------- ------- --------
Earnings per share, diluted ...... $ 0.39 $ 0.53 $ 0.56 $ 0.74 $ 2.20
------- ------- ------- ------- --------
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares outstanding during each period.
15. Earnings Per Share
The computation of basic and diluted earnings per share is shown in the
table below.
Year Ended June 30,
----------------------------
2002 2001 2000
------- ------- -------
Net earnings....................................................................................... $13,901 $34,243 $33,075
------- ------- -------
Weighted average shares outstanding for basic earnings per share................................... 14,778 14,904 15,169
Effect of dilutive employee stock options.......................................................... 297 643 911
------- ------- -------
Weighted average shares outstanding for diluted earnings per share................................. 15,075 15,547 16,080
======= ======= =======
Basic earnings per share........................................................................... $ 0.94 $ 2.30 $ 2.18
------- ------- -------
Diluted earnings per share......................................................................... $ 0.92 $ 2.20 $ 2.06
------- ------- -------
F-25
DATASCOPE CORP. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
----------- ------------ ----------------------- ---------- ----------
Additions
-----------------------
(1) (2)
Charged to Charged to Deductions
Balance at Costs Other from Balance at
Description Beginning of and Accounts-- Reserves-- Close of
----------- Period Expenses Describe Describe Period
------------ ---------- ---------- ---------- ----------
Year Ended June 30, 2002
Allowance for doubtful accounts $ 1,350 $ 91 $-- $282(A) $1,159
======= ==== === ======= ======
Reserve for warranty costs..... 350 -- -- 25(A) 325
======= ==== === ======= ======
Year Ended June 30, 2001
Allowance for doubtful accounts $ 1,644 $ 34 $-- $328(A) $1,350
======= ==== === ======= ======
Reserve for warranty costs..... 640 -- -- 290(A) 350
======= ==== === ======= ======
Year Ended June 30, 2000
Allowance for doubtful accounts $1,192 $567 $-- $115(A) $1,644
======= ==== === ======= ======
Reserve for warranty costs..... 640 -- -- -- 640
======= ==== === ======= ======
- ---------------
(A) Write-offs
S-1