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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-6516
DATASCOPE CORP.
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(Exact name of registrant as specified in its charter)
Delaware 13-2529596
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
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(Address of principal executive offices)
(201) 391-8100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO x
--- ---
Number of Shares of Company's Common Stock outstanding as of October 31,
2002: 14,778,798.
Datascope Corp.
Form 10-Q Index
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 2002 and June 30, 2002 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Item 4. Controls and Procedures 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Certification of Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Quarterly Reports 15-16
Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Sept 30, June 30,
2002 2002
--------------- ---------------
Assets (unaudited) (a)
Current Assets:
Cash and cash equivalents $ 7,735 $ 5,548
Short-term investments 15,816 15,817
Accounts receivable less allowance for
doubtful accounts of $1,085 and $1,159 68,287 79,400
Inventories 53,293 51,930
Prepaid expenses and other current assets 13,842 14,874
--------------- ---------------
Total Current Assets 158,973 167,569
Property, Plant and Equipment, net of
accumulated depreciation of $64,586
and $61,622 89,916 89,897
Long-Term Investments 35,136 30,525
Other Assets 28,892 28,031
--------------- ---------------
$ 312,917 $ 316,022
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 15,367 $ 15,258
Accrued expenses 13,547 16,393
Accrued compensation 9,907 13,218
Deferred revenue 4,304 4,459
--------------- ---------------
Total Current Liabilities 43,125 49,328
Other Liabilities 15,834 15,716
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, 17,731 and 17,724 shares 177 177
Additional paid-in capital 72,647 72,542
Treasury stock at cost, 2,953 and 2,946 shares (86,666) (86,484)
Retained earnings 275,523 272,570
Accumulated other comprehensive loss (7,723) (7,827)
--------------- ---------------
253,958 250,978
--------------- ---------------
$ 312,917 $ 316,022
=============== ===============
(a) Derived from audited financial statements
See notes to consolidated financial statements
1
Datascope Corp. and Subsidiaries
Consolidated Statements of Earnings
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
-----------------------------------
2002 2001
--------------- ---------------
Net Sales $ 72,000 $ 70,900
--------------- ---------------
Costs and Expenses:
Cost of sales 29,884 27,906
Research and development
expenses 7,038 5,904
Selling, general and
administrative expenses 29,782 27,947
Restructuring charge -- 5,132
--------------- ---------------
66,704 66,889
--------------- ---------------
Operating Earnings 5,296 4,011
Other (Income) Expense:
Interest income (301) (657)
Interest expense -- 25
Other, net 166 180
--------------- ---------------
(135) (452)
--------------- ---------------
Earnings Before Taxes on Income 5,431 4,463
Taxes on Income 1,738 1,129
--------------- ---------------
Net Earnings $ 3,693 $ 3,334
=============== ===============
Earnings Per Share, Basic $ 0.25 $ 0.23
=============== ===============
Weighted average common
shares outstanding, Basic 14,778 14,783
=============== ===============
Earnings Per Share, Diluted $ 0.25 $ 0.22
=============== ===============
Weighted average common
shares outstanding, Diluted 14,859 15,287
=============== ===============
See notes to consolidated financial statements
2
Datascope Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
September 30,
-----------------------------------
2002 2001
--------------- ---------------
Operating Activities:
Net cash provided by operating activities $ 9,178 $ 8,670
--------------- ---------------
Investing Activities:
Capital expenditures (1,641) (2,238)
Purchases of investments (11,572) (33,236)
Maturities of investments 6,962 35,160
--------------- ---------------
Net cash used in investing activities (6,251) (314)
--------------- ---------------
Financing Activities:
Treasury shares acquired under repurchase programs (182) (6,345)
Exercise of stock options and other 105 (909)
Cash dividends paid (740) (739)
--------------- ---------------
Net cash used in financing activities (817) (7,993)
--------------- ---------------
Effect of exchange rates on cash 77 (36)
--------------- ---------------
Increase in cash and cash equivalents 2,187 327
Cash and cash equivalents, beginning of period 5,548 5,545
--------------- ---------------
Cash and cash equivalents, end of period $ 7,735 $ 5,872
=============== ===============
Supplemental Cash Flow Information
Cash refunded during the period for:
Income taxes $ (654) $ (1,438)
--------------- ---------------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $ 1,860 $ 2,858
--------------- ---------------
See notes to consolidated financial statements
3
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
the accounts of Datascope Corp. and its subsidiaries (the "Company" - which may
be referred to as "our", "us" or "we"). These statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim information, and with the instructions to Form 10Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the U.S. for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for interim periods are not
necessarily indicative of results that may be expected for the full year.
Preparation of the Company's 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 in the financial
statements and accompanying notes. Actual results could differ from those
estimates. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 2002.
We have reclassified certain prior year information to conform with the current
year presentation.
2. Inventories
Inventories are stated at the lower of cost or market, with cost determined on a
first-in, first-out basis.
Sept 30, June 30,
2002 2002
---------- ----------
Materials $ 24,843 $ 21,301
Work in Process 9,313 9,228
Finished Goods 19,137 21,401
---------- ----------
$ 53,293 $ 51,930
========== ==========
3. Stockholders' Equity
Changes in the components of stockholders' equity for the three months ended
September 30, 2002 were as follows:
Net earnings $ 3,693
Foreign currency translation adjustments 104
Common stock and additional paid-in
capital effects of stock option activity 105
Cash dividends on common stock (740)
Purchases under stock repurchase plans (182)
---------
Total increase in stockholders' equity $ 2,980
=========
4
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
4. Earnings Per Share
In accordance with Financial Accounting Standard No. 128, "Earnings Per Share",
we disclose both Basic and Diluted Earnings Per Share. The reconciliation of
Basic Earnings Per Share to Diluted Earnings Per Share is as follows:
For Three Months Ended September 30, 2002 September 30, 2001
- ---------------------- ---------------------------------------- ----------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
- --------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings available to
common shareholders $ 3,693 14,778 $ 0.25 $ 3,334 14,783 $ 0.23
Diluted EPS
- -----------
Options issued to employees -- 81 -- -- 504 (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Earnings available to
common shareholders
plus assumed conversions $ 3,693 14,859 $ 0.25 $ 3,334 15,287 $ 0.22
========== ========== ========== ========== ========== ==========
5. Comprehensive Income
In accordance with Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", we disclose comprehensive income and its components. For
the three month periods ended September 30, 2002 and 2001 our comprehensive
income was as follows:
2002 2001
---------- ----------
Net earnings $ 3,693 $ 3,334
Foreign currency translation gain 104 1,362
---------- ----------
Total comprehensive income $ 3,797 $ 4,696
========== ==========
5
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
6. Segment Information
Our business is the development, manufacture and sale of medical devices. We
have two reportable segments, Cardiac Assist/Monitoring Products and Collagen
Products/Vascular Grafts.
The Cardiac Assist/Monitoring Products segment includes electronic intra-aortic
balloon pumps and catheters that are used in the treatment of cardiovascular
disease and electronic physiological monitors that provide for patient safety
and management of patient care.
The Collagen Products/Vascular Grafts segment includes extravascular hemostasis
devices which are used to seal arterial puncture wounds to stop bleeding after
cardiovascular catheterization procedures and a proprietary line of knitted and
woven vascular grafts and patches for reconstructive vascular and cardiovascular
surgery.
We have aggregated our product lines into two segments based on similar
manufacturing processes, distribution channels, regulatory environments and
customers. Management evaluates the revenue and profitability performance of
each of our product lines to make operating and strategic decisions. We have no
intersegment revenue. Net sales and operating earnings are shown below.
Cardiac Collagen
Assist/ Products/ Corporate
Monitoring Vascular and
Products Grafts Other (a) Consolidated
--------------- --------------- --------------- ---------------
Three months ended September 30, 2002
Net sales to external customers $ 54,079 $ 17,572 $ 349 $ 72,000
--------------- --------------- --------------- ---------------
Operating earnings $ 4,505 $ 316 $ 475 $ 5,296
--------------- --------------- --------------- ---------------
Three months ended September 30, 2001
Net sales to external customers $ 52,310 $ 18,314 $ 276 $ 70,900
--------------- --------------- --------------- ---------------
Operating earnings (loss) (b) $ 5,711 $ (1,814) $ 114 $ 4,011
--------------- --------------- --------------- ---------------
Reconciliation to consolidated earnings
before income taxes: 2002 2001
--------------- ---------------
Consolidated operating earnings $ 5,296 $ 4,011
Interest income, net 301 632
Other (expense) income (166) (180)
--------------- ---------------
Consolidated earnings before taxes $ 5,431 $ 4,463
=============== ===============
(a) Net sales of life science products by Genisphere are included within
Corporate and Other.
(b) Excluding restructuring expenses in the three months ended September 30,
2001, operating earnings were $6.1 million for the Cardiac Assist/
Monitoring Products segment, $2.8 million for the Collagen Products/
Vascular Grafts segment and $0.2 million for Corporate and Other.
6
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
7. Restructuring Charges
In the first and second quarters of fiscal 2002, the Company recorded
restructuring charges totaling $11.4 million, ($5.1 million in the first quarter
and $6.3 million in the second quarter). The restructuring charges consisted of
the following.
First Quarter
o severance expenses, asset writedowns and exit costs related to the
closure of the VasoSeal manufacturing and R&D facility in Vaals, The
Netherlands and
o severance expenses for employee terminations in New Jersey facilities.
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.
The workforce reductions, totaling 151 employees or 11% of our worldwide
employment, did 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 September 30,
2002 is shown below.
CA Office
Vaals U.S. Stent Closure
Plant Workforce Business European
Exit Costs Reductions Exit Costs Country Total
---------- ---------- ---------- ---------- ----------
Q1 Fiscal 2002 restructuring charges $ 3,570 $ 1,562 $ -- $ -- $ 5,132
Q2 Fiscal 2002 restructuring charges 354 986 4,900 91 6,331
---------- ---------- ---------- ---------- ----------
Total restructuring charges 3,924 2,548 4,900 91 11,463
Utilized through September 30, 2002 3,874 2,279 4,694 91 10,938
---------- ---------- ---------- ---------- ----------
Remaining liability at September 30, 2002 $ 50 $ 269 $ 206 $ -- $ 525
========== ========== ========== ========== ==========
7
Datascope Corp. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
First quarter of fiscal 2003 compared to the corresponding period last
year.
Net Sales
Net sales of $72.0 million in the first quarter of fiscal 2003
increased 2% compared to last year.
Sales of the Cardiac Assist/Monitoring Products segment were
$54.1 million compared to $52.3 million in the first quarter last
year.
Sales of Cardiac Assist products decreased 3% to $25.6
million. During the quarter, there was a change in ownership
of the Company's Japanese distributor. As a consequence,
Datascope was advised that the distributor's purchases would
be reduced in each quarter of fiscal 2003 in order to reduce
inventory. The first quarter effect was to reduce total
Cardiac Assist sales by 2.2%. Excluding Japan, the worldwide
sales of IAB catheters increased 6% with gains in the U.S. and
international direct markets. Sales of the new Fidelity(TM) 8
Fr. IAB catheter continued to increase impressively,
accounting for nearly 46% of IAB sales in the final month of
the quarter.
Patient Monitoring sales rose 10% to a record $28.5 million,
driven by higher sales of Accutorr(R) Plus noninvasive blood
pressure monitors and Masimo SET(R)(1) pulse oximetry sensors.
Market demand for the Passport 2(R) portable patient monitor
and the PatientNet(R)(2) wireless monitoring system also
continued strong.
Sales of the Collagen Products/Vascular Grafts segment were
$17.6 million compared to $18.3 million in the first quarter last
year.
During the first quarter, sales of VasoSeal(R) arterial
puncture sealing devices decreased 13% to $11.0 million,
continuing to reflect the intensely competitive market
environment. During the current quarter, the Company is
launching the VasoSeal Low Profile(TM), a product that is
specifically designed for use after 4 and 5 Fr. diagnostic
procedures. The Company believes that the availability of the
VasoSeal Low Profile product will increase its market share in
the diagnostic catheterization market, which is moving towards
use of smaller diameter catheters. Also during the first
quarter, the Company received FDA approval to market the new
VasoSeal Elite(TM) device, which incorporates a new,
proprietary collagen hemostat. Full market release of the
Elite device, which has demonstrated encouraging performance
in limited U.S. testing, is anticipated to occur by the end of
the third fiscal quarter. Both VasoSeal Elite and VasoSeal Low
Profile employ the improved Modified Hold Technique (MHT)
deployment method.
- --------
(1) Masimo SET is a registered trademark of Masimo Corp.
(2) PatientNet is a registered trademark of General Electric Co.
8
Sales of InterVascular, Inc. increased 21% to $6.4 million,
reflecting continued strong demand for the InterGard
Silver(TM) anti-microbial graft in international markets,
favorable foreign exchange, increased U.S. sales attributable
to the activity of the new, dedicated direct sales force, and
higher sales of peripheral stents in European markets.
The weaker U.S. dollar compared to the Euro and the British Pound
increased total sales by approximately $1.0 million in the first
quarter of fiscal 2003.
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage was 58.5% for the first quarter of fiscal
2003 compared to 60.6% for the corresponding period last year. The
reduced gross profit percentage in the first quarter of fiscal 2003 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.
Partially offsetting the above was a favorable impact from an insurance
settlement of $500 thousand, accounted for as a reduction to cost of
sales, consistent with the accounting treatment for the related
inventory write-off which was recorded as a charge to cost of sales in
a previous period.
Research and Development (R&D)
We continued our companywide focus on new product development and
improvements of existing products in the first quarter of fiscal 2003.
Spending on R&D reflects investment in new product development
programs, sustaining R&D on existing products, regulatory compliance
and clinical evaluations. R&D expenses increased 19% to $7.0 million in
the first quarter of fiscal 2003 compared to $5.9 million last year and
increased as a percentage of sales to 9.8% for the first quarter of
fiscal 2003 compared to 8.3% last year. The increased R&D expenses were
primarily attributable to new product development projects in the
Patient Monitoring, VasoSeal and InterVascular businesses.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses, as a percentage of sales were 41.4% in the first quarter
of fiscal 2003 compared to 39.4% last year.
SG&A expenses were $29.8 million in the first quarter of fiscal 2003
compared to $27.9 million last year. The increase in SG&A expenses was
primarily attributable to:
o investment in building a U.S. direct field force for
InterVascular, Inc.
o severance expenses related to workforce reductions in the
VasoSeal business.
The weaker U.S. dollar compared to the Euro and the British Pound
increased SG&A expenses by approximately $0.7 million in the first
quarter of fiscal 2003.
9
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.
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.
The workforce reductions totaling 151 employees or 11% of our worldwide
employment did not have any significant impact on our operations.
Severance accrued for terminated employees will be utilized by the end
of fiscal 2003.
Other Income and Expense
Interest income was $0.3 million in the first quarter compared to $0.7
million last year. The decline in interest income was the result of a
lower average portfolio balance (from $46.8 million to $43.0 million)
and a decrease in the average yield from 5.4% to 3.6%.
Income Taxes
In the first quarter of fiscal 2003, the consolidated effective tax
rate was 32.0% compared to 25.3% for the first quarter last year. The
lower tax rate in the first quarter last year was primarily
attributable to a higher proportion of expenses recorded in
jurisdictions subject to a higher statutory tax rate.
Net Earnings
Net earnings were $3.7 million or $0.25 per diluted share in the first
quarter of fiscal 2003 compared to $3.3 million, or $0.22 per diluted
share last year.
Excluding the restructuring charge last year, net earnings were $3.7
million or $0.25 per diluted share in the first quarter of fiscal 2003,
compared to $6.6 million or $0.43 per diluted share for the
corresponding period last year. The decreased earnings primarily
reflect a reduced gross margin and increased SG&A and R&D expenses, as
discussed above.
Liquidity and Capital Resources
Working capital was $115.8 million at September 30, 2002, compared to
$118.2 million at June 30, 2002. The current ratio was at 3.7:1
compared to 3.4:1. The decrease in working capital was primarily the
result of a decrease in accounts receivable ($11.1 million), partially
offset by a decrease in current liabilities ($6.2 million).
10
In the first quarter of fiscal 2003, cash provided by operations was
$9.2 million compared to $8.7 million last year. The increase is
primarily attributable to a decrease in accounts receivable and
inventories. Net cash used in investing activities was $6.3 million,
attributable to purchases of investments of $11.6 million and the
purchase of $1.6 million of property, plant and equipment, offset by
$7.0 million maturities of investments. Net cash used in financing
activities was $0.8 million, due to $0.7 million dividends paid and
stock repurchases of $0.2 million, offset by stock option activity of
$0.1 million.
We believe our financial resources are sufficient to meet our projected
cash requirements. The moderate rate of current U.S. inflation has not
significantly affected the Company.
Information Concerning Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve
risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements as a
result of many important factors. Many of these important factors
cannot be predicted or quantified and are outside our control,
including the possibility that market conditions may change,
particularly as the result of competitive activity in the Cardiac
Assist, Vascular Sealing and other markets served by the Company, the
Company's dependence on certain unaffiliated suppliers (including
manufacturers) for Patient Monitoring, Cardiac Assist and VasoSeal
products and the Company's ability to gain market acceptance for new
products. Additional risks are the possibility that the availability of
the VasoSeal Low Profile product will not increase our market share in
the diagnostic catherization market, 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 on an on-going basis and adjusts as necessary
to accurately reflect current conditions. 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:
o Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. This allowance is used to state trade
receivables at a net realizable value. We rely on prior
experience to estimate cash which ultimately will be collected
from the gross receivables balance at quarter-end. Such amount
cannot be known with certainty at the financial statement date.
We maintain a specific allowance for customer accounts that we
know may not be collectible due to customer liquidity issues. We
also maintain a general allowance for estimated future
collection losses on existing receivables that arise from
customer accounts which do not reflect the inability to pay at
the financial statement date, but may later be fully or
partially uncollectable.
o Inventory Valuation
We value our inventories at the lower of cost or market. Cost is
determined by the "first-in, first-out" (FIFO) method. Inventory
reserves are recorded to report inventory at its fair market
value. A reserve is recorded for inventory specifically identified
as slow-moving or obsolete. In addition, a general reserve is
recorded based upon the Company's historical experience with
inventory becoming obsolete due to age, changes in technology and
other factors.
o Goodwill Valuation
Goodwill represents the excess of the cost over the fair value
of net assets acquired in business combinations. Goodwill is not
amortized and is subject to the impairment rules of SFAS 142,
which the Company adopted in the first quarter of fiscal 2002.
Goodwill is tested for impairment on an annual basis or more
frequently if changes in circumstances or the occurrence of
events that suggest an impairment may exist. The Company
determines the fair market value of its reporting units using
estimates of projected cash flows.
o Income Taxes
Datascope operates in multiple tax jurisdictions with different
tax rates and must determine the allocation of income to each of
these jurisdictions based on estimates and assumptions. In the
normal course of business, the Company will undergo scheduled
reviews by taxing authorities regarding the amount of taxes due.
These reviews include questions regarding the timing and amount
of deductions and the allocation of income among various tax
jurisdictions. Tax reviews frequently require an extended period
of time to resolve and may result in income tax adjustments if
changes to the allocation are required between jurisdictions
with different tax rates.
o Pension Plan Actuarial Assumptions
The Company sponsors pension plans covering substantially all of
its employees who meet the applicable eligibility requirements.
The Company uses several actuarial and other statistical factors
which attempt to anticipate future events in calculating its
expense and liability related to its pension plans. These
factors include assumptions about discount rate, expected return
on plan assets and rate of future compensation increases. In
addition, the Company's actuarial consultants also utilize
subjective assumptions, such as withdrawal and mortality rates,
to estimate these factors. The actuarial assumptions used by the
Company may differ materially from actual results due to the
changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of
participants. These differences, depending on their magnitude,
could have a significant impact on the amount of pension expense
recorded by the Company in any particular period.
11
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Due to the global nature of our operations, we are subject to the
exposures that arise from foreign exchange rate fluctuations. Our
objective in managing the exposure to foreign currency fluctuations is
to minimize net earnings volatility associated with foreign exchange
rate changes. We enter into foreign currency forward exchange contracts
to hedge a substantial portion of the foreign currency transactions
which are primarily related to certain intercompany receivables
denominated in foreign currencies. Our hedging activities do not
subject us to exchange rate risk because gains and losses on these
contracts offset losses and gains on the assets, liabilities and
transactions being hedged.
We do not use derivative financial instruments for trading purposes.
None of our foreign currency forward exchange contracts are designated
as economic hedges of our net investment in foreign subsidiaries.
As of September 30, 2002, we had a notional amount of $7.4 million of
foreign exchange forward contracts outstanding, which were in Euros and
British pounds. The foreign exchange forward contracts generally have
maturities that do not exceed 12 months and require us to exchange
foreign currencies for U.S. dollars at maturity, at rates agreed to
when the contract is signed.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive
Officer and the Company's Chief Financial Officer, of the effectiveness
of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures
were effective.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the
internal controls subsequent to the date the Company completed its
evaluation.
12
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
99.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K. No reports on Form 8-K have been
filed during the quarter for which this report is
filed.
13
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATASCOPE CORP.
Registrant
By: \s\ Lawrence Saper
------------------
Chairman of the Board and Chief Executive Officer
By: \s\ Leonard S. Goodman
----------------------
Vice President, Chief Financial Officer and Treasurer
Dated: November 14, 2002
14
Certification of Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Quarterly Reports
I, Lawrence Saper, Chairman of the Board and Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Datascope Corp.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
\s\ Lawrence Saper
-------------------------
Lawrence Saper
Chairman of the Board and
Chief Executive Officer
15
Certification of Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Quarterly Reports
I, Leonard S. Goodman, Vice President, Chief Financial Officer and Treasurer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Datascope Corp.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
\s\ Leonard S. Goodman
---------------------------------------
Leonard S. Goodman
Vice President, Chief Financial Officer
and Treasurer
16