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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 March 31, 2003
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number 0-6516
DATASCOPE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-2529596
- --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Philips Parkway, Montvale, New Jersey 07645-9998
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(201) 391-8100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES X NO
----
Number of Shares of Company's Common Stock outstanding as of April 30, 2003:
14,768,296.
Datascope Corp
Form 10-Q Index
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 2003 and June 30, 2002 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Certification of Principal Executive Officer and Principal Financial
Officer Regarding Facts and Circumstances Relating to Quarterly Reports 21-22
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Datascope Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
March 31, June 30,
2003 2002
--------- --------
(unaudited) (a)
Assets
Current Assets:
Cash and cash equivalents $ 12,804 $ 5,548
Short-term investments 27,551 15,817
Accounts receivable less allowance for
doubtful accounts of $1,845 and $1,159 70,211 79,400
Inventories 55,159 51,930
Prepaid expenses and other current assets 14,627 14,874
--------- ---------
Total Current Assets 180,352 167,569
Property, Plant and Equipment, net of accumulated
depreciation of $66,550 and $61,622 89,128 89,897
Long-Term Investments 31,157 30,525
Other Assets 31,008 28,031
--------- ---------
$ 331,645 $ 316,022
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 16,330 $ 15,258
Accrued expenses 14,898 16,393
Accrued compensation 12,922 13,218
Deferred revenue 3,984 4,459
--------- ---------
Total Current Liabilities 48,134 49,328
Other Liabilities 16,176 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, 17,741 and 17,724 shares 177 177
Additional paid-in capital 72,795 72,542
Treasury stock at cost, 2,972 and 2,946 shares (87,141) (86,484)
Retained earnings 287,399 272,570
Accumulated other comprehensive loss (5,895) (7,827)
--------- ---------
267,335 250,978
--------- ---------
$ 331,645 $ 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)
Nine Months Ended Three Months Ended
March 31, March 31,
--------------------------------------- ----------------------------------
2003 2002 2003 2002
------------------- ----------------- --------------- ---------------
Net Sales $ 239,200 $ 230,600 $ 84,700 $ 81,400
------------------- ---------------- -------------- --------------
Costs and Expenses:
Cost of sales 100,542 94,961 35,968 34,867
Research and development
expenses 21,787 18,843 7,495 6,947
Selling, general and
administrative expenses 95,568 92,824 32,250 31,179
Gain on legal settlement (3,028) -- -- --
Restructuring charges -- 11,463 -- --
------------------ ---------------- -------------- --------------
214,869 218,091 75,713 72,993
------------------ ---------------- -------------- --------------
Operating Earnings 24,331 12,509 8,987 8,407
Other (Income) Expense:
Interest income (1,152) (1,440) (520) (394)
Interest expense 1 50 -- 11
Other, net 176 364 137 (6)
------------------ ---------------- -------------- --------------
(975) (1,026) (383) (389)
------------------ ---------------- -------------- --------------
Earnings Before Taxes on Income 25,306 13,535 9,370 8,796
Taxes on Income 8,260 5,880 2,999 2,770
------------------ ---------------- -------------- --------------
Net Earnings $ 17,046 $ 7,655 $ 6,371 $ 6,026
================== ================ ============== ==============
Earnings Per Share, Basic $ 1.15 $ 0.52 $ 0.43 $ 0.41
================== ================ ============== ==============
Weighted average common
shares outstanding, Basic 14,775 14,805 14,769 14,778
================== ================ ============== ==============
Earnings Per Share, Diluted $ 1.15 $ 0.51 $ 0.43 $ 0.40
================== ================ ============== ==============
Weighted average common
shares outstanding, Diluted 14,840 15,099 14,818 14,950
================== ================ ============== ==============
See notes to consolidated financial statements
2
Datascope Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
--------------------------------
2003 2002
---- ----
Operating Activities:
Net cash provided by operating activities $27,367 $8,827
-------- --------
Investing Activities:
Capital expenditures (4,168) (5,171)
Purchases of investments (43,885) (60,013)
Maturities of investments 31,519 66,271
-------- --------
Net cash (used in) provided by investing activities (16,534) 1,087
-------- --------
Financing Activities:
Treasury shares acquired under repurchase programs (657) (8,857)
Exercise of stock options and other 253 899
Cash dividends paid (2,217) (2,217)
-------- --------
Net cash used in financing activities (2,621) (10,175)
-------- --------
Effect of exchange rates on cash (956) (101)
-------- --------
Increase (decrease) in cash and cash equivalents 7,256 (362)
Cash and cash equivalents, beginning of period 5,548 5,545
-------- --------
Cash and cash equivalents, end of period $12,804 $5,183
======== ========
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $6,890 $3,275
-------- --------
Non-cash transactions:
Net transfers of inventory to fixed assets
for use as demonstration equipment $5,129 $5,925
-------- --------
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 United
States 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.
------------ -----------
March 31, June 30,
2003 2002
------------ -----------
Materials $23,267 $21,301
Work in Process 10,304 9,228
Finished Goods 21,588 21,401
------------ ------------
$55,159 $51,930
============ ============
3. Stockholders' Equity
Changes in the components of stockholders' equity for the nine months ended
March 31, 2003 were as follows:
Net earnings $17,046
Foreign currency translation adjustments 1,932
Common stock and additional paid-in
capital effects of stock option activity 253
Cash dividends on common stock (2,217)
Purchases under stock repurchase plans (657)
------------
Total increase in stockholders' equity $16,357
============
4
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
4. Earnings Per Share
In accordance with Statement of Financial Accounting Standards 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 March 31, 2003 March 31, 2002
- ---------------------------------- -------------------------------------------- -------------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
- ------------- ------------- ------------- ------------- ------------- ------------- -----------
Earnings available to
common shareholders $6,371 14,769 $0.43 $6,026 14,778 $0.41
Diluted EPS
Options issued to employees -- 49 -- -- 172 (0.01)
------------- ------------- ------------- ------------- ------------- -----------
Earnings available to
common shareholders
plus assumed conversions $6,371 14,818 $0.43 $6,026 14,950 $0.40
============= ============= ============= ============= ============= ===========
- ---------------------------------- -------------------------------------------- -------------------------------------------
For Nine Months Ended March 31, 2003 March 31, 2002
- ---------------------------------- -------------------------------------------- -------------------------------------------
Net Per Share Net Per Share
Basic EPS Earnings Shares Amount Earnings Shares Amount
------------- ------------- ------------- ------------- ------------- -----------
Earnings available to
common shareholders $17,046 14,775 $1.15 $7,655 14,805 $0.52
Diluted EPS
Options issued to employees -- 65 -- -- 294 (0.01)
------------- ------------- ------------- ------------- ------------- -----------
Earnings available to
common shareholders
plus assumed conversions $17,046 14,840 $1.15 $7,655 15,099 $0.51
============= ============= ============= ============= ============= ===========
5. Comprehensive Income
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", we disclose comprehensive income and its
components. For the three and nine month periods ended March 31, 2003 and 2002
our comprehensive income was as follows:
Nine Months Ended Three Months Ended
----------------------------- -----------------------------
3/31/03 3/31/02 3/31/03 3/31/02
------------- ------------- ------------- -------------
Net earnings $17,046 $7,655 $6,371 $6,026
Foreign currency translation
gain (loss) 1,932 376 623 (544)
------------- ------------- ------------- -------------
Total comprehensive income $18,978 $8,031 $6,994 $5,482
============= ============= ============= =============
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 March 31, 2003
- -----------------------------------------
Net sales to external customers $66,688 $17,701 $311 $84,700
--------------- -------------- -------------- ---------------
Operating earnings (loss) $9,035 ($1,187) $1,139 $8,987
--------------- -------------- -------------- ---------------
- -----------------------------------------
Three months ended March 31, 2002
- -----------------------------------------
Net sales to external customers $59,816 $21,369 $215 $81,400
--------------- -------------- -------------- ---------------
Operating earnings $4,745 $1,895 $1,767 $8,407
--------------- -------------- -------------- ---------------
- -----------------------------------------
Nine months ended March 31, 2003
- -----------------------------------------
Net sales to external customers $184,770 $53,494 $936 $239,200
--------------- -------------- -------------- ---------------
Operating earnings (b) $20,497 $430 $3,404 $24,331
--------------- -------------- -------------- ---------------
- -----------------------------------------
Nine months ended March 31, 2002
- -----------------------------------------
Net sales to external customers $171,429 $58,432 $739 $230,600
--------------- -------------- -------------- ---------------
Operating earnings (c) $11,027 $682 $800 $12,509
--------------- -------------- -------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------
Reconciliation to consolidated earnings Nine Months Ended Three Months Ended
before income taxes : 3/31/03 3/31/02 3/31/03 3/31/02
- ----------------------------------------- --------------- -------------- -------------- ---------------
Consolidated operating earnings $24,331 $12,509 $8,987 $8,407
Interest income, net 1,151 1,390 520 383
Other (expense) income (176) (364) (137) 6
--------------- -------------- -------------- ---------------
Consolidated earnings before taxes $25,306 $13,535 $9,370 $8,796
=============== ============== ============== ===============
(a) Net sales of life science products by Genisphere are included within
Corporate and Other.
(b) Operating earnings for Corporate and Other for the nine months ended March
31, 2003 includes the gain on legal settlement of $3.0 million.
(c) Operating earnings for the nine months ended March 31, 2002 includes
restructuring charges of $5.9 million for the Cardiac Assist / Monitoring
Products segment and $5.6 million for the Collagen Products / Vascular
Grafts segment.
6
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
7. Restructuring Charges
In fiscal 2002, we recorded restructuring charges totaling $11.5 million. The
restructuring charges consisted of the following.
o severance expenses, asset writedowns and contractual obligations related to
the closure of the VasoSeal manufacturing and R&D facility in Vaals, The
Netherlands and severance expenses for U.S. employees.
o asset write-downs, severance expenses and contractual and incremental
obligations associated with exiting the coronary stent sales business in
Europe, including the resulting impairment of our investments in AMG and
QualiMed.
o closure of an unprofitable Cardiac Assist direct sales operation in a
European country.
o workforce reductions in Patient Monitoring.
The workforce reductions totaled 151 employees or 11% of the Company's worldwide
employment. Severance accrued for terminated employees and contractual
obligations will be paid in cash by the end of fiscal 2003. No additional
expenditures are necessary to complete the restructuring programs. A summary of
the restructuring charges and remaining liability at March 31, 2003 is shown
below.
Cardiac Patient
VasoSeal Assist Stents Monitoring Total
------------- ------------- ------------- ------------- ---------------
FY 2002 Restructuring Programs
Asset Write-downs (Non-Cash) $1,807 $ -- $4,011 $ -- $5,818
Severance Expenses 3,552 374 639 420 4,985
Contractual Obligations 355 55 250 -- 660
------------- ------------- ------------- ------------- ---------------
Total Restructuring Charges 5,714 429 4,900 420 11,463
------------- ------------- ------------- ------------- ---------------
Utilized through March 31, 2003
Asset Write-downs (Non-Cash) 1,807 -- 4,011 -- 5,818
Severance Expenses 3,357 374 639 420 4,790
Contractual Obligations 258 55 174 -- 487
------------- ------------- ------------- ------------- ---------------
Remaining Balance March 31, 2003 $292 $ -- $76 $ -- $368
============= ============= ============= ============= ===============
7
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
8. Stock-Based Compensation
We adopted Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS No. 123") in fiscal 1997 and Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure - an amendment of FASB Statement No. 123," ("SFAS
No. 148") in January 2003. 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, and as amended by SFAS No. 148, 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 earnings and earnings per share would have been reported as
the following pro forma amounts:
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------------- -----------------------------
2003 2002 2003 2002
--------------- ------------ ------------ ------------
Net earnings - as reported $17,046 $7,655 $6,371 $6,026
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (2,035) (3,918) (688) (2,071)
--------------- ------------ ------------ ------------
Net earnings - pro forma $15,011 $3,737 $5,683 $3,955
=============== ============ ============ ============
Earnings per share:
Basic - as reported $1.15 $0.52 $0.43 $0.41
=============== ============ ============ ============
Basic - pro forma $1.02 $0.25 $0.38 $0.27
=============== ============ ============ ============
Diluted - as reported $1.15 $0.51 $0.43 $0.40
=============== ============ ============ ============
Diluted - pro forma $1.01 $0.25 $0.38 $0.26
=============== ============ ============ ============
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.
8
Datascope Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, in thousands except per share data)
9. Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123." SFAS No. 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends certain disclosure
requirements of SFAS No. 123. The Company will continue to account for
stock-based compensation using the intrinsic value method. The Company has
adopted the disclosure requirements prescribed by SFAS No. 148 as of March 31,
2003.
In January 2003, the Financial Accounting Standards Boards issued FASB
Interpretation No. (FIN) 46, "Consolidation of Variable Entities." FIN 46
provides guidance on: (1) the identification of entities for which control is
achieved through means other than through voting rights and (2) how to determine
when and which business enterprise should consolidate such entities. In
addition, FIN 46 requires that any enterprises with a significant variable
interest in these types of entities make additional disclosures in all financial
statements initially issued after January 31, 2003. The Company does not
anticipate the adoption of this Interpretation will have any impact on its
financial statements.
In April 2003, the Financial Accounting Standards Board issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS No.
149 is not expected to have a significant impact on the Company's financial
statements.
9
Datascope Corp. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Third quarter and first nine months of fiscal 2003 compared to the
corresponding periods last year.
Net Sales
Net sales were $84.7 million in the third quarter and $239.2 million in
the first nine months of fiscal 2003 representing an increase of 4%,
compared to the third quarter and first nine months of fiscal 2002.
Sales of the Cardiac Assist / Monitoring Products segment were $66.7
million compared to $59.8 million in the third quarter and $184.8
million in the first nine months of fiscal 2003 compared to $171.4
million last year.
Sales of cardiac assist products increased 14% to $31.6 million in
the third quarter, reflecting strong worldwide sales of intra-aortic
balloon pumps, higher international sales of balloon (IAB)
catheters, the favorable effect of foreign exchange translation and
comparison to a weak third quarter last year. Sales of IAB catheters
to the Company's distributor in Japan increased in the third
quarter, after declining in the first and second quarters, as the
distributor resumed its normal purchasing patterns. Sales of the
new, premium-priced Fidelity(TM) 8 Fr. IAB catheter continued to
grow, accounting for 51% of total IAB catheter sales in the third
quarter. Sales of cardiac assist products in the first nine months
of fiscal 2003 were $85.9 million compared to $81.8 million last
year.
Sales of patient monitoring products rose 9% to $35.1 million in the
third quarter, driven by increased sales of wireless central
monitoring systems, Masimo SET(R)1 pulse oximetry sensors and
Accutorr(R) Plus noninvasive blood pressure monitors. Shipments of
the new Anestar(TM) anesthesia delivery system also contributed to
the sales increase. Sales of patient monitoring products in the
first nine months of fiscal 2003 were $98.9 million compared to
$89.6 million last year.
During the third quarter the Company introduced the Spectrum(TM) and
Trio(TM) multi-function patient monitors. The Spectrum monitor is a
battery-powered, portable bedside monitor for the high-end, critical
care market, a $650 million market segment. The Trio is a compact
and highly portable monitor with applications in a wide variety of
hospital and outpatient settings. It is aimed at price sensitive
markets such as surgery centers, general hospital applications and
international markets. The Trio should enable Datascope to expand
its share of an estimated $80 million low cost monitor market.
Shipments of Spectrum in the U.S. and to international markets began
in the third quarter. Shipments of Trio to international markets
began in the third quarter and U.S.
- ----------
(1) Masimo SET is a registered trademark of Masimo Corp.
10
sales are expected to begin in the first half of fiscal 2004 when
FDA market clearance is expected.
Sales of the Collagen Products / Vascular Grafts segment were $17.7
million compared to $21.4 million in the third quarter last year and
$53.5 million in the first nine months of fiscal 2003 compared to $58.4
million last year.
In the third quarter, sales of VasoSeal arterial puncture sealing
devices decreased 28% to $9.7 million, as strong competitive
pressures in the market continued. Sales of VasoSeal in the first
nine months of fiscal 2003 were $31.4 million compared to $39.1
million last year. During the third quarter, the Company introduced
the Elite(TM) product, the next-generation VasoSeal, and began
shipments to a limited number of hospitals. While application of
prior generation VasoSeal products has been largely restricted to
diagnostic cases, many of the Elite customers have begun using Elite
for interventional cases as well. User response to Elite has been
very favorable and suggests that this product will improve
VasoSeal's competitive position.
Production problems that arose shortly after manufacturing of Elite
began have interrupted the Company's ability to manufacture and fill
customers' orders and delayed the full market launch of VasoSeal
Elite. The Company believes that the manufacturing problems have
been resolved and plans for shipments to restart in June. However,
the Company estimates that the Elite production problems and
associated sales shortfall will have an adverse effect on fourth
quarter earnings per share of approximately 16 cents.
Sales of InterVascular, Inc. increased 4% to $7.9 million in the
third quarter, primarily reflecting the positive effect of a weaker
U.S. dollar on international sales in direct markets, increased
sales of the InterGard Silver(TM) anti-microbial graft in Europe and
a modest increase in U.S. sales. Sales of InterVascular in the first
nine months of fiscal 2003 were $21.6 million compared to $18.5
million last year.
The weaker U.S. dollar compared to the Euro and the British Pound
increased total sales by approximately $2.3 million in the third quarter
of fiscal 2003 ($1.6 million for the Cardiac Assist / Monitoring Products
segment and $0.7 million for the Collagen Products / Vascular Grafts
segment) and $4.4 million for the first nine months of fiscal 2003 ($2.9
million for the Cardiac Assist / Monitoring Products segment and $1.5
million for the Collagen Products / Vascular Grafts segment).
Gross Profit (Net Sales Less Cost of Sales)
The gross profit percentage was 57.5% for the third quarter of fiscal 2003
compared to 57.2% for the corresponding period last year. The increased
gross margin percentage was primarily due to an improved gross margin in
the Cardiac Assist / Monitoring Products segment, as a result of cost
reduction programs and higher average selling prices. Partially offsetting
the above were costs associated with the Elite production problem and the
effect of a less favorable sales mix. The gross profit percentage was
58.0% for the first nine months of fiscal 2003 compared to 58.8% for the
same period last year. The reduced gross profit percentage in the first
nine months of fiscal 2003 was primarily attributable to a less favorable
sales mix. In addition, for the first nine months of fiscal 2003, the
gross margin was favorably
11
impacted by an insurance settlement of $500 thousand recorded in the first
quarter related to unusable collagen inventory, which was reserved for in
June 1997, with a charge to cost of sales. Datascope filed a claim under
its property insurance policy for the unusable collagen inventory. When
the Company received the insurance settlement of $500 thousand, in the
first quarter of fiscal 2003, the settlement was accounted for as a
reduction to cost of sales, consistent with the accounting treatment for
the related inventory reserve.
Research and Development (R&D)
We continued our companywide focus on new product development and
improvements of existing products in the third quarter and first nine
months 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 8% to $7.5
million in the third quarter of fiscal 2003, equivalent to 8.8% of sales
compared to $6.9 million, or 8.5% of sales for the third quarter last
year. R&D expenses increased 16% to $21.8 million in the first nine months
of fiscal 2003, equivalent to 9.1% of sales compared to $18.8 million, or
8.2% of sales for the same period last year.
R&D expenses for the Cardiac Assist / Monitoring Products segment
increased 6% to $4.7 million in the third quarter and 16% to $14.2 million
for the first nine months of fiscal 2003, with the increases primarily due
to new product development projects in Patient Monitoring.
R&D expenses for the Collagen Products / Vascular Grafts segment increased
11% to $2.1 million in the third quarter and 17% to $5.9 million for the
first nine months of fiscal 2003, with the increases primarily due to new
product development projects in InterVascular.
The balance of consolidated R&D is in Corporate and Other and amounted to
$0.7 million and $1.6 million in the third quarter and first nine months
of fiscal 2003 compared to $0.6 million and $1.5 million for the
comparable periods last year, respectively.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses increased 3% to $32.3 million in the third quarter of fiscal
2003, or 38.1% of sales compared to $31.2 million, or 38.3% of sales in
the third quarter last year. SG&A expenses increased 3% to $95.6 million,
or 40.0% of sales, in the first nine months of fiscal 2003, compared to
$92.8 million, or 40.3% of sales, for the same period last year.
SG&A expenses for the Cardiac Assist / Monitoring Products segment
increased 4% to $22.0 million in the third quarter of fiscal 2003 and 4%
to $62.4 million in the first nine months of fiscal 2003, with the
increases primarily attributable to higher selling expenses as a result of
filling open positions and costs associated with the increased sales.
SG&A expenses for the Collagen Products / Vascular Grafts segment
decreased 3% to $12.2 million in the third quarter of fiscal 2003, with
the decline primarily due to lower selling and marketing expenses in
Collagen Products. For the nine month period, SG&A expenses increased 1%
to $35.4 million, primarily as a result of expenses associated
12
with the buildup of the U.S. direct field force for InterVascular.
Segment SG&A expenses include fixed corporate G&A charges that are offset
in Corporate and Other.
The weaker U.S. dollar compared to the Euro and the British Pound
increased SG&A expenses by approximately $1.4 million in the third quarter
and $3.0 million for the first nine months of fiscal 2003.
Gain on Legal Settlement
On July 21, 1999, Datascope Corp. instituted patent infringement
litigation relating to a vascular sealing method against Vascular
Solutions, Inc. in the United States District Court, District of
Minnesota. In that litigation Datascope's complaint alleged that the
manufacture, use and/or sale of Vascular Solutions' Duett device
infringed Datascope's United States Patent No. 5,725,498. At the end of
November 2002, the parties settled the matter. Pursuant to the
settlement, Vascular Solutions paid Datascope $3.75 million and
Datascope granted Vascular Solutions a limited, non-exclusive patent
license. In the second quarter of fiscal 2003, we recorded an after-tax
gain on the settlement, net of related legal expenses, of $1.9 million
or $0.13 per diluted share.
Restructuring Charges
In fiscal 2002, we recorded restructuring charges totaling $11.5
million The restructuring charges consisted of the following.
o severance expenses, asset write-downs and contractual obligations
related to the closure of the VasoSeal manufacturing and R&D facility
in Vaals, the Netherlands, and severance expenses for U.S. employees.
o asset write-downs, severance expenses and contractual and incremental
obligations associated with exiting the coronary stent sales business
in Europe, including the resulting impairment of our investments in
AMG and QualiMed.
o closure of an unprofitable Cardiac Assist direct sales operation in a
European country.
o workforce reductions in Patient Monitoring.
The workforce reductions totaled 151 employees or 11% of the Company's
world-wide employment. Severance accrued for terminated employees and
contractual obligations will be paid in cash by the end of fiscal 2003.
No additional expenditures are necessary to complete the restructuring
programs.
13
Other Income and Expense
Interest income was $0.5 million in the third quarter compared to $0.4
million last year. The increase in interest income in the third quarter of
fiscal 2003 was primarily the result of a higher average portfolio balance
($51.7 million vs. $35.8 million), partially offset by a decrease in the
average yield from 3.8% to 2.9%. Interest income was $1.2 million in the
first nine months of fiscal 2003 compared to $1.4 million in the same
period last year with the decrease primarily due to the decline in the
average yield on the portfolio.
Income Taxes
In the third quarter and first nine months of fiscal 2003, the
consolidated effective tax rate was 32.0% and 32.6%, respectively,
compared to 31.5% and 43.4% for the corresponding periods last year. The
consolidated effective tax rate in the first nine months last year was not
a meaningful percentage because taxes were significantly impacted by
expenses related to the restructuring programs in the first and second
quarters that were not deductible for tax purposes, primarily in
international businesses. The effect on the consolidated tax rate of the
gain on legal settlement in fiscal 2003 and the restructuring charge in
fiscal 2002 was 0.6% and 11.9%, respectively. The remaining increase in
the consolidated effective tax rate in the fiscal 2003 periods was
primarily attributable to an increase in state income tax rates.
Net Earnings
Net earnings were $6.4 million or $0.43 per diluted share in the third
quarter of fiscal 2003 compared to $6.0 million, or $0.40 per diluted
share for the same period last year. The increased earnings primarily
reflect an increased gross margin from the higher sales partially offset
by increased R&D and SG&A expenses, as discussed above.
Net earnings in the first nine months of fiscal 2003 were $17.0 million or
$1.15 per diluted share compared to $7.7 million or $0.51 per diluted
share last year. The increased earnings in fiscal 2003 primarily reflects
an increased gross margin from the higher sales, the gain on legal
settlement ($3.0 million pre-tax), and the negative impact on earnings
last year as a result of the restructuring charges ($11.5 million pre-tax)
partially offset by higher R&D and SG&A expenses, as discussed above.
Liquidity and Capital Resources
Working capital was $132.2 million at March 31, 2003, compared to $118.2
million at June 30, 2002. The current ratio was at 3.7:1 compared to
3.4:1. The increase in working capital was primarily the result of an
increase in cash and short-term investments ($19.0 million) and a decrease
in current liabilities ($1.2 million), partially offset by a decrease in
accounts receivable ($9.2 million).
In the first nine months of fiscal 2003, cash provided by operations was
$27.4 million compared to $8.8 million last year. The increase is
primarily attributable to the higher net earnings, depreciation and
amortization and a decrease in accounts receivable. Net cash used in
investing activities was $16.5 million, attributable to purchases of
investments of $43.9 million and the purchase of $4.2 million of property,
plant and equipment, offset by $31.5 million for maturities of
investments. Net cash used in
14
financing activities was $2.6 million, due to $2.2 million dividends paid
and stock repurchases of $0.7 million, offset by stock option activity of
$0.3 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 the restart of shipments of Elite will be delayed beyond
June because production problems have not been resolved, that sales of
Elite will not improve VasoSeal's competitive position, that FDA clearance
will not be received in time to begin sales of the new Trio monitor in the
first half of fiscal 2004, 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 single source 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 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
current and 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:
15
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
estimated 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 estimated 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 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
16
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.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board issued SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure
- an amendment of FASB Statement No. 123." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation and
amends certain disclosure requirements of SFAS No. 123. The Company will
continue to account for stock-based compensation using the intrinsic value
method. The Company has adopted the disclosure requirements prescribed by
SFAS No. 148 as of March 31, 2003.
In January 2003, the Financial Accounting Standards Boards issued FASB
Interpretation No. (FIN) 46, "Consolidation of Variable Entities." FIN 46
provides guidance on: (1) the identification of entities for which control
is achieved through means other than through voting rights and (2) how to
determine when and which business enterprise should consolidate such
entities. In addition, FIN 46 requires that any enterprises with a
significant variable interest in these types of entities make additional
disclosures in all financial statements initially issued after January 31,
2003. The Company does not anticipate the adoption of this Interpretation
will have any impact on its financial statements
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS 149 is effective for contracts entered into or modified after June
30, 2003. The adoption of SFAS No. 149 is not expected to have a
significant impact on the Company's financial statements.
17
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 a
result, no foreign currency transaction gains or losses were recorded in
cumulative translation adjustment for the nine month periods ended
March 31, 2003 and 2002.
As of March 31, 2003, we had a notional amount of $15.4 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 would significantly affect the internal controls
subsequent to the date the Company completed its evaluation.
18
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
On January 28, 2003, Sanmina-SCI, a supplier to the Company, filed a
complaint in the Superior Court of California, County of Santa Clara,
claiming that the Company is obligated to purchase excess inventory of
Sanmina-SCI. Sanmina-SCI seeks damages of $1.2 million, plus material
markup, carrying costs and interest. In response, the Company filed its
answer denying the allegations of the Complaint and counter-claimed for
damages the Company suffered in the amount of $2.3 million for
Sanmina-SCI's breach of its obligation to the Company. The Company
believes it has meritorious defenses and a meritorious counter-claim and
intends to vigorously proceed in this matter.
As we previously reported, on April 2, 2002, the United States District
Court for New Jersey dismissed a shareholder's derivative complaint
against the Company and several of its directors. The action, which is
known as Shaev v. Saper et al., alleges that the Company issued a proxy
statement on October 27, 2000 that contained false and misleading
statements about certain management incentive plans under which Mr. Saper
received compensation, and that certain directors of the Company had
breached their duties by approving payments of compensation to Mr. Saper
in excessive amounts. Neither side conducted any discovery proceedings in
the case prior to dismissal. Plaintiff appealed from the order of
dismissal to the Third Circuit Court of Appeals (the "Third Circuit"). In
a decision filed on February 21, 2003, the Third Circuit vacated the
District Court's order of dismissal and remanded the case for further
proceedings. In so doing, the Third Circuit noted that for purposes of the
appeal it was required to accept as true all of the plaintiff's
allegations and held that the plaintiff stated a cause of action on the
grounds, among other things, that the proxy statement failed to accurately
disclose certain matters relating to management incentive plans under
which Mr. Saper received compensation. The Third Circuit also found that
dismissal of the complaint for failure by plaintiff to make demand upon
the Board of Directors prior to bringing a derivative action was not
appropriate at this preliminary stage of the case. Following remand, the
parties have begun initial discovery proceedings in the district court.
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. For the quarter for which this report on form
10-Q is filed, the Registrant filed a Form 8-K dated April 25, 2003,
pertaining to the Earnings Release of Datascope Corp. dated April
24, 2003.
19
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/ Murray Pitkowsky
--------------------
Senior V.P., Chief Financial Officer and Treasurer
Dated: May 15, 2003
20
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: May 15, 2003
/s/ Lawrence Saper
-------------------------------------------------
Lawrence Saper
Chairman of the Board and Chief Executive Officer
21
Certification of Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Quarterly Reports
I, Murray Pitkowsky, Senior V.P., 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: May 15, 2003
/s/ Murray Pitkowsky
--------------------------------------------------
Murray Pitkowsky
Senior V.P., Chief Financial Officer and Treasurer
22