UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 000-06516
Datascope Corp.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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13-2529596
(I.R.S. Employer
Identification No.)
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14 Philips Parkway
Montvale, New Jersey
(Address of principal executive offices)
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07645
(Zip Code)
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(201) 391-8100
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):
Yes
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No
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The aggregate market value of the common stock held by non-affiliates of the registrant as of
December 31, 2007 was approximately $472 million. As of August 29, 2008, there were 15,868,002
outstanding shares of the registrants common stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrants definitive proxy statement to be filed with the Securities and Exchange
Commission no later than October 28, 2008 pursuant to Regulation 14A of the Securities Exchange Act
of 1934 is incorporated by reference in Items 10 through 14 of Part III of this Form 10-K.
DATASCOPE CORP.
FORM 10-K
TABLE OF CONTENTS
i
PART I
This Annual Report on
Form 10-K
contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which generally can be identified
by the use of forward-looking terminology such as may, expect, estimate, anticipate,
believe, target, plan, project or continue or the negatives thereof or other variations
thereon or similar terminology. These statements appear in a number of places in this Report on
Form 10-K and include statements regarding our intent, belief or current expectations that relate
to, among other things, trends affecting our financial condition or results of operations and our
business and strategies. We may make additional written or oral forward-looking statements from
time to time in filings with the Securities and Exchange Commission or otherwise. Forward-looking
statements speak only as of the date the statement is made. Readers are cautioned that these
forward-looking statements are not a guarantee of future performance and involve risks and
uncertainties, and that actual results may differ materially from those projected in the
forward-looking statements as a result of many important factors. Many of these important factors
cannot be predicted or quantified and are outside of our control, including competitive factors,
changes in government regulation and our ability to introduce new products. The accompanying
information contained in this Annual Report on
Form 10-K
, including, without limitation, the
information set forth below under Item 1 regarding the description of our business, under Item 1A,
Risk Factors and under Item 7 concerning Managements Discussion and Analysis of Financial
Condition and Results of Operations, identifies additional important factors that could cause
these differences. We do not undertake to publicly update or revise our forward-looking statements
even if experience or future changes make it clear that any projected results expressed or implied
in this Annual Report on
Form 10-K
will not be realized. All subsequent written and oral
forward-looking statements attributable to us or persons acting for or on our behalf are expressly
qualified in their entirety by this section.
Item 1.
Business
Overview
Datascope Corp. is a global leader of intra-aortic balloon counterpulsation and a diversified
medical device company that develops, manufactures and markets proprietary products for clinical
health care markets in interventional cardiology and radiology, cardiovascular and vascular
surgery, and critical care. Our products are sold throughout the world through direct sales
representatives and independent distributors. Our largest geographic markets are the United States,
Europe and Japan. Founded in 1964, we are headquartered in Montvale, New Jersey.
We have two reportable segments, Cardiac Assist Products and Vascular Products. The Cardiac
Assist Products segment accounted for 82% of total sales in fiscal 2008. The Cardiac Assist
Products segment sells intra-aortic balloon pumps and catheters, endoscopic vessel harvesting
products and the Safeguard assisted pressure device. Our intra-aortic balloon pump system is used
in the treatment of cardiac shock, acute heart failure, irregular heart rhythms, and for cardiac
support in open-heart surgery, coronary angioplasty, and stenting. The balloon catheter serves as
the pumping device within the patients aorta. The Vascular Products segment sells a proprietary
line of knitted and woven polyester vascular grafts and patches for reconstructive vascular and
cardiovascular surgery, peripheral vascular stent products and stent grafts. The peripheral
vascular products are used by vascular surgeons and interventional radiologists for the treatment
of peripheral aterial disease. Operating data for each segment for the last three fiscal years is
set forth in Note 11 to the Consolidated Financial Statements.
1
Effective May 1, 2008, we sold our Patient Monitoring (PM) business to Mindray Medical
International Limited. The sale of the PM business allows us to focus our efforts on our
high-margin, market-share leading Cardiac Assist Products and our high-margin Vascular Products
segment. We received approximately $209 million in cash at the closing and retained approximately
$30 million of receivables generated by the PM business.
In October 2006, we announced a plan to exit the vascular closure market and phase out the
Interventional Products (IP) business. On August 6, 2008, we completed the sale of assets related
to the VasoSeal, On-Site, and X-Site vascular closure devices, and our collagen operations, to St.
Jude Medical, Inc. for $21.0 million in cash at closing and $3.0 million to be paid upon the
expiration of an 18 month indemnification period. We plan to seek the sale or independent
distribution of our ProLumen
tm
thrombectomy device for the interventional
radiology market; although these plans are subject to the reversal of a verdict that is being
appealed (see Item 3. Legal Proceedings for a discussion of litigation relating to ProLumen). In
February 2007, we completed the sale of our ProGuide
tm
chronic dialysis
catheter and the associated assets for $3.0 million plus a royalty on future sales of the ProGuide
catheter.
Operating results of the PM and IP businesses are reported as discontinued operations for all
periods presented.
On September 15, 2008 we reached an agreement in principle to sell the Company
for $53.00 per share in cash. The agreement is expected to contain customary
representations, warranties and conditions to closing. If and when the
agreement is executed, we intend to file a current report on Form 8-K
describing the transaction and attaching the agreement as an exhibit.
In June 2008, we exercised our option to acquire the Peripheral Vascular Stent business of the
Sorin Group of Milan. The acquisition follows our successful experience as exclusive distributor
of the Sorin peripheral stent product line in Europe, during which sales have grown rapidly since
the product launch in January 2007. With the acquisition, we now gain the opportunity to market the
product line throughout the world. We estimate the worldwide market at $800 million annually, of
which $500 million is in the United States, $200 million is in Europe, and $40 million is in Japan.
Sorins innovative vascular peripheral products are used by vascular surgeons and
interventional radiologists for the treatment of peripheral arterial disease. Unlike competitive
bare metal stents, the Sorin stents incorporate Carbofilm
TM
Technology, which has long
been a standard for treating the surface of mechanical heart valves. As part of the acquisition, we
also received exclusive, worldwide rights to use the Carbofilm
TM1
technology and other
intellectual property within the endovascular field of use. The product line includes
balloon-expandable and self-expanding stent systems, as well as balloon systems for use in
Percutaneous Transluminal Angioplasty (PTA). The worldwide market today for peripheral stents
and PTA is expected to grow to more than $1 billion by 2012 due to an increase in diagnostic
procedures, the demographics of the aging population and the higher incidence of diabetes, high
blood pressure, obesity and hypercholesterolemia all leading causes of peripheral vascular
disease.
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1
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Carbofilm is a pending trademark of Sorin Biomedica
Cardio.
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2
Our
Safeguard
tm
assisted pressure device received FDA 510(k) clearance to
claim reduced manual compression time to stop bleeding following femoral arterial catheterization
in diagnostic and interventional procedures in March 2007. In May 2007, following FDA clearance of
the new clinical claim, we tripled the Safeguard sales and marketing effort in the United States
from a pilot sales group to the entire Cardiac Assist direct sales force. Safeguard is aimed at an
estimated $125 million annual worldwide market.
At the end of December 2007, Datascope Japan K.K., a wholly-owned subsidiary of Datascope
Corp., began management of our Intra-Aortic Balloon Pump (IABP) business in Japan. Datascope
Japan K.K. is responsible for import, product service, sales support and product surveillance of
the IABP business. USCI Holdings Ltd., our new exclusive distributor, is responsible for sales
distribution throughout Japan.
We believe that customers, primarily hospitals and other medical institutions, choose among
competing products on the basis of product performance, features, price and service. In general, we
believe price has become an important factor in hospital purchasing decisions because of pressure
to cut costs. These pressures on hospitals result from Federal and state regulations that limit
reimbursement for services provided to Medicare and Medicaid patients.
There are also cost containment pressures on healthcare systems outside the United States,
particularly in certain European countries. Many companies, some of which are substantially larger
than us, are engaged in manufacturing competing products. Our products are generally not affected
by economic cycles.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
amendments to those reports and other materials we have filed with the Securities and Exchange
Commission (SEC) may be read or copied at the SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. Information regarding the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at
http://www.sec.gov
that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC. Our filings with the SEC are also available on our website
at
http://www.datascope.com
.
We have adopted a written Corporate Business Conduct Policy (including Code of Ethics) that
applies to all our employees. The Corporate Business Conduct Policy is posted on our website under
the Corporate Governance caption. We intend to disclose any amendments to, or waivers from, the
Corporate Business Conduct Policy on our website. In addition, the Companys audit committee
charter, compensation committee charter and nominations and corporate governance committee charter
are also posted on the Companys website. A copy of any of these documents is available, free of
charge, upon written request sent to Datascope Corp., 14 Philips Parkway, Montvale, New Jersey
07645, Attention: Secretary.
Information included on our website is not deemed to be incorporated into this Annual Report
on Form 10-K.
Glossary
We have prepared the glossary below to help you understand our business.
Angioplasty
is the reconstruction of blood vessels, usually damaged by atherosclerosis. If the
arteries in question are in the heart, a coronary bypass operation may be recommended. However, the
nonsurgical method of balloon angioplasty is often employed, especially when only one vessel is
blocked.
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Balloon Angioplasty
, also known as percutaneous transluminal coronary angioplasty (PTCA), is a
nonsurgical method of clearing coronary and other arteries blocked by atherosclerotic plaque,
fibrous and fatty deposits on the walls of arteries. A catheter with a balloon-like tip is threaded
up from the arm or groin through the artery until it reaches the blocked area. The balloon is then
inflated, flattening the plaque and increasing the diameter of the blood vessel opening. The
arterial passage is thus widened or dilated. Balloon angioplasty has evolved to include direct
coronary stenting in greater than 70% of angioplasty procedures to prevent recoil or abrupt closure
of the artery post dilatation.
French (Fr.)
, or French Scale, a system used to indicate the outer diameter of catheters. Each
unit is approximately 1/3 millimeter.
Hemostasis
is the stopping of bleeding, either by physiological properties of coagulation and
vasoconstriction (narrowing of the blood vessels) or by surgical or mechanical means.
Manual Compression
is the stopping of bleeding by physical pressure placed specifically on a
venous or arterial access site. With relation to our IP products, manual compression is typically
applied to the femoral artery.
Percutaneously
is via a passage through the skin by needle puncture, including introduction of
wires or catheters.
Stenting
is a medical procedure that uses tiny mesh tubes to support artery walls to keep the
vessels open.
Vascular Access
is the means of entering the vasculature percutaneously in order to place a
variety of catheters. Vascular Access can be either venous or arterial in nature and can occur at
various points of the body. The most typical vascular access points are femoral (groin), subclavian
(upper chest), internal and external jugular (neck), brachial and radial (arm).
Reportable Segments
The following table shows the percentage of sales by segment as a percentage of total sales
for the last three years:
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Fiscal Year Ended June 30,
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2008
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2007
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2006
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Cardiac Assist
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82
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83
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83
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Vascular Products
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17
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16
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16
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Below is a more detailed description of our major product lines:
Cardiac Assist
We are a leader and pioneer in intra-aortic balloon (IAB) counterpulsation therapy which is
used to support and stabilize heart function. This therapy increases the hearts output and the
supply of oxygen-rich blood to the hearts coronary arteries while reducing the heart muscles
workload and its oxygen demand.
Our line of cardiac assist products and their significant features are as follows:
4
Counterpulsation Products
The intra-aortic balloon pump system is used for the treatment of high-risk cardiac conditions
resulting from ischemic heart disease and heart failure. Patients experiencing acute coronary
syndromes such as acute myocardial infarction, cardiogenic shock and unstable angina may require
IAB therapy to support and stabilize their cardiac status. IAB therapy is also used for high-risk
patients who require revascularization procedures such as percutaneous coronary interventions or
coronary artery bypass procedures including both on-pump and off-pump techniques. These products
and therapy may be used before or during coronary artery bypass grafting or percutaneous coronary
interventions for hemodynamic support.
We produce a line of disposable intra-aortic balloon catheters that serve as the pumping
device within the patients aorta. We introduced the first balloon catheter capable of percutaneous
insertion. This innovation eliminated the need for surgical insertion. As a result, the market for
cardiac assist products expanded from open-heart surgery to interventional cardiology.
Intra-Aortic Balloon Pumps (IABPs)
CS300
The CS300 balloon pump, our next generation balloon pump, was introduced in the third quarter
of fiscal 2007. The CS300 is a fully automatic pump with all the features of
Datascopes CS100®
balloon pump. The CS300 balloon pump teams up with the new Sensation 7 Fr. fiber-optic balloon
catheter to provide higher fidelity blood pressure monitoring while eliminating the need for an
additional invasive arterial pressure catheter as required by conventional balloon pump systems.
The CS300 features rapid start-up with a single push button to allow faster initiation to therapy,
a valuable feature in cardiac emergencies.
CS100
The CS100 automatic IABP, launched in August 2003, includes IntelliSync
TM
automated
arrhythmia tracking and timing algorithms. Other features of the CS100 include automated trigger
selection for easier and continuous patient support, automatic Beat to Beat timing adjustments
based on the patients physiologic landmarks and faster pneumatics to support the most challenging
arrhythmic patients.
System 98XT
The
System 98XT IABP incorporates the CardioSync® 2 software with improved algorithms to
provide enhanced counterpulsation therapy. Other features of the System 98XT include faster
pneumatics and reduced required user intervention.
Significant Developments
In the last few years, we have expanded our product line of IABPs and achieved the following
regulatory and marketing milestones:
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CS300 pump sales began in March 2007 to the U.S. and European markets
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CS100 approval to distribute in Japan received in August 2004
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CS100 United States and European market introduction in August 2003
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Intra-Aortic Balloon Catheters (IABs)
We manufacture a broad line of disposable IAB catheters for use with intra-aortic balloon
pumps in support of counterpulsation therapy.
5
Sensation 7 Fr.
In the third quarter of fiscal 2007, we launched the Sensation 7 Fr. IAB catheter. Using fiber
optic technology, the Sensation 7 Fr. offers the smallest diameter IAB as well as blood pressure
monitoring with greater convenience and higher fidelity blood pressure waveform than conventional
invasive blood pressure monitoring. The reduced size of the Sensation 7 Fr. enables clinicians to
use counterpulsation therapy for a broader range of patients, including patients with smaller
peripheral blood vessels, peripheral vascular disease and diabetes. The Sensation 7 Fr. catheter
also employs Datascopes Durathane balloon membrane, the most abrasion resistant of any IAB in the
industry. Greater resistance to abrasion allows longer periods of balloon pumping therapy.
Linear
TM
7.5 Fr.
In January 2005, we launched our Linear 7.5 Fr. IAB catheter. Linear 7.5 Fr., with a Durathane
membrane and improved 7.5 Fr. introducer sheath, offers easier insertion, abrasion resistance and
improved fatigue resistance and is ideal for smaller adults, diabetics and patients with peripheral
vascular disease. Linear 7.5 Fr. is available in 25cc, 34cc and 40cc balloon volumes.
Fidelity
®
In February 2002, we launched our Fidelity IAB catheter. We believe that Fidelity provides
superior performance to all other 8 Fr. catheters in the market. Fidelity also offers the largest
central lumen (0.030) for consistent, clear arterial waveforms which results in better delivery of
counterpulsation therapy for the patient and easier patient management for the healthcare provider.
The new polymer design enables Fidelity to insert easily and navigate tortuous anatomies. Once
inserted, physicians have the longest insertable length available on the market to ensure optimal
balloon placement. Fidelity is available in 25cc, 34cc and 40cc balloon volumes.
In addition, we manufacture a complete line of intra-aortic balloon catheters to accommodate
counterpulsation therapy in both the adult and pediatric population. We manufacture catheters for
pediatric patients in the 2.5cc, 5cc, 7cc, 12cc and 20cc volumes. Our 9.5 Fr. intra-aortic balloon
catheters are available in 25cc, 34cc and 40cc volumes. A 50cc volume is also available for
patients who are taller than 6 feet. In fiscal 2007, we developed a reduced length membrane balloon
for the Japanese market which is specifically designed for clinical needs of Japanese patients.
In June 2004, we introduced the first and only needle-free securement device for IAB
catheters, the StatLock
Ò
2
, which secures the IAB catheter to the patient without
the danger of accidental needlesticks or suture wound complications. We estimate that more than 25%
of our U.S. customers are utilizing this device.
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StatLock is a registered trademark of Venetec
International, Inc.
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6
Clinical Support
We provide the following clinical and educational services to our customers:
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Telemedicine via our PC-IABP products which offers remote pump monitoring, allowing the
healthcare provider continuous access and instantaneous troubleshooting from highly trained
technicians.
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24 hour, 7 day clinical support.
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On-site training and education for all personnel involved with patient care; more than
30,000 clinicians are trained by our clinical staff annually.
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Comprehensive educational materials for hospital staff, patient and family.
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Consultative services to help hospitals maximize the goals of counterpulsation therapy
within the hospital network.
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The Benchmark
Ò
Registry a comprehensive registry database to assist hospitals
worldwide in tracking and comparing outcomes of counterpulsation therapy administered to
their patients. This enables our customers to demonstrate and measure the clinical benefits
of the therapy. We believe that we are the only supplier offering a comprehensive,
centralized repository of global IABP information.
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Endoscopic Vessel Harvesting
In January 2006, we acquired the ClearGlide EVH product line from the CardioVations division
of Ethicon, a Johnson & Johnson company. EVH devices enable less-invasive techniques for the
harvesting of suitable vessels for use in conjunction with coronary artery bypass grafting.
EVH has been steadily replacing traditional open vessel harvesting techniques since the early
1990s. EVH allows surgeons to avoid problems associated with the traditional open vessel
harvesting techniques which include significant pain and discomfort for the patient during the
recovery period and post incision scars that run the full length of the patients leg or forearm.
The large incisions resulting from the open technique are associated with high rates of wound
complications including dehiscence, hematoma and infection, all of which are avoided through the
use of EVH.
Our EVH product line consists of the ClearGlide procedural kits for saphenous vein and radial
artery harvesting. The major components of these procedural kits are:
The
ClearGlide Optical Vessel Dissector
is a dissecting device with an optically clear blunt
dissecting tip which allows videoscopic visualization and creates a cavity for instrument passage
during insertion, tunneling, and dissection. The device consists of a handle, a shaft and a
transparent angled blunt tip that creates an operative working space around the vein and its side
branches and allows for smooth, atraumatic dissection on anterior and lateral surfaces.
The
ClearGlide Ultra Retractor
elevates the skin to maintain an operative working space for
insertion and passage of dissecting and ligating instruments. It consists of a handle, covered
cannula and a transparent blunt tip spoon that dissects tissue and creates a working space within
which instruments are positioned, passed and used to manipulate tissue; and permits the user to
visualize the tissue beyond the tip during insertion, tunneling, dissection and retraction.
The
ClearGlide Precision Bipolar Device
is used in conjunction with the ClearGlide Ultra
Retractor to provide controlled coagulation and cutting in one step, minimizing instrument
exchanges to accelerate EVH procedure time.
7
The
ClearGlide Radial Artery Kit
includes the Ethicon Harmonic Scalpel® shear that allows for
fast, safe cutting and coagulation of the side branches of the radial artery. Use during radial
artery harvesting procedures results in low vessel trauma and spasm as well as reduced blood loss
versus other cutting and coagulation methods. Additional kit components include a vessel dissector
which is used to ensure that the target vessel is free of all connective tissue and side branch
vessels prior to ligation and extraction and endoscopic scissors used to divide and cut tissue.
Finally, two tie Endoloop® ligature enables the surgeon to ligate the target vessel without making
additional incisions, thus establishing the ClearGlide kit as the only true single incision
procedure kit in the EVH market.
Markets, Sales and Competition.
Our counterpulsation products are sold primarily to major
hospitals with open-heart surgery and balloon angioplasty facilities and community hospitals with
cardiac catheterization laboratories. These products have been sold, to a growing degree, to the
broader range of community hospitals, where counterpulsation therapy is used for temporary support
to the patients heart prior to transport to a major hospital center where definitive procedures,
such as balloon angioplasty or open-heart surgery, can be conducted. Our main competitor for
counterpulsation products is Teleflex Incorporated.
Our EVH products are sold to hospitals performing coronary artery bypass grafting procedures.
This user base is consistent with our counterpulsation user base and our existing direct sales
force handles both product lines. Clinical support and training for our EVH products is provided by
our team of Procedural Specialists who support our sales activities. Our main competitor for EVH
products is Maquet.
Manual Compression Assist Product
Our Safeguard assisted pressure device received FDA 510(k) clearance to claim reduced manual
compression time to stop bleeding following femoral arterial catheterization in diagnostic and
interventional procedures in March 2007. In May 2007, following FDA clearance of the new clinical
claim, we tripled the Safeguard sales and marketing effort in the United States from a pilot sales
group to the entire Cardiac Assist direct sales force. Safeguard is aimed at an estimated $125
million annual worldwide market.
Safeguard is a manual compression assist device used to assist in obtaining and maintaining
hemostasis. It is typically used on the femoral arterial site but may also be used in brachial,
radial and subclavian vessels on cardiac, dialysis and/or critical care patients. Safeguard affixes
to the site with an adhesive backing and offers hands-free consistent compression through inflation
of a bulb with a syringe. Safeguard 24cm was introduced in the second quarter of fiscal 2004. A
second product, Safeguard 12cm was launched in March 2005.
The Safeguard device received FDA 510(k) clearance to claim reduced active (manual)
compression time needed to stop bleeding following femoral arterial catheterization in diagnostic
and interventional procedures in March 2007. The 510(k) included data from a controlled clinical
trial of 100 patients at the Indiana Heart Hospital and St. Marys of Michigan, which showed that
Safeguard reduced the time of manual compression needed to stop bleeding in diagnostic patients to
an average of 7 minutes from an average of 29 minutes using manual compression alone (the
controls). For interventional patients, Safeguard reduced manual compression time needed to stop
bleeding to an average of 10 minutes compared to an average of 27 minutes using manual compression
alone. By sharply reducing the amount of nursing labor devoted to post-procedure hemostasis,
Safeguard adds a significant economic benefit to its use.
Advantages of Safeguard
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Assists in obtaining and maintaining hemostasis during patient recovery and maximizes
valuable staff resources.
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Reduces active compression time in femoral artery cannulation following diagnostic and
interventional procedures.
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Innovative design makes Safeguard easy to apply and simple to use.
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Provides direct visualization of the site and allows for immediate pressure adjustments.
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Enhanced patient comfort: Safeguard is flexible and conformable; it does not restrict
patient mobility and no ancillary equipment or straps are required.
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8
Significant Developments Safeguard
Safeguard has achieved the following milestones:
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Safeguard device received FDA 510(k) clearance to claim reduced active (manual)
compression time needed to stop bleeding following femoral arterial catheterization in
diagnostic and interventional procedures in March 2007.
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Safeguard 12cm received the CE Mark in June 2005.
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Determined to be a Class I, exempt product within the FDA regulations.
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Safeguard 24cm received the CE Mark in October 2003.
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Markets, Sales and Competition.
We estimate the market for non-invasive compression assist
devices to be approximately $125 million annually. We expanded the Safeguard sales and marketing
effort in the United States from a pilot sales group to the entire Cardiac Assist direct sales
force in May 2007.
Safeguard competes with other non-invasive devices such as FemoStop (Radi) and topical
hemostatic patches. A number of companies, some of which are larger than us, manufacture and market
competitive products. Among them are Abbott Laboratories, Medtronic, Vascular Solutions and Marine
Polymer Technologies.
Vascular Products
Our InterVascular, Inc. subsidiary designs, manufactures and distributes a proprietary line of
knitted and woven polyester vascular grafts and patches for reconstructive vascular and
cardiovascular surgery. Vascular grafts are used to replace or bypass diseased arteries. In January
2007, we purchased a five-year license from the Sorin Group of Milan, Italy, for exclusive
worldwide distribution rights to Sorins peripheral vascular stent products, excluding the United
States and Japan. As part of that agreement, we received a call option to acquire Sorins worldwide
peripheral vascular stent business within two years. In June 2008, we exercised our option to
purchase Sorins peripheral vascular stent business. With the acquisition, we now gain the
opportunity to market the product line throughout the world. The product line includes
balloon-expandable and self-expanding stent systems to treat stenosis in iliac, femoral, renal and
infrapopliteal arteries, as well as expandable balloons for use in PTA.
In February 2006, we became the exclusive worldwide distributor, excluding the United States
and Canada, for Vascular Innovations (VI) Aorto UniFemoral (AUF) and Extender Cuff (EC) stent graft
products, under a five-year license agreement with VI. The VI stent grafts are unique innovative
products that address major abdominal aortic aneurysm issues (migration, endoleak type 1, complex
anatomy and rupture).
Vascular Grafts and Patches
Our vascular graft products and their significant features are as follows:
Our
vascular grafts, marketed under the InterGard® brand, include knitted collagen coated
grafts for use in most vascular applications for reconstruction of abdominal aorta and peripheral
arteries and woven products designed primarily for use in thoracic aortic repair and open-heart
surgery.
InterGard® Silver is the worlds first antimicrobial vascular graft specifically designed to
prevent post-operative graft-related infection by using the broad spectrum, anti-microbial
properties of silver, which is released from the surface of the graft into surrounding tissues
following implantation. Vascular graft infection, which occurs in 2% to 5% of cases, typically
lengthens the hospital stay of a patient by up to 50 days, which results in an increase in
treatment cost of approximately $85,000.
InterGard UltraThin is an innovative vascular graft designed to improve outcomes of peripheral
bypass procedures. With a wall thickness of 0.35mm, InterGard UltraThin is the thinnest knitted
polyester collagen coated graft on the market.
9
InterGard Heparin is a heparin bonded, collagen coated graft for replacement and bypass of
peripheral arteries. Occlusion of a peripheral graft following surgery is the most frequent cause
of graft failure. InterGard Heparin is designed to address the issue of occlusion and improve long
term patency of the graft by allowing the properties of heparin to be available locally on the
graft surface for several weeks following implantation. Three year results of a multicentric
prospective randomized study have shown that use of InterGard Heparin has 25% better patency and
65% fewer amputations compared to ePTFE, a synthetic material frequently used for peripheral artery
bypass or repair.
Our line of vascular patches, the InterVascular HemaPatch and HemaCarotid Patch products,
offer the vascular surgeon a complete range of knitted, collagen coated patches in a wide range of
sizes for repair of carotid and peripheral arteries. HemaPatches are available in the Silver
configuration and HemaCarotid patches are also manufactured in the UltraThin configuration, with
and without Heparin.
InterFlow UltraThin is an innovative ePTFE vascular graft designed for peripheral vascular
reconstruction. The unique Multiporous Matrix supports tissue attachment, ensuring
hemocompatibility and biocompatibility.
Vascular Stent Products
Our stent products and their significant features are as follows:
Peripheral Stents
The Sorin stent systems are coated with unique Carbofilm Technology, with biocompatible and
hemocompatible characteristics, that are clinically proven and provide exclusive antithrombogenic
properties.
Radix2 CarboStent is a balloon expandable stent system, indicated for renal therapy. Its
unique progressive design provides an optimal longitudinal flexibility and ostial radial force,
combined with deliverability.
Isthmus CarboStent is a balloon expandable stent system, indicated for iliac and femoral
applications. Its radiopaque markers provide visibility and positioning.
Inperia CarboStent is the first stent system dedicated to infrapopliteal arteries and is a new
technique to improve limb salvage rate for diabetic patients. Clinical data has shown significant
benefits compared to standard balloon angioplasty.
Flype and Hi-Flype CarboStent are self expandable systems, designed for femoral and iliac
indications. Their unique delivery system provides precise and easy handling.
Balloon Catheters
Pegaso 14 and 18 are low profile catheters, mainly indicated for below the knee and renal
stenosis.
Stent Grafts
The
VI Aorto UniFemoral StentGraft
is indicated for use in ruptured acute aortic aneurysm
(AAA), complex iliac anatomy and angulated or short aortic neck. Its balloon expandable system
provides optimal adaptability through a unique size and allows suprarenal fixation. It is
premounted in a 19.5 Fr. outer diameter delivery system.
10
The
VI Extender Cuff
is indicated to treat suboptimal stent graft placement at proximal aortic
neck, to solve proximal type I endoleak and to extend short or angulated neck prior to bifurcated
stent graft implantation. It offers a unique size for optimal adaptability, an expandable balloon
with superior radial force, and is pre-mounted on a 19.5 Fr. delivery system. Its open stent
structure allows suprarenal fixation.
Significant Developments
In the last few years, we have expanded our line of vascular graft and stent products and
achieved the following regulatory and marketing milestones:
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In June 2008, we exercised our option to acquire the Peripheral Vascular Stent business
of the Sorin Group of Milan.
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In January 2007, we purchased a five-year license from the Sorin Group of Milan, Italy,
for exclusive worldwide distribution rights to Sorins peripheral vascular stent products,
excluding the United States and Japan.
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InterGard Thoracic Aortic Root Graft was introduced in Europe in May 2006.
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Effective February 2006, InterVascular became the exclusive distributor of Vascular
Innovations Stent Grafts (AUF and Extender Cuff), in all worldwide markets exclusive of
Japan and the United States.
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HemaPatch Silver was introduced in Europe in March 2004.
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HemaCarotid Patch Heparin was introduced in Europe in March 2004.
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Interflow
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Markets, Sales and Competition
. Effective May 1, 2005, W.L. Gore & Associates Inc. (Gore)
became the exclusive distributor of InterVasculars full line of polyester grafts and patches in
the United States. InterVasculars products are sold by Gores U.S. Vascular Surgery Sales Team and
co-branded under the InterVascular and Gore names.
In Europe the InterVascular product line continues to be marketed by direct sales
representatives and exclusive distributors. In other international markets the InterVascular
product line continues to be sold by its distributor network.
Our vascular graft products are sold to vascular and cardiothoracic surgeons. A number of
companies, some of which are substantially larger than us, manufacture and market products that
compete with our vascular graft products. Our major competitors are Boston Scientific, Vascutek, a
Terumo company, W.L. Gore and Impra, a subsidiary of C.R. Bard, Inc.
Our peripheral stents and balloon catheters are sold to vascular surgeons, interventional
radiologists, interventional cardiologists and angiologists. A number of companies, some of which
are substantially larger than us, manufacture and market products that compete with our stents and
balloon catheters. Our major competitors are Boston Scientific, C.R. Bard, Inc, Cordis, a Johnson &
Johnson company, Abbott Vascular and Invatec.
Our AUF and Extender Cuff products are sold to interventional radiologist, vascular and
cardiothoracic surgeons. A number of companies, some of which are substantially larger than us,
manufacture and market products that compete with our stent grafts products. Our major competitors
are Cook, Vascutek, W.L. Gore and Medtronic.
Life Science Research Products
Genisphere has developed reagents based on a new, proprietary class of DNA molecules known as
3DNA
Ò
, or Three Dimensional Nucleic Acid. A reagent is a biologically or chemically active
substance. Genispheres reagents are used to detect and measure other biological substances. Our
3DNA-based reagents have been shown to provide greater sensitivity in nucleic acid and protein
detection assays than it is possible to achieve using conventional detection methods.
11
Our life science research products are designed primarily for use in newly developed kinds of
detection assays. In these markets, adoption of new technologies, such as 3DNA technology, occurs
much faster and potential customers are more highly concentrated and easier to reach, when compared
to the mature blot market, which was our initial target market. Our first products for these new
markets were detection kits designed to improve the reliability and sensitivity of microarray
experiments. We have also recently begun selling proprietary products that increase the size of
nucleic acid samples and other proprietary products that increase the sensitivity of a wide range
of protein assays.
A number of companies, some of which are substantially larger than us, manufacture and market
products that compete with our life science research products. Our major competitors include
Agilent Technologies, GE Healthcare and Applied Biosystems.
Research and Development (R&D)
We invested approximately $21.1 million or 9.1% of sales in fiscal 2008, $19.9 million or 9.3%
of sales in fiscal 2007 and $19.1 million or 9.7% of sales in fiscal 2006 on research and
development of new products and improvement of our existing products. We have established
relationships with several teaching hospitals for the purpose of clinically evaluating our new
products. We also have consulting arrangements with physicians and scientists in the areas of
research, product development and clinical evaluation.
Marketing
Our products are sold primarily through direct sales representatives in the United States and
a combination of direct sales representatives and independent distributors in international
markets. Our largest geographic markets are the United States, Europe and Japan. Our worldwide
direct sales organization employs approximately 254 people and consists of sales representatives,
sales managers, clinical education specialists and sales support personnel. We have a worldwide
clinical education staff, most of whom are critical care and catheterization lab nurses. They
conduct seminars and provide in-service training to nurses and physicians. No customer accounted
for more than 10% of our total sales in fiscal 2008, 2007 and 2006. Our primary customers include
physicians, hospitals and other medical institutions.
We provide service and equipment maintenance to purchasers of our products under warranty.
After the warranty expires, we provide service and maintenance on an out of warranty and contract
basis. We employ service representatives in the United States, Europe and Japan and maintain
service facilities in the United States, the Netherlands, France, Germany, Belgium, the United
Kingdom and Japan. We conduct regional service seminars throughout the United States for our
customers and their biomedical engineers and service technicians.
International sales as a percentage of our total sales were 57% in fiscal 2008, 52% in fiscal
2007 and 51% in fiscal 2006. We have subsidiaries in the United Kingdom, France, Germany, Italy,
Spain, Belgium, the Netherlands and Japan. Because a portion of our international sales are made in
foreign currencies, we bear the risk of adverse changes in exchange rates for such sales. Please
see Notes 1, 2 and 11 to the Consolidated Financial Statements for additional information with
respect to our international operations and foreign currency exposures.
12
Competition
We believe that customers, primarily hospitals and other medical institutions, choose among
competing products on the basis of product performance, features, price and service. In general, we
believe price has become an important factor in hospital purchasing decisions because of pressure
to cut costs. These pressures on hospitals result from Federal and state regulations that limit
reimbursement for services provided to Medicare and Medicaid patients. There are also cost
containment pressures on healthcare systems outside the United States, particularly in certain
European countries. Many companies, some of which are substantially larger than us, are engaged in
manufacturing competing products.
Seasonality
Typically, our net sales
are higher in the third
and fourth quarters than the first and second quarters. Lower net sales in the first quarter result from
fewer hospital procedures during the summer months. Lower net sales in the second quarter result from
holidays in the United States and
other markets. Independent distributors may randomly place large orders that can distort the net
sales pattern just described. In addition, new product introductions, regulatory approvals and
product recalls can impact the typical sales patterns.
Suppliers
Our
products are made of components which we manufacture or which we purchase from
existing and alternate sources of supply. Some of our products are manufactured through agreements
with unaffiliated companies. We purchase certain components from single or preferred sources of
supply. Our use of single or preferred sources of supply increases our exposure to price increases
and production delays.
Intellectual Property
Intellectual property rights
are important to our business. We own approximately 120 United States and foreign patents
and have approximately 50 pending patent applications.
We also rely upon trade secrets,
manufacturing know-how, and licensing opportunities to maintain
and advance our competitive position. Our policy is to file patent applications in the United
States and foreign countries where rights are available and where we believe it is commercially
advantageous to do so. We hold a number of United States and foreign patents. In addition, we also
have filed a number of patent applications that are currently pending.
Employees
At the end of fiscal 2008, we had approximately 765 employees worldwide. We believe that our
employee relations are satisfactory.
Orders Backlog
At June 30, 2008, we had a total backlog of unshipped customer orders of $2.3 million.
Substantially all of the backlog will be delivered in fiscal 2009. The total backlog at June 30,
2007 was $2.1 million. The increase in the backlog at June 30, 2008 compared to the same period
last year was primarily due to increased orders.
13
Regulation
Our medical devices are subject to regulation by the FDA. In some cases, they are also subject
to regulation by state and foreign governments. The Medical Device Amendment of 1976 and the Safe
Medical Devices Act of 1990 (the Act) , which are amendments to the Federal Food, Drug and
Cosmetics Act of 1938, require manufacturers of medical devices to comply with certain controls
that regulate the composition, labeling, testing, manufacturing and distribution of medical
devices. FDA regulations known as Current Good Manufacturing Practices for Medical Devices
provide standards for the design, manufacture, packaging, labeling, storage, installation and
servicing of medical devices. Our manufacturing and assembling facilities are subject to routine
FDA inspections. The FDA can also conduct investigations and evaluations of our products at its own
initiative or in response to customer complaints or reports of malfunctions. The FDA also has the
authority to require manufacturers to recall or correct marketed products which it believes do not
comply with the requirements of these laws.
Under the Act, all medical devices are classified as Class I, Class II or Class III devices.
In addition to the above requirements, Class II devices must comply with pre-market notification,
or 510(k), regulations and, in some cases, with performance standards or special controls
established by the FDA. Subject to certain exceptions, a Class III device must receive pre-market
approval from the FDA before it can be commercially distributed in the United States. Our principal
products are designated as Class II and Class III devices.
We also receive inquiries from the FDA and other agencies. Sometimes, we may disagree with
positions of staff members of those agencies. To date, the resolutions of such disagreements with
the staffs of the FDA and other agencies have not resulted in material cost to us.
Our international business is subject to medical device laws in countries outside the United
States. Most major markets for medical devices outside the United States require clearance,
approval or compliance with certain standards before a product can be commercially marketed. The
applicable laws range from extensive device approval requirements in some countries for all or some
of our products, to requests for data or certifications in other countries. Generally,
international regulatory requirements are increasing. In the European Union, the regulatory systems
have been consolidated, and approval to market in all European Union countries (represented by the
CE Mark) can be obtained through one agency. In some cases, we rely on our non-U.S. distributors to
obtain registration and approval for our products in a particular foreign jurisdiction.
The United States Medicare-Medicaid Anti-Kickback law, as well as many state laws, prohibit
payments of any kind that are intended to induce a referral for any item payable under Medicare,
Medicaid or any other governmental healthcare programs. Many foreign countries also have similar
laws. We subscribe to the AdvaMed Code (AdvaMed is a U.S. medical device industry trade
association) which limits certain marketing and other practices in our relationship with product
purchasers. We also adhere to a similar code in Europe.
We are also subject to certain Federal, state and local environmental regulations. The cost of
complying with these regulations has not been, and we do not expect them to be, material to our
operations.
We are also affected by laws and regulations concerning the reimbursement of our customers
costs incurred in purchasing our medical devices and products. Healthcare providers that purchase
our medical devices and products generally rely on third-party payors, including the Centers for
Medicare and Medicaid Services (CMS) which administers Medicaid and Medicare, and other types of
insurance programs, to reimburse all or part of the cost of such devices.
The laws and regulations in this area are constantly changing and we are unable to predict
whether, and the extent to which, we may be affected in the future by legislative or regulatory
developments relating to the reimbursement of our medical devices and products.
14
Item 1A.
Risk Factors
In addition to the other information presented in this Form 10-K, the following risk factors
should be considered in evaluating our business. The following discussion of risk factors contains
forward-looking statements, as discussed in Item 1. Our business and financial condition could be
materially adversely affected by any of these risks and our future operating results may differ
materially from the results described in this report due to the risks and uncertainties related to
our business and our industry, including those discussed below. The risks described below are not
the only risks we face. Please note that additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial may also materially and adversely affect our
business, financial condition or results of operations.
Our markets are highly competitive and we face rapid technological changes in the medical device
industry, which may impact the growth of our business.
Our future growth is dependent upon our ability to market our products effectively in a strong
competitive environment and respond to rapidly changing technology and alternative
products/treatments. The medical device market is intensely competitive and we encounter
significant competition from various medical device companies in each market in which our products
are sold. Our competitors range from small start-up companies to companies which are larger than we
are and have significantly greater resources and broader product offerings. We expect competition
will continue to intensify as the medical device industry consolidates and new competitors,
products and treatments are brought into the market. In addition, we face competition from
alternative therapies primarily in our Cardiac Assist and Vascular Products businesses.
Our customers consider many factors when choosing suppliers, including product reliability,
clinical outcomes, product availability, price and services provided by the manufacturer. Market
share can shift as a result of technological innovation and other business factors. We may
experience decreasing prices for the products and services we offer due to pricing pressure
experienced by our customers from managed care organizations and other third-party payors,
increased market power of our competitors as the medical device industry consolidates and increased
competition among medical device companies. If the prices for our products and services decrease
and we are unable to reduce our expenses, our results of operations will be adversely affected.
Our future growth is dependent upon the development of new products, which requires significant
research and development, clinical trials and regulatory approval, and therefore may not result in
commercially viable products.
Our future growth is dependent upon the development of new products, which requires that
significant resources be devoted to research and development activities, clinical trials and
obtaining regulatory approval. In order to develop new products and improve current product
offerings, we focus our research and development programs largely on the development of
next-generation and new technology offerings. We have continued to increase our investments in R&D
over the past few years and anticipate that we will continue to increase R&D spending in the
future. If we are unable to develop and launch new products as anticipated, or if our R&D efforts
do not achieve technical feasibility, our ability to maintain or expand our market position may be
adversely impacted.
Failure to successfully select, negotiate and integrate acquired technologies, products or
businesses could adversely affect our business.
As part of our strategy to develop and identify new products and technologies, we have made
acquisitions and investments in recent years, including our acquisition of the Sorin Peripheral
Vascular Stent business in June 2008 and the ClearGlide EVH product in January 2006.
15
The success of any acquisition or investment that we may undertake will depend on a number of
factors, including:
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our ability to identify suitable opportunities for acquisition or investment
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our ability to finance any future acquisition or investment on terms acceptable to us
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litigation related to acquired technologies
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our ability to integrate the acquired business or technology successfully with our
existing business
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the presence or absence of adequate internal controls and/or significant fraud in the
financial systems of acquired companies
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adverse developments arising out of investigations by governmental entities of the
business practices of acquired companies
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any decrease in customer loyalty and product orders caused by dissatisfaction with our
combined product lines and sales and marketing practices, including price increases
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If we are unsuccessful in our acquisitions or investments, we may be unable to continue to
grow our business significantly or may need to record asset impairment charges in the future.
We are subject to widespread government regulation which may delay the approval of our products or
result in the recall of previously approved products.
We are subject to compliance with numerous Federal, state and international government
regulations regarding design, manufacturing, labeling, packaging, storage, distribution,
installation and service of medical devices. Our products, development activities and manufacturing
processes are subject to extensive and rigorous regulation by the FDA pursuant to the Federal Food,
Drug, and Cosmetic Act (the FDC Act), by comparable agencies in foreign countries, and by other
regulatory agencies and governing bodies. Under the FDC Act, medical devices must receive FDA
clearance or approval before they can be commercially marketed in the United States. In addition,
most major markets for medical devices outside the U.S. require clearance, approval or compliance
with certain standards before a product can be commercially marketed. Under the Safe Medical Device
Act of 1990, all medical devices are classified as Class I, Class II or Class III devices. In
addition to the above requirements, Class II devices must comply with pre-market notification, or
510(k), regulations and with performance standards or special controls established by the FDA.
Subject to certain exceptions, a Class III device must receive pre-market approval from the FDA
before it can be commercially distributed in the United States. Our principal products are
designated as Class II and Class III devices. The process of obtaining marketing approval or
clearance from the FDA for new products, or with respect to enhancements or modifications to
existing products, could:
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take a significant period of time
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require the expenditure of substantial resources
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involve rigorous pre-clinical and clinical testing
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require changes to the products
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result in limitations on the indicated uses of the products
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As a device manufacturer, we are subject to periodic inspection by the FDA for compliance with
the FDAs Quality System Regulation requirements, which require manufacturers of medical devices to
adhere to certain regulations, including testing, quality control and documentation procedures. In
addition, the Federal Medical Device Reporting regulations require us to provide information to the
FDA whenever there is evidence that reasonably suggests that a device may have caused or
contributed to a death or serious injury or that it malfunctioned in a way that could cause or
contribute to a death or serious injury. Compliance with applicable regulatory requirements is
subject to continual review and is rigorously monitored through periodic inspections by the FDA. In
the European Community, we are required to maintain certain ISO certifications in order to sell our
products and must undergo periodic inspections by notified bodies to obtain and maintain these
certifications.
16
Even after products have received marketing approval or clearance, product approvals and
clearances by the FDA can be withdrawn due to failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial approval. There can be no assurance that we
will receive the required clearances from the FDA for new products or modifications to existing
products on a timely basis or that any FDA approval will not be subsequently withdrawn. The failure
to receive product approval clearance on a timely basis, suspensions of regulatory clearances,
seizures or recalls of products or the withdrawal of product approval by the FDA could have a
material adverse effect on our business, financial condition or results of operations because we
would not be able to sell unapproved or recalled products and we may incur significant costs
related to product recalls.
Cost containment pressures and legislative or regulatory reforms may decrease the demand for our
products and the prices that customers are willing to pay for our products.
Our future growth is dependent upon health care cost containment and third party/government
reimbursement policies including the impact of hospital buying groups and industry consolidation.
Healthcare costs have significantly risen over the past decade. There have been and may continue to
be proposals by legislators, regulators and third-party payors to control these costs. Certain
reform proposals and other policy changes, if passed, could impose limitations on the prices we
will be able to charge for our products, or the amounts of reimbursement available for our products
from governmental agencies or third-party payors. These limitations could have a material adverse
effect on our financial position and results of operations because our sales revenue would be
reduced.
Since we derive a significant portion of our revenues from international operations, changes in
international economic or regulatory conditions could have a material impact on the results of our
operations.
Our products are currently marketed around the world, with our largest geographic markets
outside of the United States being Europe and Japan. Our continuing operations in countries outside
the United States accounted for approximately 57% of our sales in fiscal 2008. We intend to
continue to pursue growth opportunities in international markets which subjects us to risks
generally associated with international operations, such as: unexpected changes in regulatory
requirements; tariffs, customs, duties and other trade barriers; difficulties in staffing and
managing foreign operations; differing labor regulations; longer payment cycles; problems in
collecting accounts receivable; risks arising from a specific countrys or regions political or
economic conditions, including the possibility of terrorist actions; fluctuations in currency
exchange rates; foreign exchange controls that restrict or prohibit repatriation of funds; export
and import restrictions or prohibitions; delays from customs brokers or government agencies;
changes in foreign medical reimbursement policies and programs; differing protection of
intellectual property; and potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws. Any one or more of these risks could materially
adversely impact the success of our international operations.
Reduction or interruption in supply of components and materials used to manufacture our products,
resulting from events such as damage to any of our manufacturing facilities or the loss of any of
our sole-source suppliers, and the inability to develop alternative sources of supply, could
impair our ability to meet sales demand and adversely affect our manufacturing operations and
related product sales.
Reduction or interruption in the supply of components and materials used to manufacture our
products, reliance on third party manufacturers for certain products, and damage to any of our
manufacturing facilities, which could temporarily impair our ability to meet sales demand, may
adversely affect our manufacturing and distribution operations and related product sales. If an
event occurred that resulted in damage to one or more of our facilities, we may be unable to
manufacture the relevant products at previous levels or at all. In addition, we purchase many of
the components and raw materials used in manufacturing our products from numerous suppliers. For
reasons of quality assurance, sole source availability or cost effectiveness, certain components
and raw materials are available only from a sole supplier. Due to the FDAs stringent regulations
and requirements regarding the manufacture of our products, we may not be able to quickly establish
additional or replacement
17
sources for certain components or materials. The reduction or interruption in supply, and an
inability to develop alternative sources for such supply, could adversely affect our ability to
manufacture our products in a timely or cost effective manner.
A loss of key personnel or our inability to attract and retain additional personnel may adversely
affect our business.
Our future growth is dependent upon our reliance on key employees, including executive
officers, management, sales and technical employees involved in R&D. The talent and drive of our
employees is an important factor in the success of our business. Our sales, technical and other key
personnel play an integral role in developing, marketing and selling of new and existing products.
If we are unable to recruit, hire, develop and retain talented employees and key management we may
not be able to meet our business objectives.
If we are unable to protect our intellectual property successfully our business could be
adversely affected.
Intellectual property rights are important to our business and our ability to compete
effectively with other companies is dependent upon the proprietary nature of our technologies. We
also rely upon trade secrets, manufacturing know-how, continuing technology innovations and
licensing opportunities to maintain and improve our competitive position. Our policy is to file
patent applications in the United States and foreign countries where rights are available and where
we believe it is commercially advantageous to do so. We hold a number of U.S. and foreign patents.
In addition, we also have filed a number of patent applications that are currently pending. Pending
or future patent applications may not result in issued patents, current or future patents issued to
or licensed by us may be challenged, invalidated or circumvented and the rights granted thereunder
may not provide a competitive advantage to us or prevent competitors from entering markets which we
currently serve. In addition, we may have to take legal action in the future to protect our trade
secrets or know-how or to defend them against claimed infringement of the rights of others. Any
legal action of that type could be costly and time consuming to us and any lawsuit may not be
successful. The invalidation of key patents or proprietary rights which we own or an unsuccessful
outcome in lawsuits to protect our intellectual property could increase the competitive pressures
that we face and therefore have a material adverse effect on our financial condition and results of
operations.
Pending and future litigation and any resulting settlement awards may be costly and impact
our ability to obtain cost-effective third-party insurance coverage in the future.
We are a defendant in various proceedings, legal actions and claims arising in the normal
course of business, including product liability and other matters. Such matters are subject to many
uncertainties and outcomes are not predictable with assurance. To mitigate losses arising from
unfavorable outcomes related to product liability and general liability matters, we purchase
third-party insurance coverage subject to deductibles and loss limitations. We may incur
significant legal expenses regardless of whether we are found to be liable. In addition, such
product liability settlements may negatively impact our ability to obtain cost-effective
third-party insurance coverage in future periods.
Item 1B.
Unresolved Staff Comments
None.
18
Item 2.
Properties
The following table contains information concerning our significant real property that we own
or lease:
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Ownership or
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General Character
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Expiration
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Location
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and Use of Property
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Date of Lease
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Fairfield, New Jersey
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75,000 sq. feet, used for Cardiac Assist Products
headquarters, manufacturing and R&D of intra-aortic
balloons, R&D of endoscopic vessel harvesting
products and Safeguard.
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Owned
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Hatfield, Pennsylvania
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15,000 sq. feet, used for Genisphere manufacturing,
distribution, R&D and warehousing.
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Leased (until
6/30/11)
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La Ciotat, France
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30,000 sq. feet, used by InterVascular for
manufacturing, R&D and warehousing of vascular
grafts, and administrative offices.
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Owned
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Mahwah, New Jersey
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90,000 sq. feet, used for warehousing, packaging,
distribution and service offices of Cardiac Assist
Products, and offices for IT and customer service.
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Owned
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Montvale, New Jersey
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38,000 sq. feet, used for corporate headquarters
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Owned
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We also lease office space in England, France, Italy, Belgium, Germany and Japan We believe
that our facilities and equipment are in good working condition and are adequate for our needs.
Item 3.
Legal Proceedings
We are subject to certain legal actions, including product liability matters, arising in the
ordinary course of our business. We believe we have meritorious defenses in all material pending
lawsuits. We also believe that we maintain adequate insurance against any potential liability for
product liability litigation. In accordance with generally accepted accounting principles we accrue
for legal matters if it is probable that a liability has been incurred and an amount is reasonably
estimable.
The Public Prosecutors Office in Darmstadt, Germany is conducting an investigation of current
and former employees of one of our German subsidiaries. The investigation concerns marketing
practices prior to February 2003 under which benefits were provided to customers of the subsidiary.
We cooperated with the police portion of the investigation that has now been concluded with the
filing of a report of the findings with the prosecutors office in April 2007. The prosecutor is
now reviewing the report to determine how he will proceed. We cannot predict at this time what the
outcome of the prosecutors review will be, although, we do not believe that it will have a
material adverse effect on our business or consolidated financial statements.
On March 18, 2005, Johns Hopkins University and Arrow International, Inc. filed a complaint in
the United States District Court for the District of Maryland, seeking a permanent injunction and
damages for patent infringement. They allege that our ProLumen Rotational Thrombectomy System infringes one or
more claims of their U.S. patents 5,766,191 and 6,824,551. We have filed an answer denying such
infringement and discovery has been completed. On October 13, 2006, Johns Hopkins and Arrow filed a
second complaint based upon their newly issued U.S. patent 7,108,704 claiming our ProLumen device
infringes one or more claims of this patent.
19
The parties have agreed that this matter should be consolidated with the first case and the
consolidation has taken place. A jury trial took place in late June 2007 that resulted in a finding
that the ProLumen product infringed one or more claims of each of the three patents, that we owed
approximately $690,000 in damages to the plaintiffs and an injunction was issued precluding us from
further selling the ProLumen product. We filed a Notice of Appeal regarding the lower courts
decision. The appeal has been briefed and was argued before the United States Court of Appeals for
the Federal Circuit on April 8, 2008 and we are awaiting a decision. We believe we will be
successful on appeal in overturning the lower courts findings and, therefore, an accrual for the
royalty liability has not been recorded and no impairment of the assets related to ProLumen has
been taken.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 4A.
Executive Officers of the Company
The following table sets forth the names, ages, positions and offices of our executive
officers:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Positions and Offices Presently Held
|
|
|
|
|
|
|
|
Lawrence Saper
|
|
|
80
|
|
|
Chairman of the Board and Chief Executive Officer
|
Antonino Laudani
|
|
|
49
|
|
|
Vice President and Chief Operating Officer
|
Henry M. Scaramelli
|
|
|
55
|
|
|
Vice President, Finance and Chief Financial Officer
|
Fred Adelman
|
|
|
55
|
|
|
Vice President, Chief Accounting Officer and Treasurer
|
Nicholas E. Barker
|
|
|
50
|
|
|
Vice President, Corporate Design
|
Robert O. Cathcart
|
|
|
48
|
|
|
Vice President; President, Interventional Products Division
|
Timothy J. Krauskopf
|
|
|
47
|
|
|
Vice President, Regulatory and Clinical Affairs
|
Boris Leschinsky
|
|
|
43
|
|
|
Vice President, Technology
|
20
PART II
|
|
|
Item 5.
|
|
Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Market Information
Our common stock is traded over-the-counter and is listed on the NASDAQ Global Select Market
(NASDAQ). Our NASDAQ symbol is DSCP. The following table sets forth, for each quarter period during
the last two fiscal years, the high and low sale prices as reported by NASDAQ and the quarterly
dividends per share declared by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
High
|
|
Low
|
|
Dividends
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
35.83
|
|
|
$
|
29.23
|
|
|
$
|
1.07
|
(a)
|
Second Quarter
|
|
|
37.23
|
|
|
|
32.49
|
|
|
|
0.10
|
|
Third Quarter
|
|
|
37.98
|
|
|
|
33.85
|
|
|
|
0.10
|
|
Fourth Quarter
|
|
|
39.06
|
|
|
|
34.98
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
39.34
|
|
|
$
|
29.29
|
|
|
$
|
0.10
|
|
Second Quarter
|
|
|
40.00
|
|
|
|
32.58
|
|
|
|
1.20
|
(b)
|
Third Quarter
|
|
|
41.70
|
|
|
|
31.75
|
|
|
|
|
|
Fourth Quarter
|
|
|
48.75
|
|
|
|
36.86
|
|
|
|
0.10
|
|
|
|
|
(a)
|
|
In fiscal 2007, we declared a special dividend of $1.00 per share, or $15.3 million,
which was paid on October 6, 2006 to holders of record on September 28, 2006.
|
|
(b)
|
|
In fiscal 2008, we declared a special dividend of $1.00 per share, or $15.4 million,
paid on October 15, 2007 to stockholders of record as of October 1, 2007
|
As of August 29, 2008, there were approximately 475 holders of record of our common stock.
21
Performance Graph
The following graph compares the cumulative total shareholder return on our common stock with
the cumulative total return of the Standard & Poors 500 Stock Index and the Standard & Poors
Health Care Equipment Index for the five year period commencing July 1, 2003 and each subsequent
June 30 through June 30, 2008. The graph assumes that the value of the investment in Common Stock
was $100 on July 1, 2003 and that all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Dividend Policy
On December 7, 1999, the Board of Directors inaugurated quarterly cash dividends. Our dividend
policy is reviewed periodically.
Recent Sales of Unregistered Securities
None.
22
Issuer Purchases of Equity Securities
The following table sets forth information on repurchases by us of our common stock during the
fourth quarter of the fiscal year ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum Dollar
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Value of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
that May Yet Be
|
|
|
|
Total
|
|
|
|
|
|
|
Part of
|
|
|
Purchased
|
|
|
|
Number of
|
|
|
Average
|
|
|
Publicly
|
|
|
Under the
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Programs
|
|
Fiscal Period
|
|
Purchased
|
|
|
Per Share
|
|
|
Programs
|
|
|
($ 000s)
|
|
4/01/08 4/30/08
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
41,103
|
|
5/01/08 5/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,103
|
|
6/01/08 6/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fourth Quarter
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
41,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current stock repurchase programs were announced on May 16, 2001 and September 15, 2006.
Approval was granted for up to $40 million in repurchases for each program and there are no
expiration dates on the current programs.
23
Item 6.
Selected Financial Data
The following table sets forth selected consolidated financial data for Datascope as of the
dates and for the periods indicated. The data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and the financial
statements and related notes thereto on pages F-1 to F-43.
Earnings Statement Data:
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Net sales
|
|
$
|
230,915
|
|
|
$
|
212,991
|
|
|
$
|
196,516
|
|
|
$
|
179,266
|
|
|
$
|
164,390
|
|
Cost of sales
|
|
|
80,013
|
|
|
|
74,148
|
|
|
|
68,320
|
|
|
|
59,176
|
|
|
|
55,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
150,902
|
|
|
|
138,843
|
|
|
|
128,196
|
|
|
|
120,090
|
|
|
|
109,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development expenses
|
|
|
21,079
|
|
|
|
19,901
|
|
|
|
19,129
|
|
|
|
20,330
|
|
|
|
17,463
|
|
Selling,
general and administrative expenses
|
|
|
92,617
|
|
|
|
87,424
|
|
|
|
81,152
|
|
|
|
78,509
|
|
|
|
75,012
|
|
Other items (a)
|
|
|
|
|
|
|
8,737
|
|
|
|
|
|
|
|
6,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,696
|
|
|
|
116,062
|
|
|
|
100,281
|
|
|
|
105,793
|
|
|
|
92,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
37,206
|
|
|
|
22,781
|
|
|
|
27,915
|
|
|
|
14,297
|
|
|
|
16,528
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(2,698
|
)
|
|
|
(2,479
|
)
|
|
|
(2,225
|
)
|
|
|
(2,228
|
)
|
|
|
(1,822
|
)
|
Interest expense
|
|
|
84
|
|
|
|
36
|
|
|
|
228
|
|
|
|
221
|
|
|
|
25
|
|
Dividend income (b)
|
|
|
|
|
|
|
(196
|
)
|
|
|
(4,523
|
)
|
|
|
|
|
|
|
|
|
Gain on sale
of investments (c)
|
|
|
(13,173
|
)
|
|
|
(1,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1,727
|
|
|
|
737
|
|
|
|
1,414
|
|
|
|
513
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,060
|
)
|
|
|
(3,175
|
)
|
|
|
(5,106
|
)
|
|
|
(1,494
|
)
|
|
|
(1,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
51,266
|
|
|
|
25,956
|
|
|
|
33,021
|
|
|
|
15,791
|
|
|
|
17,902
|
|
Income taxes
|
|
|
17,488
|
|
|
|
7,662
|
|
|
|
8,289
|
|
|
|
3,804
|
|
|
|
4,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
33,778
|
|
|
|
18,294
|
|
|
|
24,732
|
|
|
|
11,987
|
|
|
|
13,157
|
|
Net (loss) earnings from discontinued operations (d)
|
|
|
(3,544
|
)
|
|
|
(829
|
)
|
|
|
1,111
|
|
|
|
2,659
|
|
|
|
10,751
|
|
Net gain on sale of discontinued operations (e)
|
|
|
76,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
106,906
|
|
|
$
|
17,465
|
|
|
$
|
25,843
|
|
|
$
|
14,646
|
|
|
$
|
23,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.19
|
|
|
$
|
1.20
|
|
|
$
|
1.65
|
|
|
$
|
0.81
|
|
|
$
|
0.89
|
|
Net earnings
|
|
$
|
6.92
|
|
|
$
|
1.15
|
|
|
$
|
1.73
|
|
|
$
|
0.99
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.16
|
|
|
$
|
1.19
|
|
|
$
|
1.62
|
|
|
$
|
0.79
|
|
|
$
|
0.87
|
|
Net earnings
|
|
$
|
6.85
|
|
|
$
|
1.14
|
|
|
$
|
1.69
|
|
|
$
|
0.97
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,441
|
|
|
|
15,244
|
|
|
|
14,974
|
|
|
|
14,795
|
|
|
|
14,782
|
|
Diluted
|
|
|
15,617
|
|
|
|
15,387
|
|
|
|
15,296
|
|
|
|
15,124
|
|
|
|
15,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
1.40
|
|
|
$
|
1.37
|
|
|
$
|
1.28
|
|
|
$
|
2.28
|
|
|
$
|
0.35
|
|
Balance Sheet Data:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Total assets
|
|
$
|
523,738
|
|
|
$
|
376,156
|
|
|
$
|
375,680
|
|
|
$
|
357,082
|
|
|
$
|
368,335
|
|
Working capital
|
|
|
279,201
|
|
|
|
147,318
|
|
|
|
157,547
|
|
|
|
128,960
|
|
|
|
119,868
|
|
Stockholders equity
|
|
|
405,550
|
|
|
|
293,087
|
|
|
|
293,738
|
|
|
|
265,865
|
|
|
|
292,570
|
|
Cash dividends declared (f)
|
|
|
21,662
|
|
|
|
20,883
|
|
|
|
19,112
|
|
|
|
33,765
|
|
|
|
5,177
|
|
|
|
|
(a)
|
|
Other items include: special charges of $8.7 million in fiscal 2007 comprised of: $4.7 million for the workforce reductions in Genisphere,
Corporate and the European sales organization, Genisphere goodwill impairment of $2.3 million and ethics line inquiry expenses of $1.7 million and
special charges in fiscal 2005 related to write-downs of investments in two medical technology companies, discontinued development projects and
severance charges.
|
|
(b)
|
|
Dividend income in fiscal 2007 and 2006 was related to a special dividend from a preferred stock investment.
|
|
(c)
|
|
Gain on sale of investments related to sale of the Masimo investment in fiscal 2008; in fiscal 2007 related to sale of an investment that was
impaired in fiscal 2002.
|
|
(d)
|
|
Net (loss) earnings from discontinued operations relates to the PM and IP businesses.
|
|
(e)
|
|
Net gain on sale of discontinued operations relates to sale of the PM business in May 2008.
|
24
|
|
|
(f)
|
|
In fiscal 2008, the company declared a special dividend of $1.00 per share, or $15.4 million, paid on October 15, 2007
to stockholders of record as of October 1, 2007. In fiscal 2007, the Company declared a special dividend of $1.00 per share, or $15.3 million,
paid on October 6, 2006 to stockholders of record as of September 28, 2006. In fiscal 2006, the Company declared a special dividend of $1.00
per share, or $14.9 million, which was paid on January 18, 2006 to holders of record on December 27, 2005. In fiscal 2005, the Company
declared a special dividend of $2.00 per share, or $29.6 million, which was paid on October 8, 2004 to holders of record on September 30,
2004. In fiscal 2004, the Company declared a special dividend of $0.15 per share, or
$2.2 million, which was paid on October 1, 2003 to holders of record on September 2, 2003.
|
Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Datascope Corp. is the global leader of intra-aortic balloon counterpulsation and a
diversified medical device company that develops, manufactures and markets proprietary products for
clinical health care markets in interventional cardiology and radiology, cardiovascular and
vascular surgery, and critical care. Our products are sold throughout the world through direct
sales representatives and independent distributors. Our largest geographic markets are the United
States, Europe and Japan.
We have two reportable segments, Cardiac Assist Products and Vascular Products. The Cardiac
Assist Products segment accounted for 82% of total sales in fiscal 2008. The Cardiac Assist
Products segment sells intra-aortic balloon pumps and catheters, endoscopic vessel harvesting
products and the Safeguard assisted pressure device. Our intra-aortic balloon pump system is used
in the treatment of cardiac shock, acute heart failure, irregular heart rhythms, and for cardiac
support in open-heart surgery, coronary angioplasty, and stenting. The balloon catheter serves as
the pumping device within the patients aorta. The Vascular Products segment sells a proprietary
line of knitted and woven polyester vascular grafts and patches for reconstructive vascular and
cardiovascular surgery, peripheral vascular stent products and stent grafts. The peripheral
vascular products are used by vascular surgeons and interventional radiologists for the treatment
of peripheral arterial disease.
We believe that customers, primarily hospitals and other medical institutions, choose among
competing products on the basis of product performance, features, price and service. In general, we
believe price has become an important factor in hospital purchasing decisions because of pressure
to cut costs. These pressures on hospitals result from Federal and state regulations that limit
reimbursement for services provided to Medicare and Medicaid patients. There are also cost
containment pressures on healthcare systems outside the United States, particularly in certain
European countries. Many companies, some of which are substantially larger than us, are engaged in
manufacturing competing products. Our products are generally not affected by economic cycles.
Our sales growth depends in part upon the successful development and marketing of new
products. We continue to invest in research and development. Our growth strategy includes selective
acquisitions or licensing of products and technologies from other companies.
Effective May 1, 2008, we sold our PM business to Mindray Medical International Limited. The
sale of the PM business allows us to focus our efforts on our Cardiac Assist Products and Vascular
Products segments. We received approximately $209 million in cash at the closing and retained
approximately $30 million of receivables generated by the PM business.
On September 15, 2008 we reached an agreement in principle to sell the Company
for $53.00 per share in cash. The agreement is expected to contain customary
representations, warranties and conditions to closing. If and when the
agreement is executed, we intend to file a current report on Form 8-K
describing the transaction and attaching the agreement as an exhibit.
25
In October 2006, we announced a plan to exit the vascular closure market and phase out the
Interventional Products IP business. On August 6, 2008, we completed the sale of assets related to
the VasoSeal, On-Site, and X-Site vascular closure devices, and our collagen operations, to St.
Jude Medical, Inc. for $21.0 million in cash at closing and $3.0 million to be paid upon the
expiration of an 18 month indemnification period. We plan to seek the sale or independent
distribution of our ProLumen thrombectomy device for the interventional radiology market, although
these plans are subject to the reversal of a verdict that is being appealed (see Special Items
below for a discussion of litigation related to ProLumen). In February 2007, we completed the sale
of our ProGuide chronic dialysis catheter and the associated assets for $3.0 million plus a
royalty on future sales of the ProGuide catheter.
In June 2008, we exercised our option to acquire the Peripheral Vascular Stent business of the
Sorin Group of Milan. The acquisition follows our successful experience as exclusive distributor of
the Sorin peripheral stent product line in Europe, during which sales have grown rapidly since the
product launch in January 2007. With the acquisition, we now gain the opportunity to market the
product line throughout the world. We estimate the worldwide market at $800 million annually, of
which $200 million is in Europe, $500 million is in the United States and $40 million is in Japan.
In January 2006, we acquired the ClearGlide® endoscopic vessel harvesting (EVH) product, from
Ethicon, a Johnson & Johnson company. EVH devices enable less-invasive techniques for the
harvesting of suitable vessels for use in coronary artery bypass grafting. The vessel harvesting
product line was integrated into the Cardiac Assist business, which markets its products to cardiac
surgeons who perform coronary bypass graft surgery. We estimate the potential annual market for EVH
to be $220 million.
Our Safeguard assisted pressure device received FDA 510(k) clearance to claim reduced manual
compression time to stop bleeding following femoral arterial catheterization in diagnostic and
interventional procedures in March 2007. In May 2007, following FDA clearance of the new clinical
claim, we tripled the Safeguard sales and marketing effort in the United States from a pilot sales
group to the entire Cardiac Assist direct sales force. Safeguard is aimed at an estimated $125
million annual worldwide market.
We are committed to improving our operating margins through increasing the efficiency of our
manufacturing operations and cost containment programs.
Due to the sale of the PM and IP businesses, which are classified as discontinued operations,
the below Results of Operations relates to our continuing businesses, primarily Cardiac Assist and
InterVascular.
Results of Operations
Financial Summary
The following table shows the comparison of net earnings and earnings per diluted share from
continuing operations over the past three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
Year ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
Net earnings from continuing operations
|
|
$
|
33.8
|
|
|
$
|
18.3
|
|
|
$
|
24.7
|
|
Earnings per share from continuing
operations, diluted
|
|
$
|
2.16
|
|
|
$
|
1.19
|
|
|
$
|
1.62
|
|
26
Net Earnings from Continuing Operations
Net earnings from continuing operations were $33.8 million, or $2.16 per diluted share, in
fiscal 2008 compared to $18.3 million, or $1.19 per diluted share, in fiscal 2007. Higher earnings
in fiscal 2008 were primarily attributable to the higher after-tax gain on sale of investment this
year ($6.5 million) and increased earnings in the Cardiac Assist Products segment ($4.7 million)
due primarily to a higher gross profit ($15.2 million) from higher sales.
Net earnings from continuing operations were $18.3 million, or $1.19 per diluted share, in
fiscal 2007 compared to $24.7 million, or $1.62 per diluted share, in fiscal 2006. The decrease in
net earnings from continuing operations and earnings per diluted share in fiscal 2007 compared to
fiscal 2006 was primarily attributable to charges associated with workforce reductions ($4.7
million), Genisphere goodwill impairment ($2.3 million) and inquiry expenses ($1.7 million),
increased selling and marketing expenses in the Cardiac Assist segment ($3.8 million) primarily
associated with the introduction of new products, filling open positions and a full year of EVH
selling expense, lower special dividend income ($4.3 million) in fiscal 2007 compared to fiscal
2006 and a higher tax rate of 27.9% compared to 21.6% in fiscal 2006. Partially offsetting the
above was the higher gross profit ($10.6 million) on higher sales.
Net Loss from Discontinued Operations
Net (loss) earnings from discontinued operations of the PM and IP businesses were ($3.5 million) in
fiscal 2008, ($0.8 million) in fiscal 2007 and $1.1 million in fiscal 2006.
Gain on sale of Discontinued Operations
In the fourth quarter of fiscal 2008, we recognized a gain on sale of the PM business of $76.7
million, net of tax.
Comparison of Results (Continuing Operations) Fiscal 2008 vs. Fiscal 2007
Net Sales (Sales)
The following table shows sales by reportable segment over the past three fiscal years.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Product Line
|
|
|
(Dollars in millions)
|
|
|
Year ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiac Assist Products Segment
|
|
$
|
189.3
|
|
|
$
|
178.3
|
|
|
$
|
164.8
|
|
% change from prior year
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
16
|
%
|
% of total sales
|
|
|
82
|
%
|
|
|
83
|
%
|
|
|
83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vascular Products Segment
|
|
$
|
40.3
|
|
|
$
|
33.5
|
|
|
$
|
30.1
|
|
% change from prior year
|
|
|
20
|
%
|
|
|
11
|
%
|
|
|
(15
|
)%
|
% of total sales
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Genisphere
|
|
$
|
1.3
|
|
|
$
|
1.2
|
|
|
$
|
1.6
|
|
% change from prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total sales
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
|
|
Total sales
|
|
$
|
230.9
|
|
|
$
|
213.0
|
|
|
$
|
196.5
|
|
% change from prior year
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
10
|
%
|
27
Sales in fiscal 2008 of $230.9 million increased $17.9 million or 8% compared to $213.0
million in fiscal 2007. Favorable foreign exchange translation increased sales by $5.4 million, or
2% as a result of the weaker U.S. dollar relative to the Euro and the British Pound, the primary
currencies in countries in which we have direct sales subsidiaries.
Sales in the United States of $98.8 million, decreased $3.7 million or 4% compared to fiscal
2007, attributable to decreased sales in Cardiac Assist ($2.6 million) and Vascular Products ($1.2
million). Sales in international markets of $132.2 million increased $21.7 million or 20% compared
to fiscal 2007. Favorable foreign exchange translation increased international sales by $5.4
million, or 4% due to increased sales in Cardiac Assist ($13.6 million) and Vascular products ($8.0
million).
Cardiac Assist
Sales of Cardiac Assist products in fiscal 2008 increased 6% to $189.3 million, primarily
reflecting 18% growth in sales of intra-aortic balloons (IABs) in international markets and
increased sales of IABs in the United States (3%), the first year-over-year increase in 8 years.
We believe that renewed IAB sales growth in the United States stems from a reorganized and
expanded direct sales force that is focused on the clinical benefits of IAB use, and has led to
increasing use in cardiac catheterization and open-heart surgical procedures.
International sales of IABs in fiscal 2008 benefited from an initial stocking order to our new
distributor in Japan, which was partially offset by reduced shipments to the former distributor. At
the end of December 2007, Datascope Japan K.K., a wholly-owned subsidiary of Datascope Corp., began
management of Datascopes Intra-Aortic Balloon Pump (IABP) business in Japan. Datascope Japan K.K.
is responsible for import, product service, sales support and product surveillance of the IABP
business. USCI Holdings Ltd., our new exclusive distributor is responsible for sales distribution
throughout Japan.
Sales of the Safeguard device, which grew 15% over last year, has also increased our presence
in the cardiac catheterization lab and given our sales representatives additional opportunities to
promote the use of IABs.
Sales of balloon pumps grew 1% over last year, as increased sales in international markets
(11%) was partially offset by reduced sales (9%) in the United States, due to record sales last
year resulting from the introduction of the CS300 balloon pump in March 2007.
Favorable foreign exchange translation contributed $3.3 million to Cardiac Assist sales in
fiscal 2008.
Vascular Products
Sales of vascular products in fiscal 2008 increased 20% to $40.3 million principally due to
sales of peripheral vascular stent products, acquired from Sorin Group, of Milan, Italy. Vascular
graft sales increased 11% due to an 18 % increase in sales to international markets as market share
increased to offset continued growth of less invasive therapies and competitive pricing pressure in
the European markets. Sales of grafts to our exclusive distributor in the United States decreased
25% due to an inventory reduction plan implemented by the distributor. Favorable foreign exchange
translation contributed $2.1 million to vascular product sales in fiscal 2008.
Genisphere
28
Sales of Genisphere products of $1.3 million in fiscal 2008 increased $0.1 million or 7%
compared to fiscal 2007. Genisphere continued to pursue its marketing strategy to develop products
for use in newly developed protein and nucleic acid detection platforms.
Costs and Expenses
Gross Profit (Net Sales Less Cost of Sales)
Gross profit increased $12.1 million or 9% as a result of increased sales in the Cardiac
Assist Products segment ($11.0 million) and the Vascular Products segment ($5.7 million). Gross
margin was 65.3% for fiscal 2008 compared to 65.2% last year. The slightly higher gross margin in
fiscal 2008 compared to fiscal 2007 was principally due to an improved mix of products as a result
of increased sales of higher margin IABs and reduced sales of balloon pumps.
Research and Development (R&D)
R&D expense includes new product development and improvements of existing products, as well as
expenses for regulatory filings and clinical evaluations. R&D expense was $21.1 million in fiscal
2008, equivalent to 9.1% of sales, compared to $19.9 million or 9.3% of sales last year.
R&D expense for the Cardiac Assist Products segment was $11.1 million in fiscal 2008 compared
to $11.7 million last year, with the decrease primarily due to higher capitalization of balloon
pump software development costs this year, which reduced R&D expenses compared to the prior year
($1.2 million) and lower new product development expenses ($0.4 million), partially offset by
regulatory costs in our new subsidiary in Japan ($1.1 million).
R&D expense for the Vascular Products segment was $5.4 million in fiscal 2008 compared to $4.4
million in the corresponding period last year, with the increase primarily attributable to higher
product validation costs ($0.6 million) and unfavorable foreign currency translation ($0.5 million)
The balance of consolidated R&D is in the Corporate and Other segment and amounted to $4.6
million in fiscal 2008 compared to $3.8 million in the corresponding period last year. Corporate
and Other R&D includes corporate design, technology, regulatory and Genisphere R&D expenses.
Selling, General and Administrative (SG&A)
Total SG&A expense was $92.6 million in fiscal 2008 or 40.1% of sales, compared to $87.4
million or 41.0% of sales, last year.
SG&A expense for the Cardiac Assist Products segment of $74.8 million, increased $6.1 million
or 9% in fiscal 2008 primarily attributable to expenses associated with our new subsidiary in Japan
($2.1 million), higher corporate allocation ($2.0 million) and unfavorable foreign currency
translation ($1.5 million). As a percentage of segment sales, SG&A expense was 39.5% in fiscal 2008
compared to 38.5% in the corresponding period last year.
SG&A expense for the Vascular Products segment of $21.3 million, increased $0.2 million or 1%
in fiscal 2008 primarily attributable to unfavorable foreign currency translation ($2.0 million)
and higher selling and marketing expenses ($0.9 million), partially offset by lower corporate
allocation ($2.7 million). As a percentage of segment sales, SG&A expense was 52.8% in fiscal 2008
compared to 63.0% in the corresponding period last year.
Segment SG&A expense includes allocated corporate G&A charges.
29
The weaker U.S. dollar compared to the Euro and the British Pound increased total SG&A expense
by approximately $5.2 million in fiscal 2008.
Special Charges
Fiscal 2007
Workforce Reductions in the European Sales Organization , Genisphere and Corporate
In fiscal 2007, we reduced the workforce in the European sales organization, Genisphere and
Corporate and recorded a charge of $4.7 million for severance, settlement and other termination
benefits. The workforce reductions resulted primarily from the merger of the European sales
organization and outsourcing the corporate legal and internal audit functions. All of the
terminated employees left the Company by the end of fiscal 2007.
Genisphere Goodwill Impairment
Genisphere goodwill was determined to be completely impaired based on the annual goodwill
impairment test performed in fiscal 2007. Slower growth in Genispheres markets primarily
attributable to increased competition in the DNA microarray market, had a negative impact on
Genispheres operating results and resulted in lower growth expectations. As a result, we recorded
a goodwill impairment charge of $2.3 million in the fourth quarter of fiscal 2007.
Inquiry Expenses
In fiscal 2007, we incurred expenses of $1.7 million related to the Audit Committee
investigations of ethics line reports related to the Chairman and Chief Executive Officer and an
executive officer in Europe. The ethics line permits persons to report activities that they
characterize as improper on an anonymous basis. The Audit Committee engaged independent counsel and
forensic accountants to investigate these charges.
As disclosed in our Form 8-K filings, based on the results of the investigations, the Audit
Committee concluded that there was no evidence to support the allegations made in the ethics line
reports. The Audit Committee, with the assistance of independent counsel and independent forensic
accountants, also reviewed the matters raised by the Internal Audit Department and Legal Department
concerning the Chairman and found the issues raised by them to be without merit.
The special charges noted above were reflected in the Cardiac Assist Products segment ($1.1
million), the Vascular Products segment ($1.1 million) and Corporate and Other ($6.5 million).
Interest Income
Interest income was $2.7 million in fiscal 2008 compared to $2.5 million last year with the
increase primarily attributable to a higher average portfolio balance ($73.0 million vs. $50.6
million), partially offset by a decrease in the interest rate yield to 3.26% from 4.60%.
Other, Net
Other, net increased $0.8 million in fiscal 2008 compared to the same period last year
attributable primarily to higher foreign exchange losses on inter-company receivables.
Gain
on Sale of Investments
30
We had a preferred stock investment of $5.0 million in Masimo Corporation, a supplier to the
PM business. On August 13, 2007, Masimo completed its initial public offering, and concurrently, we
sold substantially all of our investment in Masimo, resulting in a pretax gain on the sale of
approximately $13.2 million in the first quarter of fiscal 2008.
Income Taxes
In fiscal 2008, the consolidated effective tax rate for continuing operations was 34.1%
compared to 29.5% last year. The higher tax rate in fiscal 2008 compared to last year was primarily
attributable to the higher tax rate on the gain on sale of investment in the first quarter of
fiscal 2008, expiration of the extraterritorial income exclusion on December 31, 2006 and a shift
in the geographical mix of earnings to higher taxed jurisdictions. Our effective tax rate could be
impacted by changes in the geographic mix of our earnings. Partially offsetting the above was
favorable tax adjustments as a result of the expiration of federal and foreign statutes of
limitations for fiscal 2004 and other tax benefits recognized due to the sale of the PM business.
Comparison of Results (Continuing Operations) Fiscal 2007 vs. Fiscal 2006
Sales
Cardiac Assist
Sales of Cardiac Assist Products in fiscal 2007 increased 8% to $178.3 million. Sales of
balloon pumps increased 7% and sales of intra-aortic balloons (IABs) increased 2%. Sales of
ClearGlide EVH products rose in the first full year of sales since it was acquired in January 2006.
Favorable foreign exchange translation contributed $2.5 million to Cardiac Assist sales in fiscal
2007.
Sales growth of balloon pumps reflects strong global demand for our new CS300 balloon pump,
launched in March 2007, and continued growth of replacements of older pump models from the large
installed base of our balloon pumps in the United States (23%). Sales of IABs increased principally
due to increased volume (3%) in international markets.
The new generation CS300 balloon pump teams up with the new Sensation 7 Fr. fiber-optic
balloon catheter to provide higher fidelity blood pressure monitoring while eliminating the need
for an additional invasive arterial pressure line as required by conventional balloon pump systems.
At 7 Fr. in diameter (2.3 mm or 0.093 inch), the Sensation is also the worlds smallest diameter
IAB, a highly desirable feature. These new products underscore Datascopes leadership in the
worldwide market for counterpulsation therapy. The Sensation product began shipping in June 2007,
and therefore made only a modest contribution to the 2007 increase in Cardiac Assist revenues.
Vascular Products
Sales of vascular products in fiscal 2007 increased 11% to $33.4 million principally due to
sales of peripheral vascular stent products, acquired from Sorin Group, of Milan, Italy, in January
2007. Favorable foreign exchange translation contributed $1.3 million to vascular product sales in
fiscal 2007.
The five-year agreement with Sorin gives InterVascular exclusive distribution rights to
Sorins peripheral vascular stent products, excluding the United States and Japan. As part of that
agreement, Datascope has the option to purchase that stent business within two years. The product
line includes balloon-expandable and self-expanding stent systems to treat stenosis in iliac, renal
and infrapopliteal arteries, as well as expandable balloons for use in percutaneous angioplasty
(PTA).
31
Vascular graft sales increased 4% due to a 7% increase in sales to international markets as
InterVascular market share increased to offset continued growth of less invasive therapies and
competitive pricing pressure in the European markets. Sales of grafts to our exclusive distributor
in the United States decreased 9%.
Genisphere
Sales of Genisphere products of $1.2 million in fiscal 2007 decreased $0.4 million or 25%
compared to fiscal 2006 primarily attributable to increased competition. Genisphere continued to
pursue its marketing strategy to develop products for use in newly developed protein and nucleic
acid detection platforms.
Costs and Expenses
Gross Profit (Net Sales Less Cost of Sales)
Gross profit increased $10.6 million or 8% as a result of increased sales in the Cardiac
Assist Products segment ($13.5 million) and the Vascular Products segment ($3.3 million). Gross
margin was 65.2% for fiscal 2007 and fiscal 2006.
Research and Development (R&D)
R&D expense includes new product development and improvements of existing products, as well as
expenses for regulatory filings and clinical evaluations. R&D expense was $19.9 million in fiscal
2007, equivalent to 9.3% of sales, compared to $19.1 million or 9.7% of sales last year.
R&D expense for the Cardiac Assist Products segment was $11.7 million in fiscal 2007 compared
to $12.2 million last year, with the decrease primarily due to lower expenses for new product
development projects.
R&D expense for the Vascular Products segment was $4.4 million in fiscal 2007 compared to $3.6
million last year, with the increase due primarily to new product development costs for vascular
grafts.
The balance of consolidated R&D is in the Corporate and Other segment and amounted to $3.8
million in fiscal 2007 compared to $3.3 million in the corresponding period last year. Corporate
and Other R&D includes corporate design, technology, regulatory and Genisphere R&D expenses.
Selling, General and Administrative (SG&A)
Total SG&A expense of $87.4 million in fiscal 2007 or 41.0% of sales, compared to $81.2
million or 41.3% of sales, last year.
SG&A expense for the Cardiac Assist Products segment of $68.7 million, increased $4.8 million
or 7% in fiscal 2007. The increase was primarily attributable to higher expense associated with a
full year of selling associated with the EVH business, which was acquired in January 2006 ($2.5
million), unfavorable foreign currency translation ($1.2 million) and increased expense due to
filling open sales positions ($0.9 million). As a percentage of segment sales, SG&A expenses were
38.5% in fiscal 2007 compared to 38.8% in the corresponding period last year.
SG&A expense for the Vascular Products segment of $21.1 million, increased $1.5 million or 8%
in fiscal 2007. The increase was due primarily to unfavorable foreign currency translation ($1.0
million) and increased selling expenses ($0.5 million). As a percentage of segment sales, SG&A
expenses were 63.0% in fiscal 2007 compared to 64.8% in the corresponding period last year.
Segment SG&A expense includes allocated corporate G&A charges.
32
The weaker U.S. dollar compared to the Euro and the British Pound increased total SG&A expense
by approximately $3.2 million in fiscal 2007.
Special Charges
Fiscal 2007
Workforce Reductions in European Sales Organization, Corporate and Genisphere
In fiscal 2007, we reduced the workforce in the European sales organization, Genisphere and
Corporate and recorded a charge of $4.7 million for severance, settlement and other termination
benefits. The workforce reductions resulted primarily from the merger of the European sales
organization and outsourcing the corporate legal and internal audit functions. All of the
terminated employees left the Company by the end of fiscal 2007.
Genisphere Goodwill Impairment
Genisphere goodwill was determined to be completely impaired based on the annual goodwill
impairment test performed in fiscal 2007. Slower growth in Genispheres markets primarily
attributable to increased competition in the DNA microarray market, had a negative impact on
Genispheres operating results and resulted in lower growth expectations. As a result, we recorded
a goodwill impairment charge of $2.3 million in the fourth quarter of fiscal 2007.
Inquiry Expenses
In fiscal 2007, we incurred expenses of $1.7 million related to the Audit Committee
investigations of ethics line reports related to the Chairman and Chief Executive Officer and an
Executive Officer in Europe. The ethics line permits persons to report activities that they
characterize as improper on an anonymous basis. The Audit Committee engaged independent counsel and
forensic accountants to investigate these charges.
As disclosed in our 8-K filings, based on the results of the investigations, the Audit
Committee concluded that there was no evidence to support the allegations made in the ethics line
reports. The Audit Committee, with the assistance of independent counsel and independent forensic
accountants, also reviewed the matters raised by the Internal Audit Department and Legal Department
concerning the Chairman and found the issues raised by them to be without merit.
The special charges noted above were reflected in the Cardiac Assist Products segment ($1.1
million), the Vascular Products segment ($1.1 million) and Corporate and Other ($6.5 million).
Fiscal 2006
In the first quarter of fiscal 2006, we recorded a pretax gain of $0.8 million on the sale of
an unused facility in Vaals, the Netherlands.
Interest Income
Interest income of $2.5 million in fiscal 2007 increased $0.2 million compared to fiscal 2006.
An increase in the average interest rate yield to 4.6% from 4.0%, was partially offset by a
slightly lower average portfolio balance ($50.6 million vs. $51.4 million).
Dividend Income
33
We
had a preferred stock investment in Masimo Corporation. In December 2006, Masimos Board of
Directors and stockholders approved an additional special dividend to all stockholders. The
dividend of $0.2 million was paid in the third quarter of fiscal 2007.
In February 2006, Masimos Board of Directors and stockholders approved a special dividend
payment to all stockholders. In the third quarter of fiscal 2006, we received $3.9 million of that
special dividend, with the balance of $0.6 million collected at a later date.
Other, Net
Other, net in fiscal 2007 reflected a pretax gain of $1.3 million on the sale of an investment
that was impaired in fiscal 2002. Other, net in fiscal 2006 reflected realized losses of $0.9
million on the sale of marketable securities that were liquidated during fiscal 2006 as part of our
planned repatriation of foreign earnings of $29.6 million.
Income Taxes
In fiscal 2007, the consolidated effective tax rate for continuing operations was 29.5%
compared to 25.1% last year. The higher tax rate in fiscal 2007 was primarily attributable to the
expiration of the extraterritorial income exclusion on December 31, 2006 and a shift in the
geographical mix of earnings to higher taxed jurisdictions. These increases were partially offset
by an increase in the U.S. research and development credit. Additionally, the tax rate was lower in
fiscal 2006 attributable to a lower effective rate on the $4.5 million dividend income due to the
U.S. dividends received deduction.
Liquidity and Capital Resources
Fiscal 2008 vs. Fiscal 2007
We consider our cash and cash equivalents, short-term investments and our available unsecured
lines of credit to be our principal sources of liquidity.
Cash and cash equivalents and short-term investments at June 30, 2008 were $250.2 million
compared to $39.4 million at June 30, 2007. Long-term investments were $22.8 million and $14.3
million at June 30, 2008 and June 30, 2007, respectively. Working capital was $279.2 million
compared to $147.3 million at the end of fiscal 2007 and the current ratio was 4.0:1 compared to
3.5:1 last year.
The increase in working capital and the current ratio was primarily due to an increase in
short-term investments ($204.4 million), partially offset by a decrease in inventories ($28.4
million) and accounts receivable ($20.4 million).
The increase in short-term investments was primarily due to proceeds from the sale of the PM
business. The decrease in accounts receivable was principally due to the partial collection of the $30.0
million of retained PM accounts receivable and reduced revenue as a result of the sale of the PM
business, effective May 1, 2008. The decrease in inventories was primarily due to the sale of the
PM business and the classification of inventories related to the IP business of $5.8 million
reflected in current assets of discontinued operations.
In fiscal 2008, we provided $33.3 million of net cash from operating activities compared to
$26.2 million in the prior year with the increase primarily attributable to higher earnings from
continuing operations ($15.4 million) and reduction of accounts receivable as a result of the
partial collection of the PM business receivables.
In fiscal 2008, we used a net $16.1 million of cash in investing activities. Net sales and
maturities of investments yielded $249.2 million and proceeds from the sale of the PM business
added $208.6 million of cash.
34
These $457.8 million of proceeds were spent on $449.2 million of investment purchases, $11.1
million for the acquisition of Sorin, $6.8 million of capital expenditures and technology and $6.9
million of capitalized software.
In fiscal 2008, we used a net $9.6 million of cash in financing activities. We paid $23.2
million in dividends, comprising four quarterly dividends of $0.10 per share and a special dividend
of $1.00 per share paid in the second quarter of fiscal 2008. Financing cash outlays were partially
funded by $14.7 million of proceeds from the exercise of stock options and $1.3 million of excess
tax benefits to be realized from stock-based awards.
At June 30, 2008, we had available unsecured lines of credit totaling $100.2 million, with
interest payable at LIBOR-based rates determined by the borrowing period. At June 30, 2008, we had
no outstanding borrowings. Of the total available, $25 million expires in October 2008 and $50
million expires in March 2009. These lines are renewable annually at the option of the banks, and
we plan to seek renewal. We also had $25.2 million in lines of credit with no expiration date.
On September 15, 2008 we reached an agreement in principle to sell the Company
for $53.00 per share in cash. The agreement is expected to contain customary
representations, warranties and conditions to closing. If and when the
agreement is executed, we intend to file a current report on Form 8-K
describing the transaction and attaching the agreement as an exhibit.
We purchased about 46,600 shares of our common stock for approximately $1.9 million during
fiscal year 2008. We have a remaining balance of $1.1 million available under the stock repurchase
program authorized by the Board of Directors on May 16, 2001.
On September 15, 2006, the Board of Directors approved an additional stock repurchase program
for $40 million of our common stock. Purchases under this program may be made from time to time on
the open market or in privately negotiated transactions, and may be discontinued at any time at the
discretion of the Company.
We believe that our existing cash and investment balances, future cash generated from
operations and existing credit facilities will be sufficient to meet our projected working capital,
capital and investment needs. The moderate rate of United States and European inflation over the
past three fiscal years has not significantly affected the Company.
Subsequent Event
On August 6, 2008, we completed the sale of assets related to the VasoSeal, On-Site, and
X-Site vascular closure devices, and our collagen operations, to St. Jude Medical, Inc. for $21.0
million in cash at closing and $3.0 million to be paid upon the expiration of an 18 month
indemnification period.
Fiscal 2007 vs. Fiscal 2006
Cash and cash equivalents and short-term investments at June 30, 2007 were $39.4 million
compared to $52.6 million at June 30, 2006. Long-term investments were $14.3 million and $22.3
million at June 30, 2007 and June 30, 2006, respectively. Working capital was $147.3 million
compared to $157.5 million at the end of fiscal 2006 and the current ratio was 3.5:1 compared to
3.8:1 last year.
The decrease in working capital and the current ratio was primarily due to a decrease in
short-term
35
investments ($19.4 million), partially offset by an increase in accounts receivable ($7.4
million).
The decrease in short-term investments was primarily due to sales of investments to provide
cash for the Artema acquisition, the Sorin distribution agreement and payment of a special dividend
of $1.00 per share in the second quarter of fiscal 2007. The increase in accounts receivable was
principally due to higher sales ($5.8 million) and an increase in days sales outstanding (7).
In fiscal 2007, we provided $26.2 million of net cash from operating activities compared to
$29.0 million in the prior year with the decrease primarily attributable to lower net earnings,
partially offset by a reduction in inventories.
In fiscal 2007, we used a net $0.8 million of cash in investing activities. Net sales and
maturities of investments yielded $102.1 million and proceeds from the sale of assets added $3.0
million of cash. These $105.1 million of proceeds were spent on $74.0 million of investment
purchases, $16.4 million for the acquisition of Artema, $8.0 million of capital expenditures and
technology and $7.5 million of capitalized software.
In fiscal 2007, we used a net $18.3 million of cash in financing activities. We paid $20.4
million in dividends, comprising two quarterly dividends of $0.07 per share, two quarterly
dividends of $0.10 per share and a special dividend of $1.00 per share paid in the second quarter
of fiscal 2007. Financing cash outlays were partially funded by $4.0 million of proceeds from the
exercise of stock options and $0.4 million of excess tax benefits to be realized from stock-based
awards.
We purchased about 55,700 shares of our common stock for approximately $1.7 million during
fiscal year 2007.
Presented below is a summary of our contractual obligations and other commitments as of June
30, 2008.
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Payments due by Period
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(Dollars in millions)
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Less than
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1-3
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3-5
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More than
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Total
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1 year
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years
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years
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5 years
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Operating lease obligations
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$
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8.5
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$
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3.5
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$
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4.2
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$
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0.8
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$
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Purchase commitments (1)
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4.7
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4.7
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Benefit plan payments (2)
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53.6
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2.3
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10.9
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11.0
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29.4
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Unrecognized tax benefits (3)
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0.2
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0.2
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Other (4)
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1.0
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0.5
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0.5
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Total contractual obligations and
other commitments
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$
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68.0
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$
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11.2
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$
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15.6
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$
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11.8
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$
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29.4
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(1)
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These amounts include non-cancelable purchase commitments for inventory and capital expenditures that meet our
projected requirements over the related terms and are in the normal course of business.
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(2)
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Represents expected benefit payments under the U.S and International defined benefit pension plans, the supplemental
executive retirement plan and the post-retirement medical benefits plan.
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(3)
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Represents managements estimate of the current portion of unrecognized tax benefits. This amount excludes the noncurrent portion of unrecognized tax benefits of $4.8 million, for which the period of cash settlement cannot be reasonably estimated.
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(4)
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Represents guaranteed milestone payments to X-Site.
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Off-Balance Sheet Arrangements
At June 30, 2008 we did not have any off-balance sheet financing arrangements.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with accounting principles generally
accepted in
36
the United States of America. The preparation of these financial statements requires us 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. We regularly evaluate our estimates and
assumptions on an on-going basis and adjust 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. We believe that the following are
our most critical accounting policies and estimates:
Revenue Recognition
We recognize revenue and all related costs, including warranty costs,
when persuasive evidence of an arrangement exists, title and risk of loss passes to the customer
and collectibility of the fixed sales price is probable. For products shipped FOB shipping point,
revenue is recognized when they leave our premises. For products shipped FOB destination, revenue
is recognized when they reach the customer. For certain products where we maintain consigned
inventory at customer locations, revenue is recognized when the product has been used by the
customer. We record estimated sales returns as a reduction of net sales in the same period that the
related revenue is recognized. Historical experience is used to estimate an accrual for future
returns relating to recorded sales, as well as estimated warranty costs. Revenue for service
repairs of equipment is recognized after service has been completed, and service contract revenue
is recognized ratably over the term of the contract. We do not have a general right of return for
our products. Post shipment obligations for training commitments are considered perfunctory, and
sales are recognized when delivered with provision for incremental costs. We reflect shipping and
handling fees as revenue and shipping and handling costs as cost of sales.
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 report trade receivables at their estimated net realizable value. We rely on
prior experience to estimate cash which ultimately will be collected from the gross receivables
balance at period-end. Such amount cannot be known with certainty at the financial statement date.
We maintain a specific allowance for customer accounts that will likely not be collectible due to
customer liquidity issues. We also maintain an allowance for estimated future collection losses on
existing receivables, determined based on historical trends.
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 is recorded at its estimated fair
market value based upon our historical experience with inventory becoming obsolete due to age,
changes in technology and other factors.
Income Taxes
As part of the process of preparing our consolidated financial statements, we
are required to estimate our income taxes in each of the jurisdictions in which we operate. This
process involves estimating the current tax expense as well as assessing temporary differences in
the treatment of items for tax and accounting purposes. These temporary differences result in
deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must
then assess whether it will be more likely than not that our deferred tax assets will be recovered
from future taxable income and/or the implementation of tax planning strategies. To the extent that
we cannot conclude that recovery is likely, a valuation allowance must be established.
We have not recorded U.S. deferred income taxes on certain of our non-U.S. subsidiaries
undistributed earnings, because such amounts are intended to be reinvested outside the United
States indefinitely. Our repatriation of $29.6 million of foreign earnings under the provisions of
the American Jobs Creation Act of 2004 was deemed to be distributed entirely from foreign earnings
that had previously been treated as indefinitely reinvested. However, this distribution from
previously indefinitely reinvested earnings does not change our position going forward that future
earnings of our foreign subsidiaries will be indefinitely reinvested.
We operate within multiple taxing jurisdictions and are subject to routine corporate income
tax audits in many of those jurisdictions. These audits can involve complex issues, including
challenges regarding the timing and amount of deductions and credits and the allocation of income
among various tax jurisdictions. Our U.S. income tax returns for fiscal 1999 and prior years have
been audited by the Internal Revenue Service (IRS) and
37
are closed. The U.S. statutory period has expired for fiscal years though 2004, and is open
for subsequent periods. The IRS has commenced an audit of our tax returns for fiscal years 2005
-2007. During fiscal 2007, we have closed audits in several state jurisdictions with immaterial
adjustments. Statutory periods remain open in a number of foreign and state jurisdictions.
We record our income tax provisions based on our knowledge of all relevant facts and
circumstances, including existing tax laws and the status of current examinations. The Companys
unrecognized tax benefits determined in accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) reflect
accounting estimates that are subject to inherent uncertainties associated with the tax audit
process. We believe that our accrual for income tax liabilities, including related interest, is
adequate in relation to the potential for additional tax assessments. The amounts ultimately paid
upon resolution of audits could be materially different from the amounts previously included in our
income tax expense and therefore could have a significant impact on our tax provision, net income
and cash flows.
Pension Plan Actuarial Assumptions
We sponsor defined benefit pension plans in the United
States and certain European countries covering eligible employees. We use several actuarial and
other statistical factors which attempt to estimate the ultimate expense and liability related to
our pension plans. These factors include assumptions about discount rate, expected return on plan
assets and rate of future compensation increases. In addition, subjective assumptions, such as
withdrawal and mortality rates are utilized. The actuarial assumptions 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 we record in any particular
period.
Recent Accounting Pronouncements
On July 1, 2007, we adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), an
interpretation of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for
Income Taxes
. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing that a
benefit cannot be recorded in the financial statements unless the tax position has a more likely
than not chance of being sustained upon audit based solely on the technical merits of the
position. Once the more likely than not standard is met, the benefit is measured by determining
the amount that is greater than 50 percent likely of being realized upon settlement, presuming that
the tax position is examined by the appropriate taxing authority that has full knowledge of all
relevant information. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. See Note 8 to the consolidated financial statements for additional
information related to the impact of adopting FIN 48.
In September 2006, the FASB issued SFAS No. 157
, Fair Value Measurements
(SFAS 157). SFAS
157 defines fair value as: the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. In
addition, SFAS 157 establishes a fair value hierarchy to be used to classify the source of
information used in fair value measurements, new disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy and a modification of the long-standing accounting
presumption that the transaction price of an asset or liability equals its initial fair value. SFAS
157 is effective in fiscal years beginning after November 15, 2007 (effective for our fiscal year
2009 beginning July 1, 2008). The FASB issued Staff Position FAS 157-2,
Effective Date of FASB
Statement No. 157
, which delayed the provisions of SFAS 157 relating to nonfinancial assets and
liabilities until fiscal years beginning after November 15, 2008 (our fiscal year 2010 beginning
July 1, 2009). SFAS 157 is not expected to materially affect how we determine fair value, but may
result in certain additional disclosures.
On June 30, 2007, we adopted the provisions of SFAS No. 158,
Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
(SFAS 158), an amendment of SFAS 87, 88, 106 and
132(R)
.
SFAS 158 requires registrants to fully recognize an asset or liability for the overfunded
or the underfunded status of their benefit plans on their consolidated balance sheet. The pension
asset or liability equals the difference between the fair value of the plans assets and its
benefit obligation. The benefit obligation is measured as the projected benefit
38
obligation (PBO) for pension plans and as the accumulated postretirement benefit obligation
for other postretirement benefit plans. At June 30, 2007, we had a PBO that was approximately $1.1
million higher than the fair value of the U.S. and International defined benefit pension plan
assets. The supplemental executive retirement plans (SERP) had a PBO of approximately $18.3
million at June 30, 2007. There are no assets in the SERP plans. In addition, we are required to
recognize as part of accumulated other comprehensive income (loss), net of taxes, gains and losses
due to differences between our actuarial assumptions and actual experience (actuarial gains and
losses) and any effects on prior service due to plan amendments (prior service costs or credits)
that arise during the period and which are not yet recognized as net periodic benefit costs. At
adoption date, we recognized $5.1 million within accumulated other comprehensive loss, net of tax,
related to the previously unrecognized net actuarial losses, prior service credits and net
transition amounts. We currently meet the SFAS 158 requirement that the measurement date for plan
assets and liabilities must coincide with the sponsors year end. SFAS 158 also includes additional
disclosures in an entitys annual financial statements. See Note 12 for additional information
related to our retirement benefit plans.
During the fourth quarter of fiscal 2007, we adopted the provisions of the Securities and
Exchange Commissions Staff Accounting Bulletin (SAB) No. 108,
Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
. SAB 108
requires registrants to use both a balance sheet approach and an income statement approach when
quantifying and evaluating the materiality of a misstatement and to adjust the financial statements
if either approach results in quantifying a misstatement that is material. SAB 108 also contains
guidance on correcting errors under the dual approach and provides transition guidance for
correcting errors existing in prior years. If prior year errors that had been previously considered
immaterial (based on the appropriate use of the registrants prior approach) now are considered
material based on the approach in SAB 108, the registrant need not restate prior period financial
statements. During the second quarter of fiscal 2007 we identified a prior year misstatement that
we considered to be immaterial under our current approach for evaluating the materiality of a
misstatement. However, upon adoption of SAB 108 this misstatement was considered material to the
financial statements and was corrected upon adoption during the fourth quarter of fiscal 2007
through a cumulative effect adjustment impacting beginning retained earnings and cumulative
translation adjustments as of the beginning of fiscal 2007. The misstatement relates to a
cumulative translation adjustment of approximately $1.1 million that was not written-off in fiscal
2002 when a European subsidiary was closed as part of a restructuring. This adjustment did not have
an impact on total consolidated stockholders equity.
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-10,
Accounting for
Deferred Compensation and Postretirement Benefits Aspects of Collateral Assignment Split-Dollar
Life Insurance Arrangements
, which is effective for fiscal years that begin after December 15, 2007
(our fiscal year 2009 beginning July 1, 2008). The Task Force concluded that an employer should
recognize a liability for the postretirement benefit related to a collateral assignment
split-dollar life insurance arrangement in accordance with either FASB Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions
, or Accounting Principles
Board Opinion No. 15,
Omnibus Opinion
, based on the substantive agreement with the employee. The
Task Force also concluded that an employer should recognize and measure an asset based on the
nature and substance of the collateral assignment split-dollar life insurance arrangement. The
Supplemental Benefits Plan for the Chairman and Chief Executive Officer, Mr. Lawrence Saper,
provides survivor benefits in the form of a $10 million life insurance policy, maintained pursuant
to a collateral assignment split-dollar agreement among Mr. Saper, the Company and a trust for the
benefit of Mr. Sapers family. The present value of the premium reimbursement pursuant to the
split-dollar agreement at June 30, 2008 is approximately $3.5 million. Upon adoption, we will
record a liability and a cumulative effect adjustment to retained earnings for the present value of
the premium reimbursement at the date of adoption.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115
(SFAS 159). This
statement provides an option to report selected financial assets and liabilities at fair value. In
addition, SFAS 159 establishes presentation and disclosure requirements for those assets and
liabilities which the registrant has chosen to measure at fair value. SFAS 159 is effective for
fiscal years beginning after November 15, 2007 (our fiscal year 2009
39
beginning July 1, 2008). We do not anticipate that the provisions of SFAS 159 will have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160 (SFAS 160),
Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51
. This statement amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. SFAS 160 clarifies a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 (our fiscal year 2010 beginning July 1, 2009). We are currently evaluating the
impact of adopting SFAS 160 on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R) (SFAS 141(R)),
Business Combinations
. This
statement establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill
acquired, and any noncontrolling interest in the acquiree. In addition, SFAS 141(R) establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is during fiscal years beginning on or after December 15, 2008, the effective date
of this statement. We will adopt SFAS 141(R) in the first quarter of our fiscal year 2010 beginning
July 1, 2009.
In March 2008, the FASB issued Statement No. 161 (SFAS 161),
Disclosures about Derivative
Instruments and Hedging Activities (
SFAS161), which is effective for fiscal years beginning after
November 15, 2008 (our fiscal year beginning July 1, 2009). Statement 161 requires enhanced
disclosures about an entitys derivative and hedging activities and thereby improves the
transparency of financial reporting. We are currently evaluating the impact of adopting SFAS 161,
but do not anticipate that the provisions of SFAS 161 will have a material impact on our
consolidated financial statements.
In May 2008, the FASB issued Statement No. 162 (SFAS 162),
The Hierarchy of Generally
Accepted Accounting Principles
(SFAS 162). This Statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with generally accepted accounting principles
in the U.S. We are currently evaluating the impact of adopting SFAS 162, but do not anticipate that
the provisions of SFAS 162 will have a material impact on our consolidated financial statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Due to the global nature of our operations, we are subject to the exposures that arise from
foreign exchange rate fluctuations. Our objective in managing our exposure to foreign currency
fluctuations is to minimize net earnings volatility associated with foreign exchange rate changes.
We enter into foreign currency forward exchange contracts to hedge foreign currency transactions
which are primarily related to certain intercompany receivables denominated in foreign currencies.
Our hedging activities do not subject us to exchange rate risk because gains and losses on these
contracts offset losses and gains on the intercompany receivables hedged. The net gains or losses
on these foreign currency forward exchange contracts are included within Other, net, in our
consolidated statements of earnings. 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 accumulated other comprehensive loss for the years ended June 30, 2008,
2007 and 2006.
As of June 30, 2008, we had a notional amount of $17.0 million of foreign exchange forward
contracts outstanding, all of which were in Euros and Japanese Yen. The foreign exchange forward
contracts generally have
40
maturities that do not exceed 12 months and require us to exchange foreign currencies for
United States dollars at maturity, at rates agreed to when the contract is signed.
Item 8.
Financial Statements and Supplementary Data
See Financial Statements following Item 15 of this Annual Report on Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and communicated to the
Companys 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.
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and the Companys Chief
Financial Officer, of the effectiveness of the Companys disclosure controls and procedures as of
the end of the period covered by this report. Based on the foregoing, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
were effective.
Managements Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Companys internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. The Companys internal control over financial
reporting includes those policies and procedures that:
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pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
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provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect
on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of June 30,
41
2008. In making this assessment, management used the criteria established in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Based on our assessment and those criteria, management believes that the Company maintained
effective internal control over financial reporting as of June 30, 2008.
Deloitte & Touche LLP , the Companys independent registered public accounting firm, has
issued an attestation report on the effectiveness of the Companys internal control over financial
reporting as of June 30, 2008, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the Companys most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Datascope Corp.
Montvale, New Jersey
We have audited the internal control over financial reporting of Datascope
Corp. and subsidiaries (the Company) as of June 30, 2008, based on criteria
established in
Internal Control Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements
Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by,
or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by
the companys board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of June 30, 2008, based on the
criteria established in
Internal Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended June
30, 2008 of the Company and our report dated September 15, 2008 expressed an
unqualified opinion on those financial statements and financial statement
schedule and included an explanatory paragraph regarding the Companys adoption
of Statement of Financial Accounting Standards No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
,
effective June 30, 2007, the provisions of United States Securities and
Exchange Commission Staff Accounting Bulletin No. 108,
Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements
, effective for the year ended June 30, 2007, and the
provisions of Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, effective July 1, 2007.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
September 15, 2008
43
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Except for the information included in Item 4A of this report, the information required by
this item is incorporated by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission no later than October 28, 2008 pursuant to Regulation 14A of the
Securities Exchange Act of 1934.
Item 11.
Executive Compensation
The information required by this item is incorporated by reference from our definitive proxy
statement to be filed with the Securities and Exchange Commission no later than October 28, 2008
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated by reference from our definitive proxy
statement to be filed with the Securities and Exchange Commission no later than October 28, 2008
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
The following table provides information as of June 30, 2008 about our common stock that may
be issued under our existing equity compensation plans upon the exercise of stock options or
otherwise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
Number of securities to
|
|
Weighted average exercise
|
|
future issuance under equity
|
|
|
be issued upon exercise
|
|
price of outstanding
|
|
compensation plans
|
|
|
of outstanding options,
|
|
options, warrants and
|
|
(excluding securities
|
Plan Category
|
|
warrants and rights
|
|
rights
|
|
reflected in column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation plans
approved by security
holders (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,030,500
|
|
|
$
|
31.87
|
|
|
|
716,317
|
|
Common stock (2)
|
|
|
64,687
|
|
|
|
|
|
|
|
1,126,135
|
|
Equity compensation plans
not approved by security
holders (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
15,000
|
|
|
$
|
32.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,110,187
|
|
|
|
|
|
|
|
1,842,452
|
|
|
|
|
(1)
|
|
See Note 10 to the Consolidated Financial Statements for a description of our stock-based plans.
|
|
(2)
|
|
Includes 4,597 shares of restricted stock granted to members of the Board of Directors in fiscal 2008 under the 2005
Equity Incentive Plan, pursuant to the Compensation Plan for Non-Employee Directors.
|
|
(3)
|
|
Includes grants of options to a member of the Board of Directors to purchase up to 15,000 shares of our common stock.
These options have a term of 10 years with exercise prices ranging from $22.49 to $37.03.
|
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference from our definitive proxy
statement to be filed with the Securities and Exchange Commission no later than October 28, 2008
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Item 14.
Principal Accountant Fees and Services
44
The information required by this item is incorporated by reference from our definitive proxy
statement to be filed with the Securities and Exchange Commission no later than October 28, 2008
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
Our consolidated financial statements are filed on the pages listed below, as part of Part II,
Item 8 of this report:
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6-F-43
|
|
2. Financial Statement Schedules
|
|
|
|
|
Schedule II
Valuation and Qualifying Accounts
|
|
|
S-1
|
|
All other schedules have been omitted because they are inapplicable, or not required, or the
information is included in the financial statements or footnotes.
3. Exhibits
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
2.1
|
|
Asset Purchase Agreement dated March 10, 2008, by and between Datascope Corp.
and Mindray Medical International Limited, incorporated by reference to
Exhibit 10.1 to the registrants Current Report on Form 8-K filed on March
15, 2008.
|
|
|
|
3.1
|
|
Exhibit 3.1 Amended and Restated Bylaws of Datascope Corp., incorporated by
reference to the registrants Current Report on Form 8-K filed on December
21, 2007.
|
|
|
|
3.2
|
|
By-Laws, incorporated by reference to Exhibit 3.1 to Current Report on Form
8-K dated September 27, 2004.
|
|
|
|
4.1
|
|
Specimen of certificate of Common Stock, incorporated by reference to Exhibit
4.2 to the Form 8-B.
|
|
|
|
4.2
|
|
Form of Certificate of Designations of the Companys Series A Preferred
Stock, incorporated by reference to Exhibit 2.2 to the Companys Registration
Statement on Form 8-A, filed with the Commission on May 31, 1991 (the Form
8-A).
|
|
|
|
4.3
|
|
Form of Rights Agreement, dated as of May 22, 1991, between the Company and
Continental Stock Transfer & Trust Company, incorporated by reference to
Exhibit 2.1 to the Form 8-A.
|
45
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
4.4
|
|
Form of Amendment to Rights Agreement, dated May 24, 2000, between the
Company and Continental Stock Transfer & Trust Company, incorporated by
reference to Exhibit 2 to the Form 8-A/A, filed with the Commission on June
1, 2000.
|
|
|
|
10.1
|
|
Datascope Corp. 1981 Incentive Stock Option Plan, incorporated by reference
to Exhibit 10.2.1 to the Form 8-B.
|
|
|
|
10.2
|
|
Datascope Corp. 1995 Stock Option Plan, as amended, incorporated by reference
to Annex B to the Companys Proxy Statement on Schedule 14A filed by the
Company on October 28, 2004.
|
|
|
|
10.3
|
|
Datascope Corp. 1997 Executive Bonus Plan, incorporated by reference to
Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended December
31, 1997 (the 2Q 1997 10-Q).
|
|
|
|
10.4
|
|
Datascope Corp. Annual Incentive Plan, incorporated by reference to Exhibit
10.3 to the 2Q 1997 10-Q.
|
|
|
|
10.5
|
|
Datascope Corp. Amended and Restated Compensation Plan for Non-Employee
Directors, incorporated by reference to Annex A to the Companys Proxy
Statement on Schedule 14A filed by the Company on October 28, 2002.
|
|
|
|
10.6
|
|
Employment Agreement, dated July 1, 1996, by and between the Company and
Lawrence Saper, incorporated by reference to Exhibit 10.8 to the Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
|
|
|
|
10.7
|
|
Split-Dollar Agreement, dated July 25, 1994, by and among the Company,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of
the Saper Family 1994 Trust UTA. dtd. 6/28/94, incorporated by reference to
Exhibit 10.15 to the Companys Annual Report on Form 10-K for fiscal year
ended June 30, 1996 (the 1996 10-K).
|
|
|
|
10.8
|
|
Modification Agreement, dated July 25, 1994, by and among the Company,
Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of
the Saper Family 1994 Trust UTA. dtd. 6/28/94, incorporated by reference to
Exhibit 10.16 to the 1996 10-K.
|
|
|
|
10.9
|
|
Assignment, dated July 25, 1994, by Carol Saper, Daniel Brodsky and Helen
Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of
Metropolitan Life Insurance Company Insurance Policy No. 940 750 122UM in
favor of the Company, incorporated by reference to Exhibit 10.17 to the 1996
10-K.
|
|
|
|
10.10
|
|
Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen
Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Security
Mutual Life Insurance Company of New York Insurance Policy No. 11047711 in
favor of Datascope Corp., incorporated by reference to Exhibit 10.18 to the
1996 10-K.
|
|
|
|
10.11
|
|
Stock Option Agreement between the Company and William E. Cohn, incorporated
by reference to Exhibit 4.1 of the Registration Statement on Form S-8, filed
with the Commission on June 20, 2000 (the June 20, 2000 Form S-8).
|
|
|
|
10.12
|
|
Stock Option Agreement between the Company and Thor W. Nilsen, incorporated
by reference to Exhibit 4.2 of the June 20, 2000 Form S-8.
|
|
|
|
10.13
|
|
Stock Option Agreement between the Company and Robert Getts, Ph.D.,
incorporated by reference to Exhibit 4.3 of the June 20, 2000 Form S-8.
|
|
|
|
10.14
|
|
Stock Option Agreement between the Company and Robert Getts, Ph.D., James
Kadushin and William Ohley, Ph.D., incorporated by reference to Exhibit 4.4
of the June 20, 2000 Form S-8.
|
|
|
|
10.15
|
|
Stock Option Agreement between the Company and Arno Nash and Alan Abramson,
incorporated by reference to Exhibit 4.5 of the June 20, 2000 Form S-8.
|
|
|
|
10.16
|
|
Stock Option Agreement between the Company and David Altschiller,
incorporated by reference to Exhibit 4.7 of the June 20, 2000 Form S-8.
|
|
|
|
10.17
|
|
Amendment to Employment Agreement, dated as of May 30, 2000, by and between
Datascope Corp. and Lawrence Saper, incorporated by reference to Exhibit
10.22 of the Companys Annual Report on Form 10-K for fiscal year ended June
30, 2000.
|
46
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
10.18
|
|
Series G Preferred Stock Purchase Agreement, dated as of September 14, 2001,
by and between Masimo Corporation and Datascope Corp., incorporated by
reference to Exhibit 10.19 to the Companys Annual Report on Form 10-K for
fiscal year ended June 30, 2002 (the 2002 10-K).
|
|
|
|
10.19
|
|
Second Amendment to Employment Agreement, dated as of October 31, 2001, by
and between Datascope Corp. and Lawrence Saper, incorporated by reference to
Exhibit 10.20 of the 2002 10-K.
|
|
|
|
10.20
|
|
Stock Option Agreement between the Company and William L. Asmundson,
incorporated by reference to Exhibit 10.1 of the Registration Statement on
Form S-8, filed with the Commission on December 19, 2001 (the December 19,
2001 Form S-8).
|
|
|
|
10.21
|
|
Stock Option Agreement between the Company and Jorgen K. Winther,
incorporated by reference to Exhibit 10.2 of the December 19, 2001 Form S-8.
|
|
|
|
10.22
|
|
Third Amendment to Employment Agreement, dated as of March 13, 2002, by and
between Datascope Corp. and Lawrence Saper, incorporated by reference to
Exhibit 10.23 of the 2002 10-K.
|
|
|
|
10.23
|
|
Fourth Amendment to Employment Agreement, dated as of October 1, 2002, by and
between Datascope Corp. and Lawrence Saper, incorporated by reference to
Exhibit 10.23 to the Companys Annual Report on Form 10-K for fiscal year
ended June 30, 2004 (the 2004 10-K).
|
|
|
|
10.24
|
|
Stock Option Agreement between the Company and David Altschiller, dated
February 25, 2003 incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-8, filed with the Commission on May 30, 2003
(the May 30, 2003 Form S-8).
|
|
|
|
10.25
|
|
Stock Option Agreement between the Company and Dr. Samuel Money, incorporated
by reference to Exhibit 4.3 of the May 30, 2003 Form S-8.
|
|
|
|
10.26
|
|
Stock Option Agreement between the Company and Leonard Gottlieb, dated May
20, 2003, incorporated by reference to Exhibit 10.23 to the 2004 10-K.
|
|
|
|
10.27
|
|
Datascope Corp. 2004 Management Incentive Plan, incorporated by reference to
Annex A to the Companys Proxy Statement on Schedule 14A filed by the Company
on October 28, 2003.
|
|
|
|
10.28
|
|
Fifth Amendment to Employment Agreement, dated as of April 1, 2005, by and
between Datascope Corp. and Lawrence Saper, incorporated by reference to
Exhibit 10.28 to the Companys Annual Report on Form 10-K for fiscal year
ended June 30, 2005.
|
|
|
|
21.1*
|
|
Subsidiaries of the Company.
|
|
|
|
23.1*
|
|
Consent of Deloitte & Touche LLP.
|
|
|
|
31.1*
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
|
31.2*
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
|
32.1*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
DATASCOPE CORP.
|
|
Date: September 15, 2008
|
By:
|
/s/ Lawrence Saper
|
|
|
|
Lawrence Saper
|
|
|
|
Chairman of the Board
and Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Lawrence Saper
Lawrence Saper
|
|
Chairman of the Board
and Chief Executive
Officer (Principal
Executive Officer)
|
|
September 15, 2008
|
|
|
|
|
|
/s/ Antonino Laudani, M.D.
Antonino Laudani, M.D.
|
|
Vice-President and Chief Operating Officer
|
|
September 15, 2008
|
|
|
|
|
|
/s/ Henry M. Scaramelli
Henry M. Scaramelli
|
|
Vice President, Finance
and Chief Financial
Officer (Principal
Financial Officer)
|
|
September 15, 2008
|
|
|
|
|
|
/s/ Fred Adelman
Fred Adelman
|
|
Vice President, Chief
Accounting Officer
(Principal Accounting
Officer) and Treasurer
|
|
September 15, 2008
|
|
|
|
|
|
/s/ Alan B. Abramson
Alan B. Abramson
|
|
Director
|
|
September 15, 2008
|
|
|
|
|
|
/s/ David Altschiller
David Altschiller
|
|
Director
|
|
September 15, 2008
|
|
|
|
|
|
/s/ David Dantzker, M.D.
David Dantzker, M.D.
|
|
Director
|
|
September 15, 2008
|
|
|
|
|
|
/s/ James J. Loughlin
James J. Loughlin
|
|
Director
|
|
September 15, 2008
|
|
|
|
|
|
/s/ Robert E. Klatell
Robert E. Klatell
|
|
Director
|
|
September 15, 2008
|
|
|
|
|
|
/s/ William W. Wyman
William W. Wyman
|
|
Director
|
|
September 15, 2008
|
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Datascope Corp.
Montvale, New Jersey
We have audited the accompanying consolidated balance sheets of Datascope Corp. and
subsidiaries (the Company) as of June 30, 2008 and 2007, and the related consolidated statements
of earnings, stockholders equity, and cash flows for each of the three years in the period ended
June 30, 2008. Our audits also included the financial statement schedule listed in the index at
Item 15(a)2. These financial statements and the financial statement schedule are the responsibility
of the Companys management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Datascope Corp. and subsidiaries as of June 30, 2008 and 2007,
and the results of their operations and their cash flows for each of the three years in the period
ended June 30, 2008, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement
of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
, effective June 30, 2007, the provisions of United States
Securities and Exchange Commission Staff Accounting Bulletin No. 108,
Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
,
effective for the year ended June 30, 2007, and the provisions of Financial Accounting Standards
Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, effective July 1, 2007.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of June
30, 2008, based on the criteria established in
Internal Control Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
September 15, 2008 expressed an unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
September 15, 2008
F-1
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,106
|
|
|
$
|
15,780
|
|
Short-term investments
|
|
|
228,106
|
|
|
|
23,681
|
|
Accounts receivable less allowance for
doubtful accounts of $2,777 and $2,603
|
|
|
65,178
|
|
|
|
85,553
|
|
Inventories
|
|
|
31,030
|
|
|
|
59,455
|
|
Prepaid income taxes
|
|
|
|
|
|
|
2,293
|
|
Prepaid expenses and other current assets
|
|
|
16,425
|
|
|
|
11,167
|
|
Current deferred taxes
|
|
|
2,476
|
|
|
|
7,238
|
|
Current assets of discontinued operations
|
|
|
5,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
371,094
|
|
|
|
205,167
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
49,710
|
|
|
|
82,812
|
|
Long-term investments
|
|
|
22,846
|
|
|
|
14,346
|
|
Intangible assets, net
|
|
|
15,873
|
|
|
|
26,074
|
|
Goodwill
|
|
|
4,575
|
|
|
|
12,860
|
|
Other assets
|
|
|
43,974
|
|
|
|
34,897
|
|
Noncurrent assets of discontinued operations
|
|
|
15,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
523,738
|
|
|
$
|
376,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,951
|
|
|
$
|
18,386
|
|
Accrued expenses
|
|
|
13,833
|
|
|
|
17,661
|
|
Accrued compensation
|
|
|
14,377
|
|
|
|
17,422
|
|
Deferred revenue
|
|
|
2,728
|
|
|
|
4,380
|
|
Income taxes payable
|
|
|
43,504
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
91,893
|
|
|
|
57,849
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
25,836
|
|
|
|
25,220
|
|
Other liabilities of discontinued operations
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00 per share:
|
|
|
|
|
|
|
|
|
Authorized 5,000 shares; Issued, none
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share:
|
|
|
|
|
|
|
|
|
Authorized, 45,000 shares;
|
|
|
|
|
|
|
|
|
Issued, 19,401 and 18,867 shares
|
|
|
194
|
|
|
|
189
|
|
Additional paid-in capital
|
|
|
126,805
|
|
|
|
109,384
|
|
Treasury stock at cost, 3,567 and 3,521 shares
|
|
|
(108,897
|
)
|
|
|
(107,037
|
)
|
Retained earnings
|
|
|
377,194
|
|
|
|
294,765
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation adjustments
|
|
|
10,043
|
|
|
|
1,899
|
|
Benefit plan adjustments
|
|
|
(55
|
)
|
|
|
(5,827
|
)
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
266
|
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
405,550
|
|
|
|
293,087
|
|
|
|
|
|
|
|
|
|
|
$
|
523,738
|
|
|
$
|
376,156
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-2
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net sales
|
|
$
|
230,915
|
|
|
$
|
212,991
|
|
|
$
|
196,516
|
|
Cost of sales
|
|
|
80,013
|
|
|
|
74,148
|
|
|
|
68,320
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
150,902
|
|
|
|
138,843
|
|
|
|
128,196
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
21,079
|
|
|
|
19,901
|
|
|
|
19,129
|
|
Selling, general and administrative expenses
|
|
|
92,617
|
|
|
|
87,424
|
|
|
|
81,152
|
|
Special
charges
|
|
|
|
|
|
|
8,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,696
|
|
|
|
116,062
|
|
|
|
100,281
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
37,206
|
|
|
|
22,781
|
|
|
|
27,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(2,698
|
)
|
|
|
(2,479
|
)
|
|
|
(2,225
|
)
|
Interest expense
|
|
|
84
|
|
|
|
36
|
|
|
|
228
|
|
Dividend income
|
|
|
|
|
|
|
(196
|
)
|
|
|
(4,523
|
)
|
Gain on sale of investments
|
|
|
(13,173
|
)
|
|
|
(1,273
|
)
|
|
|
|
|
Other, net
|
|
|
1,727
|
|
|
|
737
|
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,060
|
)
|
|
|
(3,175
|
)
|
|
|
(5,106
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
51,266
|
|
|
|
25,956
|
|
|
|
33,021
|
|
Income taxes
|
|
|
17,488
|
|
|
|
7,662
|
|
|
|
8,289
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
33,778
|
|
|
|
18,294
|
|
|
|
24,732
|
|
Net (loss) earnings from discontinued operations
|
|
|
(3,544
|
)
|
|
|
(829
|
)
|
|
|
1,111
|
|
Net gain on sale of discontinued operations
|
|
|
76,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
106,906
|
|
|
$
|
17,465
|
|
|
$
|
25,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.19
|
|
|
$
|
1.20
|
|
|
$
|
1.65
|
|
Discontinued operations
|
|
|
(0.23
|
)
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
Net gain on sale of discontinued operations
|
|
|
4.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
6.92
|
|
|
$
|
1.15
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding, basic
|
|
|
15,441
|
|
|
|
15,244
|
|
|
|
14,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.16
|
|
|
$
|
1.19
|
|
|
$
|
1.62
|
|
Discontinued operations
|
|
|
(0.22
|
)
|
|
|
(0.05
|
)
|
|
|
0.07
|
|
Net gain on sale of discontinued operations
|
|
|
4.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
6.85
|
|
|
$
|
1.14
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding, diluted
|
|
|
15,617
|
|
|
|
15,387
|
|
|
|
15,296
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-3
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Com-
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Treasury Stock
|
|
|
|
|
|
|
prehensive
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Income
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Total
|
|
Balance, June 30, 2005
|
|
|
18,256
|
|
|
$
|
183
|
|
|
$
|
88,773
|
|
|
|
(3,460
|
)
|
|
$
|
(105,175
|
)
|
|
$
|
292,524
|
|
|
$
|
(10,440
|
)
|
|
$
|
265,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,843
|
|
|
|
|
|
|
|
25,843
|
|
Minimum pension liability
adjustments, net of tax of ($3,498)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,066
|
|
|
|
5,066
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,413
|
|
|
|
1,413
|
|
Unrealized loss on available-for-sale securities, net of tax
of $98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions
|
|
|
475
|
|
|
|
4
|
|
|
|
13,821
|
|
|
|
(24
|
)
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
12,987
|
|
Restricted stock awards
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
Tax benefit relating to stock-based
awards
|
|
|
|
|
|
|
|
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,414
|
|
Cancellation of treasury stock
|
|
|
(24
|
)
|
|
|
|
|
|
|
(838
|
)
|
|
|
24
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
(144
|
)
|
Cash dividends declared on common
stock ($1.28 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,112
|
)
|
|
|
|
|
|
|
(19,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
18,721
|
|
|
|
187
|
|
|
|
103,728
|
|
|
|
(3,465
|
)
|
|
|
(105,319
|
)
|
|
|
299,255
|
|
|
|
(4,113
|
)
|
|
|
293,738
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,465
|
|
|
|
|
|
|
|
17,465
|
|
Minimum pension liability
adjustments, net of tax of ($1,164)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,686
|
|
|
|
1,686
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,127
|
|
|
|
2,127
|
|
Unrealized gain on available-for-sale securities, net of tax
of ($47)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of SFAS 158
adoption, net of tax of $3,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,076
|
)
|
|
|
(5,076
|
)
|
Cumulative effect of SAB 108
adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,072
|
)
|
|
|
1,072
|
|
|
|
|
|
Common stock transactions
|
|
|
156
|
|
|
|
2
|
|
|
|
4,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,663
|
|
Restricted stock awards
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695
|
|
Tax benefit relating to stock-based
awards
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Cancellation of restricted stock
awards
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
(1,718
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,718
|
)
|
Cash dividends declared on common
stock ($1.37 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,883
|
)
|
|
|
|
|
|
|
(20,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
|
18,867
|
|
|
|
189
|
|
|
|
109,384
|
|
|
|
(3,521
|
)
|
|
|
(107,037
|
)
|
|
|
294,765
|
|
|
|
(4,214
|
)
|
|
|
293,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,906
|
|
|
|
|
|
|
|
106,906
|
|
Benefit plan adjustments, net of
tax of ($3,828)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,772
|
|
|
|
5,772
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,144
|
|
|
|
8,144
|
|
Unrealized gain on available-
for-sale securities, net of tax
of $325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of FIN 48 adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,815
|
)
|
|
|
|
|
|
|
(2,815
|
)
|
Common stock transactions
|
|
|
469
|
|
|
|
5
|
|
|
|
14,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,840
|
|
Restricted stock awards
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341
|
|
Tax benefit relating to stock-based
awards
|
|
|
|
|
|
|
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,245
|
|
Cancellation of restricted stock
awards
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
(1,860
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,860
|
)
|
Cash dividends declared on common
stock ($1.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,662
|
)
|
|
|
|
|
|
|
(21,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
|
19,401
|
|
|
$
|
194
|
|
|
$
|
126,805
|
|
|
|
(3,567
|
)
|
|
$
|
(108,897
|
)
|
|
$
|
377,194
|
|
|
$
|
10,254
|
|
|
$
|
405,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-4
DATASCOPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
106,906
|
|
|
$
|
17,465
|
|
|
$
|
25,843
|
|
Adjustments to reconcile net earnings to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12,852
|
|
|
|
15,209
|
|
|
|
15,162
|
|
Amortization
|
|
|
5,056
|
|
|
|
6,279
|
|
|
|
5,371
|
|
Provision for supplemental pension and post-retirement medical
|
|
|
1,371
|
|
|
|
1,284
|
|
|
|
1,164
|
|
Provision for losses on accounts receivable
|
|
|
609
|
|
|
|
456
|
|
|
|
461
|
|
Cash surrender value of officers life insurance
|
|
|
(249
|
)
|
|
|
(248
|
)
|
|
|
(308
|
)
|
Net gain on sale of discontinued operations
|
|
|
(76,672
|
)
|
|
|
|
|
|
|
|
|
Gains on asset sales
|
|
|
|
|
|
|
(2,235
|
)
|
|
|
(810
|
)
|
Realized (gains) losses on sale of investments
|
|
|
(13,173
|
)
|
|
|
(1,268
|
)
|
|
|
853
|
|
Stock-based compensation expense
|
|
|
1,341
|
|
|
|
695
|
|
|
|
558
|
|
Excess tax benefits from stock-based compensation
|
|
|
(1,279
|
)
|
|
|
(350
|
)
|
|
|
(1,406
|
)
|
Deferred income tax expense (benefit)
|
|
|
(169
|
)
|
|
|
(199
|
)
|
|
|
320
|
|
Special charges asset write-offs and impairments
|
|
|
841
|
|
|
|
2,648
|
|
|
|
1,614
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
440
|
|
|
|
|
|
Changes in operating assets and liabilities,
net of business acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
21,602
|
|
|
|
(4,892
|
)
|
|
|
(3,353
|
)
|
Inventories
|
|
|
(7,480
|
)
|
|
|
(6,116
|
)
|
|
|
(11,084
|
)
|
Prepaid expenses and other assets
|
|
|
(10,632
|
)
|
|
|
(2,263
|
)
|
|
|
(4,710
|
)
|
Accounts payable
|
|
|
2,628
|
|
|
|
(2,800
|
)
|
|
|
627
|
|
Accrued and other liabilities
|
|
|
(9,354
|
)
|
|
|
2,102
|
|
|
|
(1,301
|
)
|
Income taxes payable
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
33,255
|
|
|
|
26,207
|
|
|
|
29,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(6,763
|
)
|
|
|
(5,885
|
)
|
|
|
(6,255
|
)
|
Proceeds from asset sales
|
|
|
|
|
|
|
3,000
|
|
|
|
2,653
|
|
Purchases of investments
|
|
|
(449,172
|
)
|
|
|
(73,960
|
)
|
|
|
(72,010
|
)
|
Proceeds from investment maturities
|
|
|
230,797
|
|
|
|
70,035
|
|
|
|
30,596
|
|
Proceeds from investment sales
|
|
|
18,363
|
|
|
|
32,103
|
|
|
|
28,065
|
|
Capitalized software
|
|
|
(6,876
|
)
|
|
|
(7,458
|
)
|
|
|
(4,059
|
)
|
Purchased technology and licenses
|
|
|
(13
|
)
|
|
|
(2,157
|
)
|
|
|
(459
|
)
|
Proceeds from sale of discontinued operations, net of cash divested
|
|
|
208,603
|
|
|
|
|
|
|
|
|
|
Business acquisition payment, net of cash acquired
|
|
|
(11,056
|
)
|
|
|
(16,423
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(88
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,117
|
)
|
|
|
(833
|
)
|
|
|
(21,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
15,200
|
|
Repayments of short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
(19,200
|
)
|
Exercise of stock options
|
|
|
14,660
|
|
|
|
3,988
|
|
|
|
12,987
|
|
Treasury shares acquired under repurchase programs
|
|
|
(1,860
|
)
|
|
|
(1,718
|
)
|
|
|
(144
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
1,279
|
|
|
|
350
|
|
|
|
1,406
|
|
Cash dividends paid
|
|
|
(23,155
|
)
|
|
|
(20,389
|
)
|
|
|
(19,079
|
)
|
Guaranteed milestone payments
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(9,576
|
)
|
|
|
(18,269
|
)
|
|
|
(9,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(1,236
|
)
|
|
|
(804
|
)
|
|
|
(823
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
6,326
|
|
|
|
6,301
|
|
|
|
(2,709
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
15,780
|
|
|
|
9,479
|
|
|
|
12,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
22,106
|
|
|
$
|
15,780
|
|
|
$
|
9,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
87
|
|
|
$
|
41
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
15,984
|
|
|
$
|
11,370
|
|
|
$
|
8,857
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes refunded
|
|
$
|
3,772
|
|
|
$
|
3,538
|
|
|
$
|
3,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers of inventory to fixed assets for use as
demonstration equipment
|
|
$
|
4,989
|
|
|
$
|
6,809
|
|
|
$
|
6,518
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, not paid
|
|
$
|
70
|
|
|
$
|
1,563
|
|
|
$
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized software and property, plant & equipment
acquired, not paid
|
|
$
|
493
|
|
|
$
|
128
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of treasury stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
838
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds due from broker common stock transactions
|
|
$
|
617
|
|
|
$
|
441
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of deferred shares
|
|
$
|
4
|
|
|
$
|
234
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-5
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Company Overview
Datascope Corp. (the Company, which may be referred to as
our
,
us
or
we
) is the global
leader of intra-aortic balloon counterpulsation and a diversified cardiovascular device company
that develops, manufactures and markets proprietary products for clinical health care markets in
interventional cardiology, cardiovascular and vascular surgery, and critical care. Our products are
sold throughout the world through direct sales representatives and independent distributors. Our
two reportable segments are Cardiac Assist Products and Vascular Products. The Cardiac Assist
Products segment accounted for 82% of total sales in fiscal 2008. The Cardiac Assist Products
segment sells intra-aortic balloon pumps and catheters, endoscopic vessel harvesting products that
provide a less-invasive alternative to surgical harvesting of blood vessels for use in coronary
bypass and the Safeguard assisted pressure device. Our intra-aortic balloon pump system is used in
the treatment of cardiac shock, acute heart failure, irregular heart rhythms, and for cardiac
support in open-heart surgery, coronary angioplasty, and stenting. The balloon catheter serves as
the pumping device within the patients aorta. The Vascular Products segment sells a proprietary
line of knitted and woven polyester vascular grafts and patches for reconstructive vascular and
cardiovascular surgery, peripheral vascular stent products and stent grafts.
Effective May 1, 2008, we sold our Patient Monitoring (PM) business to Mindray Medical
International Limited.
In October 2006, we announced a plan to exit the vascular closure market and phase out the
Interventional Products (IP) business. Effective August 6, 2008, we completed the sale of assets
related to the VasoSeal, On-Site, and X-Site vascular closure devices, and our collagen operations,
to St. Jude Medical, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of Datascope Corp. and its
subsidiaries. All intercompany balances and transactions have been eliminated.
Reclassifications
We have reclassified our consolidated statements of earnings to reflect the results of
discontinued operations for all fiscal years presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
F-6
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Foreign Currency Translation
For each of our foreign subsidiaries, the local currency is the functional currency. Assets
and liabilities of foreign subsidiaries have been translated at year-end exchange rates, while
revenues and expenses have been translated at average exchange rates in effect during the year.
Resulting cumulative translation adjustments have been recorded as a component of accumulated other
comprehensive income (loss) in stockholders equity.
Taxes on Income
We utilize the asset and liability method for accounting for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes
. Under
this method, deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax
rates in effect for the years in which the differences are expected to reverse. We reduce our
deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized. We
consider relevant evidence, both positive and negative, to determine the need for a valuation
allowance. On July 1, 2007, we adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), an
interpretation of SFAS No. 109,
Accounting for Income Taxes
. We have elected to retain our existing
accounting policy with respect to the treatment of interest and penalties attributable to income
taxes in accordance with FIN 48, and continue to reflect interest and penalties attributable to
income taxes, to the extent they arise, as a component of our income tax provision or benefit as
well as our outstanding income tax assets and liabilities. See Recently Adopted Accounting
Pronouncements and Note 8 for additional information related to the impact of adopting FIN 48.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments which have maturities
when purchased of less than 90 days. We maintain overdraft facilities with certain banks. Book
overdraft positions at the end of each reporting period are reclassified to accounts payable within
the consolidated balance sheet.
Investments
Investments in debt and equity securities are classified as available-for-sale and are
reported at fair market value based on quoted market prices. Unrealized gains and losses, net of
taxes, are reported as a component of stockholders equity. On an ongoing basis we evaluate our
investments to determine if a decline in fair value is other-than-temporary. Realized gains and
losses on investments are included in Other, net, or separately to the extent material. All other
investments are initially recorded at cost and charged against income when a decline in the fair
market value of an individual security is determined to be other-than-temporary.
F-7
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
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 report 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 period-end. We maintain a
specific allowance for customer accounts that will likely not be collectible due to customer
liquidity issues. We also maintain an allowance for estimated future collection losses on existing
receivables, determined based on historical trends.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited due to the large
number of customers comprising our customer base. Ongoing credit evaluations of customers
financial condition are performed. We maintain reserves for potential credit losses and these
losses have not exceeded our expectations.
Inventories
We value our inventories at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. Inventory is reported at its estimated fair market value based upon our
historical experience with inventory becoming obsolete due to age, changes in technology and other
factors. Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2008
|
|
|
2007
|
Materials
|
|
$
|
9,999
|
|
|
$
|
20,189
|
Work in process
|
|
|
8,628
|
|
|
|
11,253
|
Finished goods
|
|
|
12,403
|
|
|
|
28,013
|
|
|
|
|
|
|
|
|
$
|
31,030
|
|
|
$
|
59,455
|
|
|
|
|
|
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and
amortization. Additions and improvements are capitalized, while maintenance and repairs are
expensed as incurred. Asset and accumulated depreciation accounts are relieved for dispositions,
with resulting gains or losses reflected in earnings. Depreciation of property, plant and equipment
is provided using the straight-line method over the estimated useful lives of the various assets,
or for leasehold improvements, over the term of the lease, if shorter. Certain products used as
sales demonstration and service loaner equipment are transferred from inventory to machinery and
equipment and depreciated over 3 to 5 years.
F-8
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The major categories of property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Land
|
|
$
|
4,251
|
|
|
$
|
9,248
|
|
Buildings
|
|
|
37,836
|
|
|
|
57,061
|
|
Machinery, furniture and equipment
|
|
|
80,624
|
|
|
|
116,787
|
|
Leasehold improvements
|
|
|
562
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
123,273
|
|
|
|
183,572
|
|
Less accumulated depreciation and amortization
|
|
|
(73,563
|
)
|
|
|
(100,760
|
)
|
|
|
|
|
|
|
|
|
|
$
|
49,710
|
|
|
$
|
82,812
|
|
|
|
|
|
|
|
|
Depreciation expense was $12.9 million in fiscal 2008 and $15.2 million in fiscal 2007 and
2006. We estimate the useful life of machinery and equipment at 3 to 5 years, furniture at 8 years
and buildings at 40 years.
Impairment of Long Lived Assets
The recoverability of certain long-lived assets is evaluated by an analysis of undiscounted
cash flows expected to result from the use and eventual disposition of an asset or group of assets
compared to its carrying value, and consideration of other significant events or changes in the
business environment. If we believe an impairment exists, the carrying amount of these assets is
reduced to fair value as defined in SFAS No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets
.
Other Assets
Capitalized Software Development Costs
In accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed
, costs incurred in the research and development of new software
components and enhancements to existing software components are expensed as incurred until
technological feasibility has been established. After technological feasibility is established, any
additional software development costs are capitalized and included in Other Assets. Capitalized
software amortization is the greater of the ratio of current revenues for a product to the total of
current and anticipated future gross revenues for that product or on a straight-line basis over the
remaining estimated economic life of the product, including the current reporting period (not to
exceed five years).
Internal Use Capitalized Computer Software Costs
We capitalize costs incurred to develop internal use computer software during the application
development stage, in accordance with American Institute of Certified Public Accountants Statement
of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
. Internal use computer software costs are amortized on a straight line basis over the remaining
estimated economic life of the software, not to exceed 5 years. Costs become amortizable as
functionality of the computer software is achieved.
F-9
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Intangible Assets
We capitalize payments for purchased technology, licenses and other intangible assets when it
is considered probable that the product will be brought to market in the near future and the
anticipated profitability is such that it can support recovery of the investment. Satisfaction of
the above conditions requires that there be no significant uncertainty about attaining
marketability and the remaining open issues necessary to have a saleable product are reasonably
predictable. Purchased technology and licenses are amortized through cost of sales on a
straight-line basis, over the remaining estimated economic or legal life of the product, generally
5 to 13 years. Other intangible assets consist of customer relationships, a non-compete agreement
and a trademark and are amortized on a straight-line basis using lives ranging from 5 to 7 years.
The straight-line basis is used for intangible assets when the pattern of consumption of the
economic benefits of the intangible asset is not determinable.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets acquired. On an
annual basis, or when management determines that the carrying value of goodwill may not be
recoverable based upon the existence of certain indicators of impairment, we calculate the fair
value of a reporting unit, which is based on a discounted cash flow analysis, and compare it to the
reporting units carrying value. If the carrying value of the reporting unit exceeds its fair
value, an impairment loss will be recognized in an amount equal to the difference. There was no
impairment of goodwill based on our testing and analysis in fiscal 2008 and 2006. We recorded a
pretax goodwill impairment charge of $2.3 million in fiscal 2007 related to Genisphere. The
impairment charge is included in the Corporate and Other segment.
Revenue Recognition
We recognize revenue and all related costs, including warranty costs, when persuasive evidence
of an arrangement exists, title and risk of loss passes to the customer and collectibility of the
fixed sales price is probable. For products shipped FOB shipping point, revenue is recognized when
they leave our premises. For products shipped FOB destination, revenue is recognized when they
reach the customer. For certain products where we maintain consigned inventory at customer
locations, revenue is recognized when the product has been used by the customer. We record
estimated sales returns as a reduction of net sales in the same period that the related revenue is
recognized. Historical experience is used to estimate an accrual for future returns relating to
recorded sales, as well as estimated warranty costs. Revenue for service repairs of equipment is
recognized after service has been completed, and service contract revenue is recognized ratably
over the term of the contract. We do not have a general right of return for our products. Post
shipment obligations for training commitments are considered perfunctory, and sales are recognized
when delivered with provision for incremental costs. We reflect shipping and handling fees as
revenue and shipping and handling costs as cost of sales.
Earnings Per Share
In accordance with SFAS No. 128,
Earnings Per Share
, we report basic earnings per share, which
is based upon weighted average common shares outstanding, and diluted earnings per share, which
includes the dilutive effect of stock awards outstanding.
Stock-Based Compensation
F-10
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
In accordance with SFAS No. 123 (revised 2004) (SFAS 123(R)),
Share-Based Payment
, we
establish the fair value for our equity awards to determine their cost and recognize the related
stock-based compensation expense over the appropriate vesting period. See Note 10 for additional
information related to stock-based compensation expense.
Recently Adopted Accounting Pronouncements
On July 1, 2007, we adopted the provisions of the FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), an
interpretation of SFAS No. 109,
Accounting for Income Taxes
. FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing that a benefit cannot be recorded in the financial
statements unless the tax position has a more likely than not chance of being sustained upon
audit based solely on the technical merits of the position. Once the more likely than not
standard is met, the benefit is measured by determining the amount that is greater than 50 percent
likely of being realized upon settlement, presuming that the tax position is examined by the
appropriate taxing authority that has full knowledge of all relevant information. FIN 48 also
provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. See Note 8 for additional information related to the impact of
adopting FIN 48.
On June 30, 2007, we adopted the provisions of SFAS No. 158,
Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
(SFAS 158), an amendment of SFAS 87, 88, 106 and
132(R)
.
SFAS 158 requires registrants to fully recognize an asset or liability for the overfunded
or the underfunded status of their benefit plans on their consolidated balance sheet. The pension
asset or liability equals the difference between the fair value of the plans assets and its
benefit obligation. The benefit obligation is measured as the projected benefit obligation (PBO)
for pension plans and as the accumulated postretirement benefit obligation for other postretirement
benefit plans. At June 30, 2007, we had a PBO that was approximately $1.1 million higher than the
fair value of the U.S. and International defined benefit pension plan assets. The supplemental
executive retirement plans (SERP) had a PBO of approximately $18.3 million at June 30, 2007.
There are no assets in the SERP plans. In addition, we are required to recognize as part of
accumulated other comprehensive income (loss), net of taxes, gains and losses due to differences
between our actuarial assumptions and actual experience (actuarial gains and losses) and any
effects on prior service due to plan amendments (prior service costs or credits) that arise during
the period and which are not yet recognized as net periodic benefit costs. At adoption date, we
recognized $5.1 million within accumulated other comprehensive loss, net of tax, related to the
previously unrecognized net actuarial losses, prior service credits and net transition amounts. We
currently meet the SFAS 158 requirement that the measurement date for plan assets and liabilities
must coincide with the sponsors year end. SFAS 158 also includes additional disclosures in an
entitys annual financial statements. See Note 12 for additional information related to our
retirement benefit plans.
F-11
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
During the fourth quarter of fiscal 2007, we adopted the provisions of the Securities and
Exchange Commissions Staff Accounting Bulletin (SAB) No. 108,
Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
. SAB 108
requires registrants to use both a balance sheet approach and an income statement approach when
quantifying and evaluating the materiality of a misstatement and to adjust the financial statements
if either approach results in quantifying a misstatement that is material. SAB 108 also contains
guidance on correcting errors under the dual approach and provides transition guidance for
correcting errors existing in prior years. If prior year errors that had been previously considered
immaterial (based on the appropriate use of the registrants prior approach) now are considered
material based on the approach in SAB 108, the registrant need not restate prior period financial
statements. During the second quarter of fiscal 2007 we identified a prior year misstatement that
we considered to be immaterial under our current approach for evaluating the materiality of a
misstatement. However, upon adoption of SAB 108 this misstatement was considered material to the
financial statements and was corrected upon adoption during the fourth quarter of fiscal 2007
through a cumulative effect adjustment impacting beginning retained earnings and cumulative
translation adjustments as of the beginning of fiscal 2007. The misstatement relates to a
cumulative translation adjustment of approximately $1.1 million that was not written-off in fiscal
2002 when a European subsidiary was closed as part of a restructuring. This adjustment did not have
an impact on total consolidated stockholders equity.
Recent Accounting Pronouncements, Not Required to be Adopted as of June 30, 2008
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS
157 defines fair value as: the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. In
addition, SFAS 157 establishes a fair value hierarchy to be used to classify the source of
information used in fair value measurements, new disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy and a modification of the long-standing accounting
presumption that the transaction price of an asset or liability equals its initial fair value. SFAS
157 is effective for fiscal years beginning after November 15, 2007 (our fiscal year 2009 beginning
July 1, 2008). The FASB issued Staff Position FAS 157-2,
Effective Date of FASB Statement No. 157
,
which delayed the provisions of SFAS 157 relating to nonfinancial assets and liabilities until
fiscal years beginning after November 15, 2008 (our fiscal year 2010 beginning July 1, 2009). SFAS
157 is not expected to materially affect how we determine fair value, but may result in certain
additional disclosures.
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-10,
Accounting for
Deferred Compensation and Postretirement Benefits Aspects of Collateral Assignment Split-Dollar
Life Insurance Arrangements
, which is effective for fiscal years that begin after December 15, 2007
(our fiscal year 2009 beginning July 1, 2008). The Task Force concluded that an employer should
recognize a liability for the postretirement benefit related to a collateral assignment
split-dollar life insurance arrangement in accordance with either FASB Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions
, or Accounting Principles
Board Opinion No. 12,
Omnibus Opinion
, based on the substantive agreement with the employee. The
Task Force also concluded that an employer should recognize and measure an asset based on the
nature and substance of the collateral assignment split-dollar life insurance arrangement. The
Supplemental Benefits Plan for the Chairman and Chief Executive Officer, Mr. Lawrence Saper,
provides survivor benefits in the form of a $10 million life insurance policy, maintained pursuant
to a collateral assignment split-dollar agreement among Mr. Saper, the Company and a trust for the
benefit of Mr. Sapers family. The present value of the premium reimbursement pursuant to the
split-dollar agreement at June 30, 2008 was approximately $3.5 million. Upon adoption, we will
record a liability and a cumulative effect adjustment to retained earnings for the present value of
the premium reimbursement at the date of adoption.
F-12
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115
(SFAS 159). This
statement provides an option to report selected financial assets and liabilities at fair value. In
addition, SFAS 159 establishes presentation and disclosure requirements for those assets and
liabilities which the registrant has chosen to measure at fair value. SFAS 159 is effective for
fiscal years beginning after November 15, 2007 (our fiscal year 2009 beginning July 1, 2008). We do
not believe the adoption of SFAS 159 will have a material impact on our consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51
(SFAS 160). This statement amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. SFAS 160 clarifies a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 (our fiscal year 2010 beginning July 1, 2009). We are currently evaluating the
impact of adopting SFAS 160 on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)). This
statement establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill
acquired and any noncontrolling interest in the acquiree. In addition, SFAS 141(R) establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is during fiscal years beginning on or after December 15, 2008, the effective date
of this statement. We will adopt SFAS 141(R) in the first quarter of our fiscal year 2010 beginning
July 1, 2009.
In March 2008, the FASB issued Statement No. 161,
Disclosures about Derivative Instruments and
Hedging Activities (
SFAS161), which is effective for fiscal years beginning after November 15,
2008 (our fiscal year beginning July 1, 2009). Statement 161 requires enhanced disclosures about an
entitys derivative and hedging activities and thereby improves the transparency of financial
reporting. We are currently evaluating the impact of adopting SFAS 161, but do not anticipate that
the provisions of SFAS 161 will have a material impact on our consolidated financial statements.
In May 2008, the FASB issued Statement No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
(SFAS 162). This Statement identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements that
are presented in conformity with generally accepted accounting principles in the U.S. We are
currently evaluating the impact of adopting SFAS 162, but do not anticipate that the provisions of
SFAS 162 will have a material impact on our consolidated financial statements.
F-13
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
2. Financial Instruments and Investments
The fair value of accounts receivable and accounts payable approximate their carrying value
because of their short maturity. Our short- and long-term marketable investments are primarily held
in U.S. treasury securities, AAA-Rated U.S. government guaranteed agency securities and AAARated
corporate notes. Fair values of short- and long-term investments are based upon quoted market
prices, including accrued interest. We do not hold any auction rate securities.
As of June 30, 2008, investments were classified as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
205,232
|
|
|
$
|
97
|
|
|
$
|
7
|
|
|
$
|
205,322
|
|
Foreign government treasury securities
|
|
|
7,967
|
|
|
|
|
|
|
|
|
|
|
|
7,967
|
|
Guaranteed Euro deposits
|
|
|
14,611
|
|
|
|
|
|
|
|
|
|
|
|
14,611
|
|
Corporate equity security
|
|
|
26
|
|
|
|
180
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term total
|
|
$
|
227,836
|
|
|
$
|
277
|
|
|
$
|
7
|
|
|
$
|
228,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
20,645
|
|
|
$
|
173
|
|
|
$
|
79
|
|
|
$
|
20,739
|
|
AAARated corporate notes
|
|
|
2,031
|
|
|
|
76
|
|
|
|
|
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term total
|
|
$
|
22,676
|
|
|
$
|
249
|
|
|
$
|
79
|
|
|
$
|
22,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
250,512
|
|
|
$
|
526
|
|
|
$
|
86
|
|
|
$
|
250,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had 2 securities with a fair market value of $3.1 million and unrealized losses of $22
thousand at June 30, 2008 that had a continuous loss position for more than 12 months. We had 10
securities with a fair market value of $31.9 million and unrealized losses of $64 thousand at June
30, 2008 that had a continuous loss position for less than 12 months. Unrealized losses from these
investments are primarily attributable to interest rate changes.
A realized gain of $13.2 million was recorded in net earnings related to our sale of the
Masimo investment (cost basis of $5.0 million) in fiscal 2008. The realized gain is included in
gain on sale of investments in the consolidated statement of earnings. The pretax change in
unrealized gain on available-for-sale securities that has been included as a separate component of
stockholders equity was a gain of $877 thousand in fiscal 2008. No losses were reclassified from
stockholders equity to the statement of earnings in fiscal 2008.
F-14
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
As of June 30, 2007, investments were classified as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
23,942
|
|
|
$
|
2
|
|
|
$
|
263
|
|
|
$
|
23,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
6,105
|
|
|
$
|
|
|
|
$
|
201
|
|
|
$
|
5,904
|
|
AAARated corporate notes
|
|
|
2,062
|
|
|
|
26
|
|
|
|
|
|
|
|
2,088
|
|
Preferred stock
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Call option
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term total
|
|
$
|
14,521
|
|
|
$
|
26
|
|
|
$
|
201
|
|
|
$
|
14,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
38,463
|
|
|
$
|
28
|
|
|
$
|
464
|
|
|
$
|
38,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had 6 securities with a fair market value of $12.5 million and unrealized losses of $421
thousand at June 30, 2007 that had a continuous loss position for more than 12 months. We had 5
securities with a fair market value of $4.2 million and unrealized losses of $43 thousand at June
30, 2007 that had a continuous loss position for less than 12 months. Unrealized losses from these
investments are primarily attributable to interest rate changes.
Realized losses of $5 thousand on the sale of $31.5 million of investments in fiscal 2007 were
determined based on the specific identification method. The pretax change in unrealized loss on
available-for-sale securities that has been included as a separate component of stockholders
equity was a gain of $136 thousand in fiscal 2007. No losses were reclassified from stockholders
equity to the statement of earnings in fiscal 2007.
Realized losses of $853 thousand on the sale of $28.9 million of investments in fiscal 2006
were determined based on the specific identification method. The sale of these investments was due
to the repatriation of approximately $30.0 million of foreign earnings under the American Jobs
Creation Act of 2004. The change in unrealized loss on available-for-sale securities that has been
included in the separate component of stockholders equity was a loss of $484 thousand in fiscal
2006. Losses of $234 thousand were reclassified from stockholders equity to the statement of
earnings in fiscal 2006.
We have determined that the gross unrealized losses on our investment securities at June 30,
2008 and 2007 were temporary in nature. We review our investments for indications of possible
impairment. Factors considered in determining whether a loss is temporary include the length of
time and extent to which fair value has been less than the cost basis, the financial condition and
near-term prospects of the investee and our intent and ability to hold the investment for a period
of time sufficient to allow for any anticipated recovery in market value.
Contractual maturities of debt securities as of June 30, 2008 are as follows:
|
|
|
|
|
Available-for-Sale
|
|
Fair Value
|
Due within one year
|
|
$
|
227,900
|
Due after one year through five years
|
|
|
22,846
|
|
|
|
|
|
$
|
250,746
|
|
|
|
F-15
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Derivative Financial Instruments
We have limited involvement with derivative financial instruments and do not use them for
trading purposes. We utilize foreign currency forward exchange contracts primarily to mitigate the
foreign exchange impact of gains or losses relating 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 intercompany receivables hedged. These
contracts are not designated as hedges and are recorded at fair value with any gains or losses
recognized in current period earnings.
We recorded net losses related to these contracts of $2.7 million in fiscal 2008, $0.9 million
in fiscal 2007 and $1.0 million in fiscal 2006. These amounts, included within other, net, in our
consolidated statements of earnings, consist of gains and losses from contracts settled during
fiscal 2008, 2007 and 2006 as well as contracts outstanding at June 30, 2008, 2007 and 2006 that
are recorded at fair value.
As of June 30, 2008, we had a notional amount of $17.0 million of foreign currency forward
exchange contracts outstanding, all of which were in Euros and Japanese Yen. As of June 30, 2007,
we had a notional $16.3 million of foreign currency forward exchange contracts outstanding, all of
which were in Euros and British Pounds. The foreign currency forward exchange contracts generally
have maturities that do not exceed 12 months and require that we exchange foreign currencies for
U.S. dollars at maturity, at rates agreed to at inception of the contracts. The foreign currency
forward exchange contracts are with large international financial institutions.
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 accumulated other comprehensive income (loss) during fiscal 2008, 2007 and
2006.
3. Discontinued Operations
Effective May 1, 2008, we sold our Patient Monitoring (PM) business to Mindray Medical
International Limited. We received approximately $209 million in cash at the closing and retained
approximately $30 million of receivables generated by the PM business. The sale of the PM business
allows us to focus our efforts on our continuing businesses, primarily Cardiac Assist Products and
Vascular Products segments. The sale of the PM business resulted in a gain of approximately $76.7 million, net of $47.4 million income tax expense, or $4.91 per diluted share. Patient Monitoring
was formerly part of the Cardiac Assist / Monitoring Products segment.
In October 2006, we announced a plan to exit the vascular closure market and phase out the
Interventional Products (IP) business. Effective August 6, 2008, we completed the sale of IP
assets related to the VasoSeal, On-Site, and X-Site vascular closure devices, and our collagen
operations, to St. Jude Medical, Inc. for $21.0 million in cash at closing and $3.0 million to be
paid upon the expiration of an 18 month indemnification period. At June 30, 2008, we determined
that the Interventional Products (IP) business met the criteria to be accounted for as a
discontinued operation, and have reflected the IP financial results as discontinued operations in
the consolidated statements of earnings for fiscal 2008, 2007 and 2006. Interventional Products was
formerly part of the Inteventional / Vascular Products segment.
F-16
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Net sales and pretax (loss) earnings from discontinued operations for fiscal 2008, 2007 and
2006 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient Monitoring business
|
|
$
|
134,160
|
|
|
$
|
156,501
|
|
|
$
|
159,402
|
|
Interventional Products business
|
|
|
4,163
|
|
|
|
9,308
|
|
|
|
17,082
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from discontinued operations
|
|
$
|
138,323
|
|
|
$
|
165,809
|
|
|
$
|
176,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax (loss) earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient Monitoring business
|
|
$
|
(5,772
|
)
|
|
$
|
3,562
|
|
|
$
|
11,815
|
|
Interventional Products business
|
|
|
506
|
|
|
|
(4,915
|
)
|
|
|
(10,347
|
)
|
|
|
|
|
|
|
|
|
|
|
Pretax (loss) earnings from discontinued operations
|
|
$
|
(5,266
|
)
|
|
$
|
(1,353
|
)
|
|
$
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
The assets and liabilities classified as discontinued operations as of June 30, 2008 are as
follows:
|
|
|
|
|
Inventories (current assets of discontinued operations)
|
|
$
|
5,773
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of
accumulated depreciation of $2,813
|
|
$
|
2,253
|
|
Intangible assets, net
|
|
|
13,413
|
|
|
|
|
|
Noncurrent assets of discontinued operations
|
|
$
|
15,666
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses (current liabilities of discontinued operations)
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
Other liabilities of discontinued operations
|
|
$
|
459
|
|
|
|
|
|
4. Acquisitions
On June 11, 2008, we exercised our option to acquire the peripheral vascular stent business of
the Sorin Group of Milan, Italy. We had been the exclusive distributor of the Sorin peripheral
stent product line in Europe since January 2007. The acquisition allows us to gain the opportunity
to market the product line throughout the world. The peripheral vascular products are used by
vascular surgeons and interventional radiologists for the treatment of peripheral arterial disease.
F-17
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The total cost of the acquisition was approximately $14.3 million in cash, including
acquisition-related expenses, of which $11.1 million was paid in June 2008 and the remaining
balance of $3.2 million was paid in January 2007 for the initial purchase option and distribution
license agreement. The acquired stent business was assigned entirely to the Vascular Products
segment. The following table summarizes the preliminary allocation of the purchase price of the
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
Cost
|
|
|
Period
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
$
|
8,886
|
|
|
9.8 years
|
Customer relationships and other
|
|
|
2,124
|
|
|
6.6 years
|
Trademark
|
|
|
529
|
|
|
7.0 years
|
Goodwill
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
14,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average amortization period for all acquired intangible assets subject to
amortization is 9.1 years.
In June 2007, we acquired all of the outstanding stock of Artema Medical AB, a privately held
Swedish manufacturer of proprietary gas analyzers, which identify and measure the concentration of
anesthetic agents used during surgery. The cost of the Artema acquisition was approximately $16.4
million in cash, including acquisition related expenses, less $0.1 million cash acquired. Artema
was sold as part of the sale of the PM business in May 2008.
5. Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
$
|
14,612
|
|
|
$
|
22,176
|
|
Licenses
|
|
|
390
|
|
|
|
5,272
|
|
Customer relationships and other
|
|
|
2,685
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
17,687
|
|
|
|
28,525
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
|
(1,540
|
)
|
|
|
(1,300
|
)
|
Licenses
|
|
|
(265
|
)
|
|
|
(1,512
|
)
|
Customer relationships and other
|
|
|
(9
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(1,814
|
)
|
|
|
(2,824
|
)
|
|
|
|
|
|
|
|
Amortized intangible assets, net
|
|
$
|
15,873
|
|
|
$
|
25,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Trade name
|
|
$
|
|
|
|
$
|
373
|
|
|
|
|
|
|
|
|
The components of intangible assets primarily represent the fair value of intangibles assets
acquired for the peripheral vascular stent business, purchased technology for the ClearGlide
endoscopic vessel harvesting device and purchased technology for the ProLumen thrombectomy device.
F-18
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Amortization expense for fiscal 2008 and 2007 was $1.6 million and $1.3 million, respectively.
Expected future amortization expense for intangible assets subject to amortization for fiscal
2009 through 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30,
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
Amortization expense
|
|
$
|
1,773
|
|
|
$
|
1,773
|
|
|
$
|
1,773
|
|
|
$
|
1,773
|
|
|
$
|
1,759
|
|
The remaining weighted average amortization period for intangible assets is approximately 9.6
years.
6. Goodwill
Goodwill as of June 30, 2008 and 2007 was $4.6 million and $12.9 million, respectively. We
acquired $2.8 million of goodwill as a result of the acquisition of the Sorin vascular peripheral
stent business in fiscal 2008. In connection with the sale of the PM business, $11.1 million of
goodwill that was acquired through the acquisition of Artema Medical in fiscal 2007 was sold in
fiscal 2008. All of the goodwill is included within the Vascular Products segment at June 30, 2008.
Our annual impairment test is performed during the fourth quarter of our fiscal year. There
was no goodwill impairment in fiscal 2008. In fiscal 2007, we recorded a pretax goodwill impairment
charge of $2.3 million related to Genisphere. Slower growth in Genispheres markets primarily
attributable to increased competition in the DNA microarray market had a negative impact on
Genispheres operating results and resulted in lower growth expectations. As a result, the
Genisphere goodwill was determined to be completely impaired.
7. Other Assets
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Capitalized software, net of accumulated
amortization of $5,391 and $20,975
|
|
$
|
11,830
|
|
|
$
|
20,173
|
|
Cash surrender value of officers life insurance
|
|
|
12,402
|
|
|
|
12,153
|
|
Non-current pension asset
|
|
|
17,127
|
|
|
|
1,261
|
|
Non-current deferred tax assets
|
|
|
1,251
|
|
|
|
249
|
|
Other non-current assets
|
|
|
1,364
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
$
|
43,974
|
|
|
$
|
34,897
|
|
|
|
|
|
|
|
|
Amortization of capitalized software costs was $3.5 million in fiscal 2008, $5.0 million in
fiscal 2007 and $4.5 million in fiscal 2006.
F-19
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
8. Income Taxes
Earnings from continuing operations before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
U.S.
|
|
$
|
43,498
|
|
|
$
|
10,842
|
|
|
$
|
18,775
|
|
Foreign
|
|
|
7,768
|
|
|
|
15,114
|
|
|
|
14,246
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$
|
51,266
|
|
|
$
|
25,956
|
|
|
$
|
33,021
|
|
|
|
|
|
|
|
|
|
|
|
The related provision for income taxes for continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,167
|
|
|
$
|
4,175
|
|
|
$
|
5,802
|
|
State
|
|
|
1,491
|
|
|
|
1,797
|
|
|
|
1,736
|
|
Foreign
|
|
|
2,247
|
|
|
|
1,913
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
12,905
|
|
|
|
7,885
|
|
|
|
8,123
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,490
|
|
|
|
235
|
|
|
|
(242
|
)
|
State
|
|
|
(601
|
)
|
|
|
(48
|
)
|
|
|
320
|
|
Foreign
|
|
|
694
|
|
|
|
(410
|
)
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
4,583
|
|
|
|
(223
|
)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
17,488
|
|
|
$
|
7,662
|
|
|
$
|
8,289
|
|
|
|
|
|
|
|
|
|
|
|
Amounts are reflected in the preceding table based on the location of the taxing authorities.
Included in the change in deferred tax assets (liabilities) are certain items that have been
recorded as components of accumulated other comprehensive income (loss). These amounts resulted in a $0.7
million increase in deferred tax assets in fiscal 2008, $2.6 million increase in deferred tax
assets in fiscal 2007 and a $3.4 million decrease in deferred tax assets in fiscal 2006.
At June 30, 2005, we determined that we would repatriate approximately $30.0 million under the
American Jobs Creation Act of 2004 (AJCA) and, accordingly, recorded a current deferred tax
liability of $2.0 million for Federal and state taxes attributable to the repatriation of earnings.
During the fourth quarter of fiscal 2006, we completed the repatriation of foreign earnings,
totaling $29.6 million, and finalized the computations of the related aggregate tax impact
resulting in an additional tax liability of $175 thousand. During fiscal 2006, $5 million of the
repatriated funds was used to supplement our contributions to our defined benefit pension plan and
the remaining repatriated funds were used to fund other qualified expenditures as defined under the
AJCA, such as research and development and capital expenditures.
At June 30, 2008, the cumulative amount of undistributed foreign earnings was approximately
$48.3 million. Income taxes have not been provided on this undistributed income because we intend
to reinvest these earnings in our overseas operations. It is not practicable to estimate the amount
of income taxes payable on the earnings that are permanently reinvested in foreign operations.
F-20
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Reconciliation of the U.S. statutory income tax rate on continuing operations to our effective tax
rate is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
Effective
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Tax computed at Federal statutory rate
|
|
$
|
17,943
|
|
|
|
35.0
|
%
|
|
$
|
9,085
|
|
|
|
35.0
|
%
|
|
$
|
11,557
|
|
|
|
35.0
|
%
|
(Decrease) increase resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from extraterritorial
income exclusion
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
(1.4
|
)
|
|
|
(1,173
|
)
|
|
|
(3.5
|
)
|
State income taxes, net of Federal
income tax benefit
|
|
|
780
|
|
|
|
1.5
|
|
|
|
1,018
|
|
|
|
3.9
|
|
|
|
1,055
|
|
|
|
3.2
|
|
Rate differential on foreign income
|
|
|
(487
|
)
|
|
|
(1.0
|
)
|
|
|
(1,237
|
)
|
|
|
(4.7
|
)
|
|
|
(1,973
|
)
|
|
|
(6.0
|
)
|
Domestic manufacturing deduction
|
|
|
(622
|
)
|
|
|
(1.2
|
)
|
|
|
(146
|
)
|
|
|
(0.6
|
)
|
|
|
(93
|
)
|
|
|
(0.3
|
)
|
Research and development credit, net
|
|
|
(169
|
)
|
|
|
(0.3
|
)
|
|
|
(355
|
)
|
|
|
(1.4
|
)
|
|
|
(248
|
)
|
|
|
(1.0
|
)
|
Repatriation of foreign earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
0.8
|
|
Special dividend income
|
|
|
(67
|
)
|
|
|
(0.1
|
)
|
|
|
(48
|
)
|
|
|
(0.2
|
)
|
|
|
(1,108
|
)
|
|
|
(3.4
|
)
|
Other
|
|
|
110
|
|
|
|
0.2
|
|
|
|
(282
|
)
|
|
|
(1.1
|
)
|
|
|
97
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
17,488
|
|
|
|
34.1
|
%
|
|
$
|
7,662
|
|
|
|
29.5
|
%
|
|
$
|
8,289
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustment reflected in the above table for the special dividend income in fiscal 2008,
2007 and 2006 reflects the favorable effect of the Federal dividends received deduction.
Deferred taxes arise because of differences between the financial statement basis and tax
basis of assets and liabilities, known as temporary differences. We record the tax effect of
these temporary differences as deferred tax assets (generally items that can be used as a tax
deduction or credit in future periods) and deferred tax liabilities (generally items that we
receive a tax deduction for, but have not yet been recorded in the consolidated statement of
earnings). Deferred tax assets and liabilities are measured using the enacted tax rates in effect
for the years in which the differences are expected to reverse.
F-21
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The tax effects of the major items recorded as deferred tax assets and liabilities are:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,966
|
|
|
$
|
5,044
|
|
Accounts receivable
|
|
|
552
|
|
|
|
623
|
|
Foreign and state tax credits
|
|
|
2,229
|
|
|
|
2,585
|
|
Unrealized foreign exchange losses
|
|
|
455
|
|
|
|
140
|
|
Supplemental executive retirement plan
|
|
|
6,979
|
|
|
|
7,385
|
|
Tax loss carryforwards
|
|
|
6,300
|
|
|
|
3,765
|
|
Benefit plan adjustments
|
|
|
5,268
|
|
|
|
4,138
|
|
Asset write-downs
|
|
|
1,792
|
|
|
|
1,865
|
|
Accrued expenses
|
|
|
546
|
|
|
|
1,545
|
|
Unrealized losses on available-for-sale securities
|
|
|
|
|
|
|
178
|
|
Other
|
|
|
1,453
|
|
|
|
957
|
|
|
|
|
|
|
|
|
Deferred tax assets before valuation allowance
|
|
|
28,540
|
|
|
|
28,225
|
|
Valuation allowance
|
|
|
(4,446
|
)
|
|
|
(4,855
|
)
|
|
|
|
|
|
|
|
Deferred tax assets after valuation allowance
|
|
|
24,094
|
|
|
|
23,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
11,942
|
|
|
|
10,780
|
|
Unrealized gains on available-for-sale securities
|
|
|
167
|
|
|
|
|
|
Acquisition intangibles
|
|
|
|
|
|
|
1,024
|
|
State income taxes
|
|
|
|
|
|
|
261
|
|
Accrued insurance
|
|
|
966
|
|
|
|
1,064
|
|
Defined benefit plans
|
|
|
6,849
|
|
|
|
2,780
|
|
Other
|
|
|
2,188
|
|
|
|
1,108
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
22,112
|
|
|
|
17,017
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,982
|
|
|
$
|
6,353
|
|
|
|
|
|
|
|
|
Our consolidated balance sheet at June 30, 2008 includes the following deferred
tax balances: current deferred tax asset of $2.5 million; noncurrent deferred
tax asset of $1.3 million (reflected in other assets); current deferred tax
liability of $0.3 million (reflected in accrued expenses); and noncurrent
deferred tax liability of $1.4 million (reflected in other liabilities).
At June 30, 2008, we had total net operating loss carryforwards of $78.0 million ($7.8 million
foreign and $70.2 million state tax net operating loss carryforwards). The tax effect of the
operating loss carryforwards was $6.3 million ($2.6 million foreign and $3.7 million state). Most
of the foreign tax loss carryforwards may be carried forward indefinitely ($3.0 million expire
during the 2016 through 2023 time period). The benefits from state tax carryforwards expire during
the period 2009 through 2026. An insignificant amount of these carryforwards expire in the next 3
years. We also have $3.4 million of gross credit carryforwards of state research and development
tax credits as of June 30, 2008. The benefits of the state credits expire during the period 2011
through 2015.
We reduce our deferred tax assets by a valuation allowance if, based upon the weight of
available evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. We consider relevant evidence, both positive and negative, to determine the
need for a valuation allowance. We recorded a valuation allowance at June 30, 2008 and 2007 of $4.4
million and $4.9 million, respectively, against the foreign and state tax net operating loss
carryforwards and for 2007 a portion of the state research and development tax credits.
F-22
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The valuation allowance decreased by $0.5 million during fiscal 2008, due to a net increase in
foreign and state tax net operating loss carryforwards and a decrease in the portion of state tax
credits that are more likely than not to expire before utilization. The valuation allowance
increased by $1.5 million during fiscal 2007, due to the net increase in foreign and state tax net
operating loss carryforwards and the portion of state research and development tax credits that are
more likely than not to expire before utilization.
At
June 30, 2008, the total amount of unrecognized tax benefits was
$10.9 million. Of this
total, $3.9 million represents the amount of unrecognized tax benefits that, if recognized, would
affect the effective tax rate in future periods. The total amount of accrued interest and penalties
resulting from such unrecognized tax benefits was $0.9 million at June 30, 2008 and $1.1 million at
July 1, 2007. The total amount of interest and penalties recognized in our consolidated statements
of earnings during fiscal 2008, 2007 and 2006 was $0.4 million, $10 thousand and $2 thousand,
respectively.
Significant judgment is required in evaluating our tax positions and determining our provision
for income taxes. During the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. We establish reserves for
tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes
will be due. These reserves are established when we believe that certain positions might be
challenged despite our belief that our tax return positions are fully supportable. We adjust these
reserves in light of changing facts and circumstances, such as the outcome of tax audits. The
provision for income taxes includes the impact of reserve provisions and changes to reserves that
are considered appropriate. Accruals for tax contingencies are provided for in accordance with the
requirements of FIN 48. We have elected to retain our existing accounting policy with respect to
the treatment of interest and penalties attributable to income taxes in accordance with FIN 48, and
continue to reflect interest and penalties attributable to income taxes, to the extent they arise,
as a component of our income tax provision or benefit.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits as of
June 30, 2008 was as follows:
|
|
|
|
|
Balance at July 1, 2007
|
|
$
|
7,643
|
|
Additions based on tax positions related to the current year
|
|
|
4,319
|
|
Additions for tax positions of prior years
|
|
|
2,189
|
|
Reductions for tax positions of prior years
|
|
|
(489
|
)
|
Reductions due to lapse of applicable statute of limitations
|
|
|
(2,748
|
)
|
Audit settlements paid during fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
10,914
|
|
Interest and penalties
|
|
|
923
|
|
|
|
|
|
|
|
|
|
|
Total balance at June 30, 2008
|
|
$
|
11,837
|
|
|
|
|
|
We operate within multiple taxing jurisdictions and are subject to routine corporate income
tax audits in many of those jurisdictions. These audits can involve complex issues, including
challenges regarding the timing and amount of deductions and credits and the allocation of income
among various tax jurisdictions. Our U.S. income tax returns for fiscal 1998 and prior years have
been audited by the Internal Revenue Service and are closed.
F-23
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The U.S. statutory period has expired for the fiscal years through 2004, and is open for
subsequent periods. Currently, our tax returns are being examined by the Internal Revenue Service
for fiscal 2005 through 2007 and the State of New Jersey for fiscal 2001 through 2006. In four
other state jurisdictions, we have been notified of an intent to audit. For the remaining states,
our fiscal 2004 through 2007 tax returns remain open for examination by the tax authorities under a
general four year statue of limitations. Our foreign tax returns generally remain open for
examination from fiscal 2005 through 2007 under a general three year statute of limitations.
Currently we do not expect the total amount of unrecognized tax benefits will significantly
increase or decrease within the next year.
9. Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Noncurrent
benefit plans liabilities
|
|
$
|
17,807
|
|
|
$
|
20,714
|
|
Noncurrent FIN 48 income tax liability
|
|
|
4,786
|
|
|
|
|
|
Noncurrent deferred income
|
|
|
649
|
|
|
|
1,152
|
|
Noncurrent deferred taxes
|
|
|
1,399
|
|
|
|
1,134
|
|
Other noncurrent liabilities
|
|
|
1,195
|
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
$
|
25,836
|
|
|
$
|
25,220
|
|
|
|
|
|
|
|
|
10. Stock-Based Awards
We maintain the following equity incentive plans:
|
|
|
The 2005 Equity Incentive Plan (2005 Plan), approved by stockholders in December 2005,
authorized 1,200,000 shares covering several different types of awards, including stock
options, performance shares, performance units, stock appreciation rights, restricted
shares and deferred shares.
|
|
|
|
The Amended and Restated 1995 Employee Stock Option Plan covering 4,150,000 shares of
common stock.
|
|
|
|
|
The Amended and Restated Non-Employee Director Plan covering 150,000 shares of common
stock. Under the provisions of SFAS 123(R), members of the Board of Directors are
considered employees.
|
The stock option plans provide that options may be granted at an exercise price of 100% of
fair market value of our common stock on the date of grant, may be exercised in full or in
installments, at the discretion of the Board of Directors, and must be exercised within ten years
from date of grant. We recognize stock-based compensation expense on a straight-line basis over the
requisite service period based on fair values, generally four years.
F-24
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Stock-based compensation expense in fiscal 2008, 2007 and 2006 was recorded in the
consolidated statements of earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
24
|
|
|
$
|
5
|
|
|
$
|
3
|
|
Research and development expense
|
|
|
108
|
|
|
|
71
|
|
|
|
45
|
|
Selling, general and administrative expense
|
|
|
862
|
|
|
|
411
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
994
|
|
|
$
|
487
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax
|
|
$
|
594
|
|
|
$
|
288
|
|
|
$
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
$
|
668
|
|
|
$
|
123
|
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the stock options granted was estimated on the date of grant using a
Black-Scholes option valuation model that uses the assumptions noted in the following table. The
expected dividend yield is based on the annualized projection of regular and special dividends.
Expected volatility was based on historical volatility for a period equal to the stock options
expected life and calculated on a monthly basis. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The expected life (estimated period of time
outstanding) of stock options granted was estimated using the historical exercise behavior of
employees for grants with a 10-year term.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
Expected dividend yield
|
|
|
*
|
|
|
|
4.00
|
%
|
|
|
2.22
|
%
|
Expected volatility
|
|
|
*
|
|
|
|
27
|
%
|
|
|
29
|
%
|
Risk-free interest rate
|
|
|
*
|
|
|
|
4.62
|
%
|
|
|
4.63
|
%
|
Expected life
|
|
|
*
|
|
|
4.8 Years
|
|
4.9 Years
|
|
|
|
*
|
|
Not applicable. There were no stock options granted during fiscal 2008.
|
Stock Options
On May 5, 2008, in connection with the sale of the PM business, the Board of Directors
approved the accelerated vesting of all unvested stock options outstanding for those employees who
would be transferred upon the sale closing. Options to purchase 62,600 shares became exercisable
immediately. In addition, the Board of Directors approved a plan for the net cash settlement of all
stock options outstanding and exercisable for the PM employees. The net cash settlement of options
to purchase 159,300 shares was $770 thousand, of which $342 thousand was recognized as an
incremental expense to the Black-Scholes grant date fair value cost for those options. The
additional compensation expense, net of tax, is reflected in net loss from discontinued operations
on our consolidated statement of earnings for fiscal 2008.
F-25
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Changes in our stock options were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
Outstanding at July 1
|
|
|
1,741,161
|
|
|
$
|
32.47
|
|
|
|
2,040,626
|
|
|
$
|
32.47
|
|
|
|
2,477,153
|
|
|
$
|
31.73
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
167,250
|
|
|
|
33.91
|
|
|
|
176,100
|
|
|
|
35.85
|
|
Exercised
|
|
|
(459,510
|
)
|
|
|
32.28
|
|
|
|
(152,861
|
)
|
|
|
28.97
|
|
|
|
(475,095
|
)
|
|
|
29.10
|
|
Settled
|
|
|
(159,300
|
)
|
|
|
35.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(76,851
|
)
|
|
|
35.00
|
|
|
|
(313,854
|
)
|
|
|
34.93
|
|
|
|
(137,532
|
)
|
|
|
35.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30
|
|
|
1,045,500
|
|
|
$
|
31.87
|
|
|
|
1,741,161
|
|
|
$
|
32.47
|
|
|
|
2,040,626
|
|
|
$
|
32.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to
vest at June 30
|
|
|
1,038,681
|
|
|
$
|
31.85
|
|
|
|
1,700,212
|
|
|
$
|
32.41
|
|
|
|
2,017,132
|
|
|
$
|
32.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30
|
|
|
996,063
|
|
|
$
|
31.69
|
|
|
|
1,534,136
|
|
|
$
|
32.17
|
|
|
|
1,876,484
|
|
|
$
|
32.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there were 1,761,817 shares of common stock reserved for stock options. We
generally issue shares for the exercise of stock options from unissued reserved shares. We
anticipate that shares repurchased will offset shares to be issued for the stock-based awards and
reduce the dilutive impact of the share-based activity. However, since the timing and amount of
future repurchases is not known, we cannot estimate the number of shares expected to be repurchased
during fiscal 2009.
The weighted average remaining contractual term was approximately 4.3 years for stock options
outstanding, approximately 4.1 years for stock options exercisable and 4.3 years for stock options
vested and expected to vest as of June 30, 2008. The weighted average fair value of options granted
was $6.89 in fiscal 2007 and $9.64 in fiscal 2006. As noted above, there were no stock options
granted during fiscal 2008.
The total intrinsic value (the excess of the market price over the exercise price) was
approximately $15.8 million for stock options outstanding, $15.2 million for stock options
exercisable and $15.7 million for stock options vested and expected to vest as of June 30, 2008.
The total intrinsic value for stock options exercised was approximately $4.0 million in fiscal
2008, $1.1 million in fiscal 2007 and $3.9 million in fiscal 2006.
The amount of cash received from the exercise of stock options was approximately $14.7 million
and the related tax benefit was approximately $1.2 million in fiscal 2008.
SFAS 123(R) requires that cash flows resulting from tax benefits attributable to tax
deductions in excess of the compensation expense recognized for those options (excess tax benefits)
be classified as financing cash flows. As a result, we classified $1.3 million, $0.4 million and
$1.4 million of excess tax benefits as financing cash flows in fiscal 2008, 2007 and 2006,
respectively.
F-26
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The following table summarizes information concerning outstanding and exercisable stock
options at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
Average
|
Range of
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
|
|
|
Exercise
|
Exercise Prices
|
Options
|
|
Contractual Life
|
|
Price
|
|
Options
|
|
Price
|
$22.49
$28.53
|
|
43,850
|
|
|
|
5.03
|
|
|
$
|
26.97
|
|
|
|
43,850
|
|
|
$
|
26.97
|
|
$28.67
|
|
500,000
|
|
|
|
3.64
|
|
|
$
|
28.67
|
|
|
|
500,000
|
|
|
$
|
28.67
|
|
$28.80
$41.58
|
|
501,650
|
|
|
|
4.90
|
|
|
$
|
35.50
|
|
|
|
452,213
|
|
|
$
|
35.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,045,500
|
|
|
|
4.30
|
|
|
$
|
31.87
|
|
|
|
996,063
|
|
|
$
|
31.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, unrecognized stock-based compensation expense related to stock options
was approximately $0.8 million and is expected to be recognized over a weighted average period of
2.0 years.
Restricted Stock
The following table summarizes restricted stock activity under the 2005 Plan during fiscal
2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
Nonvested at July 1
|
|
|
3,908
|
|
|
$
|
35.84
|
|
|
|
13,937
|
|
|
$
|
35.88
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
79,917
|
|
|
|
33.91
|
|
|
|
3,908
|
|
|
|
35.84
|
|
|
|
13,937
|
|
|
|
35.88
|
|
Vested
|
|
|
(9,178
|
)
|
|
|
34.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(9,960
|
)
|
|
|
33.22
|
|
|
|
(13,937
|
)
|
|
|
35.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30
|
|
|
64,687
|
|
|
$
|
34.09
|
|
|
|
3,908
|
|
|
$
|
35.84
|
|
|
|
13,937
|
|
|
$
|
35.88
|
|
As of June 30, 2008, unrecognized stock-based compensation expense related to nonvested awards
was approximately $1.7 million and is expected to be recognized over a weighted average period of
3.1 years.
Shareholder Rights Plan
On May 22, 1991, we adopted a Shareholder Rights Plan. The purpose of the plan is to prevent
us from being the target of an unsolicited tender offer or unfriendly takeover. On May 16, 2000, we
amended the Shareholder Rights Plan to provide for (i) an extension of the final expiration date of
the Shareholder Rights Plan from June 2, 2001 to June 2, 2011 and (ii) a change in the purchase
price of the rights from $300 to $200 per one one-thousandths of a share of Series A Preferred
Stock, subject to adjustment.
F-27
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Under the plan, our common stockholders were issued one preferred stock purchase right for each
share of common stock owned by them. Until they are redeemed by us or expire, each preferred stock
purchase right entitles the holder to purchase .001 share of our Series A Preferred Stock, par
value $1.00 per share, at an exercise price of $200. We may redeem the preferred stock purchase
rights for $.01 per right at any time until after the date on which our right to redeem them has
expired. In addition, the preferred stock purchase rights do not become exercisable until our right
to redeem them has expired. Our right to redeem the preferred stock purchase rights expires on the
10th business day after the date of a public announcement that a person, or an acquiring person,
has acquired ownership of our stock representing 15 percent or more of our shareholders general
voting power. Before an acquiring person acquires 50 percent or more of our outstanding common
stock, the plan provides that we may offer to exchange the rights, in whole or in part, on the
basis of an exchange ratio of one share of common stock for each right. However, any rights owned
by the acquiring person and its affiliates and associates will be null and void and cannot be
exchanged for common stock.
The plan also provides that, after the date of a public announcement that a person has
acquired ownership of our stock representing 15 percent or more of our shareholders general voting
power, generally each holder of a preferred stock purchase right will have the right to purchase,
at the exercise price, a number of shares of our preferred stock having a market value equal to
twice the exercise price. The plan further provides that if certain other business combinations
occur, generally each holder of a preferred stock purchase right will have the right to purchase,
at the exercise price, a number of shares of the acquiring persons common stock having a market
value of twice the exercise price.
Stock Repurchase Programs
On September 12, 2006, the Board of Directors approved the adoption of a stock repurchase
program authorizing an additional $40 million for future purchases of our common stock. Through
June 30, 2008, there were no stock repurchases under this program. Currently, we have $1.1 million
remaining and available from the stock repurchase program authorized by the Board of Directors on
May 16, 2001. Under this previous program, we have acquired 1,017,105 shares through June 30, 2008
at a cost of $38.9 million. There is no expiration date on the current programs.
Compensation Plan for Non-Employee Directors
We have a compensation plan for non-employee directors, which became effective on January 1,
2007. Any member of the Board of Directors who is not an employee or a consultant to us or any of
our divisions or subsidiaries will receive an annual retainer of $25 thousand payable in cash,
deferred shares or restricted shares and an annual equity grant of $70 thousand payable in deferred
shares or restricted shares. All payments made in shares of our common stock are pursuant to the
2005 Plan. Prior to the beginning of calendar year 2007, compensation for non-employee directors
was covered under the Amended and Restated Non-Employee Director Plan, which became effective in
calendar year 1998. Under the previous compensation plan, eligible non-employee directors received
an annual retainer of $24 thousand payable in shares of our common stock and an annual grant of
options to purchase 5,000 shares of our common stock.
11. Segment Information
We develop, manufacture and sell medical devices in two reportable segments, Cardiac Assist
Products and Vascular Products.
F-28
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The Cardiac Assist Products segment includes intra-aortic balloon pumps and catheters that are
used in the treatment of cardiovascular disease, endoscopic vessel harvesting products that provide
a less-invasive alternative to surgical harvesting of blood vessels for use in coronary bypass and
the Safeguard assisted pressure device.
The Vascular Products segment sells a proprietary line of knitted and woven polyester vascular
grafts and patches for reconstructive vascular and cardiovascular surgery, peripheral vascular
stent products and stent grafts. The peripheral vascular products are used by vascular surgeons and
interventional radiologists for the treatment of peripheral arterial disease.
Management evaluates the revenue and profitability
performance of each of our product lines to make operating and strategic decisions. We have no
intersegment revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiac
|
|
|
|
|
|
Corporate
|
|
|
|
|
Assist
|
|
Vascular
|
|
and
|
|
|
|
|
Products
|
|
Products
|
|
Other
(a)
|
|
Consolidated
|
Year ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
189,316
|
|
|
$
|
40,333
|
|
|
$
|
1,266
|
|
|
$
|
230,915
|
|
Operating earnings (loss)
|
|
$
|
38,350
|
|
|
$
|
(224
|
)
|
|
$
|
(920
|
)
|
|
$
|
37,206
|
|
Assets
|
|
$
|
127,303
|
|
|
$
|
83,537
|
|
|
$
|
312,898
|
|
|
$
|
523,738
|
|
Long-lived asset expenditures
|
|
$
|
4,959
|
|
|
$
|
2,080
|
|
|
$
|
6,447
|
|
|
$
|
13,486
|
|
Depreciation and amortization
|
|
$
|
7,672
|
|
|
$
|
1,779
|
|
|
$
|
8,457
|
|
|
$
|
17,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
178,321
|
|
|
$
|
33,484
|
|
|
$
|
1,186
|
|
|
$
|
212,991
|
|
Operating earnings (loss) (b)
|
|
$
|
33,576
|
|
|
$
|
(2,878
|
)
|
|
$
|
(7,917
|
)
|
|
$
|
22,781
|
|
Assets
|
|
$
|
126,825
|
|
|
$
|
62,103
|
|
|
$
|
187,228
|
|
|
$
|
376,156
|
|
Long-lived asset expenditures
|
|
$
|
2,360
|
|
|
$
|
3,682
|
|
|
$
|
9,197
|
|
|
$
|
15,239
|
|
Depreciation and amortization
|
|
$
|
7,526
|
|
|
$
|
1,482
|
|
|
$
|
12,480
|
|
|
$
|
21,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
164,782
|
|
|
$
|
30,147
|
|
|
$
|
1,587
|
|
|
$
|
196,516
|
|
Operating earnings (loss)
|
|
$
|
29,405
|
|
|
$
|
(1,107
|
)
|
|
$
|
(383
|
)
|
|
$
|
27,915
|
|
Assets
|
|
$
|
112,188
|
|
|
$
|
60,309
|
|
|
$
|
203,183
|
|
|
$
|
375,680
|
|
Long-lived asset expenditures
|
|
$
|
3,536
|
|
|
$
|
1,944
|
|
|
$
|
5,858
|
|
|
$
|
11,338
|
|
Depreciation and amortization
|
|
$
|
7,585
|
|
|
$
|
1,166
|
|
|
$
|
11,782
|
|
|
$
|
20,533
|
|
|
|
|
(a)
|
|
Net sales of life science products by Genisphere are included within Corporate and Other. Assets within Corporate
and Other include cash, investments, property, plant and equipment, net, including the corporate headquarters, cash
surrender value of officers life insurance and assets related to the PM and IP discontinued businesses. Corporate and
Other includes long-lived asset expenditures and depreciation and amortization expense for the PM and IP discontinued
businesses. Segment SG&A expenses include fixed corporate G&A allocated charges.
|
|
(b)
|
|
Operating earnings for the Cardiac Assist Products segment includes special charges of $1.1 million in fiscal 2007.
Operating loss for the Vascular Products segment includes special charges of $1.1 million in fiscal 2007. Operating loss
for Corporate and Other includes special charges of $6.5 million in fiscal 2007.
|
F-29
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Reconciliation to earnings from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Consolidated operating earnings
|
|
$
|
37,206
|
|
|
$
|
22,781
|
|
|
$
|
27,915
|
|
Interest income, net
|
|
|
2,614
|
|
|
|
2,443
|
|
|
|
1,997
|
|
Dividend income
|
|
|
|
|
|
|
196
|
|
|
|
4,523
|
|
Gain on sale of investments
|
|
|
13,173
|
|
|
|
1,273
|
|
|
|
|
|
Other, net
|
|
|
(1,727
|
)
|
|
|
(737
|
)
|
|
|
(1,414
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
before income taxes
|
|
$
|
51,266
|
|
|
$
|
25,956
|
|
|
$
|
33,021
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents net sales by segment for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cardiac Assist Products
|
|
$
|
189,316
|
|
|
$
|
178,321
|
|
|
$
|
164,782
|
|
Vascular Products
|
|
|
40,333
|
|
|
|
33,484
|
|
|
|
30,147
|
|
Genisphere
|
|
|
1,266
|
|
|
|
1,186
|
|
|
|
1,587
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
230,915
|
|
|
$
|
212,991
|
|
|
$
|
196,516
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents net sales from continuing operations based on the geographic
location of the external customer. No individual foreign country accounted for more than 10% of our
worldwide sales in fiscal 2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United States
|
|
$
|
98,758
|
|
|
$
|
102,503
|
|
|
$
|
96,586
|
|
Foreign countries
|
|
|
132,157
|
|
|
|
110,488
|
|
|
|
99,930
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
230,915
|
|
|
$
|
212,991
|
|
|
$
|
196,516
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents long-lived assets for continuing operations by geographic location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United States
|
|
$
|
83,076
|
|
|
$
|
68,131
|
|
|
$
|
70,657
|
|
Foreign countries
|
|
|
29,805
|
|
|
|
13,076
|
|
|
|
7,728
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,881
|
|
|
$
|
81,207
|
|
|
$
|
78,385
|
|
|
|
|
|
|
|
|
|
|
|
12. Retirement Benefit Plans
We have various retirement benefit plans covering substantially all U.S. and international
employees. Total expense for the domestic and international retirement plans was $6.9 million in
fiscal 2008, $6.8 million in fiscal 2007 and $7.6 million in fiscal 2006. Below is a further
description of our retirement benefit plans.
F-30
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Defined Benefit Pension Plans
U.S. and International
We have a defined benefit pension plan designed to provide retirement benefits to eligible
U.S. employees. U.S. pension benefits are based on years of service, compensation and the primary
social security benefits. Funding for the U.S. plan is within the range prescribed under the
Employee Retirement Income Security Act of 1974. Retirement benefits for the international plans
are based on years of service, final average earnings and social security benefits. Funding
policies for the international plans are based on local statutes and any assets are invested in
guaranteed insurance contracts.
Supplemental Executive Retirement Plans (SERP)
We have noncontributory, unfunded supplemental defined benefit retirement plans (SERP) for
the Chairman and Chief Executive Officer, Mr. Lawrence Saper, and certain former key officers. Life
insurance has been purchased to recover a portion of the net after tax cost for these SERPs. Under
SFAS 87,
Employers Accounting for Pensions
, the life insurance policies do not qualify as plan
assets. Accordingly, the cash surrender values of the policies are not considered when determining
the funded status of these SERPs. The assumptions used to develop the supplemental pension cost and
the actuarial present value of the projected benefit obligation are reviewed annually.
A summary of Mr. Sapers SERP, as amended, is as follows:
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|
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Mr. Saper is entitled to receive a lifetime pension of up to 60% of his average earnings
for the three-year period in which Mr. Sapers compensation was greatest of the ten years
immediately preceding his retirement.
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The SERP will not be less than the value of the benefit that would have been payable had
his retirement occurred at age 65.
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The expected annual SERP payment to Mr. Saper commencing at a presumed retirement age of
81, based on the above plan would be $3.1 million.
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The plan provides survivor benefits in the form of a $10 million life insurance policy,
maintained pursuant to a split-dollar agreement between us, Mr. Saper and a trust for the
benefit of Mr. Sapers family.
|
The SERP expense for Mr. Saper recognized in the consolidated financial statements was $1.2
million in fiscal 2008, $1.1 million in fiscal 2007 and $0.9 million in fiscal 2006.
The SERP covering certain former key officers provides a pension at age 65, for up to 15
years, based on a predetermined earnings level for the five-year period prior to retirement. The
SERP for one former officer provides a lifetime retirement benefit. The SERP expense for these
executives recognized in the consolidated financial statements was $0.1 million in fiscal 2008,
$0.2 million in fiscal 2007 and $0.3 million in fiscal 2006.
Post-Retirement Medical Benefits Plan
In addition to the SERP, we have a noncontributory, unfunded post-retirement medical benefits
plan for Mr. Saper. The post-retirement medical plan provides certain lifetime medical benefits to
Mr. Saper and his wife upon the termination of Mr. Sapers employment with us. The expense
recognized in the consolidated financial
statements was $22 thousand in fiscal 2008 and $18 thousand in fiscal 2007 and 2006.
F-31
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Defined Contribution Plans
We have defined contribution savings and supplemental retirement plans for U.S. employees and
certain international employees. The plans provide an incentive to employees to save and invest
regularly for their retirement. In the U.S. we maintain a 401(k) savings and supplemental
retirement plan for eligible U.S. employees. The contributions are based on matching 50% of
participating employees contributions up to a maximum of 6% of compensation. The provisions for
the international defined contribution plans vary by local country. The total expense under these
plans was $1.9 million for fiscal 2008 and 2007 and $1.7 million for fiscal 2006.
Adoption of New Accounting Standard
On June 30, 2007, we adopted the provisions of SFAS 158. The incremental impact of applying
SFAS 158 to our consolidated balance sheet as of June 30, 2007, was to reduce our total
stockholders equity by $5.1 million, primarily due to the recognition of previously unrecognized
actuarial losses that are now required to be recognized within accumulated other comprehensive
loss, net of tax. The following table sets forth the incremental effect of applying SFAS 158 to
individual line items in our consolidated balance sheet as of June 30, 2007.
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
SFAS 87/88
|
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|
|
|
|
|
|
|
Before
|
|
Minimum
|
|
|
|
|
|
After
|
|
|
SFAS 87/88/158
|
|
Pension Liability
|
|
SFAS 158
|
|
SFAS 87/88/158
|
|
|
Adjustments
|
|
Adjustments
|
|
Adjustments
|
|
Adjustments
|
Prepaid expenses and other current assets
|
|
$
|
18,809
|
|
|
$
|
|
|
|
$
|
(7,642
|
)
|
|
$
|
11,167
|
|
Other assets, including
non-current deferred taxes
|
|
|
31,398
|
|
|
|
(1,332
|
)
|
|
|
4,831
|
|
|
|
34,897
|
|
Accrued expenses
|
|
|
17,612
|
|
|
|
|
|
|
|
49
|
|
|
|
17,661
|
|
Other liabilities
|
|
|
26,022
|
|
|
|
(3,018
|
)
|
|
|
2,216
|
|
|
|
25,220
|
|
Accumulated other comprehensive loss
|
|
|
(824
|
)
|
|
|
1,686
|
|
|
|
(5,076
|
)
|
|
|
(4,214
|
)
|
F-32
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Net Periodic Benefit Costs
The components of net periodic benefit costs of the U.S. and International defined benefit
pension plans, the SERP and the post-retirement medical benefits plan include the following:
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
U.S. and International
|
|
|
SERP
|
|
Net Periodic Benefit Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,531
|
|
|
$
|
2,700
|
|
|
$
|
3,240
|
|
|
$
|
376
|
|
|
$
|
350
|
|
|
$
|
387
|
|
Interest cost
|
|
|
4,415
|
|
|
|
4,069
|
|
|
|
3,714
|
|
|
|
1,057
|
|
|
|
1,000
|
|
|
|
829
|
|
Expected return on assets
|
|
|
(4,269
|
)
|
|
|
(3,697
|
)
|
|
|
(3,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
301
|
|
|
|
521
|
|
|
|
1,168
|
|
|
|
12
|
|
|
|
9
|
|
|
|
23
|
|
Unrecognized prior service cost
|
|
|
(43
|
)
|
|
|
12
|
|
|
|
13
|
|
|
|
(95
|
)
|
|
|
(75
|
)
|
|
|
(75
|
)
|
Special termination benefits (a)
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment loss (b)
|
|
|
83
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
3,569
|
|
|
$
|
3,619
|
|
|
$
|
4,809
|
|
|
$
|
1,350
|
|
|
$
|
1,284
|
|
|
$
|
1,164
|
|
|
|
|
|
|
|
|
|
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(a)
|
|
In the fourth quarter of fiscal 2008, we recognized a special termination benefits
expense related to U.S. workforce reductions as a result of the sale of the PM business.
|
|
(b)
|
|
In the fourth quarter of fiscal 2008, we recognized a curtailment loss related to
U.S. and International workforce reductions as a result of the sale of the PM business. In
the second quarter of fiscal 2007, we recognized a curtailment loss related to U.S.
workforce reductions in the Interventional Products and Patient Monitoring businesses.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Post-Retirement Medical
|
|
Net Periodic Benefit Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
15
|
|
|
|
12
|
|
|
|
11
|
|
Expected return on assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
Unrecognized prior service cost
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
22
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
F-33
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Obligations and Funded Status
The following table shows the changes in fiscal 2008 and 2007 in the projected benefit
obligation, plan assets and funded status of the U.S. and International defined benefit pension
plans, the SERP and the post-retirement medical benefits plan:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S. and International
|
|
|
SERP
|
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefit obligation at beginning of year
|
|
$
|
67,655
|
|
|
$
|
62,084
|
|
|
$
|
18,306
|
|
|
$
|
16,113
|
|
Service cost
|
|
|
2,531
|
|
|
|
2,700
|
|
|
|
376
|
|
|
|
350
|
|
Interest cost
|
|
|
4,415
|
|
|
|
4,069
|
|
|
|
1,057
|
|
|
|
1,000
|
|
Foreign exchange impact
|
|
|
499
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
Employee contributions
|
|
|
64
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
Plan amendments
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment
|
|
|
(2,151
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(4,309
|
)
|
|
|
1,406
|
|
|
|
(1,835
|
)
|
|
|
1,078
|
|
Benefits paid
|
|
|
(1,400
|
)
|
|
|
(1,249
|
)
|
|
|
(234
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefit obligation at end of year
|
|
$
|
67,855
|
|
|
$
|
67,655
|
|
|
$
|
17,670
|
|
|
$
|
18,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
64,563
|
|
|
$
|
61,601
|
|
|
$
|
17,670
|
|
|
$
|
18,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
66,513
|
|
|
$
|
56,179
|
|
|
|
*
|
|
|
|
*
|
|
Actual return on assets
|
|
|
5,468
|
|
|
|
3,952
|
|
|
|
*
|
|
|
|
*
|
|
Foreign exchange impact
|
|
|
751
|
|
|
|
231
|
|
|
|
*
|
|
|
|
*
|
|
Employer contributions
|
|
|
13,423
|
|
|
|
7,352
|
|
|
|
*
|
|
|
|
*
|
|
Employee contributions
|
|
|
64
|
|
|
|
48
|
|
|
|
*
|
|
|
|
*
|
|
Benefits paid
|
|
|
(1,400
|
)
|
|
|
(1,249
|
)
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
84,819
|
|
|
$
|
66,513
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S. and International
|
|
|
SERP
|
|
Funded Status at June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
84,819
|
|
|
$
|
66,513
|
|
|
$
|
|
|
|
$
|
|
|
Pension benefit obligation
|
|
|
67,855
|
|
|
|
67,655
|
|
|
|
17,670
|
|
|
|
18,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status-plan assets less than benefit obligation
|
|
$
|
16,964
|
|
|
$
|
(1,142
|
)
|
|
$
|
(17,670
|
)
|
|
$
|
(18,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Post-Retirement Medical
|
|
Change in Projected-Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
232
|
|
|
$
|
191
|
|
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
15
|
|
|
|
12
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(38
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
209
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
209
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at June 30,
|
|
|
|
|
|
|
|
|
Benefit obligation
|
|
$
|
209
|
|
|
$
|
232
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status-plan assets less than benefit obligation
|
|
$
|
(209
|
)
|
|
$
|
(232
|
)
|
|
|
|
|
|
|
|
The favorable change in the funded status of our U.S. and International defined benefit
pension plans in the aggregate as of June 30, 2008 was primarily due to higher employer
contributions, the curtailment resulting from the sale of the PM business, the increase in the
discount rate used to calculate the net periodic benefit cost and the higher actual return on plan
assets earned in fiscal 2008 as compared to fiscal 2007.
The following are recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S. and International
|
|
|
SERP
|
|
Current benefit liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(235
|
)
|
|
$
|
(227
|
)
|
Non-current benefit liability
|
|
|
(163
|
)
|
|
|
(2,403
|
)
|
|
|
(17,435
|
)
|
|
|
(18,079
|
)
|
Non-current pension asset
|
|
|
17,127
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
16,964
|
|
|
$
|
(1,142
|
)
|
|
$
|
(17,670
|
)
|
|
$
|
(18,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Post-Retirement Medical
|
|
Current benefit liability
|
|
$
|
|
|
|
$
|
|
|
Non-current benefit liability
|
|
|
(209
|
)
|
|
|
(232
|
)
|
Non-current pension asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(209
|
)
|
|
$
|
(232
|
)
|
|
|
|
|
|
|
|
F-35
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The components of the amount recognized in accumulated other comprehensive loss (income) in
the consolidated balance sheet at June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
International
|
|
|
SERP
|
|
|
Medical
|
|
Net actuarial loss (gain)
|
|
$
|
1,447
|
|
|
$
|
(26
|
)
|
|
$
|
65
|
|
Prior service (credit) cost
|
|
|
(1,121
|
)
|
|
|
(26
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (income), gross
|
|
$
|
326
|
|
|
$
|
(52
|
)
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (income), net
of tax
|
|
$
|
32
|
|
|
$
|
(31
|
)
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amount in accumulated other comprehensive loss (income)
expected to be amortized into net periodic benefit costs for fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
International
|
|
|
SERP
|
|
|
Medical
|
|
Net actuarial (gain) loss
|
|
$
|
(3
|
)
|
|
$
|
11
|
|
|
$
|
1
|
|
Prior service (credit) cost
|
|
|
(52
|
)
|
|
|
(28
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(55
|
)
|
|
$
|
(17
|
)
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assumptions
Weighted average assumptions used in developing the benefit obligations and net periodic
benefit cost for the U.S. and International defined benefit pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
7.18
|
%
|
|
|
6.43
|
%
|
|
|
6.50
|
%
|
Rate of compensation increase
|
|
|
4.47
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Expected return on plan assets
|
|
|
5.58
|
%
|
|
|
6.04
|
%
|
|
|
6.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.53
|
%
|
|
|
6.18
|
%
|
|
|
5.50
|
%
|
Rate of compensation increase
|
|
|
4.49
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Expected return on plan assets
|
|
|
6.15
|
%
|
|
|
6.40
|
%
|
|
|
6.50
|
%
|
The measurement date for the defined benefit pension plans and the SERP is June 30, the end of
the fiscal year.
The healthcare cost trend rate for our post-retirement medical benefit plan was 8.00% at June
30, 2008. The trend rate is expected to decline to 4.75% by the year 2013. A one-percentage-point
change in assumed healthcare cost trend rates would not have a material effect on our financial
statements.
F-36
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
U.S. Plan Asset Allocation and Investment Guidelines
The percentages of the fair value of plan assets allocated at June 30, 2008 and 2007 by asset
category and the weighted average target allocations for fiscal 2009 for the U.S. defined pension
plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2007
|
Asset Category
|
|
Target Allocation
|
|
Percentage of Plan Assets
|
Small Capitalization Equities (a)
|
|
|
10.0
|
%
|
|
|
7.7
|
%
|
|
|
8.1
|
%
|
Fixed Income Bonds Corporate
|
|
|
15.0
|
%
|
|
|
11.7
|
%
|
|
|
14.6
|
%
|
Fixed Income Bonds Government
|
|
|
75.0
|
%
|
|
|
73.6
|
%
|
|
|
75.7
|
%
|
Cash
|
|
|
0.0
|
%
|
|
|
7.0
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
(a)
|
|
Represents investment in our common stock of $6.2 million and $5.0 million (131,000
shares) at June 30, 2008 and 2007, respectively.
|
The expected long-term rate of return of 5.7% for the U.S. plan is calculated by using the
target allocation and expected returns for each asset class in the table above.
Below is a summary of our U.S. pension investment guidelines.
|
|
|
Our investment objective is to invest in securities which provide minimal risk, a high
degree of liquidity and an adequate return. Return on such investments, while recognized as
important, is not the primary consideration. Safety of principal and liquidity are the key
objectives.
|
|
|
|
|
At least 50% of the fixed portion of the portfolio will be invested in Treasury and
Federal Agency obligations. The maximum maturity of each security is 10 years.
|
|
|
|
|
No more than 50% of the portfolio will be invested in 5 to 10 year medium-term AAA-rated
corporate notes.
|
|
|
|
|
No more than $3 million in aggregate will be invested in any single companys AAA-rated
corporate notes.
|
|
|
|
|
Investments may include Datascope common stock. The amount of Datascope stock is limited
by ERISA rules (section 407 (a)), which says that the pension fund can purchase Company
stock, as long as immediately thereafter, the aggregate fair market value of Company stock
held by the fund does not exceed 10% of the fair market value of all pension fund assets.
|
Expected benefit payments under the U.S. and International defined benefit pension plans, the
SERP and the post-retirement medical benefits plan over future years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and
|
|
|
|
|
|
Post-Retirement
|
Fiscal Year
|
|
International
|
|
SERP
|
|
Medical
|
2009
|
|
$
|
2,107
|
|
|
$
|
242
|
|
|
$
|
|
|
2010
|
|
|
2,336
|
|
|
|
3,114
|
|
|
|
22
|
|
2011
|
|
|
2,511
|
|
|
|
2,919
|
|
|
|
24
|
|
2012
|
|
|
2,732
|
|
|
|
2,714
|
|
|
|
25
|
|
2013
|
|
|
2,993
|
|
|
|
2,502
|
|
|
|
26
|
|
2014 2018
|
|
|
20,007
|
|
|
|
9,228
|
|
|
|
72
|
|
F-37
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The expected employer contribution to the U.S. defined benefit pension plan in fiscal 2009 is
between $0 million (minimum regulatory requirement) and $40.0 million (maximum contribution). No
decision has been made at this time on the fiscal 2009 contribution.
13. Commitments and Contingencies
Leases
Future minimum rental commitments under non-cancelable operating leases are as follows:
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2009
|
|
$
|
3,529
|
|
2010
|
|
|
2,708
|
|
2011
|
|
|
1,452
|
|
2012
|
|
|
535
|
|
2013
|
|
|
297
|
|
Thereafter
|
|
|
|
|
|
|
|
|
Total future minimum rental payments
|
|
$
|
8,521
|
|
|
|
|
|
Total rent expense was approximately $4.1 million in fiscal 2008, $4.6 million in fiscal 2007
and $4.2 million in fiscal 2006. Certain of our leases contain purchase and/or renewal options.
Litigation
We are subject to certain legal actions, including product liability matters, arising in the
ordinary course of our business. We believe we have meritorious defenses in all material pending
lawsuits. We also believe that we maintain adequate insurance against any potential liability for
product liability litigation. In accordance with generally accepted accounting principles we accrue
for legal matters if it is probable that a liability has been incurred and an amount is reasonably
estimable.
The Public Prosecutors Office in Darmstadt, Germany is conducting an investigation of current
and former employees of one of our German subsidiaries. The investigation concerns marketing
practices prior to February 2003 under which benefits were provided to customers of the
subsidiary. We cooperated with the police portion of the investigation that has now been concluded
with the filing of a report of the findings with the
prosecutors office in April 2007. The
prosecutor is reviewing the report to determine how he will proceed. We cannot predict at this time
what the outcome of the prosecutors review will be, although we do not believe that it will have a
material adverse effect on our business or consolidated financial statements.
F-38
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
On March 18, 2005, Johns Hopkins University and Arrow International, Inc. filed a complaint in
the United States District Court for the District of Maryland, seeking a permanent injunction and
damages for patent infringement. They allege that our ProLumen Rotational Thrombectomy System
infringes one or more claims of their U.S. patents 5,766,191 and 6,824,551. We have filed an answer
denying such infringement and discovery has been completed. On October 13, 2006, Johns Hopkins and
Arrow filed a second complaint based upon their newly issued U.S. patent 7,108,704 claiming our
ProLumen device infringes one or more claims of this patent. The parties have agreed that this
matter should be consolidated with the first case and the consolidation has taken place. A jury
trial took place in late June 2007 that resulted in a finding that the ProLumen product infringed
one or more claims of each of the three patents, that we owed approximately $690 thousand in
damages to the plaintiffs and an injunction was issued precluding us from further selling the
ProLumen product. We have filed a Notice of Appeal regarding the lower courts decision. The appeal
has been briefed and was argued before the United States Court of Appeals for the Federal Circuit
on April 8, 2008, and we are awaiting a decision. We believe we will be successful on appeal in
overturning the lower courts findings and, therefore, an accrual for the royalty liability has not
been recorded and no impairment of the assets related to ProLumen has been taken.
Credit Arrangements
We had available unsecured lines of credit at June 30, 2008 totaling $100.2 million, with
interest payable at LIBOR-based rates determined by the borrowing period. At June 30, 2008, we had
no outstanding borrowings. Of the total available, $25 million expires in October 2008 and $50
million expires in March 2009. These lines are renewable annually at the option of the banks, and
we plan to seek renewal. We also had $25.2 million in lines of credit with no expiration date. At
June 30, 2007, we had available unsecured lines of credit totaling $99.5 million, with interest
payable at LIBOR-based rates determined by the borrowing period.
Purchase Commitments
We had $4.7 million in non-cancelable purchase commitments as of June 30, 2008. This amount
includes commitments for inventory and capital expenditures that meet our projected requirements
and are in the normal course of business.
Warranty Obligations
We provide warranty on all of our products. We estimate the costs that may be incurred under
warranties and record a liability in the amount of such costs at the time the product is sold.
Factors that affect our warranty liability include the number of units sold, historical and
anticipated rates of warranty claims and cost per claim. We periodically assess the adequacy of our
recorded warranty liabilities and adjust the amounts as necessary. Warranty expense is recorded in
cost of sales.
F-39
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Changes in accrued warranty for the years ended June 30, 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Warranty reserve at the beginning of the year
|
|
$
|
250
|
|
|
$
|
350
|
|
|
$
|
300
|
|
Warranties for discontinued operations
divested during the year
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
Warranties accrued during the year
|
|
|
50
|
|
|
|
79
|
|
|
|
389
|
|
Warranties settled during the year
|
|
|
(35
|
)
|
|
|
(179
|
)
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve at the end of the year
|
|
$
|
40
|
|
|
$
|
250
|
|
|
$
|
350
|
|
|
|
|
|
|
|
|
|
|
|
The warranty reserve at June 30, 2008 is included in accrued expenses on our consolidated
balance sheet.
Rabbi Trust
We have established a trust to hold amounts which may become payable in the future to certain
executives of the Company pursuant to various employment, supplemental benefit and severance
agreements upon a change of control of the Company. We are obligated to fund the trust upon the
occurrence of events tending to indicate that a future change in control of the Company could
occur.
14.
Special Charges
Fiscal 2007
Workforce Reductions in the European Sales Organization, Corporate and Genisphere
In fiscal 2007, we reduced the workforce in the European sales organization, Genisphere and
Corporate and recorded a charge of $4.7 million for severance, settlement and other termination
benefits. The workforce reductions resulted primarily from the merger of the European sales
organization and outsourcing the corporate legal and internal audit functions. All of the
terminated employees left the Company by the end of fiscal 2007.
Goodwill Impairment Genisphere
The Genisphere goodwill was determined to be completely impaired based on the annual goodwill
impairment test. Slower growth in Genispheres markets primarily attributable to increased
competition in the DNA microarray market had a negative impact on Genispheres operating results
and resulted in lower growth expectations. As a result, we recorded a goodwill impairment charge of
$2.3 million in the fourth quarter of fiscal 2007.
Inquiry Expenses
In fiscal 2007, we incurred expenses of $1.7 million related to the Audit Committee
investigations of ethics
line reports related to the Chairman and Chief Executive Officer and an executive officer in
Europe. The ethics line permits persons to report activities that they characterize as improper on
an anonymous basis. The Audit Committee engaged independent counsel and forensic accountants to
investigate these charges.
F-40
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
As disclosed in our 8-K filings, based on the results of the investigations, the Audit
Committee concluded that there was no evidence to support the allegations made in the ethics line
reports. The Audit Committee, with the assistance of independent counsel and independent forensic
accountants, also reviewed the matters raised by the Internal Audit Department and Legal Department
concerning the Chairman and found the issues raised by them to be without merit.
The special charges in fiscal 2007 for the continuing operations are reflected in the following segments:
|
|
|
|
|
Cardiac Assist Products
|
|
$1.1 million
|
Vascular Products
|
|
$1.1 million
|
Corporate and Other
|
|
$6.5 million
|
15. Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
Net sales
|
|
$
|
48,015
|
|
|
$
|
59,234
|
|
|
$
|
60,331
|
|
|
$
|
63,335
|
|
|
$
|
230,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
31,298
|
|
|
$
|
38,375
|
|
|
$
|
39,898
|
|
|
$
|
41,331
|
|
|
$
|
150,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from
continuing operations
|
|
$
|
11,869
|
|
|
$
|
5,353
|
|
|
$
|
8,976
|
|
|
$
|
7,580
|
|
|
$
|
33,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from
discontinued operations
|
|
$
|
(77
|
)
|
|
$
|
1,736
|
|
|
$
|
113
|
|
|
$
|
(5,316
|
)
|
|
$
|
(3,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of
discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
76,672
|
|
|
$
|
76,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
11,792
|
|
|
$
|
7,089
|
|
|
$
|
9,089
|
|
|
$
|
78,936
|
|
|
$
|
106,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from
continuing operations, basic
|
|
$
|
0.77
|
|
|
$
|
0.35
|
|
|
$
|
0.58
|
|
|
$
|
0.48
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from
continuing operations,
diluted
|
|
$
|
0.76
|
|
|
$
|
0.35
|
|
|
$
|
0.58
|
|
|
$
|
0.48
|
|
|
$
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
Net sales
|
|
$
|
49,591
|
|
|
$
|
50,984
|
|
|
$
|
55,826
|
|
|
$
|
56,590
|
|
|
$
|
212,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
32,879
|
|
|
$
|
33,079
|
|
|
$
|
35,749
|
|
|
$
|
37,136
|
|
|
$
|
138,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from
continuing operations
|
|
$
|
5,527
|
|
|
$
|
5,289
|
|
|
$
|
5,589
|
|
|
$
|
1,889
|
|
|
$
|
18,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from
discontinued operations
|
|
$
|
(994
|
)
|
|
$
|
(1,954
|
)
|
|
$
|
2,272
|
|
|
$
|
(153
|
)
|
|
$
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
4,533
|
|
|
$
|
3,335
|
|
|
$
|
7,861
|
|
|
$
|
1,736
|
|
|
$
|
17,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from
continuing operations, basic
|
|
$
|
0.36
|
|
|
$
|
0.35
|
|
|
$
|
0.37
|
|
|
$
|
0.12
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from
continuing operations,
diluted
|
|
$
|
0.35
|
|
|
$
|
0.34
|
|
|
$
|
0.36
|
|
|
$
|
0.12
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Quarterly and total year earnings per share are calculated independently based on the weighted
average number of shares outstanding during each period.
16. Earnings Per Share
The computation of basic and diluted net earnings per share is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
106,906
|
|
|
$
|
17,465
|
|
|
$
|
25,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic
|
|
|
15,441
|
|
|
|
15,244
|
|
|
|
14,974
|
|
Effect of dilutive stock awards
|
|
|
176
|
|
|
|
143
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, diluted
|
|
|
15,617
|
|
|
|
15,387
|
|
|
|
15,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share, basic
|
|
$
|
6.92
|
|
|
$
|
1.15
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share, diluted
|
|
$
|
6.85
|
|
|
$
|
1.14
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, 2007 and 2006, common shares related to options outstanding under the
Companys stock option plans amounting to 344 thousand, 646 thousand and 766 thousand,
respectively, were excluded from the computation of diluted earnings per share, as the effect would
have been antidilutive.
17. Related Party Transactions
At June 30, 2007, we had a preferred stock investment of $5.0 million in Masimo Corporation, a
supplier to our Patient Monitoring business. We purchased $11.6 million of product from Masimo
Corporation during fiscal 2007 and $10.0 million in fiscal 2006. On August 13, 2007, Masimo
Corporation completed its initial public offering, and concurrently, we sold substantially all of
our investment in Masimo, resulting in a pretax gain on the
sale of approximately $13.2 million.
In fiscal 2002, we advanced Mr. Saper $260 thousand for payment of a club membership deposit.
Mr. Saper will repay such amount upon the termination of Mr. Sapers membership in the club or, if
earlier, upon the termination of Mr. Sapers employment with the Company.
In fiscal 2000, we loaned $200 thousand to Boris Leschinsky, Vice President of Technology. The
promissory note requires annual payments of $20 thousand plus interest, based on an annual rate of
eight percent with the final payment due on June 8, 2010. The principal balance at June 30, 2008
was $40 thousand.
F-42
DATASCOPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
18. Subsequent Event
On August 6, 2008. we completed the sale of assets of our vascular closure business, including
assets related to our VasoSeal®, On-Site and X-Site® devices and our collagen operation to St.
Jude Medical, Inc. We received $21.0 million at closing and will receive an additional $3.0 million
upon the expiration of an 18 month indemnification period.
F-43
DATASCOPE CORP. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
Charged to
|
|
|
Deductions
|
|
|
|
|
|
|
Balance at
|
|
|
Costs
|
|
|
Other
|
|
|
from
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
and
|
|
|
Accounts
|
|
|
Reserves-
|
|
|
Close of
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Describe
|
|
|
Describe
|
|
|
Period
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,603
|
|
|
$
|
609
|
|
|
$
|
|
|
|
$
|
435
|
(A)
|
|
$
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,301
|
|
|
$
|
456
|
|
|
$
|
|
|
|
$
|
154
|
(A)
|
|
$
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,279
|
|
|
$
|
461
|
|
|
$
|
|
|
|
$
|
439
|
(A)
|
|
$
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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