EXHIBIT 99.1
For Immediate Release Contact: Carl G. Anderson, Jr. Frederick J. Hirt
June 23, 2004 610-478-3171 610-478-3117
ARROW INTERNATIONAL, INC. REPORTS THIRD QUARTER
AND NINE MONTHS FISCAL YEAR 2004 RESULTS
READING, PA, June 23, 2004 - Arrow International, Inc. announced today that net
sales for its third quarter of fiscal 2004 ended May 31, 2004 increased 12.3% to
$108.8 million compared to $96.9 million in the same prior year period. Net
income for the quarter reflects charges related to the Arrow LionHeart(TM) Left
Ventricular Assist System program, as described below, and, as a result of these
charges, decreased 20.0% to $11.6 million compared to $14.5 million in the same
prior year period. Diluted earnings per share for the quarter decreased 21.2% to
$0.26 per share compared to $0.33 per share in the same fiscal 2003 period.
For the nine months ended May 31, 2004, compared to the same period of last
year, the Company's net sales increased 15.0% to $320.2 million from $278.5
million. Net income was $41.5 million during the period compared to $37.8
million in the comparable period of fiscal 2003, an increase of 9.8%. Diluted
earnings per share were $0.94 per share compared to $0.86 per share in the same
prior year period, an increase of 9.3%.
As a result of the Company's previously announced decision on April 15, 2004 to
delay commencement of the Arrow LionHeart(TM) Phase II U.S. clinical trials, the
Company incurred charges totaling $3.7 million, or $0.06 diluted earnings per
share, in the third fiscal quarter. The charges consist primarily of an
inventory write-off of $3.1 million, or $0.05 diluted earnings per share, for
certain LionHeart(TM) components that became obsolete with the Company's
decision not to proceed with the clinical trials using the first generation
LionHeart(TM) power system and controller. The other charge was for equipment
write-off of $0.6 million, or $0.01 per diluted earnings per share. In addition,
in the third quarter of fiscal year 2004, the Company incurred research,
development and engineering expense of $1.1 million, or $0.01 diluted earnings
per share, for completion of the second generation LionHeart(TM) power system
and controller. The Company's remaining investment in the LionHeart(TM) includes
$2.0 million of components usable with either the first or second generation
electronics and $2.5 million in manufacturing equipment.
Results of Total Company Operations,
excluding, as described above, the charges
for LionHeart(TM) inventory and equipment
write-offs, and research, development and
engineering expense incurred in the third
quarter of fiscal year 2004 for second
generation components
(Dollars in millions, except per share)
Third Quarter Nine Months
------------- -----------
FY04 FY03 % Growth FY04 FY03 %Growth
Net sales $108.8 $96.9 12.3% $320.2 $278.5 15.0%
Income before tax, excluding charges $22.0 $21.3 3.3% $66.3 $55.9 18.6%
Net income, excluding charges $14.9 $14.5 2.8% $44.8 $37.8 18.5%
Diluted earnings per share, excluding $0.33 $0.33 - $1.01 $0.86 17.4%
charges
Attached is a reconciliation to Generally Accepted Accounting Principles, or
GAAP, that presents the components of the items excluded in determining the
income before tax, net income and diluted earnings per share amounts in the
above table.
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Total Company U.S. sales in the third quarter of fiscal 2004 increased 11.6% to
$70.2 million and represented 64.5% of total net sales. Total Company U.S. sales
in the nine months ended May 31, 2004 increased 12.4% to $207.6 million and
represented 64.8% of total net sales.
Total Company international sales in the third quarter of fiscal 2004 increased
13.5% to $38.6 million from $34.0 million in the third quarter of fiscal 2003
and represented 35.5% of total net sales. The weakness of the U.S. dollar in the
quarter, compared to the same period of last year, increased total Company
international sales by $2.2 million, or 6.5%. Total Company international sales
in the nine months ended May 31, 2004 increased 20.0% to $112.6 million from
$93.8 million in the same prior year period and represented 35.2% of total net
sales. The weakness of the U.S. dollar during the nine-month period, compared to
the same period of last year, increased total Company international sales by
$8.8 million, or 9.4%.
Sales of critical care product platforms and cardiac care products for the third
quarter and nine months ended May 31, 2004 are shown in the table below.
Sales by Product Platforms Third Quarter Nine Months
------------- -----------
(Dollars in millions) FY04 FY03 % Growth FY04 FY03 % Growth
Central Venous Catheters* $55.5 $47.6 16.6% $164.9 $135.6 21.6%
Specialty Catheters 34.4 31.5 9.2% 99.9 91.8 8.8%
Stepic distributed products 3.1 3.3 (6.1)% 9.2 9.7 (5.2)%
----- ----- ------- -------
Subtotal Critical Care 93.0 82.4 12.9% 274.0 237.1 15.6%
Cardiac Care 15.8 14.5 9.0% 46.2 41.4 11.6%
------ ---- ------- ------
TOTAL $108.8 $96.9 12.3% $320.2 $278.5 15.0%
*Includes Diatek(TM) and NEOCARE(R) product sales in the third fiscal
quarters of both years.
Carl G. Anderson, Jr., Arrow International's Chairman and Chief Executive
Officer, stated "We continue to be encouraged by the Company's core growth rate,
which is running at 9.8% on a fiscal year-to-date basis, adjusted for the
acquisitions of Diatek(TM) and NEOCARE(R) in fiscal year 2003, and for favorable
exchange rates. Importantly, our growth has been reasonably broad-based, with
progress in central venous catheters, specialty catheters and cardiac care
products. On a geographic basis, we continue to see encouraging growth in both
domestic and international markets, which we believe is attributable in part to
our strengthened marketing and sales effort."
"The introduction of the AutoCAT(R) 2 WAVE(TM) intra-aortic balloon pump is
generating a positive response with customers. Physicians have reported positive
patient outcomes with this breakthrough technology. However, the selling process
in the third quarter has been slowed somewhat by ramp-up issues in
manufacturing. While we do not believe this will impact the long-term growth of
the AutoCAT(R) 2 WAVE(TM), some lingering impact may be felt in the fourth
quarter of fiscal year 2004."
"The Company's strong growth over the past few years has absorbed most of its
manufacturing capacity. To support projections for future growth and integrate
operations acquired in recent years, the Company expects to initiate a
multi-year capital investment plan to increase manufacturing capacity and
rationalize its production operations. The first phase of this effort will
include an additional manufacturing site in the Czech Republic and expansion of
the plant in Chihuahua, Mexico. We expect to provide an estimate of the cost of
this construction in the Company's September 29, 2004 release of fourth quarter
and fiscal year 2004 financial results."
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The Company's sales and earnings targets along with some of the key assumptions
underlying these targets for the fourth quarter and full fiscal year 2004 are
shown in the table below. The targets exclude certain GAAP items as described in
the assumptions below.
Total Company Sales and Earnings Targets
(Dollars in millions, except per share)
Q404E FY04E Q403A FY03A
----- ----- ----- -----
Net Sales $106-109M $426-429M $101.8M $380.4M
Diluted E.P.S. $0.32-.35 $1.33-1.36 $0.33 $1.19
Assumptions:
1) Targets for fourth quarter and full fiscal year 2004 exclude
research, development and engineering expenses for second
generation LionHeart(TM) components in both the third and fourth
quarters of fiscal year 2004 and the write-offs of certain
LionHeart(TM) obsolete components and manufacturing equipment in
the third quarter of fiscal year 2004.
2) Fourth quarter and fiscal year 2003 results exclude the
previously reported special charge, charge to research,
development and engineering expense, and interest income
relating to amended federal tax returns.
3) Gross margin of 51.9% of sales for the fourth quarter and 52.3%
for the full 2004 fiscal year.
4) Operating expenses of 30.5% to 31.7% of sales for the fourth
quarter and 31.4% to 31.7% for the full 2004 fiscal year.
5) Operating income of 20.2% to 21.4% of sales for the fourth
quarter and 20.6% to 20.9% for the full 2004 fiscal year.
6) Effective tax rate of 32.5%.
7) E.P.S. using 44,500,000 shares of common stock outstanding.
8) R&D expenses of approximately 6.3% to 6.5% of sales for the
fourth quarter and 6.4% for the full 2004 fiscal year, excluding
research, development and engineering expenses for the second
generation LionHeart(TM) expenses in the third quarter of fiscal
year 2004 of $1.1 million and an estimate for the fourth quarter
of fiscal year 2004 of $1.4 million.
9) A = Actual; E = Estimate; M = Millions
Note: Third quarter fiscal year 2004 targets were as follows:
Net Sales $106-108M
Diluted E.P.S. $0.33-.35
Arrow expects to submit dossiers for the second generation LionHeart(TM) power
system and controller to the Company's European Notified Body, TUV Product
Services of Munich, Germany, in the fall of 2004 and anticipates receiving an
approval for use of these electronics in the device approximately three months
later, given that many of its components have not changed, no additional
clinical data is required and the LionHeart(TM) quality system has already been
certified. Arrow's European marketing plan for the LionHeart(TM) is based upon
the receipt of this approval and the CE-marking of the second generation
electronics.
The Company has made significant progress in its efforts to develop and test
modifications to its CorAide(TM) continuous flow ventricular assist device to
resolve elevated levels of hemolysis experienced in the first implant of the
device. The Company expects that European clinical trials of the CorAide(TM)
device should resume later this calendar year although, due to the pioneering
nature of this program, it is difficult to predict precise timing.
In March 1999, the Company began open market purchases of its common stock
pursuant to its previously announced program to repurchase up to 2 million
shares of its common stock. In April 2000, the Company announced that it would
repurchase up to another 2 million shares of its stock under this program, for a
total of 4 million. As of May 31, 2004, the Company had purchased a total of
3,603,600 shares under this program, which remains in effect.
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Arrow International, Inc. develops, manufactures and markets a broad range of
clinically advanced, disposable catheters and related products for critical and
cardiac care. The Company's products are used primarily by anesthesiologists,
critical care specialists, surgeons, emergency and trauma physicians,
cardiologists, interventional radiologists, electrophysiologists, and other
health care providers.
Arrow International's news releases and other company information can be found
on the World Wide Web at http://www.arrowintl.com.
The Company's common stock trades on The Nasdaq Stock Market(R) under the symbol
ARRO.
* * * * * * *
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: This news release provides historical information and includes
forward-looking statements (including projections). Although the Company
believes that the expectations in such forward-looking statements are
reasonable, the Company can give no assurance that such expectations will prove
to have been correct. The forward-looking statements are based upon a number of
assumptions and estimates that, while presented with numerical specificity and
considered reasonable by the Company, are inherently subject to significant
business, economic and competitive risks, uncertainties and contingencies which
are beyond the control of the Company, and upon assumptions with respect to
future business decisions which are subject to change. Accordingly, the
forward-looking statements are only an estimate, and actual results will vary
from the forward-looking statements, and these variations may be material.
Consequently, the inclusion of the forward-looking statements should not be
regarded as a representation by the Company of results that actually will be
achieved. Forward-looking statements are necessarily speculative in nature, and
it is usually the case that one or more of the assumptions in the
forward-looking statements do not materialize. Investors are cautioned not to
place undue reliance on the forward-looking statements. In connection with the
"Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company cautions the reader that the factors below, which are
discussed, in the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2003 and in its other filings with the Securities and Exchange
Commission, could cause the Company's results to differ materially from those
stated in the forward-looking statements. These factors include: (i) stringent
regulation of the Company's products by the U.S. Food and Drug Administration
and, in some jurisdictions, by state, local and foreign governmental
authorities; (ii) the highly competitive market for medical devices and the
rapid pace of product development and technological change in this market; (iii)
pressures imposed by the health care industry to reduce the cost or usage of
medical products and services; (iv) dependence on patents and proprietary rights
to protect the Company's trade secrets and technology, and the need for
litigation to enforce or defend these rights; (v) risks associated with the
Company's international operations; (vi) potential product liability risks
inherent in the design, manufacture and marketing of medical devices; (vii)
risks associated with the Company's use of derivative financial instruments; and
(viii) dependence on the continued service of key members of the Company's
management.
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ARROW INTERNATIONAL, INC.
RESULTS OF OPERATIONS
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
MAY 31, 2004
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED 5/31/04
SECOND
INVENTORY EQUIPMENT GENERATION
AS REPORTED WRITE-OFF WRITE-OFF R,D&E AS ADJUSTED
Gross Profit $52,530 $3,140 $ - $ - $55,670
Income Before Taxes 17,263 3,140 558 1,111 22,072
Net Income 11,652 2,120 376 750 14,898
Diluted Earnings Per Share $0.26 $0.05 $0.01 $0.01 $0.33
Weighted average shares used in
computing diluted earnings per
common share 44,474 44,474 44,474 44,474 44,474
NINE MONTHS ENDED 5/31/04
SECOND
INVENTORY EQUIPMENT GENERATION
AS REPORTED WRITE-OFF WRITE-OFF R,D&E AS ADJUSTED
Gross Profit $164,530 $3,140 $ - $ - $167,670
Income Before Taxes 61,532 3,140 558 1,111 66,341
Net Income 41,534 2,120 376 750 44,780
Diluted Earnings Per Share $0.94 $0.05 $0.01 $0.01 $1.01
Weighted average shares used in
computing diluted earnings per
common share 44,221 44,221 44,221 44,221 44,221
R,D&E = Research, Development and
Engineering
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ARROW INTERNATIONAL, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
May 31, May 31, May 31, May 31,
CONSOLIDATED STATEMENTS OF INCOME DATA: 2004 2003 2004 2003
--------------- -------------- -------------- ---------------
Net sales $ 108,779 $ 96,949 $ 320,174 $ 278,545
Cost of goods sold 53,109 47,756 152,504 140,170
LionHeart inventory write-off 3,140 - 3,140 -
--------------- -------------- -------------- ---------------
Gross profit 52,530 49,193 164,530 138,375
Operating expenses:
Research, development and engineering 8,201 6,329 21,428 18,810
Selling, general and administrative 26,510 22,649 80,696 64,570
LionHeart manufacturing equipment write-off 558 - 558 -
--------------- -------------- -------------- ---------------
Total operating expenses 35,269 28,978 102,682 83,380
Operating income 17,261 20,215 61,848 54,995
Interest, net (47) 54 257 109
Other (income) expenses, net 45 (1,211) 59 (1,060)
--------------- -------------- -------------- ---------------
Income before income taxes 17,263 21,372 61,532 55,946
Provision for income taxes 5,611 6,946 19,998 18,182
--------------- -------------- -------------- ---------------
Net income $ 11,652 $ 14,426 $ 41,534 $ 37,764
=============== ============== ============== ===============
Basic earnings per common share $0.26 $0.33 $0.95 $0.87
===== ===== ===== =====
Diluted earnings per common share $0.26 $0.33 $0.94 $0.86
===== ===== ===== =====
Weighted average shares used in computing
basic earnings per common share 43,634 43,231 43,494 43,445
Weighted average shares used in computing
diluted earnings per common share 44,474 43,667 44,221 43,762
May 31,
CONSOLIDATED BALANCE SHEET: 2004
---------------
ASSETS
Cash $ 83,683
Receivables (net) 84,105
Inventories 95,482
Prepaid expenses and other 18,148
---------------
Total current assets 281,418
Property, plant and equipment (net) 133,605
Other assets 123,891
---------------
Total assets $ 538,914
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 31,197
Other current liabilities 49,175
Current maturities of long-term debt 3,122
Long-term debt -
Other liabilities 22,487
---------------
Total liabilities 105,981
Total shareholders' equity 432,933
---------------
Total liabilities and shareholders' equity $ 538,914
===============
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