EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT:CARL G. ANDERSON, JR. FREDERICK J. HIRT
SEPTEMBER 29, 2004 610-478-3171 610-478-3117
ARROW INTERNATIONAL, INC. REPORTS FISCAL YEAR 2004
AND FOURTH QUARTER SALES AND NET INCOME
READING, PA, September 29, 2004 - Arrow International, Inc. reported today net
sales of $433.1 million for the fiscal year ended August 31, 2004, an increase
of 13.9%, or $52.7 million, versus its prior fiscal year. Net income for the
year was $55.9 million compared to $45.7 million in fiscal year 2003, an
increase of 22.3%. Adjusting for certain special items, as described below, net
income was $60.2 million compared to $51.9 million in the prior fiscal year
period, an increase of 16.0%. Diluted earnings per share were $1.26 compared to
$1.04 in fiscal year 2003 ($1.36 compared to $1.19 diluted earnings per share in
the prior fiscal year period when adjusted for special items).
Net sales for the fourth quarter of fiscal year 2004 increased 10.9% to $112.9
million compared to net sales of $101.8 million in the same prior year period.
Net income in the fourth quarter of fiscal 2004 was $14.4 million compared to
$7.9 million in fiscal year 2003 and diluted earnings per share were $0.32
compared to $0.18 in fiscal year 2003. Adjusting for certain special items, as
described below, net income was $15.4 million compared to $14.2 in the prior
fiscal year period, an increase of 8.5%, and diluted earnings per share were
$0.35 compared to $0.33 in fiscal year 2003.
Arrow's Chairman and CEO, Carl G. Anderson, Jr., stated that "the Company made
progress in fiscal 2004 with significant overall growth in revenue and profit.
The fiscal year 2004 core growth rate of our base business, adjusted for
favorable exchange rates and for the fiscal year 2004 incremental sales from the
acquisitions of Diatek(TM), NEOCARE(R) and the Company's Florida distributor
corresponding to the periods in fiscal year 2003 prior to these acquisitions,
was about +8 1/2% versus the prior year. Based upon management's assessment of
global market growth of approximately 5%, this represents an improvement in
market share. We believe this growth is traceable to several key factors,
including (1) an increased focus on our cornerstone central venous catheter
business, (2) continued progress with sales of procedure kits featuring the
Company's safety devices and ARROWg+ard(R) upgrades, (3) new products, such as
the Cannon(TM) II chronic dialysis catheter, the StimuCath(R) regional block,
and the NEOCARE(R) line of neonatal catheters, (4) improvements in the
Company's sales and marketing strategies, (5) our move to direct selling in
Florida, and (6) improvements in operational processes."
SUMMARY OF COMPARATIVE RESULTS ADJUSTED FOR SPECIAL ITEMS:
Results of Total Company Operations, excluding: (1) the charges for
LionHeart(TM) inventory and equipment write-offs in the third quarter of fiscal
year 2004, and research, development and engineering expense incurred in the
third and fourth quarters of fiscal year 2004 for second generation
LionHeart(TM) components, and restructuring charges related to consolidation of
certain manufacturing facilities incurred in the fourth quarter of fiscal year
2004; and (2) the special charge, the charge to research, development and
engineering expense, and the interest income and tax credit related to amended
federal tax returns in the fourth quarter of fiscal year 2003
5
(DOLLARS IN MILLIONS, EXCEPT PER SHARE) Fourth Quarter Fiscal Year
-------------- -----------
FY04 FY03 % GROWTH FY04 FY03 %GROWTH
Net sales $112.9 $101.8 10.9% $433.1 $380.4 13.9%
Income before tax, excluding interest $22.9 $21.1 8.5% $89.2 $77.1 15.7%
income/charges
Net income, excluding interest $15.4 $14.2 8.5% $60.2 $51.9 16.0%
income/charges
Diluted earnings per share, excluding $0.35 $0.33 6.1% $1.36 $1.19 14.3%
interest income/charges
Attached to this release is 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. The following three paragraphs discuss the excluded
items.
1) As discussed in the third quarter of fiscal year 2004, the Company's
previously announced decision on April 15, 2004 to delay commencement of
the Phase II U.S. clinical trials of the Arrow LionHeart(TM), the
Company's fully implantable Left Ventricular Assist System (LVAS),
resulted in the Company incurring charges totaling $3.7 million, or
$0.06 diluted earnings per share, in the third fiscal quarter. The
charges consisted 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 and fourth quarters of fiscal year
2004, the Company incurred research, development and engineering expense
of $1.1 million and $1.3 million or $0.01 and $0.02 diluted earnings per
share, respectively, for completion of the second generation
LionHeart(TM) power system and controller. The Company's remaining
investment in the LionHeart(TM) includes $1.8 million of components and
open purchase commitments usable with either the first or second
generation electronics and $2.4 million in manufacturing equipment.
2) In August, 2004 the Company initiated the consolidation of its
operations at its Winston-Salem and San Antonio facilities into existing
manufacturing facilities. These steps are part of the overall
manufacturing realignment and capacity increases announced in June 2004.
The transitional work on the consolidation has begun and is expected to
continue into the spring of 2005. In connection with this restructuring,
the Company has accrued severance payments of $208,000, or $0.01 per
diluted earnings per share, in the fourth quarter of fiscal year 2004 in
accordance with Statement of Financial Accounting Standard No. 112.
3) As reported last year, the Company incurred two charges in its fourth
quarter of fiscal year 2003 totaling $11.6 million, or $0.17 diluted
earnings per share. The first was a special charge to establish a
reserve of $8.0 million or $0.12 diluted earnings per share for a
settlement in two related patent infringement lawsuits, which, as
previously disclosed, related to certain of the Company's hemodialysis
catheter products. The second charge was the write-off to research,
development and engineering expense of $3.6 million or $0.05 diluted
earnings per share, related to development costs for the second
generation of external batteries used in the LionHeart(TM). The
Company's interest income in the fourth fiscal quarter ended August 31,
2003 benefited from interest income of $1.4 million, or $0.02 diluted
earnings per share, accruing on refunds related to amended federal tax
returns. The fourth quarter of fiscal year 2003 also benefited from a
$500,000 tax credit related to federal tax returns that claimed
additional research and development tax credits.
SUMMARY OF FISCAL YEAR 2004 SALES RESULTS:
Total Company U.S. sales in the fourth quarter of fiscal 2004 increased 11.2% to
$72.3 million and represented 64.0% of total net sales. Total Company U.S. sales
in the twelve months ended August 31, 2004 increased 12.0% to $279.9 million and
represented 64.6% of total net sales.
6
Total Company international sales in the fourth quarter of fiscal 2004 increased
10.3% to $40.6 million from $36.8 million in the fourth quarter of fiscal 2003
and represented 36.0% 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 $ 1.9 million, or 5.2%. Total Company international sales
in the twelve months ended August 31, 2004 increased 17.4% to $153.2 million
from $130.5 million in the same prior year period and represented 35.4% of total
net sales. Currency exchange rate changes discussed above, increased total
Company international sales by $10.7 million, or 8.2% versus year ago.
AUTOCAT(R) 2 WAVE(TM) - The Company identified several areas where the product
could be improved during the period when we were addressing the previously
reported issues. Those improvements have been made and are now being tested.
These modifications will enhance the ease of use of the AutoCAT(R) 2WAVE(TM),
which the Company believes will provide a significant advantage over competing
technologies.
Worldwide sales of critical care product platforms and cardiac care products for
the fourth quarter and twelve months ended August 31, 2004 are shown in the
table below.
FOURTH QUARTER TWELVE MONTHS
SALES BY PRODUCT PLATFORMS -------------- -------------
(DOLLARS IN MILLIONS) FY04 FY03 % GROWTH FY04 FY03 % GROWTH
Central Venous Catheters* $57.8 $50.7 14.0% $222.7 $186.4 19.5%
Specialty Catheters 35.2 32.3 9.0% 135.1 124.1 8.9%
Stepic distributed products 2.8 3.3 (15.2)% 12.0 13.0 (7.7)%
----- ----- ------ ------
Subtotal Critical Care 95.8 86.3 11.0% 369.8 323.5 14.3%
Cardiac Care 17.1 15.5 10.3% 63.3 56.9 11.2%
----- ----- ------ ------
TOTAL $112.9 $101.8 10.9% $433.1 $380.4 13.9%
*Includes Diatek(TM) product sales in the second, third and fourth fiscal
quarters of both years and NEOCARE(R) product sales in the third and fourth
fiscal quarters of both years.
DEVELOPMENT PROGRAMS:
As previously reported, 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 by the end of calendar
year 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.
As previously reported, 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.
INTERNATIONAL BUSINESS TRANSACTION:
The Company also announced the purchase of certain assets of one of its
distributors in Italy, AB Medica S.p.A. (ABM) for a total purchase price of up
to approximately $8.0 million to be completed in the first quarter of fiscal
year 2005 with various installments thereafter on account of ongoing tender
contract sales. ABM had been one of Arrow's distributors in Italy since 1982.
The agreement includes the purchase of distributorship rights, customer lists,
as well as the inventory and specified tender contracts associated with the sale
by ABM of Arrow products. Arrow will begin selling directly in Italy through its
subsidiary, Arrow Italy S.p.A. Mr. Anderson commented that "Arrow has had a
productive partnership with ABM for many years. However, the move to a direct
selling model should enable us to more effectively develop our business in the
large Italian market."
FISCAL YEAR 2005 TARGETS:
Mr. Anderson stated "fiscal year 2004 was a year of beginnings. In fiscal year
2005, we intend to focus our efforts on ensuring that our marketing and
operational processes meet the requirements of our customers, the demands of a
highly competitive marketplace, and the changes needed to sustain a growing
business. As we look to the new fiscal year, our objective is to accelerate the
Company's core growth rate through an increased rate of new product
introductions, continued improvements in our marketing and sales execution, and
infrastructure investments to improve operational effectiveness."
7
The Company's sales and earnings targets along with some of the key assumptions
underlying these targets for the first quarter and full fiscal year 2005, are
shown in the table below. These targets for the first quarter and full fiscal
year 2005 exclude approximately $0.02 diluted earnings per share for the
estimated impact of the inventory step-up for the purchase of certain assets of
AB Medica S.p.A., and approximately $0.01 diluted earnings per share for the
estimated impact of research, development and engineering expenses for
completion of the second generation LionHeart(TM) components, and approximately
$0.01 diluted earnings per share for restructuring costs, related to the
Company's consolidation of certain of its manufacturing facilities.
Total Company Sales and Earnings Targets
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
ESTIMATED GROWTH RATES
SALES BY PRODUCT PLATFORMS ----------------------
AND DILUTED E.P.S. Q105E FY05E Q105E FY05E
Central Venous Catheters $58-59M $241-243M 8-10% 8-9%
Specialty Catheters 33-34M 139-141M 2-5% 3-4%
Stepic distributed products 2-2M 8-8M (36)% (33)%
---------- ----------
Subtotal Critical Care 93-95M 388-392M 5-7% 5-6%
Cardiac Care 17-17M 72-73M 21% 14-15%
---------- ----------
Net Sales $110-112M $460-465M 7-9% 6-7%
Diluted E.P.S. $0.33-0.35 $1.50-$1.54 0%-6% 10-13%
The lower diluted earnings per share targeted growth rates for the first quarter
of fiscal year 2005 of 0% to 6% versus 10% to 13% for the full year reflect
higher levels of operating expenses for critical care research and development
and for worldwide marketing and sales infrastructure investments, including the
expansion of critical care direct sales in Italy, when compared to the operating
expenses in the first quarter of fiscal year 2004. This higher base of operating
expenses is approximately the same level as the fourth quarter of fiscal year
2004 and they are expected to continue at these levels throughout fiscal year
2005.
Assumptions:
1) Targets for first quarter and full fiscal year 2005 exclude
inventory step-up for the purchase of certain assets of AB
Medica S.p.A., research, development and engineering expenses
for second generation LionHeart(TM) components and restructuring
charges related to the Company's manufacturing consolidation.
2) Net sales growth is based upon conservative foreign exchange
assumptions and excludes new critical care products that may be
introduced during fiscal year 2005.
3) Gross margin of approximately 53.5% of sales in the first
quarter and for the full year.
4) Operating expenses of approximately 33% of sales for the first
quarter and approximately 32% of sales for the full 2005 fiscal
year.
5) Operating income of approximately 20% of sales for the first
quarter and approximately 22% of sales for the full 2005 fiscal
year.
6) Effective tax rate of 32.5%.
7) E.P.S. using 44,400,000 shares of common stock outstanding for
the first quarter and 45,000,000 for the full 2005 fiscal year.
8) R&D expenses of approximately 6.8% of sales for the first
quarter and for the full 2005 fiscal year, excluding estimated
research, development and engineering expenses for the second
generation LionHeart(TM) expenses in the first half of fiscal
year 2005.
9) A = Actual; E = Estimate; M = Millions
Note: Fourth quarter and fiscal year 2004 targets, excluding
LionHeart(TM) second generation development expenses and restructuring
charges, and actual results were as follows:
Q404E FY04E Q404A FY04A
Net Sales $106-109M $426-429M $112.9 $433.1
Diluted E.P.S. $0.32-.35 $1.33-1.36 $0.35 $1.36
8
YEAR-END BALANCE SHEETS AND CASH FROM OPERATIONS:
Cash doubled at August 31, 2004 to $94.2 million from $47.0 million at August
31, 2003, while short-term debt of $29.1 million remained relatively flat as
compared to prior year-end levels. Days sales outstanding decreased to 71 days
versus 79 days a year ago. Inventory turns of 2.2 times per year remained at
prior year levels. The Company had no long-term debt at August 31, 2004.
Operating income, plus depreciation and amortization, increased to $107.5
million for fiscal year 2004 from $87.8 million in fiscal year 2003.
Depreciation and amortization for fiscal year 2004 was $23.8 million. Capital
expenditures for fiscal year 2004 were approximately $27 million.
STOCK BUY BACK:
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 August 31, 2004, the Company had purchased a total of
3,603,600 shares under this program, which remains in effect, although no shares
were repurchased in the fourth quarter of fiscal year 2004.
COMPANY INFORMATION:
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:
"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, among others, 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.
9
ARROW INTERNATIONAL, INC.
RESULTS OF OPERATIONS
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AUGUST 31, 2004
QUARTER ENDED 8/31/04
SECOND
INVENTORY EQUIPMENT GENERATION
AS REPORTED WRITE-OFF WRITE-OFF R,D&E RESTRUCTURING AS ADJUSTED
Gross Profit 59,917 - - - - 59,917
Income Before Taxes 21,345 - - 1,322 208 22,875
Net Income 14,408 - - 892 141 15,441
Diluted Earnings Per
Share 0.32 - - 0.02 0.01 0.35
YEAR ENDED 8/31/04
SECOND
INVENTORY EQUIPMENT GENERATION
AS REPORTED WRITE-OFF WRITE-OFF R,D&E RESTRUCTURING AS ADJUSTED
Gross Profit 224,447 3,140 - - - 227,587
Income Before Taxes 82,877 3,140 558 2,433 208 89,216
Net Income 55,942 2,120 376 1,642 141 60,221
Diluted Earnings Per
Share 1.26 0.05 0.01 0.03 0.01 1.36
QUARTER ENDED 8/31/03
SPECIAL AND
AS REPORTED INTEREST INCOME ADDITIONAL CHARGES AS ADJUSTED
Gross Profit 101,831 - - 101,831
Income Before Taxes 10,972 (1,423) 11,569 21,118
Net Income 7,906 (877) 7,133 14,162
Diluted Earnings Per
Share 0.18 (0.02) 0.17 0.33
YEAR ENDED 8/31/03
SPECIAL AND
AS REPORTED INTEREST INCOME ADDITIONAL CHARGES AS ADJUSTED
Gross Profit 380,376 - - 380,376
Income Before Taxes 66,918 (1,423) 11,569 77,064
Net Income 45,670 (877) 7,133 51,926
Diluted Earnings Per
Share 1.04 (0.02) 0.17 1.19
10
ARROW INTERNATIONAL, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Year Ended
August 31, August 31, August 31, August 31,
CONSOLIDATED STATEMENTS OF OPERATIONS: 2004 2003 2004 2003
-------------- -------------- --------------- ---------------
Net sales $ 112,960 $ 101,831 $ 433,134 $ 380,376
Cost of goods sold 53,043 50,076 205,547 190,246
LionHeart inventory write-off - - 3,140 -
-------------- -------------- --------------- ---------------
Gross profit 59,917 51,755 224,447 190,130
Operating expenses:
Research, development and engineering 8,946 9,360 30,374 28,170
Selling, general and administrative 28,938 24,784 109,634 89,354
LionHeart manufacturing equipment
write-off - - 558 -
Restructuring charge 208 - 208 -
Special Charges - 8,000 - 8,000
-------------- -------------- --------------- ---------------
Total operating expenses 38,092 42,144 140,774 125,524
Operating income 21,825 9,611 83,673 64,606
Interest, net 4 (1,312) 261 (1,203)
Other (income) expenses, net 476 (49) 535 (1,109)
-------------- -------------- --------------- ---------------
Income before income taxes 21,345 10,972 82,877 66,918
Provision for income taxes 6,937 3,066 26,935 21,248
-------------- -------------- --------------- ---------------
Net income $ 14,408 $ 7,906 $ 55,942 $ 45,670
============== ============== =============== ===============
Basic earnings per common share $0.33 $0.18 $1.28 $1.05
===== ===== ===== =====
Diluted earnings per common share $0.32 $0.18 $1.26 $1.04
===== ===== ===== =====
Weighted average shares used in computing
basic earnings per common share 43,753 43,263 43,559 43,399
Weighted average shares used in computing
diluted earnings per common share 44,544 43,807 44,302 43,773
11
August 31,
CONSOLIDATED BALANCE SHEET: 2004
--------------
ASSETS
Cash $ 94,176
Receivables (net) 83,918
Inventories 96,084
Prepaid expenses and other 15,898
--------------
Total current assets 290,076
Property, plant and equipment (net) 136,978
Other assets 122,154
--------------
Total assets $ 549,208
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 26,020
Other current liabilities 51,418
Current maturities of long-term debt 3,036
Long-term debt -
Other liabilities 22,403
--------------
Total liabilities 102,877
Total shareholders' equity 446,331
--------------
Total liabilities and shareholders' equity $ 549,208
==============
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