EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: CARL G. ANDERSON, JR. FREDERICK J. HIRT
DECEMBER 20, 2004 610-478-3171 610-478-3117
ARROW INTERNATIONAL, INC. REPORTS
FIRST QUARTER FISCAL YEAR 2005 SALES AND NET INCOME
READING, PA, December 20, 2004 - Arrow International, Inc. reported today net
sales of $113.2 million for the fiscal quarter ended November 30, 2004, an
increase of 9.8%, or $10.1 million, versus its prior fiscal year first quarter.
Net income for the quarter was $13.6 million compared to $14.4 million in the
first quarter of fiscal year 2004, a decrease of 5.5%. Adjusting for certain
special items, as described below, net income was $15.5 million compared to
$14.4 million in the prior fiscal year quarter, an increase of 7.6%. Diluted
earnings per share were $0.31 compared to $0.33 in the first fiscal quarter of
2004 ($0.35 compared to $0.33 diluted earnings per share in the prior fiscal
year period when adjusted for the special items).
Arrow's Chairman and CEO, Carl G. Anderson, Jr., stated, "The Company moved
forward in the first fiscal quarter of 2005 with significant growth in revenue,
especially in the international markets. The first quarter fiscal year 2005 core
growth rate of our base business, adjusted for favorable exchange rates and
excluding Stepic distributed products, was +9.4% versus the prior year period.
This core growth rate is roughly in line with our fourth quarter of fiscal year
2004."
SUMMARY OF COMPARATIVE RESULTS, AS ADJUSTED FOR SPECIAL ITEMS:
RESULTS OF TOTAL COMPANY OPERATIONS, EXCLUDING SPECIAL ITEMS WHICH INCLUDE:
RESEARCH AND DEVELOPMENT EXPENSES FOR SECOND GENERATION LIONHEART(TM) COMPONENTS
INCURRED IN THE FIRST QUARTER OF FISCAL YEAR 2005, RESTRUCTURING CHARGES RELATED
TO CONSOLIDATION OF CERTAIN MANUFACTURING FACILITIES AND THE RELOCATION OF ITS
EUROPEAN DISTRIBUTION CENTER INCURRED IN THE FIRST QUARTER OF FISCAL YEAR 2005,
AND STEP-UP OF INVENTORY PURCHASED FROM AB MEDICA S.P.A. IN THE FIRST QUARTER OF
FISCAL 2005.
(DOLLARS IN MILLIONS, EXCEPT PER SHARE) FIRST QUARTER
FY05 FY04 % GROWTH
Net sales $113.2 $103.1 9.8%
Income before tax, excluding charges $23.0 $21.4 7.5%
Net income, excluding charges $15.5 $14.4 7.6%
Diluted earnings per share, excluding charges $0.35 $0.33 6.1%
Attached to this release is reconciliation to Generally Accepted Accounting
Principles, or GAAP, that presents the components of the items excluded in
determining the Company's income before tax, net income and diluted earnings per
share amounts in the above table. The following three paragraphs discuss these
excluded items.
(1) In the first quarter of fiscal year 2005, the Company incurred research
and development expenses of $1.0 million, or $0.01 diluted earnings per
share, for development of the second generation power system and controller
for the Arrow LionHeart(TM), the Company's fully implantable Left
Ventricular Assist System (LVAS). The Company's remaining investment in the
LionHeart(TM) includes $3.0 million of components and open purchase
commitments usable with either the first or second generation electronics
and $2.3 million in manufacturing equipment.
(2) In August 2004, the Company initiated the consolidation of its
operations at its Winston-Salem, NC and San Antonio, TX facilities into
existing manufacturing facilities. In November 2004, the Company decided to
move its European Distribution Center. These steps are part of the overall
manufacturing realignment and capacity increases announced in June 2004. As
a result, the Company has accrued $0.4 million, or $0.01 per diluted
earnings per share, which primarily consists of severance payments in the
first quarter of fiscal year 2005.
(3) Excludes $1.5 million, or $0.02 diluted earnings per share, for the
step-up of inventory purchased from AB Medica S.p.A., which was recognized
in the first quarter of fiscal year 2005 as additional cost of sales.
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SUMMARY OF FIRST QUARTER FISCAL YEAR 2005 SALES RESULTS:
TOTAL COMPANY U.S. SALES IN THE FIRST QUARTER OF FISCAL 2005 INCREASED 5.0%,
EXCLUDING STEPIC DISTRIBUTED PRODUCTS, TO $67.3 MILLION FROM $64.1 MILLION IN
THE FIRST QUARTER OF FISCAL 2004, AND REPRESENTED 59.4% OF TOTAL NET SALES.
TOTAL COMPANY INTERNATIONAL SALES IN THE FIRST QUARTER OF FISCAL 2005 INCREASED
22.6% TO $44.0 MILLION FROM $35.9 MILLION IN THE FIRST QUARTER OF FISCAL 2004,
AND REPRESENTED 38.9% 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 1.8% OF TOTAL COMPANY SALES.
Worldwide sales of critical care product platforms and cardiac care products for
the first quarters ended November 30, 2004 and 2003 are shown in the table
below.
Sales by Product Platforms FIRST QUARTER AT CONSTANT EXCHANGE RATES
(Dollars in millions) FY05 FY04 % Growth FY05 % Growth
CENTRAL VENOUS CATHETERS $59.8 $53.6 11.6% $58.8 9.7%
SPECIALTY CATHETERS 34.8 32.3 7.7% 34.4 6.5%
STEPIC DISTRIBUTED PRODUCTS 1.9 3.1 (38.7)% 1.9 (38.7)%
----- ----- -----
SUBTOTAL CRITICAL CARE 96.5 89.0 8.4% 95.1 6.9%
CARDIAC CARE 16.7 14.1 18.4% 16.2 14.9%
------ ------ ------
TOTAL $113.2 $103.1 9.8% $111.3 8.0%
Sales of the AutoCAT(R) 2 WAVE(TM) intra-aortic balloon pump and related
LightWAVE(TM) catheter system in the first quarter of fiscal year 2005 increased
by 8% over the sales of those products in the fourth quarter of fiscal year
2004. Mr. Anderson said, "We are encouraged by these early results; however, the
selling cycle for intra-aortic balloon pumps is long and involves a number of
decision makers in any given hospital. As a result, we are cautiously optimistic
that sales will accelerate in the third and fourth quarters of fiscal year
2005."
MANUFACTURING STRATEGY:
Mr. Anderson stated, "We are now in the execution phase of our manufacturing
strategy. Our objectives are to (1) add capacity to support our growing
business, (2) simplify a rather complex supply chain, and (3) continue to make
process improvements that will help ensure that we deliver the highest quality
product possible to our physician and hospital customers."
During the quarter, the Company completed the transfer of the manufacturing of
its Cannon Catheter(TM) split-tip hemodialysis catheters from its Winston-Salem,
NC facility to its Asheboro, NC manufacturing plant. The Company plans to
transfer manufacturing of its NEO?CARE(R) line of products to its manufacturing
plant in Mexico in the spring of 2005. The Company expects inventories will
increase during the period of this transition in manufacturing operations in
order to compensate for moving the product lines.
NEOPICC(R) VOLUNTARY RECALL:
As previously reported, on December 3, 2004, the Company announced that, after
consulting with the Food and Drug Administration (FDA), it was voluntarily
initiating a nationwide recall of all of its NEOPICC(R) 1.9 FR Peripherally
Inserted Central Catheters (the "NeoPICC Catheters"). The Company sent recall
notices to approximately 700 hospitals and 16 dealers, but is unable at the
present time to estimate the number of NeoPICC Catheters that will eventually be
returned by customers in response to this voluntary recall. The Company is
cooperating with the FDA's review of this matter.
Mr. Anderson stated, "Arrow has always recognized the importance of making sure
that every one of the millions of products we make each year is of the highest
quality. We have an ongoing program at Arrow to continuously improve all our
processes which touch upon our quality system in some way. As part of this
program to achieve operational excellence, we are assessing, with the help of
outside consultants, all of our quality assurance systems and processes to
enable us to do all that we can to protect the patients who benefit from our
products and technology every day around the world."
DEVELOPMENT PROGRAMS:
Arrow has submitted portions of the design dossier for the second generation
LionHeart(TM) power system and controller to the Company's European Notified
Body, TUV Product Services of Munich, Germany. The Company anticipates all
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required documentation to be submitted by February 2005 and 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 completed development of 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 in the
near future. The cardiac transplant center at Bad Oyenhausen, Germany is
currently screening patients for a suitable candidate.
The Company has also commissioned a study of its entire Left Ventricular Assist
System program by an outside consulting firm in order to provide additional
perspective on the long-term commercial opportunity for these products and
strategies for maximizing their potential.
INTERNATIONAL BUSINESS TRANSACTION:
In the first quarter of fiscal year 2005, the Company purchased certain assets
of one of its distributors in Italy, AB Medica S.p.A. (ABM), for a total
purchase price of approximately $8.4 million, with various installments due
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 began
selling directly in Italy through its subsidiary, Arrow Italy S.p.A., in the
first quarter of fiscal 2005. Included in the first quarter of fiscal year 2005
was a $1.5 million charge, or $1.0 million against net income, ($0.02 diluted
earnings per share) for the step-up of inventory purchased from ABM.
Fiscal Year 2005 Targets:
THE COMPANY'S SALES AND EARNINGS TARGETS ALONG WITH SOME OF THE KEY ASSUMPTIONS
UNDERLYING THESE TARGETS FOR THE SECOND QUARTER AND FULL FISCAL YEAR 2005 ARE
SHOWN IN THE TABLE BELOW. THE TARGETS FOR THE FULL FISCAL YEAR 2005 EXCLUDE
$0.01 DILUTED EARNINGS PER SHARE FOR THE IMPACT OF RESEARCH AND DEVELOPMENT
EXPENSES FOR COMPLETION OF THE SECOND GENERATION LIONHEART(TM) COMPONENTS, $0.02
DILUTED EARNINGS PER SHARE FOR THE IMPACT OF THE INVENTORY STEP-UP RESULTING
FROM THE PURCHASE OF CERTAIN ASSETS OF AB MEDICA S.P.A., $0.06 DILUTED EARNINGS
PER SHARE FOR ESTIMATED RESTRUCTURING COSTS RELATED TO THE COMPANY'S
CONSOLIDATION OF CERTAIN OF ITS MANUFACTURING FACILITIES AND THE RELOCATION OF
ITS EUROPEAN DISTRIBUTION CENTER, AND APPROXIMATELY $0.15 DILUTED EARNINGS PER
SHARE FOR THE ESTIMATED IMPACT OF THE CASH COSTS AND PENSION BENEFITS, ASSUMING
FULL PARTICIPATION, IN THE COMPANY'S RECENTLY ANNOUNCED VOLUNTARY EARLY
RETIREMENT PROGRAM. IN ADDITION, THE COMPANY WILL INCUR A NON-CASH CHARGE FOR
ACCELERATED VESTING OF STOCK OPTIONS HELD BY PARTICIPANTS IN THIS PROGRAM. THE
CHARGE TO EARNINGS AND CREDIT TO ADDITIONAL PAID IN CAPITAL IS DETERMINED AT THE
DATE THE PARTICIPANT SIGNS THE ELECTION FORM COMMITTING HIM/HERSELF TO THE
VOLUNTARY EARLY RETIREMENT PROGRAM AND IS CALCULATED BASED ON THE DIFFERENCE
BETWEEN THE CLOSING PRICE OF ARROW`S COMMON STOCK ON THAT DATE AND THE EXERCISE
PRICE OF THE STOCK OPTIONS WHICH BECOME VESTED AS OF THE DATE OF THE
PARTICIPANT'S RETIREMENT.
Total Company Sales and Earnings Targets
(Dollars in millions, except per share)
Sales by Product Platforms ESTIMATED GROWTH RATES
and Diluted E.P.S. Q205E FY05E Q205E FY05E
CENTRAL VENOUS CATHETERS $61-62M $245-247M 9-11% 10-11%
SPECIALTY CATHETERS 36-37M 145-147M 8-11% 7-9%
STEPIC DISTRIBUTED PRODUCTS 2-2M 8-8M (33-33)% (33-33)%
---------- ----------
SUBTOTAL CRITICAL CARE 99-101M 398-402M 8-10% 8-9%
CARDIAC CARE 17-17M 67-68M 4-4% 6-7%
---------- ----------
NET SALES $116-118M $465-470M 7-9% 7-9%
DILUTED E.P.S. $0.35-0.37 $1.50-1.54 0-6% 10-13%
The targeted growth rate for diluted earnings per share for the second quarter
of fiscal year 2005 is lower than the growth targets for the third and fourth
quarters of fiscal year 2005 due to favorable comparisons to the third and
fourth quarters of the prior fiscal year.
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Assumptions:
1) Targets for full fiscal year 2005 exclude inventory step-up for the
purchase of certain assets of AB Medica S.p.A., and research and
development expenses for second generation LionHeart(TM) components.
2) Targets for the second quarter and full fiscal year 2005 exclude
restructuring charges related to the Company's manufacturing
consolidation and voluntary early retirement program.
3) Net sales growth is based upon conservative foreign exchange
assumptions and excludes new critical care products that may be
introduced during fiscal year 2005.
4) Gross margin of approximately 52.5% of sales in the second quarter and
for the full 2005 fiscal year.
5) Operating expenses of approximately 32% of sales for the second
quarter and approximately 31% of sales for the full 2005 fiscal year.
6) Operating income of approximately 21% of sales for the second quarter
and for the full 2005 fiscal year.
7) Effective tax rate of 32.5%.
8) E.P.S. using 44,800,000 shares of common stock outstanding for the
second quarter and 45,000,000 for the full 2005 fiscal year.
9) R&D expenses of approximately 7.0% of sales for the second quarter and
6.6% for the full 2005 fiscal year, excluding estimated research and
development expense for the second generation LionHeart(TM) expenses
in the first quarter of fiscal year 2005.
10) A = Actual; E = Estimate; M = Millions
Total Company Sales and Earnings Targets
(Dollars in millions, except per share)
First quarter and fiscal year 2005 targets, excluding the inventory step-up for
the purchase of certain assets of AB Medica S.p.A. and the second generation
LionHeart(TM) research and development expenses and restructuring charges,
actual results and actual sales at target exchange rates were as follows
Sales by Product Platforms and Q105 SALES AT
Diluted E.P.S. Q105 TARGET EXCHANGE RATES
Q105E Q105A
CENTRAL VENOUS CATHETERS $58-59M $59.8M $58.4M
SPECIALTY CATHETERS 33-34M $34.8M 34.2M
STEPIC DISTRIBUTED PRODUCTS 2-2M 1.9M 1.9M
---------- ------- -------
SUBTOTAL CRITICAL CARE 93-95M 96.5M 94.5M
CARDIAC CARE 17-17M 16.7M 16.0M
---------- ------- -------
NET SALES $110-112M $113.2M $110.5M
DILUTED E.P.S. $0.33-0.35 $0.35 N.A.
FIRST QUARTER BALANCE SHEETS AND CASH FROM OPERATIONS:
Cash at November 30, 2004 was $95.3 million, up from $62.9 million at November
30, 2003, while short-term debt of $30.9 million remained relatively flat
compared to the prior fiscal year first quarter levels. Days sales outstanding
decreased to 72 days versus 77 days in the prior fiscal year first quarter.
Inventory turns of 2.2 times per year remained relatively consistent compared to
prior year levels. The Company had no long-term debt at November 30, 2004.
Operating income, plus depreciation and amortization, decreased to $26.3 million
for the first quarter of fiscal year 2005 from $27.3 million in the first
quarter of fiscal year 2004. Depreciation and amortization for the first quarter
of fiscal year 2005 was approximately $6.5 million. Capital expenditures for the
first quarter of fiscal year 2005 were approximately $7.1 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 November 30, 2004,
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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 first quarter of
fiscal year 2005.
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, 2004 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
NOVEMBER 30, 2004
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
QUARTER ENDED 11/30/04
SECOND
INVENTORY GENERATION
AS REPORTED STEP-UP R&D RESTRUCTURING AS ADJUSTED
Gross Profit $56,920 $1,467 - - $58,387
Income Before Taxes $20,179 $1,467 $994 $391 $23,031
Net Income $13,621 $990 $671 $264 $15,546
Diluted Earnings Per
Share $0.31 $0.02 $0.01 $0.01 $0.35
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ARROW INTERNATIONAL, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
November 30,
CONSOLIDATED STATEMENTS OF OPERATIONS: 2004 2003
------------- -------------
Net sales $ 113,225 $ 103,101
Cost of goods sold 56,305 48,903
------------- -------------
Gross profit 56,920 54,198
Operating expenses:
Research and development 7,919 6,844
Selling, general and administration 28,722 25,738
Restructuring Charges 391 -
------------- -------------
Total operating expenses 37,032 32,582
Operating income 19,888 21,616
Interest, net (125) 109
Other (income) expenses, net (166) 139
------------- -------------
Income before income taxes 20,179 21,368
Provision for income taxes 6,558 6,944
------------- -------------
Net income $ 13,621 $ 14,424
============= =============
Basic earnings per common share $0.31 $0.33
===== =====
Diluted earnings per common share $0.31 $0.33
===== =====
Weighted average shares used in
computing basic earnings
per common share 43,836 43,344
Weighted average shares used in
computing diluted earnings
per common share 44,526 43,983
CONSOLIDATED CONDENSED BALANCE SHEET: November 30, August 31,
2004 2004
------------------ -----------------
ASSETS
Cash $ 95,255 $ 94,176
Receivables (net) 89,481 83,918
Inventories 101,133 96,084
Prepaid expenses and other 19,027 15,898
------------------ -----------------
Total current assets 304,896 290,076
Property, plant and equipment (net) 142,071 136,978
Other assets 130,109 122,154
------------------ -----------------
Total assets $ 577,076 $ 549,208
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 27,873 $ 26,020
Other current liabilities 58,444 51,418
Current maturities of long-term debt 3,027 3,036
Other liabilities 22,524 22,403
------------------ -----------------
Total liabilities 111,868 102,877
Total shareholder's equity 465,208 446,331
------------------ -----------------
Total liabilities and shareholders' equity $ 577,076 $ 549,208
================== =================
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