EXHIBIT 99.1
Contact: Frederick J. Hirt, CFO
(610) 478-3117
ARROW INTERNATIONAL, INC. REPORTS
SECOND QUARTER AND SIX MONTHS FISCAL YEAR 2006 RESULTS
READING, PA, MARCH 29, 2006 - Arrow International, Inc. (Nasdaq: ARRO) today
reported results for its second fiscal quarter and six months ended February 28,
2006. Net sales for the second quarter of fiscal year 2006 increased to $116.5
million from $109.2 million in the second quarter of fiscal year 2005.
Operating income increased to $18.1 million from $7.1 million primarily due to
recognition in the second quarter of fiscal 2005 of (1) $6.8 million in expenses
due to the Company's voluntary early retirement program, and (2) $4.9 million of
charges related to the discontinuance of the Company's Arrow LionHeart(R) Left
Ventricular Assist Program. Impacting operating income for the second quarter of
fiscal year 2006 was $1.04 million of compensation expense for employee and
director stock options unvested on September 1, 2005 and for options granted
during fiscal year 2006, as required under Statement of Financial Accounting
Standards (SFAS) No. 123R, the new accounting guidelines for equity-based
compensation that are effective for fiscal year 2006.
Net income increased 135.2% to $12.7 million from $5.4 million in the comparable
prior fiscal year quarter. This year's quarter included $0.89 million of
after-tax stock option expense related to the new accounting guidelines. The tax
benefit from the additional stock option expense of $0.15 million is less than
the statutory tax benefit because the Company cannot recognize the tax benefit
on future disqualifying dispositions of incentive stock options until such time
as these dispositions occur.
Diluted earnings per share in the quarter were $0.28 compared to $0.12 in the
prior fiscal year quarter and included $0.02 of new stock option expense.
Arrow's Chairman and CEO, Carl G. Anderson, Jr., stated, "The rate of sales
growth for the Company is in line with expectations and the forecast we provided
at the last earnings release. At this juncture, we are moving from a situation
of constrained capacity towards a situation where we believe we can effectively
meet customer demand and resume the growth of the core business. Although we are
still in the process of building manufacturing capacity and aligning the
operational system to meet customer requirements, we are already seeing the
positive impact of these improvements on both customer relations and sales force
motivation. We anticipate these positive trends to continue and revenue growth
to accelerate over the coming quarters."
For the six-month period ended February 28, 2006, Arrow's net sales were $230.1
million, an increase of 3.7% compared to $221.9 million in the same period of
the prior fiscal year. Operating income for the first six months of fiscal year
2005 was reduced by $11.7 million for the same two reasons as described above.
As a result, net income increased 31.7% to $24.5 million compared to $18.6
million in the prior fiscal year period, and diluted earnings per share were
$0.54 compared to $0.42 in the prior year. For the first six months of fiscal
year 2006, the new stock compensation expense affected operating income, net
income and diluted earnings per share by $1.8 million, $1.54 million and $0.034,
respectively.
FISCAL YEAR 2005 SHIPPING TERMS ADJUSTMENT
As previously discussed, during the course of the second quarter fiscal year
2005 quarterly closing process and in conjunction with its review of its
internal controls, the Company determined that it had misapplied the accounting
related to shipping terms to U.S. customers and international distributors. The
Company does not have written agreements with most customers, and as a result,
in most of those cases, there is no
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documentation that specifies shipping terms other than the invoice, which states
FOB plant. While the Company does not pay for shipping in most cases or insure
the shipments, its practice has been to credit or replace lost or damaged
shipments. During the prior few years, amounts in respect of these credits and
replacements have been less than 0.05% of U.S. sales. Nevertheless,
interpretations of Staff Accounting Bulletin No. 104, Revenue Recognition in
Financial Statements (SAB 104), issued by the Securities and Exchange Commission
staff, indicate that, because of this shipping practice, the Company's U.S.
sales are the equivalent of FOB destination orders.
Accordingly, the Company made the following reductions to its second quarter
fiscal year 2005 operating results to reflect the change in its accounting for
U.S. shipping terms:
o total sales by $4.3 million, U.S. sales by $1.7 million,
International sales by $2.6 million;
o gross profit by $2.2 million; and
o diluted earnings per share by $0.03.
Also, inventory increased by $2.1 million as a result of the change in
accounting for U.S. shipping terms. The Company did not restate its financial
statements for any prior periods. The incremental effect of this change in
accounting on any future quarter would be the difference between the adjustment
at the beginning of the quarter and the corresponding adjustment at the end of
the quarter. Additional information was included in the Company's Quarterly
Report on Form 10-Q for its second fiscal quarter ended February 28, 2005.
U.S. SALES
Arrow's U.S. sales for the second fiscal 2006 quarter, which represented 61.8%
of total net sales, increased 6.0% to $72.0 million from $67.9 million in the
second quarter of fiscal 2005 due in part to increased sales of specialty
catheters, central venous catheters and intra-aortic balloon pumps.
During the first six months of fiscal 2006, U.S. sales, which represented 61.7%
of total net sales, increased 4.0% to $142.0 million from $136.6 million in the
same prior year period. While there were no Neo?Care(R) sales in fiscal year
2006, sales of Neo?Care(R) products were $2.1 million in the first six months of
fiscal year 2005.
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INTERNATIONAL SALES
Arrow's international sales in the second quarter of fiscal 2006 increased 7.7%
to $44.5 million from $41.3 million in the second quarter of fiscal 2005 and
represented 38.2% of total net sales. The weakness of the U.S. dollar compared
to the same period of last year decreased total international sales by $2.4
million, or 2.2% of total Company sales.
International sales in the first six months of fiscal 2006 increased 3.3% to
$88.1 million from $85.3 million in the same prior year period and represented
38.3% of total net sales. The weakness of the U.S. dollar for the six-month
period, compared to the same period of last year, decreased total international
sales by $3.5 million, or 1.6% of total Company sales.
The table below shows Arrow's geographical sales for the second quarter and six
months ended February 28, 2006 with comparisons to the same prior year periods.
Second Quarter Six Months
-------------- ----------
Geographical Sales FY06 FY05(1) % % Change FY06 FY05(1) % % Change
(Dollars in millions) Change at Change at
Constant Constant
Exchange Exchange
Rates (2) Rates (3)
--------- ---------
United States $70.1 $66.0 6.2% 6.2% $138.0 $132.8 3.9% 3.9%
----- ----- ------ ------
Europe 23.2 19.8 17.2% 24.6% 42.8 39.8 7.5% 15.1%
Asia/International 21.3 21.5 (0.9)% 5.0% 45.3 45.5 (0.4)% 1.6%
---- ---- ---- ----
Subtotal International 44.5 41.3 7.7% 14.4% 88.1 85.3 3.3% 7.7%
---- ---- ---- ----
Sales
Subtotal Arrow Products $114.6 $107.3 6.8% 9.3% $226.1 $218.1 3.7% 5.4%
Non-Arrow 1.9 1.9 - - 4.0 3.8 5.3% 5.3%
--- --- --- ---
distributed products (4)
Total Company Sales $116.5 $109.2 6.7% 9.1% $230.1 $221.9 3.7% 5.4%
====== ====== ====== ======
(1) Sales in the above table for the second quarter and six months of fiscal
year 2005 and the corresponding percentage changes reflect the Shipping Terms
Adjustment referred to above.
2) % Growth rates at Constant Exchange Rates calculated by dividing second
quarter fiscal year 2006 sales by second quarter fiscal year 2005 local currency
sales translated at second quarter fiscal year 2006 exchange rates.
3) % Growth rates at Constant Exchange Rates calculated by dividing six month
fiscal year 2006 sales by six month fiscal year 2005 local currency sales
translated at six month fiscal year 2006 exchange rates.
4) The Company purchased the Stepic Medical Company, its New York area
distributor, in September 2002, and has continued to distribute non-Arrow
products through its Stepic subsidiary.
The table below shows sales of Arrow's critical care product platforms and
cardiac care products for the second quarter and six months ended February 28,
2006 with comparisons to the same prior year periods.
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Second Quarter Six Months
-------------- ----------
Sales by Product Platforms FY06 FY05(1) % % Change FY06 FY05(1) % % Change
(Dollars in millions) Change at Change at
Constant Constant
Exchange Exchange
Rates (2) Rates (3)
--------- ---------
Central Venous Catheters $60.9 $57.0 6.8% 9.5% $119.6 $116.3 2.8% 6.4%
Specialty Catheters 36.6 34.3 6.7% 7.0% 72.7 69.1 5.2% 5.4%
Non-Arrow distributed 1.9 1.9 - - 4.0 3.8 5.3% 5.3%
--- --- --- ---
products (4)
Subtotal Critical Care 99.4 93.2 6.7% 8.4% $196.3 189.2 3.8% 6.0%
Cardiac Care 17.1 16.0 6.9% 13.3% 33.8 32.7 3.4% 1.8%
---- ---- ---- ----
TOTAL $116.5 $109.2 6.7% 9.1% $230.1 $221.9 3.7% 5.4%
------ ------ ------ ------
1) See footnote 1 to the above table.
2) See footnote 2 to the above table.
3) See footnote 3 to the above table.
4) See footnote 4 to the above table.
Mr. Anderson continued: "As our operational capabilities continue to strengthen,
we have launched a product and marketing program designed to meet growing
customer interest in catheter safety and provide our sales force with enhanced
tools to generate incremental revenue and market share. In January 2006, we
began selling a new `maximal barrier' central venous access kit which addresses
the new guidelines for reducing catheter-related bloodstream infections
promulgated by the Centers for Disease Control and the Institute for Healthcare
Improvement's `100,000 Lives' initiative.
"This new `maximal barrier' central venous access kit has received an
enthusiastic response by customers who recognized the product's value and
contribution to their needs for safety and the management of risk of infection
in the hospital setting. As we expand our market penetration in the months ahead
with this important and timely upgrade to our existing product line, we
anticipate a significant uptake of this kit on the basis of its benefits to
healthcare workers and patients alike. A complementary web-based service,
FirstDoNoHarm.com, provides a clearinghouse of information for Healthcare
Professionals on prevention of Catheter-Related Bloodstream Infections. In
addition, we are expanding our field sales force training related to safety and
infection protection. Indeed, these are the actions that we believe are expected
of the world's market leader of central venous access products, meeting genuine
market needs and resulting in improved quality of patient care.
"Arrow's manufacturing capital investment program continues to be on schedule.
The new Chihuahua, Mexico plant continues to train and initiate additional
production shifts, while new production lines for multi-lumen catheters,
including those with ARROWg+ard(R), are also on schedule. Because of this
progress, in recent weeks we have seen a reduction in backorders and a
consequent improvement in customer service. Construction of our new
manufacturing facility in the city of Zdar in the Czech Republic is also
progressing well and we continue to expect a mid-summer 2006 start-up. Once this
second Czech plant is fully on line, we will be able to produce a substantial
portion of our customer requirements for Europe, the Middle East and Africa in
the Czech Republic.
"Our company-wide effort to enhance our quality systems, which we refer to as
Project Operational Excellence, continues to be on schedule. As I have mentioned
previously, this important initiative will ensure that all of the Company's
quality systems remain compliant with the requirements of the U.S. Food and Drug
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Administration, Japan's new Pharmaceutical Affairs Law, the ISO requirements for
Canada, and the CE mark in Europe. We are now in the implementation and training
phases of this project, and the implementation phase is targeted to be completed
by the end of this fiscal year.
"Among our dialysis product offerings, the Company has seen positive market
acceptance of our two new products -- the Arrow Edge(TM) and the Arrow
Simplicity(TM) Micro-Puncture Introducer Set -- which join the Arrow Cannon(TM)
II Plus and our full offering of acute hemodialysis catheters and embolectomy
balloon catheters. We are also taking steps to enhance our chronic dialysis
catheter kits by including a SmartSeal(TM) valved safety sheath, which addresses
the need physicians have to minimize the risk of air embolism. Our planned
expansion of our Dialysis Access field sales organization is expected to further
increase our account penetration and broaden our coverage of access centers as
well as acute care hospitals.
"Finally, the marketing of the Company's intra-aortic balloon pump system, the
AutoCat(R) 2 WAVE(TM) Pump Console and LightWAVE(TM) Catheter, continues to make
progress, both in the U.S. and Europe. We expect to introduce this new product
in Japan within the next several weeks."
THIRD QUARTER AND FULL FISCAL YEAR 2006 TARGETS
The Company's targets for second quarter fiscal 2006 net sales were $117 million
to $120 million at exchange rates in effect at the beginning of January 2006. As
noted above, net sales for the second quarter of fiscal 2006 were $116.5
million. The Company's targets for second quarter fiscal 2006 diluted earnings
per share were $0.28 to $0.31, and actual diluted earnings per share were $0.28.
For the third quarter fiscal 2006, the Company is targeting net sales of $122
million to $126 million at exchange rates in effect at the end of February 2006,
and diluted earnings per share of $0.33 to $0.35.
For the full fiscal year 2006, the Company is targeting net sales of $476
million to $484 million at current exchange rates in effect in February 2006,
and diluted earnings per share of $1.26 to $1.30.
The targets for the second half of fiscal year 2006 reflect assumptions
regarding growth based on the introduction of new products and the addition of
manufacturing capacity, which the Company believes are reasonable but cannot
assure will occur as presently anticipated. Previously, the company had
anticipated improvement in the gross margin from 49.5% in the first half of
fiscal year 2006 to between 52% and 53% in the second half of fiscal year 2006.
The Company is now anticipating a more modest improvement in gross margin from
49.1% experienced in the first half of fiscal year 2006 to approximately 50% in
the second half of fiscal year 2006. However, the Company has taken steps to
reduce its anticipated selling, general and administrative expenses from 28% of
sales experienced in the first half of fiscal year 2006 to between 24.5% and
25.5% of sales in the second half of fiscal year 2006. This reduction in
expenses is anticipated to offset approximately 50% of the reduction in the
gross margin target. R&D expenses in the second half of fiscal year 2006 are
expected to exceed the first half of fiscal year 2006 by approximately $1
million. Interest income in the second half of fiscal year 2006 is expected to
be similar to the first half of 2006.
The Company's diluted earnings per share targets include estimated expenses for
stock option expense, as required under the new accounting guidelines for
equity-based compensation effective for fiscal year 2006, of approximately $0.02
diluted earnings per share for the third fiscal quarter and $0.07 diluted
earnings per share for the full fiscal year 2006.
The effective tax rate for fiscal year 2006 is anticipated to be 32.5%. As
previously reported, the Company paid $10 million in March 2004 to settle a tax
assessment from the Japanese Government regarding its transfer pricing. The
Company has commenced competent authority proceedings with the Internal Revenue
Service in the U.S. to recover a majority of this Japanese tax assessment, and
when a resolution is reached, a one-time favorable or unfavorable item will be
recorded as part of the provision for income taxes. At this time, the Company is
unable to predict the timing, the amount or the effect of this future tax item
on its effective tax rate.
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BALANCE SHEET AND CASH FLOW
Cash on February 28, 2006 was $116.8 million, up from $102.5 million at February
28, 2005, while short-term debt of $1.0 million decreased by $2.0 million from
the prior fiscal year levels. The amount of days' sales outstanding decreased to
72 days from 73 days in the same prior fiscal year period. Inventory turns of
2.4 times per year remained relatively consistent compared to prior year levels.
The Company had no long-term debt at February 28, 2006.
Net cash provided by operating activities was $18.5 million for the six months
ended February 28, 2006, compared to $29.0 million for the same period a year
ago.
Operating income, plus depreciation and amortization, increased to $48.0 million
for the first half of fiscal year 2006 from $39.2 million in the first half of
fiscal year 2005. Depreciation and amortization for the first half of fiscal
year 2006 was approximately $13.1 million. Capital expenditures for the first
half of fiscal year 2006 were approximately $13.5 million.
CONFERENCE CALL AND WEBCAST
The Company will hold a conference call to discuss its second quarter and six
months fiscal year 2006 results today, March 29, 2006, at 4:30 pm ET. The call
and simultaneous webcast are available by dialing 800-737-9483 in the U.S., and
1-706-679-7371 for International using Conference ID 6616448, or by visiting
http://www.arrowintl.com/presentations/.
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 its website at http://www.arrowintl.com.
The Company's common stock trades on the Nasdaq National Market(R) under the
symbol ARRO.
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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, 2005 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 US 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.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
CONSOLIDATED STATEMENTS OF INCOME DATA: 2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 116,504 $ 109,209 $ 230,148 $ 221,934
Cost of goods sold 59,715 56,623 117,202 112,928
Early Retirement Plan Charges - 1,883 - 1,883
------------ ------------ ------------ ------------
Gross profit 56,789 50,703 112,946 107,123
Operating expenses:
Research and development 7,058 7,126 13,509 15,045
Selling, general and administrative 31,894 30,589 64,479 59,311
Early Retirement Plan Charges - 4,956 - 4,956
Restructuring charges (269) 930 (256) 1,321
------------ ------------ ------------ ------------
Total operating expenses 38,683 43,601 77,732 80,633
Operating income 18,106 7,102 35,214 26,490
Interest, net (718) (72) (1,147) (197)
Other (income) expenses, net 106 (108) 118 (274)
------------ ------------ ------------ ------------
Income before income taxes 18,718 7,282 36,243 26,961
Provision for income taxes 6,084 1,928 11,779 8,324
------------ ------------ ------------ ------------
Net income $ 12,634 $ 5,354 $ 24,464 $ 18,637
============ ============ ============ ============
Basic earnings per common share $ 0.29 $ 0.12 $ 0.55 $ 0.42
============ ============ ============ ============
Diluted earnings per common share $ 0.28 $ 0.12 $ 0.54 $ 0.42
============ ============ ============ ============
Weighted average shares used in computing
basic earnings per common share 44,729 44,214 44,688 44,024
Weighted average shares used in computing
diluted earnings per common share 45,276 45,010 45,222 44,767
February 28, August 31,
Consolidated Balance Sheet: 2006 2005
------------ ------------
ASSETS
Cash $ 116,837 $ 119,326
Marketable securities 6,040 -
Receivables (net) 90,732 91,029
Inventories 102,574 95,356
Prepaid expenses and other 29,218 24,748
------------ ------------
Total current assets 345,401 330,459
Property, plant and equipment (net) 153,967 152,207
Other assets 118,360 117,824
------------ ------------
Total assets $ 617,728 $ 600,490
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 32,617 $ 26,891
Other current liabilities 64,273 63,908
Current maturities of long-term debt 999 1,054
Other liabilities 25,897 30,130
------------ ------------
Total liabilities 123,786 121,983
Total shareholders' equity 493,942 478,507
------------ ------------
Total liabilities and shareholders' equity $ 617,728 $ 600,490
============ ============
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