EXHIBIT 99.1
Contact: Frederick J. Hirt, CFO
(610) 478-3117
ARROW INTERNATIONAL, INC. REPORTS
FIRST QUARTER FISCAL YEAR 2007 FINANCIAL RESULTS
NET EARNINGS INCREASE 22.9% ON AN 8.2% INCREASE IN NET SALES
READING, PA, JANUARY 4, 2007 - Arrow International, Inc. (NASDAQ: ARRO) today
reported results for its first fiscal quarter ended November 30, 2006.
Net sales for the first quarter of fiscal year 2007 increased 8.2% to $122.9
million from $113.6 million in the first quarter of fiscal year 2006 reflecting
strong sales for the Company's products in Europe and improving sales in the
United States. The weakness of the U.S. dollar compared to the same period of
last year increased net sales by $0.7 million and increased the percentage
change in sales by 0.6%. Details of U.S. and international sales, including
growth by geographic area and product platform, are provided later in this press
release.
Gross profit increased by 10.0% to $61.8 million in the first quarter of fiscal
year 2007 compared to $56.2 million in the prior fiscal year's first quarter.
Gross margin increased to 50.3% for the first quarter of fiscal year 2007
compared to 49.4% a year ago. Higher margins from sales by Arrow U.K., the
operation established in April 2006 when the Company purchased certain assets of
its former U.K. distributor, increased gross profit by $1.3 million. Also
benefiting gross margin was favorable foreign exchange and lower manufacturing
costs due to improved manufacturing processes. These benefits were offset by an
unfavorable sales mix, as a larger proportion of products sold were in world
markets with lower gross margins.
Research and development (R&D) expenses were $6.2 million or 5.0% of net sales
in the first quarter of fiscal year 2007 versus $6.5 million or 5.7% of net
sales in the first quarter of fiscal year 2006. This decrease in R&D was
primarily due to a reduction in consulting fees related to the temporarily
suspended NEOCARE(R) product line and decreased spending on the CorAide(TM)
continuous flow ventricular assist system. The Company presently expects to
submit a new 510(k) pre-market notification to the Food and Drug Administration
(FDA) for a modified version of the NEO PICC(R) Catheter during the second
quarter of fiscal 2007 and has decided to delay the resumption of production of
the NEOCARE(R) product line, including the NEO PICC(R) Catheters, until it
receives FDA marketing clearance for these modifications.
Selling, general and administrative (SG&A) expenses were $33.8 million in the
first quarter of fiscal year 2007, or 27.5% of net sales, compared to $32.6
million or 28.7% of net sales in the first quarter of the prior fiscal year.
Increasing SG&A expenses in the first quarter were $1.5 million of expenses and
intangible asset amortization related to the Company's newly established Arrow
U.K. operation. Offsetting this increase in SG&A expenses were fewer medical
insurance claims, lower Project Operational Excellence expenses and corporate
marketing expenditures.
As a result of the foregoing, operating income for the first fiscal quarter
increased 26.9% to $21.7 million, or 17.7% of net sales, versus $17.1 million,
or 15.0% of net sales, in the first quarter of the prior fiscal year.
The Company's effective income tax rate for the first quarter of fiscal year
2007 was 36.0%. Because the U.S. R&D tax credit was extended by Congress after
the close of the Company's first quarter on November 30, 2006, the effective tax
rate for the first quarter excluded any benefit from this credit. The Company's
effective tax rate for the full fiscal year 2007 of 35.0% will include R&D tax
credits, beginning in its second fiscal quarter. The impact of the R&D tax
credits for the full fiscal year reduced the effective tax rate by 1.3%.
Net income for the first quarter of fiscal year 2007 increased 22.9% and was
$14.5 million or 11.8% of net sales compared with $11.8 million or 10.4% of net
sales in the prior fiscal year's first quarter. Diluted earnings per share were
$0.32 in this year's first fiscal quarter versus $0.26 in the prior fiscal
year's first quarter, an increase of 23.1%.
Commenting on the first quarter, Arrow Chairman and CEO, Carl G. Anderson, Jr.,
said, "The results of the first quarter underscore the benefits of the
improvements we made in the Company's operational infrastructure. Furthermore,
as we have completed these programs, the Company has been able to shift
technical resources back to product development. Our accomplishments include
initiating the marketing of two important new products -- the AutoCAT2 WAVE(R)
intra aortic balloon pump and the Pressure Injectable PICC (Peripherally
Inserted Central Catheter), the completion of the major elements of the
manufacturing capital investment program, and continued progress in Project
Operational Excellence.
"In August 2006, the Company began marketing the AutoCAT2 WAVE(R) intra aortic
balloon pump with the next generation operating system. As previously reported,
this new product was rated highly during the in-market evaluation conducted
after receiving 510(k) marketing clearance from the FDA. While this product has
a long selling cycle as it requires a capital investment by hospital customers,
the early results have been very encouraging -- cardiac assist sales grew 17%
during the first quarter -- the second consecutive record quarter for this part
of our Cardiac Care product category.
"In early November, we began shipments of our new Pressure Injectable PICC to
customers in the United States. While we expect this product will have a greater
impact in the second quarter, early results have been encouraging. We expect to
introduce this product to customers in several other international markets in
the second half of this fiscal year. Sales of the Maximal Barrier Central Venous
Access Kit, which was introduced in spring 2006, continue to generate
incremental sales as additional hospitals continue to adopt this new format.
"The first quarter confirmed that the investment in the Company's operational
infrastructure is delivering significant improvements in customer service with
line fill rates above 90%. Also, we are seeing improvements in yields on a
number of key manufacturing processes with a consequent reduction in scrap and
inefficiencies. Over the next several quarters we expect these improvements to
continue to build upon our customers' confidence in the Company's ability to
deliver excellent customer service. Importantly, these improvements in operating
efficiencies are beginning to have a very positive impact on manufacturing costs
and continue to support the Company's goal of achieving a 55% gross margin.
"Looking ahead to next quarter, we expect continued progress in operational
performance, coupled with an acceleration of revenue growth as our recently
launched new products provide incremental sales growth."
2
U.S. Sales
- ----------
Arrow's U.S. sales for the first quarter of fiscal year 2007, which represented
59.8% of total net sales, increased 5.0% to $73.5 million from $70.0 million in
the first quarter of fiscal year 2006 due primarily to increased sales of
central venous catheters, dialysis access catheters, regional anesthesia
products, and intra-aortic balloons and pumps. Sales of non-Arrow U.S.
distributed products declined from the prior year first quarter. The Company
believes the sales growth demonstrated in the first quarter of fiscal year 2007
in the sales of Arrow products in the U.S. of 5.6% will continue as a result of
new product offerings containing infection protection features.
International Sales
- -------------------
Arrow's international sales in the first quarter of fiscal year 2007 increased
13.3% to $49.4 million from $43.6 million in the first quarter and represented
40.2% of total net sales. The weakness of the U.S. dollar compared to the same
period of last year increased total international sales by $0.7 million and
increased the percentage change in international sales by 1.6%.
European sales growth for the first quarter of fiscal year 2007 was 32.1%, or
25.1% under constant exchange rates, due in large part to $1.3 million of
incremental sales in the United Kingdom, where the Company began direct selling
in April 2006. These incremental sales by Arrow U.K. increased the percentage
change in international sales for the first quarter by 3.0%. European sales
growth was strong in central venous access, hemodynamic monitoring and cardiac
assist products. Asia/International sales in the first quarter of fiscal year
2007 decreased 2.1%. Decreased sales in the Far East and Africa were offset by
increased sales in International Americas. Sales in Japan declined from the
prior year due to lower prices and unfavorable exchange rates. Unfavorable
exchange rates in South Africa reduced net sales in that country below prior
year amounts. Purchases by Arrow's Chinese distributor were lower than in the
comparable 2006 fiscal year quarter and reduced the percentage change in
international sales for the first quarter by 2.5%. Contributing to these sales
declines were a reduction in that distributor's safety stock levels of central
venous catheters coupled with their expectation of less weather related delays
in transit times this year. Because the mix of sales by our Chinese distributor
is shifting from single lumen catheters without the ARROWg+ard(R) antiseptic
surface treatment to ARROWg+ard Blue(R) double lumen catheters, which have a
shorter shelf life, they reduced their purchases of both products this quarter
when compared to the prior year in order to manage their safety stocks.
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The table below shows Arrow geographical sales for the first quarter ended
November 30, 2006, with comparisons to the same prior year period.
First Quarter
-------------
Geographical Sales FY07 FY06 % %
---- ---- Change Change at
(Dollars in millions) ------ Constant
Exchange
RATES (1)
----------
United States $71.7 $67.9 5.6 % 5.6 %
------ ------
Europe 25.9 19.6 32.1 % 25.1 %
Asia/International 23.5 24.0 (2.1)% (0.4)%
------ ------
Subtotal International Sales 49.4 43.6 13.3 % 11.7 %
------ ------
Subtotal Arrow Products $121.1 $111.5 8.6 % 7.9 %
Non-Arrow U.S. distributed products (2) 1.8 2.1 (14.3)% (14.3)%
------ ------
Total Company Sales $122.9 $113.6 8.2 % 7.6 %
====== ======
1) Percentage change at constant exchange rates are calculated by
dividing first quarter fiscal year 2007 sales by first quarter
fiscal year 2006 local currency sales translated at first
quarter fiscal year 2007 exchange rates.
2) 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 critical care product platforms and cardiac
care products for the first quarter ended November 30, 2006, with comparisons to
the same prior year period.
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First Quarter
-------------
Sales by Product Platforms FY07 FY06 % %
---- ---- Change Change at
(Dollars in millions) ------ Constant
Exchange
RATES (1)
----------
Central Venous Catheters $63.2 $58.7 7.7 % 7.3 %
Specialty Catheters 39.3 36.1 8.9 % 8.0 %
Non-Arrow U.S. distributed products (2) 1.8 2.1 (14.3)% (14.3)%
------ ------
Subtotal Critical Care $104.3 $96.9 7.6 % 7.1 %
Cardiac Care 18.6 16.7 11.4 % 10.1 %
------ ------
TOTAL $122.9 $113.6 8.2 % 7.6 %
====== ======
1) See footnote 1 to the above table.
2) See footnote 2 to the above table.
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Research & Development Tax Credit
- ---------------------------------
On December 9, 2006, the U.S. Congress extended the R&D tax credit and, on
December 20, 2006, the President signed the Tax Relief and Health Care Act of
2006, thereby extending the R&D tax credit from January 1, 2006 to December 31,
2007. Because this legislation was not effective at November 30, 2006, however,
the Company did not reflect any benefit from the R&D tax credit in its provision
for income taxes for the first quarter of fiscal year 2007. Now that the R&D tax
credit has been extended, the Company will reflect the benefit from the R&D tax
credit, retroactive to January 1, 2006, in its income tax provisions for the
fiscal year ending August 31, 2007, beginning with the realization in its second
fiscal quarter of the retroactive R&D tax benefits.
Sales and E.P.S. Targets
- ------------------------
For the full fiscal year ending August 31, 2007, the Company continues to target
net sales of $515 million to $525 million at exchange rates in effect at the end
of December 2006. The Company continues to target diluted earnings per share in
a range of $1.40 to $1.48 for the full fiscal year 2007, with an effective tax
rate of 35.0%.
The targets for the full fiscal year 2007 reflect assumptions regarding growth
based on the introduction of new products which the Company believes are
reasonable, but cannot assure will occur as presently anticipated.
Balance Sheet and Cash Flow
- ---------------------------
Cash and Marketable Securities on November 30, 2006 were $172.4 million, up from
$115.5 million at November 30, 2005, while short-term debt of $74.2 million
increased by $45.6 million from the prior fiscal year level. The amount of days'
sales outstanding increased to 75 days at November 30, 2006 from 73 days at
November 30, 2005. Inventory turns of 2.4 times per year remained relatively
consistent compared to prior year levels.
Net cash provided by operating activities for the quarter was $27.9 million
compared to $5.2 million in the prior fiscal year quarter. Reducing last year's
cash flow were payments to fund the Company's pension plans of $8.8 million.
Increasing this year's cash flow were increases in liabilities of $7.2 million
and the receipt of $3.5 million with respect to the previously disclosed
settlement of the Japanese transfer pricing assessment. Operating income, plus
depreciation and amortization, increased to $29.0 million for the first quarter
of fiscal year 2007 from $23.5 million in the same quarter of the prior fiscal
year. Depreciation and amortization expenses were $7.3 million and capital
expenditures were $9.6 million for the quarter ended November 30, 2006.
Conference Call and Webcast
- ---------------------------
The Company will hold a conference call to discuss its first quarter fiscal year
2007 results today, January 4, 2007, at 4:30 pm Eastern Time. The call and
simultaneous webcast can be accessed by dialing (800)737-9483 in the U.S. and
Canada, and (706)679-7371 for international and local callers, using ID 4878721,
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, and other health care providers.
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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 Global Select MarketSM 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, 2006, as amended, 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, as well as pressures on pricing
resulting from consolidation within the medical device industry; (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 relating to interruptions in the supply of or
increases in the price of essential raw materials or components; (viii)
dependence upon strong relationships with physicians for research, development,
marketing and sale of many of the Company's products; (ix) risks associated with
the Company's use of derivative financial instruments; and (x) dependence on the
continued service of key members of the Company's management.
7
ARROW INTERNATIONAL, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
November 30, November 30,
CONSOLIDATED STATEMENTS OF INCOME DATA: 2006 2005
--------- ---------
Net sales $ 122,853 $ 113,644
Cost of goods sold 61,071 57,487
--------- ---------
Gross profit 61,782 56,157
Operating expenses:
Research and development 6,227 6,451
Selling, general and administrative 33,795 32,585
Restructuring charges 20 13
--------- ---------
Total operating expenses 40,042 39,049
Operating income 21,740 17,108
Interest, net (1,107) (429)
Other (income) expenses, net 212 12
--------- ---------
Income before income taxes 22,635 17,525
Provision for income taxes 8,149 5,695
--------- ---------
Net income $ 14,486 $ 11,830
========= =========
Basic earnings per common share $ 0.32 $ 0.26
========= =========
Diluted earnings per common share $ 0.32 $ 0.26
========= =========
Weighted average shares used in computing
basic earnings per common share 44,963 44,646
Weighted average shares used in computing
diluted earnings per common share 45,513 45,168
November 30, November 30,
CONSOLIDATED BALANCE SHEET 2006 2005
--------- ---------
ASSETS
Cash $153,233 $148,576
Marketable securities 19,144 9,783
Receivables (net) 101,225 96,937
Inventories 106,226 102,901
Prepaid expenses and other 31,544 31,023
-------- --------
Total current assets 411,372 389,220
Property, plant and equipment (net) 178,766 173,853
Other assets 132,064 134,364
-------- --------
Total assets $722,202 $697,437
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 73,262 $ 70,979
Other current liabilities 75,127 66,113
Current maturities of long-term debt 984 995
Other liabilities 33,719 33,802
-------- --------
Total liabilities 183,092 171,889
Total shareholders' equity 539,110 525,548
-------- --------
Total liabilities and shareholders' equity $722,202 $697,437
======== ========
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