Net earnings increase 22.9% on an 8.2% increase in net sales
READING, Pa., Jan. 4 /PRNewswire-FirstCall/ -- 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."
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. The table
below shows Arrow geographical sales for the first quarter ended
November 30, 2006, with comparisons to the same prior year period.
Geographical Sales First Quarter (Dollars in millions) FY07 FY06 %
% Change Change at 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. Sales by Product Platforms First Quarter (Dollars in
millions) FY07 FY06 % % Change Change at 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. 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. 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 Market(SM) 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. Arrow International, Inc. (In
thousands, except per share amounts) (Unaudited) Three Months Ended
Consolidated Statements of Income November 30, November 30, 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, August 31, 2006 2006 Consolidated
Balance Sheet: 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 DATASOURCE: Arrow International, Inc. CONTACT: Frederick
J. Hirt, CFO of Arrow International, +1-610-478-3117 Web site:
http://www.arrowintl.com/
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