Net earnings increased 13.4% in spite of increase in tax rate;
earnings before income taxes increased 20.9% READING, Pa., March 27
/PRNewswire-FirstCall/ -- Arrow International, Inc. (NASDAQ:ARRO)
today reported results for its second fiscal quarter and six months
ended February 28, 2007. Second Quarter Net sales for the second
quarter of fiscal year 2007 increased 7.6% to $125.4 million from
$116.5 million in the second quarter of fiscal year 2006. Gross
profit increased by 11.4% to $63.3 million in the second quarter of
fiscal year 2007 from $56.8 million in the prior fiscal year's
second quarter. Gross margin increased to 50.5% for the second
quarter of fiscal year 2007 compared to 48.8% a year ago. Lower
manufacturing costs due to improved manufacturing processes and
$1.2 million of incremental gross profit from sales by Arrow U.K.,
the operation established in April 2006 when the Company purchased
certain assets of its former U.K. distributor, were partially
offset by changes in product and geographic mix as a larger
proportion of products were sold at lower gross margins. Research
and development (R&D) expenses were $7.2 million or 5.7% of net
sales in the second quarter of fiscal year 2007 versus $7.1 million
or 6.1% of net sales in the same quarter of fiscal year 2006.
Selling, general and administrative (SG&A) expenses were $34.4
million in the second quarter of fiscal year 2007, or 27.4% of net
sales, compared to $31.9 million, or 27.4% of net sales, in the
second quarter of the prior fiscal year. SG&A expenses in the
second quarter increased due, in part, to $1.4 million of expenses
and intangible asset amortization related to the Company's recently
established Arrow U.K. operation. As a result of the foregoing,
operating income for the second fiscal quarter increased 19.3% to
$21.6 million, or 17.2% of net sales, versus $18.1 million, or
15.5% of net sales, in the second quarter of the prior fiscal year.
Income before income taxes for the second fiscal quarter increased
20.9% to $22.6 million, or 18.0% of net sales, versus $18.7
million, or 16.1% of net sales, in the second quarter of the prior
fiscal year. The Company's effective income tax rate for the second
quarter of fiscal year 2007 was 36.0%. Because the 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
second quarter includes 14 months of tax benefit from this credit
(from January 1, 2006 until February 28, 2007). However, a recent
state income tax assessment offset this R&D tax benefit. The
Company anticipates its effective tax rate for fiscal year 2007
will be 35.5%. Net income for the second quarter of fiscal year
2007 increased 13.4% and was $14.4 million, or 11.5% of net sales,
compared with $12.7 million, or 10.9% of net sales, in the prior
fiscal year's second quarter. Diluted earnings per share were $0.32
in this year's second fiscal quarter versus $0.28 in the prior
fiscal year's second quarter, an increase of 14.3%. Six Months For
the six-month period ended February 28, 2007, Arrow's net sales
were $248.3 million, an increase of 7.9% compared to $230.1 million
in the same period of the prior fiscal year. Operating income for
the first six months of fiscal year 2007 was $43.3 million compared
to $35.2 for the prior fiscal year. As a result, net income
increased 18.0% to $28.9 million compared to $24.5 million in the
prior fiscal year period, and diluted earnings per share were $0.64
compared to $0.54 in the same period of the prior year. Everett, MA
Restructuring Included in the second quarter of fiscal year 2007
results was a restructuring charge of $0.2 million related to the
Company's plan to transfer all intra-aortic balloon catheter
manufacturing from our Everett, MA facility into other existing
manufacturing facilities in Hradec Kralove, Czech Republic in the
next six to nine months. This decision supports Arrow's operating
principles for Quality, Safety, Customer Service and Cost,
simplifying manufacturing processes, and reducing manufacturing
costs for the intra-aortic balloon catheter. The Company will
establish a new Electrical and Instrumentation R&D Center and
balloon pump manufacturing facility in the Greater Boston area.
CorAide(TM) The Company has decided to seek an alternative method
for the development of the CorAide(TM), the Company's left
ventricular assist device licensed from the Cleveland Clinic
Foundation (CCF). Over the next several months, Arrow plans to
limit its active involvement in the development of the CorAide(TM)
and, in concert with CCF, will seek an alternative arrangement
intended to bring this technology to market. Comments by Chairman
and CEO Commenting on the second quarter, Arrow Chairman and CEO,
Carl G. Anderson, Jr. said, "The results for the quarter reflect
Arrow's progress in growing revenue and improving profitability.
Importantly, we remain on track to deliver annual sales and
earnings consistent with our sales and earnings targets. Sales of
the new products we launched in calendar 2006 are continuing to
generate growth, and the investments we have made in the Company's
infrastructure are having a positive impact on operations and
profitability. "As previously reported, about ten months ago we
began selling our new Maximal Barrier Central Venous Access Kit for
our central venous access product line in the United States. This
product upgrade not only addresses the growing interest among
hospital customers in reducing catheter related blood stream
infections among hospital customers, it also contributes to revenue
growth in Arrow's central venous catheter product line. Many of the
early adopters are among our largest customers and within those we
have seen significant year over year growth as the new kits are
expanded within individual customer systems. Our U.S. sales force
is focused on rapidly expanding this concept both with existing
customers and future customers. We believe the opportunity for
providing both healthcare worker and patient safety is viable
beyond the U.S. market. This month we are launching a version of
the Maximal Barrier Central Venous Access Kit in Japan. "In the
second quarter we added another important element to our Central
Venous Access Kits with the launch of the Hi-Lite Orange(TM) Tinted
ChloraPrep(R) exclusivity agreement with Enturia, Inc. announced in
February 2007 at the Society of Critical Care Medicine meeting.
This agreement demonstrates our commitment to provide the latest
design and technology features in our Central Venous Access Kits to
reduce hospital related bloodstream infections, saving both lives
and money. By moving from a clear color to an orange color
solution, physicians can better insure preparation of the catheter
insertion site. "The new Arrow Pressure Injectable PICC
(Peripherally Inserted Central Catheter) launched late in the first
quarter of fiscal year 2007 continues to gain acceptance in the
market and attract new customers. This product is offered in a
similar configuration to the Maximal Barrier Central Venous Access
Kit, providing inserters with the safety components consistent with
Centers for Disease Control guidelines. "Arrow's dialysis
catheters, both acute and chronic are experiencing strong growth,
up 14% fiscal year to date, while our overall dialysis product line
is growing by 11%. An aging population and the prevalence of
diseases that can lead to kidney failure suggest increasing demand
for dialysis-related products in the future. We believe Arrow is
well-positioned to meet the clinical requirements for this growing
critical area with our current line up of dialysis access products
and our pipeline of future offerings. "Our sales in the field of
Regional Anesthesia are also experiencing solid growth, up 14%
fiscal year to date, due to increased demand for local rather than
general pain suppression. While the peripheral nerve block market
is currently small relative to Arrow's other markets, it is among
the faster growing lines of business in which we compete. We
believe that practitioners and patients alike will increasingly
seek out the benefits of targeted pain relief, and that we are
well-positioned to satisfy their needs with our line of regional
anesthesia products. "Cardiac Care sales were up 1.8% as the
increase in cardiac assist sales from outside the U.S. was
partially offset by a decline in sales of Super Arrow-Flex(R) and
diagnostic catheters. Second quarter sales were impacted by the
timing of intra-aortic pump orders. For the year our core
intra-aortic balloon sales including both balloons and pumps
worldwide were up 11%. In the second quarter catheter units and
revenue grew by 10%, and we believe this is a good indicator of
market acceptance of our new AutoCAT(R)2Wave(TM) and FiberOptix(TM)
catheter. We are also encouraged with the response to our new
product release and ProActive CounterPulsation(TM) campaign in our
Europe and Asia/International markets." 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 based
on exchange rates in effect at the end of February 2007 and diluted
earnings per share in a range of $1.40 to $1.48 for the full fiscal
year 2007. The targets for the full fiscal year 2007 reflect
assumptions regarding growth based on the introduction of new
products that the Company believes are reasonable, but cannot
assure will occur as presently anticipated. Balance Sheet and Cash
Flow Cash and Marketable Securities on February 28, 2007 were
$172.7 million, up from $122.9 million at February 28, 2006, while
short-term debt of $69.9 million increased by $36.3 million from
the prior fiscal year level. The amount of days' sales outstanding
increased to 75 days at February 28, 2007 from 72 days at February
28, 2006. Inventory turns of 2.4 times per year remained relatively
consistent compared to prior year levels. Operating income, plus
depreciation and amortization, increased to $57.7 million for the
first half of fiscal year 2007 from $48.3 million in the same
period of the prior fiscal year. Depreciation and amortization
expenses were $14.4 million and capital expenditures were $16.2
million for the six months ended February 28, 2007. Sales Tables
The table below shows sales of Arrow critical care product
platforms and cardiac care products for the second quarter and six
months ended February 28, 2007, with comparisons to the same prior
year periods. Second Quarter Six Months % % % % Sales by FY07 FY06
Change Change FY07 FY06 Change Change Product at at Platforms
Constant Constant (Dollars in Exchange Exchange millions) Rates
Rates (1) (2) Central Venous $66.5 $60.9 9.2 % 8.3 % $129.7 $119.6
8.4 % 7.8 % Catheters Specialty 39.7 36.6 8.5 % 7.6 % 79.0 72.7 8.7
% 7.8 % Catheters Non-Arrow U.S. 1.8 1.9 (5.3)% (5.3)% 3.6 4.0
(10.0)%(10.0)% distributed products (3) Subtotal $108.0 $99.4 8.7 %
7.8 % $212.3 $196.3 8.2 % 7.4 % Critical Care Cardiac Care 17.4
17.1 1.8 % 0.6 % 36.0 33.8 6.5 % 5.3 % TOTAL $125.4 $116.5 7.6 %
6.7 % $248.3 $230.1 7.9 % 7.2 % 1) Percentage change at constant
exchange rates are calculated by dividing second quarter fiscal
year 2007 sales by second quarter fiscal year 2006 local currency
sales translated at second quarter fiscal year 2007 exchange rates.
2) Percentage change at constant exchange rates are calculated by
dividing six-month fiscal year 2007 sales by six-month fiscal year
2006 local currency sales translated at six-month fiscal year 2007
exchange rates. 3) The Company purchased its New York area
distributor in September 2002 and has continued to distribute
non-Arrow products through this subsidiary. The table below shows
Arrow geographical sales for the second quarter and six months
ended February 28, 2007, with comparisons to the same prior year
periods. The weakness of the U.S. dollar compared to same periods
of last year increased the percentage change in sales by 0.9% and
0.7% for the second quarter and six month periods, respectively.
Second Quarter Six Months % % % % Geographical FY07 FY06 Change
Change FY07 FY06 Change Change Sales at at (Dollars in Constant
Constant millions) Exchange Exchange Rates Rates (1) (2) United
States $73.2 $70.1 4.4% 4.4% $144.9 $138.0 5.0% 5.0% Europe 27.2
23.2 17.2% 9.2% 53.1 42.8 24.1% 16.5% Asia/ Interna- tional 23.2
21.3 8.9% 12.6% 46.7 45.3 3.1% 5.7% Subtotal Interna- tional Sales
50.4 44.5 13.3% 11.1% 99.8 88.1 13.3% 11.4% Subtotal Arrow Products
$123.6 $114.6 7.9% 6.9% $244.7 $226.1 8.2% 7.4% Non-Arrow U.S.
distributed products (3) 1.8 1.9 (5.3)% (5.3)% 3.6 4.0 (10.0)%
(10.0)% Total Company Sales $125.4 $116.5 7.6% 6.7% $248.3 $230.1
7.9% 7.2% 1) Percentage change at constant exchange rates are
calculated by dividing second quarter fiscal year 2007 sales by
second quarter fiscal year 2006 local currency sales translated at
second quarter fiscal year 2007 exchange rates. 2) Percentage
change at constant exchange rates are calculated by dividing
six-month fiscal year 2007 sales by six-month fiscal year 2006
local currency sales translated at six-month fiscal year 2007
exchange rates. 3) The Company purchased its New York area
distributor in September 2002 and has continued to distribute
non-Arrow products through this subsidiary. Conference Call and
Webcast The Company will hold a conference call to discuss its
second quarter fiscal year 2007 results today, March 27, 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
3298471, 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
Six Months Ended Consolidated Statements of Feb. 28, Feb. 28, Feb.
28, Feb. 28, Income Data: 2007 2006 2007 2006 Net sales $125,469
$116,504 $248,322 $230,148 Cost of goods sold 62,137 59,715 123,208
117,202 Gross profit 63,332 56,789 125,114 112,946 Operating
expenses: Research and development 7,123 7,058 13,350 13,509
Selling, general and administrative 34,409 31,894 68,204 64,479
Restructuring charges 263 (269) 283 (256) Total operating expenses
41,795 38,683 81,837 77,732 Operating income 21,537 18,106 43,277
35,214 Interest, net (1,222) (718) (2,329) (1,147) Other (income)
expenses, net 165 106 377 118 Income before income taxes 22,594
18,718 45,229 36,243 Provision for income taxes 8,133 6,084 16,282
11,779 Net income $14,461 $12,634 $28,947 $24,464 Basic earnings
per common share $0.32 $0.29 $0.64 $0.55 Diluted earnings per
common share $0.32 $0.28 $0.64 $0.54 Weighted average shares used
in computing basic earnings per common share 45,080 44,729 45,021
44,688 Weighted average shares used in computing diluted earnings
per common share 45,619 45,276 45,566 45,222 February 28, August
31, Consolidated Balance Sheet: 2007 2006 ASSETS Cash $149,432
$148,576 Marketable securities 23,281 9,783 Receivables (net)
102,773 96,937 Inventories 107,256 102,901 Prepaid expenses and
other 29,072 31,023 Total current assets 411,814 389,220 Property,
plant and equipment (net) 178,405 173,853 Other assets 129,724
134,364 Total assets $719,943 $697,437 LIABILITIES AND
SHAREHOLDERS' EQUITY Notes payable and lines of credit $68,955
$70,979 Other current liabilities 72,071 66,113 Current maturities
of long-term debt 979 995 Other liabilities 32,580 33,802 Total
liabilities 174,585 171,889 Total shareholders' equity 545,358
525,548 Total liabilities and shareholders' equity $719,943
$697,437 DATASOURCE: Arrow International, Inc. CONTACT: Frederick
J. Hirt, CFO of Arrow International, Inc., +1-610-478-3117 Web
site: http://www.arrowintl.com/
http://www.arrowintl.com/presentations
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