ARRO Arrow Intl (MM)

READING, Pa., June 28 /PRNewswire-FirstCall/ -- Arrow International, Inc. (NASDAQ:ARRO) today reported results for its third fiscal quarter and nine months ended May 31, 2007. Third Quarter Net sales for the third quarter of fiscal year 2007 increased 6.7% to $130.5 million from $122.3 million in the third quarter of fiscal year 2006. Sales of critical care products increased by 7.0%, primarily due to stronger sales of central venous catheters and specialty catheters, especially arterial, epidural and peripheral nerve block products. Sales of cardiac care products were up 5.0% as a result of increased international sales of intra- aortic balloons and pumps, including sales of the latest version of the AutoCAT(R)2Wave(TM) pump and associated FiberOptix(TM) catheter system. U.S. sales increased by 5.2% due primarily to increased sales of specialty and central venous catheters. International sales increased by 9.0% principally as a result of increased sales of central venous catheters, specialty catheters, intra-aortic balloon pumps and catheters, a $1.3 million favorable foreign exchange impact and $0.6 million from sales by Arrow U.K., the Company's United Kingdom (U.K.) subsidiary, due to higher sales prices resulting from direct selling in this region following the acquisition by the Company in April 2006 of certain assets of its former U.K. distributor. Gross profit increased by 11.8% to $66.2 million from $59.2 million in the prior fiscal year's third quarter, which included a charge of $1.0 million for the step-up in cost basis of inventories acquired as part of Arrow's purchase of certain assets of its former U.K. distributor in April 2006. Gross margin increased to 50.7% for the third quarter of fiscal year 2007 compared to 48.5% a year ago. Lower manufacturing costs resulting from improved manufacturing processes, and $0.6 million of incremental gross profit from sales by Arrow U.K. 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 $7.0 million or 5.4% of net sales in the third quarter of fiscal year 2007 versus $7.2 million or 5.9% of net sales in the same quarter of fiscal year 2006. Included in the third quarter of fiscal year 2007 were R&D expenses for the write-off of assets related to CorAide(TM), the Company's left ventricular assist device licensed from the Cleveland Clinic Foundation, of $0.5 million, or approximately $0.01 diluted earnings per share, primarily related to the property, plant and equipment that did not have an alternative future use based upon the Company's previously reported decision to seek an alternative approach for the development of CorAide(TM). In addition to the aforementioned write-off, R&D expenses related to CorAide(TM) decreased by approximately $0.5 million when compared to the third quarter a year ago. Selling, general and administrative (SG&A) expenses were $35.8 million in the third quarter of fiscal year 2007, or 27.4% of net sales, compared to $32.6 million, or 26.7% of net sales, in the third quarter of the prior fiscal year. This increase in SG&A expenses was due in part to $0.6 million of incremental operating expenses related to the Company's Arrow U.K. operation and $0.9 million of legal expenses which includes patent litigation involving the lawsuit against Datascope Corp. in which the Company and The Johns Hopkins University were awarded a favorable judgment on June 15, 2007. During the third quarter of fiscal year 2007 the Company incurred a charge of $0.8 million for expenses related to its previously announced decision to review strategic alternatives aimed at enhancing shareholder value. This charge reduced diluted earnings per share by approximately $0.01. Also included in the third quarter of fiscal year 2007 results was a restructuring charge of $0.4 million related primarily to the severance cost associated with the Company's previously announced plan to transfer all intra-aortic balloon catheter manufacturing from its Everett, MA facility into existing manufacturing facilities in Hradec Relive, Czech Republic over the next six months. As a result of the foregoing, operating income for the third fiscal quarter increased 14.5% to $22.1 million, or 16.9% of net sales, versus $19.3 million, or 15.8% of net sales, in the third quarter of the prior fiscal year. Income before income taxes for the third fiscal quarter increased 11.3% to $22.7 million, or 17.4% of net sales, versus $20.4 million, or 16.7% of net sales, in the third quarter of the prior fiscal year. Income before tax for the third quarter was negatively impacted by a loss of approximately $0.3 million, or $0.005 diluted earnings per share, related to an unhedged foreign currency position resulting from a decision to delay the refinancing of short- term, Czech koruna-denominated indebtedness. The Company's effective income tax rate for the third quarter of fiscal year 2007 was 36% compared to 32% in the comparable prior quarter. As a result of the increased income before tax and higher income tax rate, the provision for income taxes in the third quarter of fiscal year 2007 was $8.2 million compared to $6.5 million in the prior fiscal year quarter. The Company anticipates its effective tax rate for the full fiscal year 2007 will be 36%. Net income for the third quarter of fiscal year 2007 increased 4.3% and was $14.5 million, or 11.1% of net sales, compared with $13.9 million, or 11.4% of net sales, in the prior fiscal year's third quarter. Diluted earnings per share were $0.31 in this year's third fiscal quarter compared to $0.31 in the prior fiscal year's third quarter. Nine Months For the nine-month period ended May 31, 2007, Arrow's net sales were $378.8 million, an increase of 7.5% compared to $352.4 million in the same period of the prior fiscal year. Operating income for the first nine months of fiscal year 2007 was $65.4 million compared to $54.5 for the prior fiscal year. As a result, net income increased 13.3% to $43.5 million compared to $38.4 million in the prior fiscal year period, and diluted earnings per share were $0.95 compared to $0.85 in the same period of the prior year. Comments by President and CEO Commenting on the third quarter, Arrow interim President and CEO, Philip B. Fleck said, "Arrow's sales growth was led once again by our sales in Europe, which grew 12.8% at constant exchange rates. Approximately 240 basis points of that increase was due to our selling direct in the U.K., and we experienced strong growth in our central venous catheters, specialty catheters and cardiac assist products. "Our results for the U.S. benefited from sales of new products including the Maximal Barrier Central Venous Access Kit and the Arrow Pressure Injectable PICC (Peripherally Inserted Central Catheter), which continue to be well received by our customers. The decrease in sales in constant dollars of 1.3% in Asia/International was due primarily to the impact of a decline in sales volume and reimbursement for central venous catheters in Japan, and a slower than anticipated expansion of our Chinese distributor's sales organization. "Arrow's operating income for the quarter benefited from an improvement in gross margin. However, our operating expenses increased as the result of charges we took from expenses related to the process of exploring the Company's strategic alternatives and higher legal expenses due to litigation to defend certain patent rights relating to some of the Company's products." Sales and E.P.S. Targets For the full fiscal year ending August 31, 2007, the Company is targeting net sales of $512 million to $515 million. For the fourth quarter of fiscal year 2007, the Company is targeting net sales of $133 million to $136 million based on exchange rates in effect at the end of May 2007 and diluted earnings per share of $0.36 to $0.39 before charges for expenses related to the strategic alternatives valuation process and severance costs for former executives. Excluding such special charges and fourth quarter severance costs, the full year targets for diluted earnings per share are $1.32 to $1.35. The targets for the full fiscal year 2007 reflect assumptions regarding growth that the Company believes are reasonable, but cannot assure will occur as presently anticipated. Balance Sheet and Cash Flow Cash and Marketable Securities on May 31, 2007 were $173.4 million, up from $133.3 million at May 31, 2006, while short-term debt of $62.7 million increased by $11.4 million from the prior fiscal year level. The amount of days sales outstanding increased to 75 days at May 31, 2007 from 72 days at May 31, 2006. Inventory turns of 2.3 times per year remained relatively consistent compared to prior year levels. Operating income, plus depreciation and amortization, increased to $86.6 million for the first nine months of fiscal year 2007 from $74.4 million in the same period of the prior fiscal year. Depreciation and amortization expenses were $21.2 million and capital expenditures were approximately $23.7 million for the nine months ended May 31, 2007. Sales Tables The table below shows sales of Arrow critical care product platforms and cardiac care products for the third quarter and nine months ended May 31, 2007, with comparisons to the same prior year periods. Third Quarter Sales by Product FY07 FY06 % %Change Platforms Change at (Dollars in millions) Constant Exchange Rates(1) Central Venous Catheters $66.9 $63.2 5.9% 4.7% Specialty Catheters 42.7 39.2 8.9% 8.1% Non-Arrow U.S. distributed products(3) 1.9 1.8 5.6% 5.6% Subtotal Critical Care $111.5 $104.2 7.0% 6.1% Cardiac Care 19.0 18.1 5.0% 2.7% TOTAL $130.5 $122.3 6.7% 5.6% Nine Months Sales by Product FY07 FY06 % %Change Platforms Change at (Dollars in millions) Constant Exchange Rates(2) Central Venous Catheters $196.6 $182.8 7.6% 6.8% Specialty Catheters 121.7 111.9 8.8% 7.9% Non-Arrow U.S. distributed products(3) 5.5 5.8 (5.2)% (5.2)% Subtotal Critical Care $323.8 $300.5 7.8% 7.0% Cardiac Care 55.0 51.9 6.0% 4.4% TOTAL $378.8 $352.4 7.5% 6.6% 1) Percentage change at constant exchange rates are calculated by dividing third quarter fiscal year 2007 sales by third quarter fiscal year 2006 local currency sales translated at third quarter fiscal year 2007 exchange rates. 2) Percentage change at constant exchange rates are calculated by dividing nine-month fiscal year 2007 sales by nine-month fiscal year 2006 local currency sales translated at nine-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 third quarter and nine months ended May 31, 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 1.1% and 0.9% for the third quarter and nine month periods, respectively. Third Quarter Geographical Sales FY07 FY06 % %Change (Dollars in millions) Change at Constant Exchange Rates(1) United States $75.4 $71.7 5.2% 5.2% Europe 30.0 24.6 22.0% 12.8% Asia/International 23.2 24.2 (4.1)% (1.3)% Subtotal International Sales 53.2 48.8 9.0% 6.3% Subtotal Arrow Products $128.6 $120.5 6.7% 5.6% Non-Arrow U.S. distributed products(3) 1.9 1.8 5.6% 5.6% Total Company Sales $130.5 $122.3 6.7% 5.6% Nine Months Geographical Sales FY07 FY06 % %Change (Dollars in millions) Change at Constant Exchange Rates(2) United States $220.3 $209.7 5.1% 5.1% Europe 83.1 67.4 23.3% 15.3% Asia/International 69.9 69.5 0.6% 3.1% Subtotal International Sales 153.0 136.9 11.8% 9.6% Subtotal Arrow Products $373.3 $346.6 7.7% 6.8% Non-Arrow U.S. distributed products(3) 5.5 5.8 (5.2)% (5.2)% Total Company Sales $378.8 $352.4 7.5 % 6.6% 1) Percentage change at constant exchange rates are calculated by dividing third quarter fiscal year 2007 sales by third quarter fiscal year 2006 local currency sales translated at third quarter fiscal year 2007 exchange rates. 2) Percentage change at constant exchange rates are calculated by dividing nine-month fiscal year 2007 sales by nine-month fiscal year 2006 local currency sales translated at nine-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 third quarter fiscal year 2007 results today, June 28, 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 4875878, 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 Nine Months Ended Consolidated Statements of Income Data: May 31, May 31, May 31, May 31, 2007 2006 2007 2006 Net sales $130,496 $122,257 $378,818 $352,405 Cost of goods sold 64,354 63,023 187,562 180,225 Gross profit 66,142 59,234 191,256 172,180 Operating expenses: Research and development 7,034 7,199 20,384 20,708 Selling, general and administrative 35,797 32,602 103,700 97,081 Special charges 789 - 1,090 - Restructuring charges 431 130 714 (126) Total operating expenses 44,051 39,931 125,888 117,663 Operating income 22,091 19,303 65,368 54,517 Interest, net (1,287) (912) (3,616) (2,059) Other (income) expenses, net 708 (219) 1,085 (101) Income before income taxes 22,670 20,434 67,899 56,677 Provision for income taxes 8,162 6,535 24,444 18,314 Net income $14,508 $13,899 $43,455 $38,363 Basic earnings per common share $0.32 $0.31 $0.96 $0.86 Diluted earnings per common share $0.31 $0.31 $0.95 $0.85 Weighted average shares used in computing basic earnings per common share 45,169 44,810 45,071 44,729 Weighted average shares used in computing diluted earnings per common share 45,692 45,281 45,608 45,242 Consolidated Balance Sheet: May 31 August 31, 2007 2006 ASSETS Cash and cash equivalents $160,174 $148,576 Marketable securities 13,179 9,783 Receivables (net) 104,809 96,937 Inventories 113,954 102,901 Prepaid expenses and other 25,966 31,023 Total current assets 418,082 389,220 Property, plant and equipment (net) 181,067 173,853 Other assets 127,087 134,364 Total assets $726,236 $697,437 LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable and lines of credit $62,748 $70,979 Other current liabilities 74,683 66,113 Current maturities of long-term debt 973 995 Other liabilities 31,533 33,802 Total liabilities 169,937 171,889 Total shareholders' equity 556,299 525,548 Total liabilities and shareholders' equity $726,236 $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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