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Article by DailyStocks_admin    (03-24-08 06:38 AM)

Filed with the SEC from Mar 13 to Mar 19:

Datascope (DSCP) Ramius LLC said that it's "supportive" of Datascope's intention to return the proceeds from the $202 million sale of its Patient Monitoring business to shareholders through a stock buyback or special dividend. Ramius said that the proposed transaction is "in the best interest of all shareholders." Ramius may communicate with management and the board regarding the most beneficial way to return the proceeds to shareholders. Ramius holds 1,041,676 shares (6.7%).

BUSINESS OVERVIEW

Overview

Datascope Corp. is a diversified medical device company that develops, manufactures and markets proprietary products for clinical health care markets in interventional cardiology and radiology, cardiovascular and vascular surgery, anesthesiology, emergency medicine and critical care. Datascope Corp. is the global leader in intra-aortic balloon counterpulsation. We have four product lines that are aggregated into two reportable segments, Cardiac Assist/Monitoring Products and Interventional/Vascular Products. The Cardiac Assist/Monitoring Products segment accounts for 87% of total sales. Operating data for each segment for the last three fiscal years is set forth in Note 10 to the Consolidated Financial Statements. Our products are distributed worldwide by direct sales employees and independent distributors. Originally organized as a New York corporation in 1964, we reincorporated in Delaware in 1989.

In June 2007, we acquired Artema Medical AB, a privately held Swedish manufacturer of proprietary gas analyzers, which identify and measure the concentration of anesthetic agents used during surgery, to expand our product offerings targeted toward the surgical marketplace. Artema is the developer of the world’s most compact and power efficient side-stream gas analyzer, the Artema AION tm , which is sold on an Original Equipment Manufacturer (OEM) basis to patient monitoring companies. We intend to maintain Artema as a stand-alone company serving its OEM customers and to incorporate Artema’s gas bench technology in our patient monitors for use in operating rooms (ORs), significantly reducing the cost while enhancing the capabilities of those monitors. Artema is included in the Cardiac Assist/Monitoring Products segment. The global market for anesthetic measurement equipment is estimated at $80 million annually.

In January 2007, we purchased a five-year license from the Sorin Group of Milan, Italy, for exclusive worldwide distribution rights to Sorin’s peripheral vascular stent products, excluding the United States and Japan. As part of that agreement, we received an option to purchase Sorin’s worldwide peripheral vascular stent business within two years. We estimate the worldwide market for peripheral vascular stents and percutaneous transluminal angioplasty (PTA) balloons, excluding the United States and Japan, to be $190 million annually.

In January 2006, we acquired the ClearGlide ® EVH product, from Ethicon, a Johnson & Johnson company. EVH devices enable less-invasive techniques for the harvesting of suitable vessels for use in coronary artery bypass grafting. The vessel harvesting product line was integrated into the Cardiac Assist business, which markets its products to cardiac surgeons who perform coronary bypass graft surgery. We estimate the potential annual market for EVH to be $220 million.

In October 2006, we announced a plan to exit the vascular closure market and phase out the Interventional Products (IP) business. We have engaged an investment bank as financial advisor for the sale of our vascular closure devices, VasoSeal ® , On-Site tm and X-Site ® . We plan to seek the sale or independent distribution of our ProLumen tm thrombectomy device for the interventional radiology market; although these plans are subject to the reversal of a verdict that is being appealed (see Item 3. Legal Proceedings for a discussion of litigation relating to ProLumen). In February 2007, we completed the sale of our ProGuide tm chronic dialysis catheter and the associated assets for $3.0 million plus a royalty on future sales of the ProGuide catheter.

Our Safeguard tm assisted pressure device received FDA 510(k) clearance to claim reduced manual compression time to stop bleeding following femoral arterial catheterization in diagnostic and interventional procedures in March 2007. In May 2007, following FDA clearance of the new clinical claim, we tripled the Safeguard sales and marketing effort in the United States from a pilot sales group to the entire Cardiac Assist direct sales force. Safeguard is aimed at an estimated $125 million annual worldwide market.

Additionally, in fiscal 2007, we implemented workforce reductions in the Patient Monitoring Division, Corporate, Genisphere and in the European sales organization.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other materials we have filed with the Securities and Exchange Commission (SEC) may be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available on our website at http://www.datascope.com.

We have adopted a written Corporate Business Conduct Policy (including Code of Ethics) that applies to all our employees. The Business Conduct Policy is posted on our website under the “Corporate Governance” caption. We intend to disclose any amendments to, or waivers from, the Business Conduct Policy on our website. In addition, the Company’s audit committee charter, compensation committee charter and nominations and corporate governance committee charter are also posted on the Company’s website. A copy of any of these documents is available, free of charge, upon written request sent to Datascope Corp., 14 Philips Parkway, Montvale, New Jersey 07645, Attention: Secretary.

Information included on our website is not deemed to be incorporated into this Annual Report on Form 10-K.

Glossary

We have prepared the glossary below to help you understand our business.

Angioplasty is the reconstruction of blood vessels, usually damaged by atherosclerosis. If the arteries in question are in the heart, a coronary bypass operation may be recommended. However, the nonsurgical method of balloon angioplasty is often employed, especially when only one vessel is blocked.

Balloon Angioplasty , also known as percutaneous transluminal coronary angioplasty (PTCA), is a nonsurgical method of clearing coronary and other arteries blocked by atherosclerotic plaque, fibrous and fatty deposits on the walls of arteries. A catheter with a balloon-like tip is threaded up from the arm or groin through the artery until it reaches the blocked area. The balloon is then inflated, flattening the plaque and increasing the diameter of the blood vessel opening. The arterial passage is thus widened or dilated. Balloon angioplasty has evolved to include direct coronary stenting in greater than 70% of angioplasty procedures to prevent recoil or abrupt closure of the artery post dilatation.

French (Fr.) , or French Scale, a system used to indicate the outer diameter of catheters. Each unit is approximately 1/3 mm.

Hemostasis is the stopping of bleeding, either by physiological properties of coagulation and vasoconstriction (narrowing of the blood vessels) or by surgical or mechanical means.

Manual Compression is the stopping of bleeding by physical pressure placed specifically on a venous or arterial access site. With relation to our IP products, manual compression is typically applied to the femoral artery.

Mechanical Thrombectomy is the process of removing clots within arteriovenous (AV) grafts or AV fistulas (an abnormal connection created surgically between an artery and a vein) on chronic hemodialysis patients who are typically being treated for end stage renal disease.

Percutaneously is via a passage through the skin by needle puncture, including introduction of wires or catheters.

Stenting is a medical procedure that uses tiny mesh tubes to support artery walls to keep the vessels open.

Vascular Access is the means of entering the vasculature percutaneously in order to place a variety of catheters. Vascular Access can be either venous or arterial in nature and can occur at various points of the body. The most typical vascular access points are femoral (groin), subclavian (upper chest), internal and external jugular (neck), brachial and radial (arm).

Cardiac Assist

We are a leader and pioneer in intra-aortic balloon (IAB) counterpulsation which is used to support and stabilize heart function. This therapy increases the heart’s output and the supply of oxygen-rich blood to the heart’s coronary arteries while reducing the heart muscle’s workload and its oxygen demand.

Our line of cardiac assist products and their significant features are as follows:

Counterpulsation Products

The intra-aortic balloon pump system is used for the treatment of high-risk cardiac conditions resulting from ischemic heart disease and heart failure. Patients experiencing acute coronary syndromes such as acute myocardial infarction, cardiogenic shock and unstable angina may require IAB therapy to support and stabilize their cardiac status. IAB therapy is also used for high-risk patients who require revascularization procedures such as percutaneous coronary interventions or coronary artery bypass procedures including both on-pump and off-pump techniques. These products and therapy may be used before or during coronary artery bypass grafting or percutaneous coronary interventions for hemodynamic support.

We produce a line of disposable intra-aortic balloon catheters that serve as the pumping device within the patient’s aorta. We introduced the first balloon catheter capable of percutaneous insertion. This innovation eliminated the need for surgical insertion. As a result, the market for cardiac assist products expanded from open-heart surgery to interventional cardiology.

Intra-Aortic Balloon Pumps (IABPs)

CS300 tm

The CS300 balloon pump, our next generation balloon pump, was introduced in the third quarter of fiscal 2007. The CS300 is a fully automatic pump with all the features of Datascope’s CS100 ® balloon pump. The CS300 balloon pump teams up with the new Sensation tm 7 Fr. fiber-optic balloon catheter to provide higher fidelity blood pressure monitoring while eliminating the need for an additional invasive arterial pressure catheter as required by conventional balloon pump systems. The CS300 features rapid start-up with a single push button to allow faster initiation of therapy, a valuable feature in cardiac emergencies.

CS100

The CS100 automatic IABP, launched in August 2003, includes IntelliSync tm automated arrhythmia tracking and timing algorithms. Other features of the CS100 include automated trigger selection for easier and continuous patient support, automatic “Beat to Beat” timing adjustments based on the patient’s physiologic landmarks and faster pneumatics to support the most challenging arrhythmic patients.

System 98XT

The System 98XT IABP incorporates the CardioSync ® 2 software with improved algorithms to provide enhanced counterpulsation therapy. Other features of the System 98XT include faster pneumatics and reduced required user intervention.

Significant Developments

In the last few years, we have expanded our product line of IABP’s and achieved the following regulatory and marketing milestones:


• CS300 pump sales began in March 2007 to the U.S. and European markets
• CS100 approval to distribute in Japan received in August 2004
• CS100 United States and European market introduction in August 2003

Intra-Aortic Balloon Catheters (IABs)

We manufacture a broad line of disposable IAB catheters for use with intra-aortic balloon pumps in support of counterpulsation therapy.

Sensation 7 Fr.

In the third quarter of fiscal 2007, we launched the Sensation 7 Fr. IAB catheter. Using fiber optic technology, the Sensation 7 Fr. offers the smallest diameter IAB as well as blood pressure monitoring with greater convenience and higher fidelity blood pressure waveform than conventional invasive blood pressure monitoring. The reduced size of the Sensation 7 Fr. enables clinicians to use counterpulsation therapy for a broader range of patients, including patients with smaller peripheral blood vessels, peripheral vascular disease and diabetes. The Sensation 7 Fr. catheter also employs Datascope’s Durathane tm balloon membrane, the most abrasion resistant of any IAB in the industry. Greater resistance to abrasion allows longer periods of balloon pumping therapy.

Linear tm 7.5 Fr.

In January 2005, we launched our Linear 7.5 Fr. IAB catheter. Linear 7.5 Fr., with a Durathane membrane and improved 7.5 Fr. introducer sheath, offers easier insertion, abrasion resistance and improved fatigue resistance and is ideal for smaller adults, diabetics and patients with peripheral vascular disease. Linear 7.5 Fr. is available in 25cc, 34cc and 40cc balloon volumes.

Fidelity ®

In February 2002, we launched our Fidelity IAB catheter. We believe that Fidelity provides superior performance to all other 8 Fr. catheters in the market. Fidelity also offers the largest central lumen (0.030”) for consistent, clear arterial waveforms which results in better delivery of counterpulsation therapy for the patient and easier patient management for the healthcare provider. The new polymer design enables Fidelity to insert easily and navigate tortuous anatomies. Once inserted, physicians have the longest insertable length available on the market to ensure optimal balloon placement. Fidelity is available in 25cc, 34cc and 40cc balloon volumes.

In addition, we manufacture a complete line of intra-aortic balloon catheters to accommodate counterpulsation therapy in both the adult and pediatric population. We manufacture catheters for pediatric patients in the 2.5cc, 5cc, 7cc, 12cc and 20cc volumes. Our 9.5 Fr. intra-aortic balloon catheters are available in 25cc, 34cc and 40cc volumes. A 50cc volume is also available for patients who are taller than 6 feet. In fiscal 2007, we developed a reduced length membrane balloon for the Japanese market which is specifically designed for clinical needs of Japanese patients.

In June 2004, we introduced the first and only needle-free securement device for IAB catheters, the StatLock ® 1 , which secures the IAB catheter to the patient without the danger of accidental needlesticks or suture wound complications. We estimate that more than 25% of our U.S. customers are utilizing this device.

Clinical Support

We provide the following clinical and educational services to our customers:


• Telemedicine via our PC-IABP products which offers remote pump monitoring, allowing the healthcare provider continuous access and instantaneous troubleshooting from highly trained technicians.
• 24 hour, 7 day clinical support.
• On-site training and education for all personnel involved with patient care; over 30,000 clinicians are trained by our clinical staff annually.
• Comprehensive educational materials for hospital staff, patient and family.
• Consultative services to help hospitals maximize the goals of counterpulsation therapy within the hospital network.
• The Benchmark ® Registry — a comprehensive registry database to assist hospitals worldwide in tracking and comparing outcomes of counterpulsation therapy administered to their patients. This enables our customers to demonstrate and measure the clinical benefits of the therapy. We believe that we are the only supplier offering a comprehensive, centralized repository of global IABP information.

Endoscopic Vessel Harvesting

In January 2006, we acquired the ClearGlide EVH product line from the CardioVations division of Ethicon, a Johnson & Johnson company. EVH devices enable less-invasive techniques for the harvesting of suitable vessels for use in conjunction with coronary artery bypass grafting.

EVH has been steadily replacing traditional open vessel harvesting techniques since the early 1990s. EVH allows surgeons to avoid problems associated with the traditional “open” vessel harvesting techniques which include significant pain and discomfort for the patient during the recovery period and post incision scars that run the full length of the patient’s leg or forearm. The large incisions resulting from the “open” technique are associated with high rates of wound complications including dehiscence, hematoma and infection, all of which are avoided through the use of EVH.

Our EVH product line consists of the ClearGlide procedural kits for saphenous vein and radial artery harvesting. The major components of these procedural kits are:

The ClearGlide Optical Vessel Dissector is a dissecting device with an optically clear blunt dissecting tip which allows videoscopic visualization and creates a cavity for instrument passage during insertion, tunneling, and dissection. The device consists of a handle, a shaft and a transparent angled blunt tip that creates an operative working space around the vein and its side branches and allows for smooth, atraumatic dissection on anterior and lateral surfaces.

The ClearGlide Ultra Retractor elevates the skin to maintain an operative working space for insertion and passage of dissecting and ligating instruments. It consists of a handle, covered cannula and a transparent blunt tip spoon that dissects tissue and creates a working space within which instruments are positioned, passed and used to manipulate tissue; and permits the user to visualize the tissue beyond the tip during insertion, tunneling, dissection and retraction.

The ClearGlide Precision Bipolar Device is used in conjunction with the ClearGlide Ultra Retractor to provide controlled coagulation and cutting in one step, minimizing instrument exchanges to accelerate EVH procedure time.

The ClearGlide Radial Artery Kit includes the Ethicon Harmonic Scalpel ® shear that allows for fast, safe cutting and coagulation of the side branches of the radial artery. Use during radial artery harvesting procedures results in low vessel trauma and spasm as well as reduced blood loss versus other cutting and coagulation methods. Additional kit components include a vessel dissector which is used to ensure that the target vessel is free of all connective tissue and side branch vessels prior to ligation and extraction and endoscopic scissors used to divide and cut tissue. Finally, two tie Endoloop ® ligature enables the surgeon to ligate the target vessel without making additional incisions, thus establishing the ClearGlide kit as the only true single incision procedure kit in the EVH market.

Markets, Sales and Competition. Our counterpulsation products are sold primarily to major hospitals with open-heart surgery and balloon angioplasty facilities and community hospitals with cardiac catheterization laboratories. These products have been sold, to a growing degree, to the broader range of community hospitals, where counterpulsation therapy is used for temporary support to the patient’s heart prior to transport to a major hospital center where definitive procedures, such as balloon angioplasty or open-heart surgery, can be conducted. Our main competitor for counterpulsation products is Arrow International, Inc.

Our EVH products are sold to hospitals performing coronary artery bypass grafting procedures. This user base is consistent with our counterpulsation user base and our existing direct sales force handles both product lines. Clinical support and training for our EVH products is provided by our team of Procedural Specialists who support our sales activities. Our main competitor for EVH products is Boston Scientific.

Patient Monitoring

We manufacture and market a broad line of physiological monitors and monitoring systems designed to provide for patient safety and management of patient care. Our monitoring products are developed for the demands of today’s health care environment and many can be integrated with our Panorama tm Central Monitoring System. They range from spot-check blood pressure monitoring devices to high acuity, multi-parameter monitoring systems. They are used in operating rooms, emergency departments, critical care units, post-anesthesia care units and recovery rooms, intensive care units, labor and delivery rooms as well as general hospital departments.

As part of our operating room business, we offer the Anestar ® Plus and Anestar ® S Anesthesia Delivery Systems, which integrate to the Gas Module SE tm gas analyzer, and our Passport 2 ® and Spectrum ® OR multi-parameter patient monitors.

In June 2007, we acquired Artema Medical AB, a privately held Swedish manufacturer of proprietary gas analyzers, which identify and measure the concentration of anesthetic agents used during surgery. The acquisition of Artema expands our product offerings targeted toward the surgical marketplace. Artema is the developer of the world’s most compact and power efficient side-stream gas analyzer, the Artema AION, which is sold on an OEM-basis to patient monitoring companies. We intend to maintain Artema as a stand-alone company serving its OEM customers and to incorporate Artema’s gas bench technology in our patient monitors for use in ORs, significantly reducing the cost while enhancing the capabilities of those monitors. The global market for anesthetic measurement equipment is estimated at $80 million annually.

Our line of patient monitoring products is as follows:

Patient Monitors

Our line of vital signs and bedside patient monitors consists of the Spectrum OR, Spectrum ® , Passport 2, Trio tm , Accutorr ® Plus, AccuNet tm and Duo tm .

The Spectrum OR monitor, launched in the second quarter of fiscal 2007, is designed specifically for use by the anesthesiologist. It incorporates standard monitoring capabilities used in the operating room, as well as optional technologies such as BIS tm and Spirometry. Bispectral Index (BIS) technology provides an indication of a patient’s level of consciousness and can be used to assist in determining optimal levels of anesthesia and sedation. Spirometry measures a patient’s lung function during ventilation and is a useful tool in ensuring adequate patient ventilation. When combined with Datascope’s Gas Module SE breath-by-breath gas analyzer and Anestar Plus Anesthesia Delivery System, Spectrum OR provides anesthesiologists with the critical data needed for standard-of-care monitoring and anesthesia delivery. Additionally, Spectrum OR interfaces with our new Viewstation OR independent display system to enable the display of patient information separate from the anesthesia team.

Spectrum, a powerful bedside monitor, has the features required for monitoring acutely ill patients including multiple waveforms, diagnostic 12-Lead ECG, four invasive blood pressures, a comprehensive calculations package and cardiac output. These parameters are packaged into an easy-to-use portable monitor along with other key features such as auto-configuring waveforms, auto-adjustable large numerics and quick action keys that provide one-touch access to the most commonly used functions. The Spectrum builds on the Passport 2’s portability and ease of use with added features that make it a robust monitoring solution for higher acuity departments such as intensive care units, operating rooms and coronary care units.

Passport 2 provides a portable and cost effective monitoring solution for a wide range of departments, from emergency rooms and post-anesthesia care units to operating rooms and intensive care units. Passport 2 is a portable bedside monitor used to assess moderately acute patients. Its intuitive user interface makes it easy to use and easy to learn. The Navigator tm control knob and dedicated function keys provide maximum utility for clinicians. Other significant features include a specialized graph trend of heart rate, respiration and pulse oximetry for neonatal applications and a lightweight design.

Trio is a compact portable monitor with applications for a wide variety of hospital and outpatient areas. Its features include an ergonomically designed fold-away handle, built-in bed rail hook and an 8.4” high resolution color display with 4 waveforms. Standard parameters include 3- or 5-lead ECG, NIBP, SpO 2 , respiration and temperature and full graphic and list trends of all monitored parameters with event markers. The Trio is targeted towards markets such as subacute care facilities, surgery centers, GI/Endoscopy and general patient areas.

Accutorr Plus is our first non-invasive blood pressure monitor with an integrated patient database that records up to 100 patient measurements. The Accutorr Plus monitor is used across hospital departments to monitor blood pressure, pulse oximetry and temperature for patients who do not require continuous ECG monitoring. It offers trending functions and an optional recorder module to enable tracking of patient data over time.

The AccuNet wireless product, which began shipment in the third quarter of fiscal 2007, combines with our Accutorr Plus portable monitor to provide hospital staff with real-time health status updates by transmitting clinical data, via secure encryption, to a patient’s electronic record. The Accutorr Plus with AccuNet minimizes paperwork, reduces cost and decreases potential error from manual data transfers by automatically recording and charting a patient’s vital signs data. This tool enables healthcare professionals, including off-site physicians and clinicians, to access a patient’s record at any location via PDA, pager, mobile phone or the Internet.

Duo is a compact, spot-check monitor designed for lower-acuity areas of a hospital where continuous monitoring is not required. With a touch button design and no menus, it has an extremely straightforward user interface. Duo provides accurate blood pressure and pulse rate readings quickly and conveniently.

All of our monitors provide a choice of Masimo SET ® 2 or Nellcor ® 3 OxiMax ® 3 pulse oximetry. Spectrum OR, Spectrum and Passport 2 communicate via telemetry or hardwire to our PatientNet Central Station and Panorama Central Monitoring System.

Gas Module SE delivers state-of-the-art gas monitoring and analysis capabilities for our Spectrum OR, Spectrum and Passport 2 monitors. The Gas Module SE is a breath-by-breath gas analyzer, designed to meet the comprehensive anesthesia monitoring requirements of virtually every hospital and freestanding surgical center, whatever its size, specialty or patient base. Gas Module SE interfaces with the controls and displays of the Passport 2 monitor for use in the growing out-patient surgery market and with the controls and displays of the Spectrum OR, Spectrum or Passport 2 monitors for use in main hospital operating rooms.

Central Monitoring Systems

Panorama Patient Monitoring Network

The Panorama Central Monitoring System, introduced in July 2004, provides centralized monitoring and storage of patient vital signs information and strengthens our product offerings across hospital departments. The Panorama Patient Monitoring Network is an integrated family of patient monitoring products that enables hospitals to seamlessly share information on all patients via one network. Significant features of Panorama include monitoring of up to 16 patients on the same central station via both hardwired and/or wireless patient monitoring devices and storage of all monitored parameters and waveforms including continuous 12-lead ECG data, 1,000 events, 3,000 trends and up to 72 hours of full disclosure. In December 2006, we introduced SpO 2 capability as a module to our existing ambulatory telemetry product to provide portable and continuous SpO 2 monitoring when and where needed.

The Panorama Patient Monitoring Network was recently enhanced with the introduction of paging capabilities which links the Panorama to the hospital’s paging system to alert clinical staff of patient alarms. The Panorama Patient Monitoring Network continues to evolve with the planned addition of internet browser remote access capabilities and an interactive remote workstation. The interactive workstation, which compliments our Panorama ViewStation view only workstation, provides independent remote display and control of all patients and patient data from any central station on the network.

In September 2006, we launched Panorama Gateway, a networked system component that interfaces our Panorama Patient Monitoring Network to a Hospital Information System/Clinical Information System (HIS/CIS). The Panorama Gateway enables hospitals to maintain a continuous and comprehensive history of a patient’s clinical information through an electronic medical record (EMR). By providing an automated solution to electronically download patient demographic information from the HIS/CIS as well as upload patient vital signs to the HIS/CIS, the Panorama Gateway minimizes paperwork, reduces costs and decreases the potential for errors due to manual data transfers.

Anesthesia Delivery Systems

Anestar Plus and Anestar S Anesthesia Delivery Systems offer a complete operating room solution that brings advanced features and functionality to outpatient surgery centers and operating rooms with space constraints.

Anestar Plus Anesthesia Delivery System

The Anestar Plus has a unique integrated breathing system comprised of the absorber, ventilator bellows and a warmed aluminum manifold. This manifold, coupled with a ventilator, offers many high-tech features, such as automatic compliance compensation, pressure-controlled ventilation and an easy-to-use touch screen interface.

Integration reduces the number of potential leak sites and contributes to the accuracy of ventilation by maintaining a virtually leak-free environment within the breathing system. The warmed aluminum block eliminates rainout, providing patients with improved airway climatization.

A variety of ventilation modes allow precise ventilation for a wide variety of patients, including patients with pulmonary complications.

Anestar S Anesthesia Delivery System

The Anestar S is an advanced, full-featured anesthesia delivery system, designed specifically for ambulatory surgery centers and operating rooms with space constraints. The Anestar S brings the advanced features and functionality that are incorporated into the Anestar Plus to outpatient surgery centers and operating rooms with space constraints.

The Anestar Plus and Anestar S complement our Passport 2, Spectrum OR, Spectrum and Gas Module SE monitors.

CEO BACKGROUND

(1)
Mr. Adelman has been employed by the Corporation as Vice President, Chief Accounting Officer since July 2002. From October 1999 to June 2002, he served as Corporate Controller. From July 1983 to October 1999, Mr. Adelman was employed by the Corporation as Director of Corporate Accounting.

(2)
Mr. Barker has been employed by the Corporation as Vice President, Corporate Design since December 1997.

(3)
Mr. Cathcart has been employed by the Corporation as Vice President; President, Interventional Products Division since May 2005. From November 2004 to April 2005, he served as Vice President; President, Interventional Products/InterVascular Group. From July 2004 to October 2004, Mr. Cathcart served as Group Vice President of Sales for Cardiac Assist, InterVascular and Interventional Products. From October 2001 to June 2004, Mr. Cathcart served as Vice President Sales for Cardiac Assist. Prior to joining the Corporation, Mr. Cathcart served as Vice President of Sales for Promedix/SpecialtyMD, from December 1999 to January 2001.

(4)
Mr. Cooper has been employed by the Corporation as Vice President, Human Resources since January 1998.

(5)
Mr. Gibson has been employed by the Corporation as Vice President; President, Patient Monitoring Division since January 2005. From January 2003 to December 2004, Mr. Gibson served as Vice President, Service. Prior to joining the Corporation, Mr. Gibson served as Vice President, Repair Operations and Regional Service Manager with General Electric Medical Systems from July 1996 to September 2002.

(6)
Mr. Gunning has been employed by the Corporation as Vice President; President, Cardiac Assist Division since April 2004. Prior to joining the Corporation, Mr. Gunning served as Vice President and General Manager of the Anatomic Pathology Division of Quest Diagnostics Incorporated from February 2001 to March 2004. From September 1997 to January 2001, Mr. Gunning served as Corporate Vice President of Marketing for Quest Diagnostics.
(7)
Mr. Kantor has been employed by the Corporation as Chief Financial Officer; Vice President, Finance and Administration; Treasurer; and Secretary since November 2005. Prior to joining the Corporation, Mr. Kantor served as Vice President, Finance, Chief Financial Officer, Treasurer and Secretary of LeCroy Corporation from February 2003 to November 2005, Vice President and Corporate Controller from January 2002 to January 2003 and as Corporate Controller from August 1999 to December 2001.

(8)
Mr. Krauskopf has been employed by the Corporation as Vice President, Regulatory and Clinical Affairs since February 2006. Prior to joining the Corporation, he served as Senior Vice President for Regulatory and Clinical Affairs for CardiacAssist, Inc. from March 2002 to December 2005. Mr. Krauskopf served as Vice President, Regulatory and Clinical Affairs for Cytyc Corporation from June 2000 to January 2002.

(9)
Mr. Laudani has been employed by the Corporation as Vice President; President, InterVascular, Inc. since February 2005. From January 2005 to April 2005, he was Group Vice President of Sales for Cardiac Assist, InterVascular and Interventional Products for Europe, the Middle East and Africa (“EMEA”). Mr. Laudani has retained these responsibilities in his current role and, effective September 2006, is responsible for sales of Patient Monitoring products for EMEA. From May 2002 to December 2004, Mr. Laudani served as Vice President, Cardiac Assist Sales for EMEA. Prior to joining the Corporation, Mr. Laudani was an independent consultant from February 2002 to April 2002. Mr. Laudani served as Vice President Marketing for Tyco Healthcare for EMEA from June 1999 to January 2002. In this position, Mr. Laudani was also in charge of R&D and non-hospital product sales for EMEA.

(10)
Dr. Lemma has been employed by the Corporation as Vice President, Chief Information Officer since May 2005. Prior to joining the Corporation, Dr. Lemma was an independent consultant from April 2004 to February 2005. From February 2002 to March 2004, Dr. Lemma served as Vice President and Chief Information Officer for Schering-Plough Corporation. From April 2001 to January 2002, he served as Vice President of Information Management for Bristol-Myers Squibb. From October 1998 to March 2001, he served as Vice President and CIO for Etec Systems.

(11)
Mr. Leschinsky has been employed by the Corporation as Vice President, Technology since July 2005. From August 1990 until June 2005, he served in various engineering positions in the R&D Department of the Cardiac Assist Division.

(12)
Mr. Scaramelli has been employed by the Corporation as Vice President, Corporate Controller, Operations from September 2003 to the present. From June 2004 to the present, Mr. Scaramelli has served as Acting Vice President of Finance for the Interventional Products Division and InterVascular, Inc. From July 2002 to August 2003, Mr. Scaramelli served as Group Vice President, Finance for the Cardiac Assist Division and InterVascular, Inc. From October 1996 to June 2002, Mr. Scaramelli served as Vice President, Finance for the Cardiac Assist Division.

(13)
Ms. Winokur has been employed by the Corporation as Vice President, Business Development since September 2006. From August 2003 until August 2006, she served as Director of Business Development. Prior to joining the Corporation, Ms. Winokur served as Senior Director of Operations for Bertelsmann Inc. from January 2002 to May 2003 and as Director, Business Development from January 2001 to December 2001. Ms. Winokur served as Manager, Business Development for BOL.com, a subsidiary of Bertelsmann, Inc., from August 1999 to December 2000.

(14)
Mr. Zak has been employed by the Corporation as Vice President, Corporate Counsel since November 1992. He served as Vice President of Regulatory Affairs from September 1995 to January 2006.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Datascope Corp. is a diversified medical device company that develops, manufactures and markets proprietary products for clinical health care markets in interventional cardiology and radiology, cardiovascular and vascular surgery, anesthesiology, emergency medicine and critical care. We have four product lines that are aggregated into two reportable segments, Cardiac Assist/Monitoring Products and Interventional/Vascular Products. We have aggregated our product lines into two segments based on similar manufacturing processes, economic characteristics, distribution channels, regulatory environments and customers. Management evaluates the revenue and profitability performance of each of our product lines to make operating and strategic decisions. The Cardiac Assist/Monitoring Products segment accounts for 87% of total sales. Our products are sold worldwide by direct sales representatives and independent distributors. Our largest geographic markets are the United States, Europe and Japan.

We believe that customers, primarily hospitals and other medical institutions, choose among competing products on the basis of product performance, features, price and service. In general, we believe price has become an important factor in hospital purchasing decisions because of pressure to cut costs. These pressures on hospitals result from Federal and state regulations that limit reimbursement for services provided to Medicare and Medicaid patients. There are also cost containment pressures on healthcare systems outside the United States, particularly in certain European countries. Many companies, some of which are substantially larger than us, are engaged in manufacturing competing products. Our products are generally not affected by economic cycles.

Our sales growth depends in part upon the successful development and marketing of new products. We continue to invest in research and development. Our growth strategy includes selective acquisitions or licensing of products and technologies from other companies.

In June 2007, we acquired Artema Medical AB, a privately held Swedish manufacturer of proprietary gas analyzers, which identify and measure the concentration of anesthetic agents used during surgery. The acquisition of Artema expands our product offerings targeted toward the surgical marketplace. Artema is the developer of the world’s most compact and power efficient side-stream gas analyzer, the Artema AION tm , which is sold on an OEM-basis to patient monitoring companies. Artema’s revenues have grown 13% per year compounded over the past three years. We intend to maintain Artema as a stand-alone company serving its OEM customers and to incorporate Artema’s gas bench technology in our patient monitors for use in ORs, significantly reducing the cost while enhancing the capabilities of those monitors. The global market for anesthetic measurement equipment is estimated at $80 million annually.

In January 2007, we purchased a five-year license from the Sorin Group of Milan, Italy, for exclusive worldwide distribution rights to Sorin’s peripheral vascular stent products, excluding the United States and Japan. As part of that agreement, we received an option to purchase Sorin’s worldwide peripheral vascular stent business within two years. We estimate the worldwide market for peripheral vascular stents and percutaneous transluminal angioplasty (PTA) balloons, excluding the United States and Japan, to be $190 million annually.

In January 2006, we acquired the ClearGlide ® endoscopic vessel harvesting (EVH) product, from Ethicon, a Johnson & Johnson company. EVH devices enable less-invasive techniques for the harvesting of suitable vessels for use in coronary artery bypass grafting. The vessel harvesting product line was integrated into the Cardiac Assist business, which markets its products to cardiac surgeons who perform coronary bypass graft surgery. We estimate the potential annual market for EVH to be $220 million.

In October 2006, we announced a plan to exit the vascular closure market and phase out the Interventional Products (IP) business. We have engaged an investment bank as financial advisor for the sale of our vascular closure devices, VasoSeal ® , On-Site tm and X-Site ® . We plan to seek the sale or independent distribution of our ProLumen tm thrombectomy device for the interventional radiology market; although these plans are subject to the reversal of a verdict that is being appealed (see Special Items below for a discussion of litigation related to ProLumen). In February 2007, we completed the sale of our ProGuide tm chronic dialysis catheter and the associated assets for $3.0 million plus a royalty on future sales of the ProGuide catheter.

Our Safeguard tm assisted pressure device received FDA 510(k) clearance to claim reduced manual compression time to stop bleeding following femoral arterial catheterization in diagnostic and interventional procedures in March 2007. In May 2007, following FDA clearance of the new clinical claim, we tripled the Safeguard sales and marketing effort in the United States from a pilot sales group to the entire Cardiac Assist direct sales force. Safeguard is aimed at an estimated $125 million annual worldwide market.

Additionally, in fiscal 2007, we recorded a pretax charge of $6.0 million related to workforce reductions in the Patient Monitoring Division, Genisphere, Corporate and in the European sales organization.

We are committed to improving our operating margins through increasing the efficiency of our manufacturing operations and cost containment programs.

Results of Operations

Financial Summary

The decrease in net earnings and earnings per diluted share in fiscal 2007 compared to fiscal 2006 was primarily attributable to expenses associated with workforce reductions ($6.0 million), the IP exit plan ($5.0 million), increased selling and marketing expenses in the Cardiac Assist/Monitoring segment ($8.0 million) primarily associated with the introduction of new products, filling open positions and a full year of EVH selling expense, lower special dividend income ($4.3 million) in fiscal 2007 compared to fiscal 2006 and a higher tax rate of 29.0% compared to 25.1% in fiscal 2006. Partially offsetting the above was the cost savings from the IP exit plan and the workforce reductions ($11.5 million).

The increase in net earnings and earnings per diluted share in fiscal 2006 compared to fiscal 2005 was caused principally by higher earnings in the Cardiac Assist and InterVascular businesses, dividend income received of $3.9 million after tax, or $0.26 per share from a preferred stock investment, and a gain on sale of an unused facility of $0.8 million after tax, or $0.05 per share. Additionally, fiscal 2005 included special charges of $4.8 million after tax or $0.32 per share as discussed below. Partially offsetting the above was lower earnings in the Interventional Products and Patient Monitoring businesses and a charge of $1.8 million after tax, or $0.12 per share, related to the postponement of the launch of the X-Site vascular closure device.

Comparison of Results — Fiscal 2007 vs. Fiscal 2006

Net Sales (Sales)

Sales in fiscal 2007 of $378.8 million increased $5.8 million or 2% compared to $373.0 million in fiscal 2006. Favorable foreign exchange translation increased sales by $5.8 million (2%) as a result of the weaker United States (U.S.) dollar relative to the Euro and the British Pound, the currencies in countries in which we have direct sales subsidiaries.

Sales in the United States of $225.1 million, decreased $6.8 million or 3% compared to fiscal 2006, primarily attributable to decreased sales of IP products ($7.3 million). Sales in international markets of $153.7 million increased $12.6 million or 9% compared to fiscal 2006 (5% excluding favorable foreign exchange translation of $5.8 million) due to increased sales in all businesses, except IP.

Sales of the Cardiac Assist/Monitoring Products segment in fiscal 2007 increased 3% to $329.7 million from $319.6 million last year.

Cardiac Assist

Sales of Cardiac Assist products in fiscal 2007 increased 8% to $173.2 million. Sales of balloon pumps increased 7% and intra-aortic balloons (IAB) increased 2%. Sales of ClearGlide EVH products rose in the first full year of sales since it was acquired in January 2006. Favorable foreign exchange translation contributed $2.5 million to Cardiac Assist sales in fiscal 2007.

Sales growth of balloon pumps reflects strong global demand for our new CS300 tm balloon pump, launched in March 2007, and continued growth of replacements of older pump models from the large installed base of our balloon pumps in the United States (23%). Sales of IABs increased principally due to increased volume (3%) in international markets.

The new generation CS300 balloon pump teams up with the new Sensation tm 7 Fr. fiber-optic balloon catheter to provide higher fidelity blood pressure monitoring while eliminating the need for an additional invasive arterial pressure catheter as required by conventional balloon pump systems. At 7 Fr. in diameter (2.3 mm or 0.093 inch), the Sensation is also the world’s smallest diameter IAB, a highly desirable feature. These new products underscore Datascope’s leadership in the worldwide market for counterpulsation therapy. The Sensation product began shipping in June 2007, and therefore made only a modest contribution to the 2007 increase in Cardiac Assist revenues.

Patient Monitoring

Sales of Patient Monitoring products in fiscal 2007 were $156.5 million, a decrease of 2% compared to fiscal 2006, primarily reflecting continued competitive pricing pressure on stand-alone patient monitors (5%) and lower sales of Panorama tm central monitoring wireless systems (9%). Panorama offers Wireless Medical Telemetry Service (WMTS) with radio bands reserved for medical use. Demand for Panorama accelerated sharply in the first half of fiscal 2006 to replace older systems when the older bands were allocated to non-medical use, effective calendar year 2006. Panorama system sales began to increase during the second half of fiscal 2007 compared to the second half of fiscal 2006. Favorable foreign exchange translation contributed $1.9 million to patient monitoring sales in fiscal 2007.

The Spectrum ® OR monitor, launched by the Patient Monitoring Division in the second quarter of fiscal 2007, is the first Datascope monitor specifically designed for the operating room. Spectrum OR strengthens our competitive position in the $150 million annual worldwide market for operating room monitors and with customers that seek to standardize monitoring in different areas of the hospital with one supplier. Spectrum OR made a significant contribution to patient monitoring sales in the second half of fiscal 2007.

Sales of the Interventional/Vascular Products segment decreased 7% to $48.0 million compared to $51.8 million last year.

Interventional Products

Sales of interventional products decreased $7.3 million or 32% to $15.2 million in fiscal 2007.

In October 2006, we announced a plan to exit the vascular closure market and phase out the IP business. Although our On-Site next generation vascular closure device had gained some traction in the market with a relatively small sales force, we were not prepared to accept the current level of expenses of the IP business, nor make the additional investment in distribution needed to move the business ahead more quickly.

In February 2007, we completed the sale of our ProGuide chronic dialysis catheter and the associated assets to Merit Medical Systems, Inc. of South Jordan, Utah, for $3.0 million plus a royalty on future sales of the ProGuide catheter. ProGuide is the first in the portfolio of products of the IP business to be sold as part of the divestiture of IP products. The gain on the sale of approximately $2.2 million is reflected in Special Items in the Consolidated Statements of Earnings.

Sales of our Safeguard assisted pressure device increased 12% in fiscal 2007. Safeguard received FDA 510(k) clearance to claim reduced manual compression time to stop bleeding following femoral arterial catheterization in diagnostic and interventional procedures in March 2007. In May 2007, following FDA clearance of the new clinical claim, we tripled the Safeguard sales and marketing effort in the United States from a pilot sales group to the entire Cardiac Assist direct sales force. In international markets, Safeguard is sold by our direct sales force in the major markets of Europe, a network of independent distributors and by our regional managers throughout the world. Safeguard is aimed at an estimated $125 million annual worldwide market.

The remaining IP product portfolio includes our vascular closure devices, VasoSeal, On-Site and X-Site. We have engaged an investment bank as financial advisor for the sale of these products. We plan to seek the sale or independent distribution of our ProLumen thrombectomy device for the interventional radiology market; although these plans are subject to the reversal of a verdict in a pending appeal.

Vascular Products

Sales of vascular products by our InterVascular, Inc. subsidiary in fiscal 2007 increased 12% to $32.7 million principally due to sales of peripheral vascular stent products, acquired from Sorin Group, of Milan, Italy, in January 2007. Favorable foreign exchange translation contributed $1.3 million to vascular product sales in fiscal 2007.

The five-year agreement with Sorin gives InterVascular exclusive distribution rights to Sorin’s peripheral vascular stent products, excluding the United States and Japan. As part of that agreement, Datascope has the option to purchase that stent business within two years. The product line includes balloon-expandable and self-expanding stent systems to treat stenosis in iliac, renal and infrapopliteal arteries, as well as expandable balloons for use in percutaneous angioplasty (PTA). We estimate the worldwide market for peripheral vascular stents and PTA balloons, excluding the United States and Japan, to be $190 million annually.

Vascular graft sales increased 4% due to a 7% increase in sales to international markets as InterVascular market share increased to offset continued growth of less invasive therapies and competitive pricing pressure in the European markets. Sales of grafts to our exclusive distributor in the United States decreased 9%.

Genisphere

Sales of Genisphere products of $1.2 million in fiscal 2007 decreased $0.4 million or 25% compared to fiscal 2006 primarily attributable to increased competition. Genisphere continued to pursue its marketing strategy to develop products for use in newly developed protein and nucleic acid detection platforms.

Costs and Expenses

Gross Profit (Net Sales Less Cost of Sales)

Gross profit increased $2.4 million or 1% as a result of increased sales in the Cardiac Assist/Monitoring Products segment ($10.1 million), partially offset by lower sales in the Interventional/Vascular Products segment ($3.8 million). Gross margin was 55.8% for fiscal 2007 compared to 56.0% last year. The slightly lower gross margin in fiscal 2007 compared to fiscal 2006 was principally due to a lower gross margin in the Cardiac Assist/Monitoring Products segment as a result of a less favorable sales mix due to increased sales of intra-aortic balloon pumps ($3.6 million) and lower gross margin in Monitoring (2.9 points) primarily as a result of competitive pressure on prices for stand-alone monitors.

Research and Development (R&D)

R&D expense includes new product development and improvements of existing products, as well as expenses for regulatory filings and clinical evaluations. R&D expense was $34.8 million in fiscal 2007, equivalent to 9.2% of sales, compared to $37.3 million or 10.0% of sales last year.

In June 2007, we acquired Artema Medical AB, a privately held Swedish manufacturer of proprietary gas analyzers, which identify and measure the concentration of anesthetic agents used during surgery. The purchase price paid for Artema was allocated, as applicable, between purchased in-process R&D (IPR&D), other identifiable intangible assets, tangible assets and goodwill based on a detailed valuation prepared in conjunction with an outside valuation firm. We recorded IPR&D of $0.4 million in fiscal 2007 related to the Artema acquisition, which is included in the Cardiac Assist/ Monitoring Products segment. The Artema IPR&D was calculated based on the income approach to establish fair value by estimating the after-tax cash flows attributable to a development project over its useful life and then discounting these after-tax cash flows back to a present value. We used a risk-adjusted discount rate of 25% to discount projected cash flows.

R&D expense for the Cardiac Assist/Monitoring Products segment was $24.3 million in fiscal 2007 compared to $25.4 million last year. The decrease was primarily due to higher software development costs capitalized for patient monitors this year, which reduced R&D expenses compared to the prior year ($2.9 million). Partially offsetting the above was increased expenses for new product development projects in Patient Monitoring ($1.0 million) and Cardiac Assist ($0.4 million) and IPR&D of $0.4 million related to the acquisition of Artema.

R&D expense for the Interventional/Vascular Products segment was $7.1 million in fiscal 2007 compared to $8.9 million in the corresponding period last year. The decrease was primarily attributable to lower expense in fiscal 2007 as a result of the IP exit plan ($2.5 million), partially offset by increased R&D expense for vascular grafts ($0.5 million).

The balance of consolidated R&D is in the Corporate and Other segment and amounted to $3.4 million in fiscal 2007 compared to $3.0 million in the corresponding period last year. Corporate and Other R&D includes corporate design, technology, regulatory and Genisphere R&D expenses.

Selling, General and Administrative (SG&A)

Total SG&A expense of $142.4 million in fiscal 2007 or 37.6% of sales, compared to $143.1 million or 38.4% of sales, last year. The decrease in SG&A expense was primarily attributable to cost savings from the IP phase-out plan ($7.0 million) and headcount reductions in Patient Monitoring, Genisphere and the European sales organization ($1.3 million). Partially offsetting the above was increased expense in the Cardiac Assist/Monitoring Products segment ($8.5 million) primarily related to the increased sales and the introduction of new products.

SG&A expense for the Cardiac Assist/Monitoring Products segment increased $6.2 million or 6% to $113.7 million in fiscal 2007. The increase was primarily attributable to higher expense associated with a full year of selling associated with the EVH business, which was acquired in January 2006 ($2.5 million), expenses related to new product introductions ($4.4 million) and increased expense due to filling open sales positions ($1.6 million). Partially offsetting the above was cost savings from workforce reductions ($1.1 million) and lower benefits expense ($0.9 million). As a percentage of segment sales, SG&A expenses were 34.5% in fiscal 2007 compared to 33.6% in the corresponding period last year.

SG&A expense for the Interventional/Vascular Products segment decreased $6.3 million or 17% to $30.7 million in fiscal 2007. The decrease was due primarily to cost savings from the IP exit plan ($7.0 million). As a percentage of segment sales, SG&A expenses were 63.9% in fiscal 2007 compared to 71.3% in the corresponding period last year. The decrease in fiscal 2007 was attributable to the reduction in SG&A expenses related to the IP exit plan.

Segment SG&A expense includes allocated corporate G&A charges.

The weaker U.S. dollar compared to the Euro and the British Pound increased total SG&A expense by approximately $3.2 million in fiscal 2007.

Special Items

Fiscal 2007

Interventional Products (IP) Division Exit Plan

In October 2006, we announced a plan to exit the vascular closure market and phase out the IP business. Although our On-Site next generation vascular closure device had gained some traction in the market with a relatively small sales force, we were not prepared to accept the current level of expenses of the IP business, nor make the additional investment in distribution needed to move the business ahead more quickly.

We continue to fill customer orders and provide clinical support for our vascular closure devices, VasoSeal and On-Site, while we seek a buyer for the vascular closure products, including X-Site. We have engaged an investment bank as financial advisor for the sale of the vascular closure product line and negotiations are ongoing with potential buyers. We added the Safeguard manual assist device to the product portfolio of the entire Cardiac Assist sales force, beginning May 2007. We plan to seek the sale or independent distribution of our ProLumen thrombectomy device for the interventional radiology market; although these plans are subject to the reversal of a verdict that is being appealed.

A competitor has brought an action against us alleging that our ProLumen thrombectomy device infringes its intellectual property. In June 2007, a jury ruled that ProLumen does infringe that intellectual property and an award for $690 thousand in royalties and an injunction against the manufacture and sale of that device were entered. We have appealed this ruling and we believe that we will be successful in that appeal. Accordingly, we have not accrued the royalties awarded nor have we reduced the value at which we carry the ProLumen assets on our books.

We have not treated the value of the assets associated with IP to be impaired because we believe that the value of those assets will be recovered in a sale. We will recognize a gain or loss on the sale of those assets, depending on the amounts that we ultimately realize on their disposition. The aggregate carrying value of those IP assets is approximately $27 million.

We recorded a pretax charge of $5.0 million related to the IP exit plan in fiscal 2007, comprising $3.5 million for severance and other termination benefits, $1.2 million for purchase commitments and contract termination costs and $0.3 million for the write-off of fixed assets. Most of the terminated IP employees (92%) left the Company by the end of fiscal 2007. Severance expenses of approximately $0.1 million will be recorded in fiscal 2008 related to the remaining IP employees.

Gain on Sale of ProGuide Assets

In February 2007, we completed the sale of our ProGuide chronic dialysis catheter and the associated assets to Merit Medical Systems, Inc. of South Jordan, Utah, for $3 million plus a royalty on future sales of the ProGuide catheter. ProGuide is the first in the portfolio of products of the IP business to be sold as part of the divestiture of IP products. The gain on the sale of ProGuide assets approximated $2.2 million.

Workforce Reductions in the Patient Monitoring Division, the European Sales Organization, Corporate and Genisphere

In October 2006, we reduced the workforce in the Patient Monitoring (PM) Division. All of the terminated employees left the Company by the end of fiscal 2007. As a consequence, we recorded a pretax charge of $0.5 million for severance and other termination benefits.

In December 2006, we reduced the workforce in the European sales organization and recorded a charge of $3.0 million for severance and other termination benefits. The workforce reductions resulted primarily from the merger of the European PM sales organization into the existing European sales organization, which had previously focused on Cardiac Assist, IP and InterVascular products. All of the terminated employees left the Company by the end of fiscal 2007.

In February 2007, we reduced the workforce in Genisphere. All of the terminated employees left the Company by the end of fiscal 2007. As a consequence, we recorded a pretax charge of $0.1 million for severance and other termination benefits.

In June 2007, we recorded a pretax charge of $2.4 million for severance, settlement and other termination benefits due to workforce reductions in the Corporate Legal and Internal Audit Departments as a result of outsourcing these functions.

Genisphere Goodwill Impairment

Genisphere goodwill was determined to be completely impaired based on the annual goodwill impairment test performed in fiscal 2007. Slower growth in Genisphere’s markets primarily attributable to increased competition in the DNA microarray market, had a negative impact on Genisphere’s operating results and resulted in lower growth expectations. As a result, we recorded a goodwill impairment charge of $2.3 million in the fourth quarter of fiscal 2007.

Inquiry Expenses

In fiscal 2007, we incurred expenses of $1.7 million related to the Audit Committee investigations of ethics line reports related to the Chairman and Chief Executive Officer and an Executive Officer in Europe. The ethics line permits persons to report activities that they characterize as improper on an anonymous basis. The Audit Committee engaged independent counsel and forensic accountants to investigate these charges

As disclosed in our 8-K filings, based on the results of the investigations, the Audit Committee concluded that there was no evidence to support the allegations made in the ethics line reports. The Audit Committee, with the assistance of independent counsel and independent forensic accountants, also reviewed the matters raised by the Internal Audit Department and Legal Department concerning the Chairman and found the issues raised by them to be without merit.

The special charges noted above were reflected in the Cardiac Assist/Monitoring Products segment ($2.4 million), the Interventional/Vascular Products segment ($3.9 million) and Corporate and Other ($6.5 million).

MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations
Net Sales
Net sales increased 8% to $103.4 million in the second quarter and 4% to $190.7 million in the first six months of fiscal 2008 compared to the corresponding periods last year. Favorable foreign exchange translation, as a result of the weaker United States dollar relative to the Euro and the British Pound, increased sales by $2.1 million in the second quarter and $3.3 million in the first six months of fiscal 2008.
Sales in the United States were $53.5 million and $102.0 million in the second quarter and first six months of fiscal 2008, respectively, compared to $57.3 million and $111.2 million, respectively, for the corresponding periods last year with the decrease primarily attributable to lower sales in the Patient Monitoring and Interventional Products businesses.
Sales in international markets increased 30% to $49.9 million in the second quarter and 24% to $88.7 million in the first six months of fiscal 2008 compared to the corresponding periods last year, due to increases in all businesses except Interventional Products and favorable foreign exchange translation as noted above.
Sales of the Cardiac Assist / Monitoring Products segment increased 8% to $92.4 million in the second quarter and 5% to $170.2 million in the first six months of fiscal 2008 compared to the corresponding periods last year.
Sales of Cardiac Assist products in the second quarter of fiscal 2008 increased 14% year-over-year to $49.3 million due primarily to increased sales of balloon pumps (25%) and the initial stocking order to our new distributor in Japan, which was partially offset by reduced shipments to the former distributor. Sales of our Safeguard manual compression assist product grew 14%. Favorable foreign exchange translation contributed $0.9 million to Cardiac Assist sales in the second quarter of fiscal 2008. In the first six months of fiscal 2008, sales of Cardiac Assist products increased 4% to $88.9 million compared to $85.3 million last year due to the same reasons noted above.
Sales of Patient Monitoring products in the second quarter of fiscal 2008 increased 2% to $43.1 million primarily due to Artema sales of gas modules, which are currently running at an annualized rate of $11 million. Sales of central monitoring systems and bedside monitors decreased 5%, primarily due to a strong second quarter last year which included several large international orders. In addition, we believe certain customers are deferring orders for capital equipment to future periods due to tightening credit markets. Favorable foreign exchange translation contributed $0.7 million to patient monitoring sales in the second quarter of fiscal 2008. In the first six months of fiscal 2008, sales of Patient Monitoring products increased 6% to $81.3 million compared to $76.4 million last year principally due to the same reason noted above.

Sales of the Interventional / Vascular Products segment were $10.7 million in the second quarter of fiscal 2008 compared to $10.1 million last year and $19.8 million in the first six months of fiscal 2008 compared to $20.5 million last year.
Sales of Interventional Products in the second quarter of fiscal 2008 were $1.2 million, down 56% from $2.7 million last year as a result of the exit plan announced in October 2006. Certain of our IP assets have been sold and we are in discussion to divest other IP assets. We plan to seek the sale or independent distribution of our ProLumen thrombectomy device for the interventional radiology market; although these plans are subject to the reversal of a verdict in a pending appeal. Meanwhile, we continue to profitably service customer orders for certain of our vascular closure products. In the first six months of fiscal 2008, sales of Interventional Products decreased 59% to $2.5 million compared to $6.1 million last year.
Sales of InterVascular products in the second quarter of fiscal 2008 increased 28% year-over-year to $9.5 million. The increase was principally due to sales of peripheral vascular stent products obtained under a five-year exclusive distribution agreement with the Sorin Group of Milan, Italy. As part of that agreement, we received an option to purchase Sorin’s worldwide peripheral vascular stent business within two years of the agreement date. Favorable foreign exchange translation contributed $0.5 million to patient monitoring sales in the second quarter of fiscal 2008. In the first six months of fiscal 2008, sales were $17.3 million, an increase of 20% compared to $14.4 million last year primarily due to the same reason noted above.
Sales of vascular grafts increased 10% as a result of higher sales in certain international markets, which helped to offset reduced sales to our exclusive U.S. distributor (28%).
Sales of Genisphere products were $0.3 million in the second quarter and $0.6 million in the first six months of fiscal 2008 compared to $0.2 and $0.6 million, respectively, for the corresponding periods last year.
Gross Profit (Net Sales Less Cost of Sales)
Gross profit increased $5.7 million, or 11%, in the second quarter and $3.9 million, or 4%, in the first six months of fiscal 2008, primarily as a result of increased sales in the Cardiac Assist / Monitoring Products segment ($7.1 million in the second quarter and $8.5 million in the first six months of fiscal 2008).
Gross margin was 56.4% for the second quarter and 55.9% for the first six months of fiscal 2008 compared to 55.0% and 56.1%, respectively, for the corresponding periods last year. The higher gross margin in the second quarter of fiscal 2008 compared to the same period last year was principally due to a higher margin in the Cardiac Assist / Monitoring Products segment (2.4 points) as a result of a more favorable sales mix and an improved gross margin in the Patient Monitoring business primarily resulting from manufacturing efficiencies and cost reduction programs.
Research and Development Expense (R&D)
R&D expense includes new product development and improvements of existing products, as well as expenses for regulatory filings and clinical evaluations. R&D expense was $9.6 million in the second quarter of fiscal 2008, equivalent to 9.3% of sales, compared to $8.5 million, or 8.9% of sales, for the same period last year. R&D expense was $18.6 million, equivalent to 9.8% of sales, in the first six months of fiscal 2008 compared to $17.2 million, or 9.4% of sales, for the same period last year.

R&D expense for the Cardiac Assist / Monitoring Products segment was $7.0 million in the second quarter and $13.5 million in the first six months of fiscal 2008 compared to $5.9 million and $11.9 million, respectively, in the corresponding periods last year. The increases were primarily due to Artema’s R&D expenses ($0.8 million in the second quarter and $1.4 million in the first six months of fiscal 2008) and lower software development costs capitalized for patient monitors, which increased R&D expenses compared to the prior year ($0.5 million in the second quarter and $0.7 million in the first six months of fiscal 2008).
R&D expense for the Interventional / Vascular Products segment was $1.8 million in the second quarter and $3.2 million in the first six months of fiscal 2008 compared to $2.0 million and $4.0 million, respectively, in the corresponding periods last year. The decrease was primarily a result of the IP exit plan ($0.7 million in the second quarter and $1.4 million in the first six months of fiscal 2008), partially offset by higher expenses in InterVascular primarily for product validation costs ($0.5 million in the second quarter and $0.6 million in the first six months of fiscal 2008).
The balance of consolidated R&D is in Corporate and Other and amounted to $0.8 million in the second quarter and $1.9 million in the first six months of fiscal 2008 compared to $0.6 million and $1.3 million, respectively, in the corresponding periods last year. Corporate and Other R&D includes corporate design, technology, regulatory and Genisphere R&D expenses.
Selling, General & Administrative Expense (SG&A)
Total SG&A expense increased 9% to $38.1 million, or 36.9% of sales, in the second quarter of fiscal 2008 compared to $35.0 million, or 36.6% of sales, last year primarily attributable to increased corporate expenses ($1.3 million) principally related to the proxy contest, unfavorable foreign currency translation ($1.1 million), Artema’s expenses ($0.6 million) and higher severance expenses ($0.5 million). Partially offsetting the above were the cost reductions related to the IP exit plan and workforce reductions ($1.6 million). In the first six months of fiscal 2008, SG&A expense increased 2% to $71.6 million, or 37.6% of sales, compared to $70.1 million, or 38.4% of sales, for the same period last year.
SG&A expense for the Cardiac Assist / Monitoring Products segment increased $4.4 million, or 15%, to $33.0 million in the second quarter of fiscal 2008, primarily attributable to higher allocated corporate G&A charges ($2.5 million), Artema’s expenses ($0.6 million), unfavorable foreign currency translation ($0.6 million), and higher severance expenses ($0.5 million). In the first six months of fiscal 2008, SG&A expense increased $6.2 million, or 11%, to $62.4 million due to the same reasons noted above. As a percentage of segment sales, SG&A expenses were 35.8% in the second quarter and 36.7% in the first six months of fiscal 2008 compared to 33.6% and 34.7%, respectively, in the corresponding periods last year.
SG&A expense for the Interventional / Vascular Products segment decreased $0.7 million, or 11%, to $5.9 million in the second quarter of fiscal 2008, primarily attributable to the cost savings from the IP exit plan ($1.3 million), partially offset by unfavorable foreign currency translation ($0.4 million). In the first six months of fiscal 2008, SG&A expense decreased $3.6 million, or 25%, to $10.8 million due primarily to the same reasons noted above. As a percentage of segment sales, SG&A expenses were 55.4% in the second quarter and 54.1% in the first six months of fiscal 2008 compared to 65.4% and 70.2%, respectively, in the corresponding periods last year.
Segment SG&A expense includes allocated corporate G&A charges.

Interest Income
Interest income of $0.5 million in the second quarter of fiscal 2008 decreased $0.1 million compared to the same period last year due to a decrease in the average portfolio balance ($43.9 million vs. $61.6 million) and a decrease in the interest rate yield to 4.3% from 4.7%. Interest income was $1.1 million in the first six months of fiscal 2008 compared to $1.3 million last year with the decrease due to the same reasons discussed above.
Gain on Sale of Investment
We had a preferred stock investment of $5.0 million in Masimo Corporation, a supplier to our Patient Monitoring business. On August 13, 2007, Masimo completed its initial public offering, and concurrently, we sold substantially all of our investment in Masimo, resulting in a pretax gain on the sale of approximately $13.2 million in the first quarter of fiscal 2008.
Income Taxes
In the second quarter and first six months of fiscal 2008, the consolidated effective tax rate was 35.0% and 37.6%, respectively, compared to 10.5% and 24.9% in the second quarter and first six months last year, respectively. The higher tax rates in the fiscal 2008 periods were primarily attributable to the higher tax rate on the gain on sale of investment in the first quarter of fiscal 2008, expiration of the extraterritorial income exclusion on December 31, 2006 and a shift in the geographical mix of earnings to higher taxed jurisdictions. The lower tax rates in the fiscal 2007 periods were primarily attributable to the higher tax rate benefit on the $7.3 million second quarter fiscal 2007 special charges and the utilization of a foreign tax loss carryforward (that had a valuation allowance) on the $1.3 million gain on sale of an investment. Additionally, the second quarter and first six months of fiscal 2007 benefited from retroactive recognition of the U.S. Research Credit. Our effective tax rate could be impacted by changes in the geographic mix of our earnings.
Net Earnings
Net earnings were $7.1 million, or $0.46 per diluted share, in the second quarter of fiscal 2008 compared to $3.3 million, or $0.22 per diluted share, last year. Higher earnings in the second quarter of fiscal 2008 were primarily attributable to increased earnings in the Interventional / Vascular Products segment as a result of the cost reductions implemented last year and increased earnings in the Cardiac Assist / Monitoring Products segment. Net earnings in the corresponding period last year were impacted by the after-tax special charges of $4.7 million, or $0.30 per diluted share, related to the IP exit plan and workforce reductions.
Net earnings were $18.9 million, or $1.22 per diluted share, in the first six months of fiscal 2008 compared to $7.9 million, or $0.51 per diluted share, for the same period last year. Higher earnings in the first six months of fiscal 2008 were primarily attributable to the higher after-tax gain on sale of investment this year ($6.5 million) and increased earnings in the Interventional Products / Vascular Products segment as a result of the IP exit plan ($6.4 million), partially offset by the higher consolidated effective tax rate as discussed above.

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