In October 2006, we announced a plan to exit the vascular closure market and phase out the Interventional Products IP business. On August 6, 2008, we completed the sale of assets related to the VasoSeal, On-Site, and X-Site vascular closure devices, and our collagen operations, to St. Jude Medical, Inc. for $21.0 million in cash at closing and $3.0 million to be paid upon the expiration of an 18 month indemnification period. 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 (see Special Items below for a discussion of litigation related to ProLumen). In February 2007, we completed the sale of our ProGuide™ chronic dialysis catheter and the associated assets for $3.0 million plus a royalty on future sales of the ProGuide catheter.
In June 2008, we exercised our option to acquire the Peripheral Vascular Stent business of the Sorin Group of Milan. The acquisition follows our successful experience as exclusive distributor of the Sorin peripheral stent product line in Europe, during which sales have grown rapidly since the product launch in January 2007. With the acquisition, we now gain the opportunity to market the product line throughout the world. We estimate the worldwide market at $800 million annually, of which $200 million is in Europe, $500 million is in the United States and $40 million is in Japan.
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.
Our Safeguard™ 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.
We are committed to improving our operating margins through increasing the efficiency of our manufacturing operations and cost containment programs.
Due to the sale of the PM and IP businesses, which are classified as discontinued operations, the below Results of Operations relates to our continuing businesses, primarily Cardiac Assist and InterVascular. Results of Operations
Financial Summary
The following table shows the comparison of net earnings and earnings per diluted share from continuing operations over the past three fiscal years.

                                                                  (Dollars in millions, except per share data)
                                                                               Year ended June 30,
                                                                  2008                   2007                2006
Net earnings from continuing operations                       $      33.8            $      18.3            $ 24.7
Earnings per share from continuing operations, diluted        $      2.16            $      1.19            $ 1.62

Net Earnings from Continuing Operations
Net earnings from continuing operations were $33.8 million, or $2.16 per diluted share, in fiscal 2008 compared to $18.3 million, or $1.19 per diluted share, in fiscal 2007. Higher earnings in 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 Cardiac Assist Products segment ($4.7 million) due primarily to a higher gross profit ($15.2 million) from higher sales.
Net earnings from continuing operations were $18.3 million, or $1.19 per diluted share, in fiscal 2007 compared to $24.7 million, or $1.62 per diluted share, in fiscal 2006. The decrease in net earnings from continuing operations and earnings per diluted share in fiscal 2007 compared to fiscal 2006 was primarily attributable to charges associated with workforce reductions ($4.7 million), Genisphere goodwill impairment ($2.3 million) and inquiry expenses ($1.7 million), increased selling and marketing expenses in the Cardiac Assist segment ($3.8 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 27.9% compared to 21.6% in fiscal 2006. Partially offsetting the above was the higher gross profit ($10.6 million) on higher sales.
Net Loss from Discontinued Operations
Net (loss) earnings from discontinued operations of the PM and IP businesses were ($3.5 million) in fiscal 2008, ($0.8 million) in fiscal 2007 and $1.1 million in fiscal 2006.
Gain on sale of Discontinued Operations
In the fourth quarter of fiscal 2008, we recognized a gain on sale of the PM business of $76.7 million, net of tax.
Comparison of Results (Continuing Operations) - Fiscal 2008 vs. Fiscal 2007 Net Sales (Sales)
The following table shows sales by reportable segment over the past three fiscal years.

                                                    Sales by Product Line
                                                    (Dollars in millions)
                                                     Year ended June 30,
                                                2008        2007         2006

            Cardiac Assist Products Segment   $ 189.3     $ 178.3     $ 164.8
            % change from prior year                6 %         8 %        16 %
            % of total sales                       82 %        83 %        83 %

            Vascular Products Segment         $  40.3     $  33.5     $  30.1
            % change from prior year               20 %        11 %       (15 )%
            % of total sales                       17 %        16 %        16 %

            Corporate and Other
            Genisphere                        $   1.3     $   1.2     $   1.6
            % change from prior year                -           -           -
            % of total sales                        1 %         1 %         -
            Total sales                       $ 230.9     $ 213.0     $ 196.5
            % change from prior year                8 %         8 %        10 %

Sales in fiscal 2008 of $230.9 million increased $17.9 million or 8% compared to $213.0 million in fiscal 2007. Favorable foreign exchange translation increased sales by $5.4 million, or 2% as a result of the weaker U.S. dollar relative to the Euro and the British Pound, the primary currencies in countries in which we have direct sales subsidiaries.
Sales in the United States of $98.8 million, decreased $3.7 million or 4% compared to fiscal 2007, attributable to decreased sales in Cardiac Assist ($2.6 million) and Vascular Products ($1.2 million). Sales in international markets of $132.2 million increased $21.7 million or 20% compared to fiscal 2007. Favorable foreign exchange translation increased international sales by $5.4 million, or 4% due to increased sales in Cardiac Assist ($13.6 million) and Vascular products ($8.0 million).
Cardiac Assist
Sales of Cardiac Assist products in fiscal 2008 increased 6% to $189.3 million, primarily reflecting 18% growth in sales of intra-aortic balloons ("IABs") in international markets and increased sales of IABs in the United States (3%), the first year-over-year increase in 8 years.
We believe that renewed IAB sales growth in the United States stems from a reorganized and expanded direct sales force that is focused on the clinical benefits of IAB use, and has led to increasing use in cardiac catheterization and open-heart surgical procedures.
International sales of IABs in fiscal 2008 benefited from an initial stocking order to our new distributor in Japan, which was partially offset by reduced shipments to the former distributor. At the end of December 2007, Datascope Japan K.K., a wholly-owned subsidiary of Datascope Corp., began management of Datascope's Intra-Aortic Balloon Pump (IABP) business in Japan. Datascope Japan K.K. is responsible for import, product service, sales support and product surveillance of the IABP business. USCI Holdings Ltd., our new exclusive distributor is responsible for sales distribution throughout Japan.
Sales of the Safeguard device, which grew 15% over last year, has also increased our presence in the cardiac catheterization lab and given our sales representatives additional opportunities to promote the use of IABs.
Sales of balloon pumps grew 1% over last year, as increased sales in international markets (11%) was partially offset by reduced sales (9%) in the United States, due to record sales last year resulting from the introduction of the CS300™ balloon pump in March 2007.
Favorable foreign exchange translation contributed $3.3 million to Cardiac Assist sales in fiscal 2008.
Vascular Products
Sales of vascular products in fiscal 2008 increased 20% to $40.3 million principally due to sales of peripheral vascular stent products, acquired from Sorin Group, of Milan, Italy. Vascular graft sales increased 11% due to an 18 % increase in sales to international markets as 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 25% due to an inventory reduction plan implemented by the distributor. Favorable foreign exchange translation contributed $2.1 million to vascular product sales in fiscal 2008.
Genisphere

Sales of Genisphere products of $1.3 million in fiscal 2008 increased $0.1 million or 7% compared to fiscal 2007. 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 $12.1 million or 9% as a result of increased sales in the Cardiac Assist Products segment ($11.0 million) and the Vascular Products segment ($5.7 million). Gross margin was 65.3% for fiscal 2008 compared to 65.2% last year. The slightly higher gross margin in fiscal 2008 compared to fiscal 2007 was principally due to an improved mix of products as a result of increased sales of higher margin IABs and reduced sales of balloon pumps.
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 $21.1 million in fiscal 2008, equivalent to 9.1% of sales, compared to $19.9 million or 9.3% of sales last year.
R&D expense for the Cardiac Assist Products segment was $11.1 million in fiscal 2008 compared to $11.7 million last year, with the decrease primarily due to higher capitalization of balloon pump software development costs this year, which reduced R&D expenses compared to the prior year ($1.2 million) and lower new product development expenses ($0.4 million), partially offset by regulatory costs in our new subsidiary in Japan ($1.1 million).
R&D expense for the Vascular Products segment was $5.4 million in fiscal 2008 compared to $4.4 million in the corresponding period last year, with the increase primarily attributable to higher product validation costs
($0.6 million) and unfavorable foreign currency translation ($0.5 million)
The balance of consolidated R&D is in the Corporate and Other segment and amounted to $4.6 million in fiscal 2008 compared to $3.8 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 was $92.6 million in fiscal 2008 or 40.1% of sales, compared to $87.4 million or 41.0% of sales, last year.
SG&A expense for the Cardiac Assist Products segment of $74.8 million, increased $6.1 million or 9% in fiscal 2008 primarily attributable to expenses associated with our new subsidiary in Japan ($2.1 million), higher corporate allocation ($2.0 million) and unfavorable foreign currency translation ($1.5 million). As a percentage of segment sales, SG&A expense was 39.5% in fiscal 2008 compared to 38.5% in the corresponding period last year.
SG&A expense for the Vascular Products segment of $21.3 million, increased $0.2 million or 1% in fiscal 2008 primarily attributable to unfavorable foreign currency translation ($2.0 million) and higher selling and marketing expenses ($0.9 million), partially offset by lower corporate allocation ($2.7 million). As a percentage of segment sales, SG&A expense was 52.8% in fiscal 2008 compared to 63.0% in the corresponding period last year.
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 $5.2 million in fiscal 2008.
Special Charges
Fiscal 2007
Workforce Reductions in the European Sales Organization , Genisphere and Corporate
In fiscal 2007, we reduced the workforce in the European sales organization, Genisphere and Corporate and recorded a charge of $4.7 million for severance, settlement and other termination benefits. The workforce reductions resulted primarily from the merger of the European sales organization and outsourcing the corporate legal and internal audit functions. All of the terminated employees left the Company by the end of fiscal 2007.
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 Form 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 Products segment ($1.1 million), the Vascular Products segment ($1.1 million) and Corporate and Other ($6.5 million).
Interest Income
Interest income was $2.7 million in fiscal 2008 compared to $2.5 million last year with the increase primarily attributable to a higher average portfolio balance ($73.0 million vs. $50.6 million), partially offset by a decrease in the interest rate yield to 3.26% from 4.60%. Other, Net
Other, net increased $0.8 million in fiscal 2008 compared to the same period last year attributable primarily to higher foreign exchange losses on inter-company receivables.
Gain on Sale of Investments

We had a preferred stock investment of $5.0 million in Masimo Corporation, a supplier to the PM 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 fiscal 2008, the consolidated effective tax rate for continuing operations was 34.1% compared to 29.5% last year. The higher tax rate in fiscal 2008 compared to last year was 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. Our effective tax rate could be impacted by changes in the geographic mix of our earnings. Partially offsetting the above was favorable tax adjustments as a result of the expiration of federal and foreign statutes of limitations for fiscal 2004 and other tax benefits recognized due to the sale of the PM business. Comparison of Results (Continuing Operations) - Fiscal 2007 vs. Fiscal 2006 Sales
Cardiac Assist
Sales of Cardiac Assist Products in fiscal 2007 increased 8% to $178.3 million. Sales of balloon pumps increased 7% and sales of intra-aortic balloons (IABs) 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™ 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™ 7 Fr. fiber-optic balloon catheter to provide higher fidelity blood pressure monitoring while eliminating the need for an additional invasive arterial pressure line 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.
Vascular Products
Sales of vascular products in fiscal 2007 increased 11% to $33.4 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).

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 $10.6 million or 8% as a result of increased sales in the Cardiac Assist Products segment ($13.5 million) and the Vascular Products segment ($3.3 million). Gross margin was 65.2% for fiscal 2007 and fiscal 2006.
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 $19.9 million in fiscal 2007, equivalent to 9.3% of sales, compared to $19.1 million or 9.7% of sales last year.
R&D expense for the Cardiac Assist Products segment was $11.7 million in fiscal 2007 compared to $12.2 million last year, with the decrease primarily due to lower expenses for new product development projects.
R&D expense for the Vascular Products segment was $4.4 million in fiscal 2007 compared to $3.6 million last year, with the increase due primarily to new product development costs for vascular grafts.
The balance of consolidated R&D is in the Corporate and Other segment and amounted to $3.8 million in fiscal 2007 compared to $3.3 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 $87.4 million in fiscal 2007 or 41.0% of sales, compared to $81.2 million or 41.3% of sales, last year.
SG&A expense for the Cardiac Assist Products segment of $68.7 million, increased $4.8 million or 7% 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), unfavorable foreign currency translation ($1.2 million) and increased expense due to filling open sales positions ($0.9 million). As a percentage of segment sales, SG&A expenses were 38.5% in fiscal 2007 compared to 38.8% in the corresponding period last year.
SG&A expense for the Vascular Products segment of $21.1 million, increased $1.5 million or 8% in fiscal 2007. The increase was due primarily to unfavorable foreign currency translation ($1.0 million) and increased selling expenses ($0.5 million). As a percentage of segment sales, SG&A expenses were 63.0% in fiscal 2007 compared to 64.8% in the corresponding period last year.
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 Charges
Fiscal 2007
Workforce Reductions in European Sales Organization, Corporate and Genisphere In fiscal 2007, we reduced the workforce in the European sales organization, Genisphere and Corporate and recorded a charge of $4.7 million for severance, settlement and other termination benefits. The workforce reductions resulted primarily from the merger of the European sales organization and outsourcing the corporate legal and internal audit functions. All of the terminated employees left the Company by the end of fiscal 2007.
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 . . .