<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended MARCH 31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 333-18687
------------------
ALARIS MEDICAL SYSTEMS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3800335
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10221 Wateridge Circle, San Diego, CA 92121
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(619) 458-7000
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
On May 7, 1998, the registrant had 1,000 shares of common stock outstanding.
Page 1 of 21
<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
- -------------------------------------------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1 - Financial Statements:
Page
----
Condensed consolidated balance sheet at
December 31, 1997 and March 31, 1998 3
Condensed consolidated statement of operations for
the three months ended March 31, 1997 and 1998 4
Condensed consolidated statement of cash flows for the
three months ended March 31, 1997 and 1998 5
Condensed consolidated statement of changes in
stockholder's equity for the period from
December 31, 1997 to March 31, 1998 6
Notes to the condensed consolidated financial statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
- --------------------------
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 19
- 2 -
<PAGE>
FORM 10 - Q
PART 1 - ITEM 1
FINANCIAL INFORMATION
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,918 $ 3,804
Receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,406 80,724
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,666 58,872
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 23,319 23,165
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 175,309 166,565
Net investment in sales-type leases, less current portion. . . . . . . . . 30,404 27,792
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 55,365 55,888
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . 15,749 16,938
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . 286,279 282,463
--------- ---------
$ 563,106 $ 549,646
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 14,559 $ 14,619
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,927 20,577
Accrued expenses and other current liabilities. . . . . . . . . . . . . 51,739 54,755
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 90,225 89,951
--------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,419 403,188
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . 18,515 17,903
--------- ---------
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . 433,934 421,091
--------- ---------
Contingent liabilities and commitments (Note 5)
Common stock and other stockholder's equity:
Common stock and capital in excess of par value, authorized 3,000
common shares at $.01 par value; 1,000 issued and outstanding
at December 31, 1997 and March 31, 1998. . . . . . . . . . . . . . . 98,503 98,503
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (55,930) (56,214)
Equity adjustment for foreign currency translation. . . . . . . . . . . (3,626) (3,685)
--------- ---------
Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . 38,947 38,604
--------- ---------
$ 563,106 $ 549,646
--------- ---------
--------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- 3 -
<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
-------- --------
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,995 $ 86,971
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . 46,970 44,854
-------- --------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . 35,025 42,117
-------- --------
Selling and marketing expenses . . . . . . . . . . . . . . . . . 15,495 17,129
General and administrative expenses. . . . . . . . . . . . . . . 8,928 9,533
Research and development expenses. . . . . . . . . . . . . . . . 4,068 4,340
Integration and other non-recurring charges. . . . . . . . . . . 2,517 -
-------- --------
Total operating expenses. . . . . . . . . . . . . . . . . . . 31,008 31,002
-------- --------
Lease interest income. . . . . . . . . . . . . . . . . . . . . . 1,162 1,162
-------- --------
Income from operations. . . . . . . . . . . . . . . . . . . . 5,179 12,277
-------- --------
Other income (expenses):
Interest income . . . . . . . . . . . . . . . . . . . . . . . 137 61
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (10,370) (10,833)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . (147) (357)
-------- --------
Total other expense. . . . . . . . . . . . . . . . . . . . . . . (10,380) (11,129)
-------- --------
(Loss) income before income taxes. . . . . . . . . . . . . . . . (5,201) 1,148
(Benefit from) provision for income taxes. . . . . . . . . . . . (1,900) 630
-------- --------
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . $ (3,301) $ 518
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- 4 -
<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities. . . . . . . . . . . . $ 10,605 $ 14,987
-------- --------
Cash flows from investing activities:
Net capital expenditures. . . . . . . . . . . . . . . . . . . (4,868) (5,002)
-------- --------
Net cash used in investing activities. . . . . . . . . . . . . . (4,868) (5,002)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . (3,309) (6,072)
Proceeds under revolving credit facility. . . . . . . . . . . 4,300 10,300
Repayments under revolving credit facility. . . . . . . . . . - (16,500)
Dividends to ALARIS Medical . . . . . . . . . . . . . . . . . (757) (802)
Debt issue costs. . . . . . . . . . . . . . . . . . . . . . . (109) -
-------- --------
Net cash provided by (used in) financing activities. . . . . . . 125 (13,074)
-------- --------
Effect of exchange rate changes on cash. . . . . . . . . . . . . (375) (25)
-------- --------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . . 5,487 (3,114)
Cash at beginning of period. . . . . . . . . . . . . . . . . . . 9,148 6,918
-------- --------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . $ 14,635 $ 3,804
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDER'S EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
AND CAPITAL EQUITY
IN EXCESS OF PAR VALUE ADJUSTMENT FOR
---------------------- ACCUMULATED FOREIGN CURRENCY
SHARES AMOUNT DEFICIT TRANSLATION TOTAL
-------- ---------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,000 $ 98,503 $(55,930) $(3,626) $ 38,947
Dividends to ALARIS Medical (802) (802)
Equity adjustment for foreign
currency translation (59) (59)
Net income for the period 518 518
----- -------- -------- ------- --------
Balance at March 31, 1998 1,000 $ 98,503 $(56,214) $(3,685) $ 38,604
----- -------- -------- ------- --------
----- -------- -------- ------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- 6 -
<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
NOTE 1 -- BUSINESS AND STATEMENT OF ACCOUNTING POLICY
THE COMPANY:
ALARIS Medical Systems, Inc. ("ALARIS Medical Systems"), formerly IMED
Corporation ("IMED"), designs, manufactures, distributes and services
intravenous infusion therapy and patient monitoring instruments and related
disposables and accessories. On November 26, 1996, IMED, then a wholly-owned
subsidiary of ALARIS Medical, Inc. ("ALARIS Medical"), formerly Advanced
Medical, Inc. ("Advanced Medical"), acquired all of the outstanding stock of
IVAC Holdings, Inc. ("IVAC Holdings") and its subsidiaries including IVAC
Medical Systems, Inc. (Note 2). In connection with the acquisition, IMED and
IVAC Medical Systems, Inc. were merged into IVAC Holdings (the "Merger"),
which then changed its name to ALARIS Medical Systems, Inc. The acquisition
was accounted for as a purchase. ALARIS Medical Systems and its subsidiaries
are collectively referred to as the "Company."
STATEMENT OF ACCOUNTING POLICY:
The accompanying financial statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information not misleading.
In the opinion of the Company, the accompanying financial statements contain
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the Company's financial position as of March 31, 1998, and
the results of its operations and its cash flows for the three months ended
March 31, 1997 and 1998.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
NOTE 2 -- THE MERGER
On November 26, 1996, IMED acquired all of the outstanding stock of IVAC
Holdings and its subsidiaries including IVAC Medical Systems, Inc., in exchange
for $390,000 plus acquired cash of $7,225 less total debt assumed aggregating
$173,314 plus related expenses. The Merger was financed with $204,200 in bank
debt and $200,000 in senior subordinated notes. Subsequent to the acquisition,
IVAC Medical Systems, Inc. and IMED were merged into IVAC Holdings, which
subsequently changed its name to ALARIS Medical Systems, Inc. In connection
with the Merger, ALARIS Medical contributed $19,588 to IMED (the "Capital
Contribution").
- 7 -
<PAGE>
The acquisition was accounted for as a purchase, whereby the purchase price,
including related expenses, was allocated to identified assets, including
intangible assets, purchased research and development and liabilities based
upon their respective fair values. The excess of the purchase price over the
value of identified assets and liabilities, in the amount of $132,482, was
recorded as goodwill and is being amortized over its estimated life of thirty
years.
NOTE 3 -- INVENTORIES
Inventories comprise the following:
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
Raw materials $ 24,144 $ 25,266
Work-in-process 8,363 7,610
Finished goods 29,159 25,996
-------- --------
$ 61,666 $ 58,872
-------- --------
-------- --------
NOTE 4 -- COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This Statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. ALARIS
Medical's total comprehensive earnings were as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------- -----
Net (loss) income $(3,301) $ 518
Other comprehensive loss:
Foreign currency translation adjustments (1,332) (59)
------- -----
Other comprehensive (loss) income $(4,633) $ 459
------- -----
------- -----
NOTE 5 -- CONTINGENCIES AND LITIGATION
FIELD CORRECTION
The Company has initiated a voluntary field correction of approximately 50,000
of its Gemini model PC-1 and PC-2 infusion pumps because failure of specific
electrical components on the power regulator printed circuit board may result in
improper regulation of the battery charge voltage, which can cause the battery
to overheat. Such overheating could result in product failure and discharge of
hydrogen gas which may accumulate within the instrument's case. As an interim
measure, the Company has advised its customers of simple precautions that can be
taken to minimize the potential for an adverse incident
- 8 -
<PAGE>
pending completion of the field correction. The Company is not aware of any
injuries sustained in known battery overcharging incidents.
As a result of this decision, the Company recorded a charge of $2,500 to
cost of sales during the first quarter of 1997. Based on management's
current understanding of these incidents, the Company believes it has
adequately accrued for this matter. However, since the Company's analysis of
this matter is ongoing, there can be no assurances that it can be resolved
for an amount consistent with management's estimated cost.
LITIGATION
The Company is a defendant in a lawsuit filed in June 1996 by Sherwood
Medical, Inc. against IVAC which alleges infringement of two patents by
reason of certain activities including the sale by IVAC of disposable probe
covers for use with the Company's infrared tympanic thermometer. The lawsuit
seeks injunctive relief, treble damages and the recovery of costs and
attorney fees. The Company believes it has sufficient defenses to all claims,
including the defenses of noninfringement and invalidity and intends to
vigorously defend this action. However, there can be no assurance that the
Company will successfully defend all claims made by Sherwood and the failure
of the Company to successfully prevail in this lawsuit could have a material
adverse effect on the Company's operations, financial condition and cash
flows.
The Company is a defendant in a QUI TAM lawsuit filed by a former IMED
employee in the United States District Court for the Northern District of
Illinois. On November 15, 1996, an amended complaint was filed which alleges
fraud in the inducement, breach of employment contract, common law fraud and
violations of the Federal False Claims Act and Medicare Fraud and Abuse Act.
To date, the United States has declined to intervene in this action. The
Company believes it has sufficient defenses to all claims by the plaintiff.
However, there can be no assurance that the Company will successfully defend
all claims made in this lawsuit and the failure of the Company to prevail in
this lawsuit could have a material adverse effect on the Company's
operations, financial condition and cash flows.
UNITED STATES CUSTOMS SERVICE MATTER
During the years 1988 through 1995, Cal Pacifico acted as the Company's
United States customs broker and importer of record with respect to the
importation into the United States of finished products ("Finished Products")
assembled at the Company's two maquiladora assembly plants in Tijuana,
Mexico. In May 1995, Cal Pacifico received a pre-penalty notice from the
United States Customs Service ("Customs") to the effect that Customs intended
to assess additional duties and substantial penalties against Cal Pacifico
for its alleged failure, during the years 1988 through 1992, to comply with
certain documentary requirements regarding the importation of goods on behalf
of its clients, including the Company. Customs recently assessed additional
duties with respect to Cal Pacifico's importation of goods on behalf of its
clients, including the importation of the Company's Finished Products, for
the years 1993 and 1994, and it is anticipated that Customs will issue a
pre-penalty notice to Cal Pacifico in respect of these years as well
(collectively with the amounts referred to in the immediately preceding
sentence, the "Disputed Amounts"). The Company has been advised by its
special Customs counsel that, under applicable law, no person, by fraud,
gross negligence or negligence, may (i) import merchandise into the commerce
of the United States by means of any material and false document, statement
or act, or any material omission, or (ii) aid or abet any other person to
import merchandise in such manner. No proceeding has been initiated by
Customs against the Company in respect of the matters which are the subject
of the proceeding against Cal Pacifico. Since Cal Pacifico was the Company's
United States customs broker and importer of record during each of the
foregoing years, the
- 9 -
<PAGE>
Company believes that it is unlikely that Customs will assess against the
Company any portion of the Disputed Amounts.
Cal Pacifico is contesting Customs' assessment of the Disputed Amounts. Cal
Pacifico's challenge to the assessment of the Disputed Amounts is in its
preliminary stages. Given the present posture of Cal Pacifico's challenge,
and the inherent uncertainty of contested matters such as this, it is not
possible for the Company to express an opinion as to the likelihood that Cal
Pacifico will prevail on its challenge. The Company has not been informed by
Cal Pacifico or Customs as to the specific amount of the Disputed Amounts.
Cal Pacifico has advised the Company that, should Cal Pacifico's challenge to
the assessment of the Disputed Amounts prove to be unsuccessful, it will seek
recovery from the Company, through arbitration, for any portion of the
Disputed Amounts which it is required to pay to Customs. As part of the
settlement agreement which resolved the Company's contract dispute with Cal
Pacifico during the second quarter of 1997, the Company paid Cal Pacifico
$550, which is to be applied toward Cal Pacifico's payment of Disputed
Amounts. The $550 payment by the Company is to be credited toward any
portion of the Disputed Amounts which the arbitrator determines the Company
owes to Cal Pacifico. The actual amount so determined by the arbitrator may
be less or greater than $550. Although the ultimate outcome of such an
arbitration proceeding cannot be guaranteed, the Company believes that it has
meritorious defenses to claims with respect to Disputed Amounts which Cal
Pacifico might raise against the Company. These defenses would be based,
among other factors, on the contractual relationship between the Company and
Cal Pacifico (including a defense with respect to the availability of
indemnification under the agreements between Cal Pacifico and the Company),
the conduct of Cal Pacifico with respect to both the Company and Customs, and
the compliance obligations of Cal Pacifico under applicable customs laws.
Inasmuch as Cal Pacifico's challenge before Customs is still pending and any
claim against the Company for indemnification would be based on Cal
Pacifico's ultimate lack of success in that challenge, and inasmuch as any
arbitration proceeding by which Cal Pacifico might seek indemnification has
not been filed nor has Cal Pacifico committed itself to the theories under
which it might seek indemnification or the recovery of damages from the
Company, it is not possible for the Company to express an opinion at this
time as to the likelihood of an unfavorable outcome in such a proceeding.
OTHER
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
they have meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is
uncertain, no contingent liabilities or provisions have been recorded in the
accompanying financial statements for such matters. However, in management's
opinion, based on discussions with legal counsel, liabilities arising from
such matters, if any, will not have a material adverse effect on consolidated
financial position, results of operations or cash flows.
- 10 -
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
GENERAL
The Company sells and services infusion systems primarily in the United States,
Western Europe, Canada, Australia, Latin America and the Middle East. The
Company generates revenues from the sale and/or lease of infusion pumps, and
sales of associated proprietary disposable administration sets. Additionally,
the Company generates revenue from the sale of patient monitoring products.
In recent years, the Company's results of operations have been affected by the
cost containment pressures applicable to health care providers. In particular,
in order to reduce costs, certain hospitals have adopted a protocol increasing
the maximum time between disposable administration set changes from every 24
hours to as much as every 72 hours. Notwithstanding this change in protocol,
unit sales volume of the Company's disposable administration sets increased in
every year since 1993, primarily as a result of the growth in its installed base
of infusion pumps. However, uncertainty remains with regard to future changes
within the healthcare industry. The trend towards managed care and economically
motivated buyers in the U.S. may result in continued pressure on selling prices
of products and compression on gross margins. The U.S. marketplace is
increasingly characterized by consolidation among healthcare providers and
purchasers of medical products. The Company's profitability is affected by the
increasing use of Group Purchasing Organizations ("GPOs") which are better able
to negotiate favorable pricing from providers of infusion systems, such as the
Company, and which police compliance with exclusive buying arrangements for
their members. These buying arrangements, in certain situations, also may result
in the GPO requiring removal of the Company's existing infusion pumps. The
Company expects that such GPOs will become increasingly more common and may have
an adverse effect on the Company's future profitability.
- 11 -
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
information expressed as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of sales. . . . . . . . . . . . . . . . . . . . . 57.3 51.6
----- -----
Gross margin . . . . . . . . . . . . . . . . . . . . . 42.7% 48.4%
Selling and marketing expenses . . . . . . . . . . . . 18.9 19.7
General and administrative expenses. . . . . . . . . . 10.9 10.9
Research and development expenses. . . . . . . . . . . 5.0 5.0
Integration and other non-recurring charges. . . . . . 3.0 -
Lease interest income. . . . . . . . . . . . . . . . . 1.4 1.3
----- -----
Income from operations . . . . . . . . . . . . . . . . 6.3 14.1
Interest expense . . . . . . . . . . . . . . . . . . . (12.6) (12.5)
Other, net . . . . . . . . . . . . . . . . . . . . . . - (.3)
----- -----
(Loss) income before income taxes. . . . . . . . . . . (6.3) 1.3
(Benefit from) provision for income taxes. . . . . . . (2.3) .7
----- -----
Net (loss) income. . . . . . . . . . . . . . . . . . . (4.0%) .6%
----- -----
----- -----
OTHER DATA:
Adjusted EBITDA . . . . . . . . . . . . . . . . . . 21.4% 23.6%
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------- -------------
ADJUSTED EBITDA (1). . . . . . . . . . . . . . . . . . $ 17,573 $ 20,546
Inventory purchase price allocation adjustment (2) . . (1,607) -
Integration and other non-recurring charges. . . . . . (2,517) -
Depreciation and amortization (3). . . . . . . . . . . (8,270) (8,269)
Interest income. . . . . . . . . . . . . . . . . . . . 137 61
Interest expense . . . . . . . . . . . . . . . . . . . (10,370) (10,833)
Other, net . . . . . . . . . . . . . . . . . . . . . . (147) (357)
Benefit from (provision for) income taxes. . . . . . . 1,900 (630)
-------- --------
Net (loss) income . . . . . . . . . . . . . . . . . $ (3,301) $ 518
-------- --------
-------- --------
</TABLE>
- -------------------------
(1) Adjusted EBITDA represents income from operations before
restructuring, integration and other non-recurring charges,
non-cash purchase accounting charges and depreciation and
amortization. Adjusted EBITDA does not represent net income or cash
flows from operations, as these terms are defined under generally
accepted accounting principles, and should not be considered as an
alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity.
ALARIS Medical Systems has included information concerning Adjusted
EBITDA herein because it understands that such information is used
by investors as one measure of an issuer's historical ability to
service debt. Restructuring and other one-time non-recurring
charges are excluded from Adjusted EBITDA as ALARIS Medical Systems
believes that the inclusion of these items would not be helpful to
an investor's
- 12 -
<PAGE>
understanding of ALARIS Medical System's ability to service debt.
ALARIS Medical System's computation of Adjusted EBITDA may not be
comparable to similar titled measures of other companies.
(2) Amount represents that portion of the purchase accounting
adjustments made to adjust the acquired IVAC inventory to its
estimated fair value on the Merger date which was charged to cost
of sales during the first quarter of 1997.
(3) Depreciation and amortization excludes amortization of debt
discount and issuance costs included in interest expense.
The following table summarizes sales to customers located in the United States
and international locations:
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------ ------
U.S. sales $ 51.4 $ 52.6
International sales 30.6 34.4
------ ------
Total sales $ 82.0 $ 87.0
------ ------
------ ------
For purposes of this discussion and analysis, the three months ended March 31,
1997 and 1998 are referred to as 1997 and 1998, respectively.
SALES
Sales increased $5.0 million during 1998 as compared to 1997. International
sales increased $3.8 million, or 12.4%, while United States sales increased
$1.2 million, or 2.3%. The increase in international sales is primarily due
to increases in drug infusion instrument revenue of $2.1 million and drug
infusion disposable administration set revenue of $1.1 million. The majority
of the Company's international sales are denominated in foreign currency.
Due to a stronger U.S. dollar in 1998 as compared to the actual foreign
currency exchange rates in effect during 1997, translation of 1998
international sales were adversely impacted by $1.5 million. The increase in
U.S. sales in 1998 as compared to 1997 is primarily due to increases in drug
infusion disposable administration set revenue of $1.3 million and patient
monitoring revenue of $0.7 million. These increases were offset by a
decrease in drug infusion instrument revenue of $0.7 million.
GROSS MARGIN
The gross margin percentage increased from 42.7% in 1997 to 48.4% in 1998
primarily due to $4.1 million of non-recurring costs included in 1997 cost of
sales. Exclusive of $1.6 million of non-recurring purchase accounting
inventory adjustments and $2.5 million related to a voluntary field
correction of certain Gemini PC-1 and PC-2 infusion pumps charged to cost of
sales during 1997, the gross margin percentage for 1997 was 47.7%. This
improvement is due to the benefits realized from ongoing cost reduction
efforts and purchasing synergies.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased $1.6 million, or 10.5%, during 1998
as compared to 1997. As a percentage of sales, selling and marketing expenses
increased from 18.9% in 1997 to 19.7% in 1998. Domestic expenses increased by
$0.5 million, or 5.7%, from 1997. International expenses increased $1.1
million, or 16.4%, from 1997. These increases were due to additional
corporate investment in international direct operations and personnel in this
area.
- 13 -
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $0.6 million, or 6.8%, during
1998 as compared to 1997 and remained at 10.9% of sales. Domestic expenses
increased $0.2 million due to the creation of a corporate development
function to assess product and company acquisitions, distribution alliances
and joint ventures which will expand Company technologies into unserved
markets. International expenses increased by $0.4 million, or 22.2%,
primarily as a result of the conversion of certain European dealer operations
into direct operations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased approximately $0.3 million, or
6.7%, during 1998 as compared to 1997 primarily due to increased activities
associated with the later development stages of various domestic and
international engineering projects for infusion systems and disposable
administration sets.
INTEGRATION AND OTHER NON-RECURRING CHARGES
The Company incurred $2.5 million in costs to integrate the IMED and IVAC
operations during 1997. These costs are in addition to restructuring and
integration charges of $15.3 million recorded in the fourth quarter of 1996.
The 1997 expense consists primarily of management consulting fees of $1.0
million, sales force integration expense of $0.9 million and information
systems conversion costs of $0.5 million.
INCOME FROM OPERATIONS
Income from operations increased $7.1 million during 1998 as compared to 1997
primarily due to the 1997 operating results including significant integration
charges, non-recurring purchase accounting charges and expenses related to
the field correction on the Gemini pumps as discussed above which were not
incurred in 1998.
ADJUSTED EBITDA
Adjusted EBITDA increased $3.0 million during 1998 as compared to 1997. As a
percentage of sales, Adjusted EBITDA increased from 21.4%, or $17.6 million,
for 1997 to 23.6%, or $20.5 million, for 1998 due to the reasons discussed
above. Excluding the $2.5 million charge to cost of sales during the first
quarter of 1997, Adjusted EBITDA for 1997 would have increased to $20.1
million. Adjusted EBITDA represents income from operations before
non-recurring non-cash purchase accounting charges, integration charges and
depreciation and amortization. Adjusted EBITDA does not represent net income
or cash flows from operations, as these terms are defined under generally
accepted accounting principles, and should not be considered as an
alternative to net income or to cash flows as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The Company
has included information concerning Adjusted EBITDA herein because it
understands that such information is used by investors as a measure of an
issuer's historical ability to service debt. Integration and other one-time
non-recurring charges are excluded from Adjusted EBITDA as the Company
believes that the inclusion of these items would not be helpful to an
investor's understanding of the Company's ability to service debt. The
Company's computation of Adjusted EBITDA may not be comparable to similar
titled measures of other companies.
INTEREST EXPENSE
Interest expense increased $0.5 million during 1998 primarily due to a higher
average balance on the Company's revolving credit facility in 1998 and higher
interest rates on the Company's bank term debt in 1998 due to the interest
rate protection agreement entered into during the second quarter of 1997 (see
Liquidity and Capital Resources).
- 14 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to continue to meet its liquidity needs, including
capital expenditure requirements with cash flow from operations and
borrowings under the credit facility. In addition to operating expenses, the
Company's primary future use of funds will be to fund capital expenditures
and strategic acquisitions and to pay debt service on outstanding
indebtedness. Additionally, the Company's credit facility permits it to
transfer to ALARIS Medical up to $1.5 million annually to fund ALARIS
Medical's operating expenses and additional amounts sufficient to meet annual
interest expense requirements of approximately $1.2 million.
During 1998, the Company made cash payments of approximately $0.8 million
related to merger and integration costs accrued at December 31, 1997.
At March 31, 1998, the Company's outstanding indebtedness was $417.8 million,
which includes $195.8 million of bank term debt under the credit facility and
$200.0 million of Senior Subordinated Notes due 2006 (the "Notes"), which
were issued in connection with the Merger. The bank debt bears interest at
floating rates based, at the Company's option, on Eurodollar or prime rates.
During the second quarter of 1997, the Company entered into an interest rate
protection agreement covering 50% of its term loan borrowings. Such agreement
fixed the interest rate charged on such borrowings resulting in a weighted
average fixed rate of 9.6% on the principal balance covered. As a result, a
one percent increase in the rate of interest charged on indebtedness
outstanding under the credit facility at March 31, 1998 would result in
additional annual interest expense of approximately $1.0 million. During
March 1998, the credit facility was amended and the interest rates on the
bank debt reduced. As a result, the weighted average interest rate, including
the effect of the interest rate protection agreement, was reduced to 8.5%
based on the amounts outstanding at the time of the amendment. The Company
incurred fees of approximately $0.4 million related to such interest rate
reductions.
In connection with obtaining the Merger financing, the Company also obtained
a $50.0 million revolving credit line as part of the credit facility. At
March 31, 1998, $19.0 million in borrowings and $0.5 million under letters of
credit were outstanding under this line of credit and $30.5 million was
available.
In connection with the Merger, the Company assumed IVAC's obligations to
Siemens Infusion Systems Ltd. ("SIS"). These obligations relate to the
payment of additional purchase consideration related to the acquisition of
the MiniMed product line (the predecessor product line to MS III). The
Company's remaining obligation to SIS is the greater of $3.0 million or 8% of
the prior year's MS III sales in 1999. The Company made the minimum 1998
payment of $3.0 million during the first quarter of 1998.
As a result of the Company's significant indebtedness, the Company expects to
incur significant interest expense in future periods. The Company believes
that cash provided by operations will be sufficient to meet its interest
expense obligations.
Annual amortization of the Company's indebtedness is $8.7 million for the
remaining nine months of 1998 and $15.6 million and $13.7 million for 1999
and 2000, respectively.
Although the Company is not a guarantor of ALARIS Medical's debt, ALARIS
Medical has no significant operations other than the operations of the
Company and is dependent upon the Company to fund its debt service
requirements and other operating expenses. At March 31, 1998, ALARIS Medical
had $16.2 million of outstanding Convertible Debentures. The Convertible
Debentures provide for semi-annual interest payments of approximately $0.6
million and mature on January 15, 2002. The Notes and the New Credit
Facility permit the Company to fund interest payments on the Convertible
Debentures and to make limited
- 15 -
<PAGE>
distributions to ALARIS Medical to fund operating expenses and to pay income
taxes; provided that, with respect to the New Credit Facility, there exists
no default or event of default under the New Credit Facility. The Notes and
the New Credit Facility, however, restricts distributions to ALARIS Medical
to fund the repayment of the Convertible Notes at maturity.
The Company made capital expenditures of approximately $5.1 million during
1998 and anticipates additional capital expenditures of approximately $20.0
million during the remainder of 1998.
In addition to routine capital expenditures, and in connection with the
Merger, the Company has made significant expenditures for the acquisition of
enterprise-wide information system software and hardware and the related
design, testing and implementation. The worldwide project is scheduled for
completion in 1999. The system is year 2000 compliant and also designed to
properly process transactions denominated in euro currency. Euro currency is
a new monetary unit which certain European countries can begin using in 1999.
During fiscal year 1997 and the three months ended March 31, 1998, the
Company made combined capital and operating expenditures of approximately
$6.0 million and $1.4 million, respectively, related to this project. To
complete the identified phases of the project, the Company anticipates
additional expenditures for the remainder of 1998 and for 1999 of
approximately $3.7 million and $1.5 million, respectively.
During the first quarter of 1998, the Company created a corporate development
function to assess product and company acquisitions, distribution alliances
and joint ventures which would expand Company technologies into unserved
markets. While there can be no assurances that the Company will complete any
acquisitions, depending on the value of potential acquisitions, the Company
might fund such transactions through a variety of sources, including existing
or new debt facilities or through the sale of ALARIS Medical's equity and/or
debt securities.
The Company believes that it will generate sufficient cash flow from
operations to fund its operations, make planned capital expenditures and make
required payments of principal and interest under its credit facility and
interest on the Notes; however, the Company may not generate sufficient cash
flow from operations to repay the Notes at maturity. Accordingly, the Company
may have to refinance the Notes at or prior to maturity or sell assets or
raise equity capital to repay the principal amount of the Notes. In addition,
the Company's ability to fund its operations, to make planned capital
expenditures and to make scheduled principal and interest payments will be
dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which the Company cannot control,
including conditions affecting the Company's foreign operations, prevailing
economic conditions, availability of other sources of liquidity, and
financial, business, regulatory and other factors affecting the Company's
business and operations.
SEASONALITY
Infusion instrument sales are typically higher in the fourth quarter due to
sales compensation plans which reward the achievement of annual quotas and
the seasonal characteristics of the industry, including hospital purchasing
patterns. First quarter sales are traditionally not as strong as the fourth
quarter. The Company anticipates that this trend will continue but is unable
to predict the effect, if any, from health care reform and increased
competitive pressures.
BACKLOG
The backlog of orders, believed to be firm, at March 31, 1998 was $5.9 million.
- 16 -
<PAGE>
FOREIGN OPERATIONS
As a result of the Merger, the Company has significant foreign operations.
Accordingly, the Company is subject to various risks, including without
limitation, foreign currency risks. Historically, the Company has not entered
into foreign currency contracts to hedge such exposure and such risk. Due to
changes in foreign currency exchange rates during 1998, primarily a
strengthening of the U.S. dollar against many European currencies, the
Company recognized a foreign currency transaction loss of approximately $0.2
million during 1998. The Company will evaluate hedging programs during 1998
to limit the exposure to the Company resulting from changes in foreign
currency exchange rates.
HEALTH CARE REFORM
Heightened public awareness and concerns regarding the growth in overall
health care expenditures in the United States may result in the enactment of
legislation affecting payment mechanisms and health care delivery.
Legislation which imposes limits on the number and type of medical procedures
which may be performed or which has the effect of restricting a provider's
ability to select specific devices or products for use in administrating
medical care may adversely impact the demand for the Company's products. In
addition, legislation which imposes restrictions on the price which may be
charged for medical products may adversely affect the Company's results of
operations. It is not possible to predict the extent to which the Company or
the health care industry in general may be adversely affected by the
aforementioned in the future.
FORWARD-LOOKING STATEMENTS
Forward-Looking Statements in this report are made pursuant to the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Persons reading this report are cautioned that such forward-looking
statements involve risks and uncertainties, including, without limitation,
the effect of legislative and regulatory changes effecting the health care
industry; the potential of increased levels of competition; technological
changes; the dependence of the Company upon the success of new products and
ongoing research and development efforts; restrictions contained in the
instruments governing the Company's indebtedness; the significant leverage to
which the Company is subject; and other matters referred to in this report.
- 17 -
<PAGE>
PART II
OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Condensed Consolidated Financial Statements.
- 18 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 -- Amendment No. 3 to the Bank Credit Agreement dated as of March 4, 1998.
27 -- Financial Data Schedule
-------------------------------------
(b) Reports on Form 8-K
None.
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALARIS MEDICAL SYSTEMS, INC.
----------------------------
(REGISTRANT)
Date: May 12, 1998 By: /s/ DOUGLAS C. JEFFRIES
-------------------------
Douglas C. Jeffries
Vice President and
Chief Financial Officer
- 20 -
<PAGE>
EXHIBIT INDEX
- -------------------------------------------------------------------------------
Exhibit
No.
- -------
10.1 -- Amendment No. 3 to the Bank Credit Agreement dated as of March 4, 1998.
27 -- Financial Data Schedule
- 21 -
<PAGE>
Exhibit 10.1
AMENDMENT NO. 3 AND CONSENT TO CREDIT AGREEMENT
AMENDMENT NO. 3 AND CONSENT (this "Amendment"), dated as of March 4,
1998, among ALARIS MEDICAL, INC. (formerly named Advanced Medical, Inc.), a
Delaware corporation ("ALARIS Medical"), ALARIS MEDICAL SYSTEMS, INC. (formerly
named IVAC Holdings, Inc.), a Delaware corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Banks"), BANKERS TRUST COMPANY, as Administrative Agent and as a Syndication
Agent and BANQUE PARIBAS, as Documentation Agent (together with Bankers Trust
Company in its capacity as Administrative Agent, the "Agents") and as a
Syndication Agent. All capitalized terms used herein and not otherwise defined
shall have the respective meanings provided such terms in the Credit Agreement
referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, ALARIS Medical, the Borrower, the Banks and the Agents are
parties to a Credit Agreement, dated as of November 26, 1996 (as modified,
supplemented and amended to, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, ALARIS Medical and the Borrower have requested certain
amendments, modifications and consents to the Credit Documents; and
WHEREAS, subject to the terms and conditions of this Amendment, the
Banks are willing to grant such amendments, modifications and consents.
NOW THEREFORE, it is agreed:
1. The Banks hereby agree to release IVAC Overseas Holdings, Inc.
("IVAC Overseas") as a Guarantor under the Subsidiary Guaranty, a Pledgor under
the Pledge Agreement and an Assignor under the Security Agreement.
2. The Banks hereby agree to release all of the capital stock of
IVAC Overseas previously pledged by the Borrower pursuant to the Pledge
Agreement and currently held by the Collateral Agent.
3. Notwithstanding anything to the contrary contained in Section
8.17 of the Credit Agreement, the Banks hereby agree that the Borrower may
create a new, direct Wholly-Owned Subsidiary (the "New Subsidiary") and the New
Subsidiary shall not be required to execute the Subsidiary Guaranty, the Pledge
Agreement and the Security Agreement, provided that the New Subsidiary shall at
no time own any significant assets other than its ownership of the capital stock
of IVAC Overseas.
22
<PAGE>
4. Section 8.02(t) of the Credit Agreement is amended by (i)
replacing the first and second references to "$6,500,000" appearing therein with
the amount "$15,000,000" and (ii) replacing the last two provisos appearing
therein with the following proviso:
"PROVIDED that in no event shall the aggregate amount of Permitted
Acquisitions made after the First Effective Date exceed $25,000,000;".
5. Section 8.02 of the Credit Agreement is hereby further amended by
(i) deleting the word "and" appearing at the end of clause 8.02(y), (ii)
replacing the period appearing at the end of clause 8.02(z) with the text ";
and" and (iii) inserting the following clause immediately following clause
8.02(z) therein:
"(aa) sales of Receivables Payments made in connection with the
Equipment Sales Program, provided that such sales shall not exceed $20,000,000
in the aggregate in any fiscal year of the Borrower.".
6. Section 8.03 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause 8.03(p), (ii) replacing
the period appearing at the end of clause 8.03(q) with the text "; and" and
(iii) inserting the following clause immediately following clause 8.03(q)
therein:
"(r) Liens arising from the sale or assignment of Receivables
Payments made pursuant to the Equipment Sales Program.".
7. Section 10 of the Credit Agreement is hereby amended by deleting
the definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar
Margin" appearing therein in their entirety and inserting the following new
definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Margin"
in lieu thereof:
"Applicable Base Rate Margin" shall mean (i) in the case of A
Term Loans and Revolving Loans, 1.00%, less the Applicable Performance
Discount, if any, and (ii) in the case of B Term Loans, C Term Loans
and D Term Loans, 1.25%.
"Applicable Eurodollar Margin" shall mean (i) in the case of A
Term Loans and Revolving Loans, 2.25%, less the Applicable Performance
Discount, if any, and (ii) in the case of B Term Loans, C Term Loans
and D Term Loans, 2.50%.
8. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new sentence at the end of the definition of
"Consolidated Net Income" appearing therein:
"Notwithstanding anything to the contrary contained in the definition
of Consolidated Net Income, for purposes of determining compliance
with Section 8.11, there shall be included (to the extent not already
included) in determining
23
<PAGE>
Consolidated Net Income for any period the net income (or loss) of any
Persons, business, property or asset acquired during such period pursuant
to Section 8.02(t) and not subsequently sold or otherwise disposed of by
the Borrower or one of its Subsidiaries during such period (each such
Person, business, property or asset acquired and not subsequently disposed
of during such period, an "Acquired Entity or Business"), in each case
based on the actual net income (or loss) of such Acquired Entity or
Business for the entire period (including the portion thereof occurring
prior to such acquisition).".
9. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new definitions in appropriate alphabetical order:
"Equipment Sales Program" shall mean any transaction or series of
transactions whereby the Borrower or any of its Subsidiaries (i)
provides medical equipment ("Medical Equipment") and disposable
consumable medical devices ("Consumables") used with such Medical
Equipment to third party customers ("Customers") who in exchange make
payments ("Receivables Payments") to the Borrower or its Subsidiaries,
as the case may be, in connection therewith over a period of time,
(ii) sells or otherwise transfers its title in such Medical
Instruments to third party financing parties ("Third Party Lessors")
which shall simultaneously lease the Medical Equipment to such
Customers and (iii) sells or assigns to such Third Party Lessors the
Receivables Payments attributable to such Medical Equipment with no
recourse against the Borrower or its Subsidiaries; it being understood
and agreed that any such transaction or series of transactions are
sales of inventory in the ordinary course of business of the Borrower
or such Subsidiary.
"Receivables Payments" shall have the meaning provided in the
definition of "Equipment Sales Program" herein.
10. In order to induce the Agents and the Banks to enter into this
Amendment, ALARIS Medical and the Borrower hereby represent and warrant that (x)
no Default or Event of Default exists (i) on the First Effective Date (as
defined below) both before and after giving effect to Sections 1, 2, 3, 4, 5, 6,
8 and 9 of this Amendment or (ii) on the Second Effective Date (as defined
below) both before and after giving effect to Section 7 of this Amendment and
(y) all of the representations and warranties contained in the Credit Agreement
or the other Credit Documents shall be true and correct in all material respects
on the date hereof, on the First Effective Date and on the Second Effective Date
with the same effect as though such representations and warranties had been made
on and as of such date (it being understood that any representation or warranty
made as of a specific date shall be true and correct in all material respects as
of such specific date).
24
<PAGE>
11. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
12. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with ALARIS Medical, the Borrower and the Agents.
13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
14. This Amendment shall become effective (x) in the case of Sections
1, 2, 3, 4, 5, 6, 8 and 9 of this Amendment, on the date (the "First Effective
Date") when each of ALARIS Medical, the Borrower, the Agents and the Required
Banks shall have signed a copy hereof (whether the same or different copies) and
(y) in the case of Section 7 of this Amendment, on the date (the "Second
Effective Date") when each of ALARIS Medical, the Borrower, the Agents and each
Bank shall have signed a copy hereof (whether the same or different copies) and,
in each case, shall have delivered (including by way of telecopier) the same to
the Administrative Agent at the Notice Office.
* * *
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,804
<SECURITIES> 0
<RECEIVABLES> 70,956
<ALLOWANCES> (3,347)
<INVENTORY> 58,872
<CURRENT-ASSETS> 166,565
<PP&E> 93,904
<DEPRECIATION> (38,016)
<TOTAL-ASSETS> 549,646
<CURRENT-LIABILITIES> 89,951
<BONDS> 403,188
0
0
<COMMON> 0
<OTHER-SE> 38,604
<TOTAL-LIABILITY-AND-EQUITY> 549,646
<SALES> 86,971
<TOTAL-REVENUES> 86,971
<CGS> 44,854
<TOTAL-COSTS> 44,854
<OTHER-EXPENSES> 30,927
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 10,833
<INCOME-PRETAX> 1,148
<INCOME-TAX> 630
<INCOME-CONTINUING> 518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
