<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, 1999 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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3800335
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10221 Wateridge Circle, San Diego, CA 92121
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(Address of principal executive offices) (Zip Code)
(619) 458-7000
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(Registrant's telephone number, including area code)
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(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 5, 1999, the registrant had 1,000 shares of common stock outstanding.
<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated balance sheet at
March 31, 1999 and December 31, 1998............................. 3
Condensed consolidated statement of operations for
the three months ended March 31, 1999 and 1998................... 4
Condensed consolidated statement of cash flows for
the three months ended March 31, 1999 and 1998................... 5
Condensed consolidated statement of changes
in stockholder's equity for the period from
December 31, 1998 to March 31, 1999.............................. 6
Notes to the condensed consolidated financial statements......... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 12
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings........................................... 21
Item 6 - Exhibits and Reports on Form 8-K............................ 22
</TABLE>
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<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)
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<TABLE>
<CAPTION>
ASSETS
MARCH 31 DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash................................................................ $ 39,500 $ 29,468
Receivables, net.................................................... 86,548 102,294
Inventories......................................................... 81,500 79,485
Prepaid expenses and other current assets........................... 26,207 25,223
-------- ---------
Total current assets............................................ 233,755 236,470
Net investment in sales-type leases, less current portion............... 16,758 19,111
Property, plant and equipment, net...................................... 65,947 61,990
Other non-current assets................................................ 16,982 17,382
Intangible assets, net.................................................. 305,196 309,424
-------- ---------
$638,638 $644,377
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................................... $ 12,979 $ 15,423
Accounts payable.................................................... 19,007 22,004
Accrued expenses and other current liabilities...................... 57,090 50,899
--------- ---------
Total current liabilities....................................... 89,076 88,326
--------- ---------
Long-term debt.......................................................... 396,109 399,623
Other non-current liabilities........................................... 32,905 33,310
--------- ---------
Total non-current liabilities......................................... 429,014 432,933
--------- ---------
Contingent liabilities and commitments (Note 4)
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 March 31, 1999 and December 31, 1998.......................... 203,657 203,652
Accumulated deficit................................................. (79,002) (77,345)
Accumulated other comprehensive loss................................ (4,107) (3,189)
--------- ---------
Total stockholder's equity...................................... 120,548 123,118
--------- ---------
$638,638 $644,377
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales.............................................. $ 93,436 $ 86,971
Cost of sales...................................... 45,634 44,854
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Gross margin....................................... 47,802 42,117
--------- ---------
Selling and marketing expenses..................... 19,917 17,129
General and administrative expenses................ 10,874 9,533
Research and development expenses.................. 6,047 4,340
Integration and other non-recurring charges........ 2,099 -
--------- ---------
Total operating expenses....................... 38,937 31,002
--------- ---------
Lease interest income.............................. 1,061 1,162
--------- ---------
Income from operations......................... 9,926 12,277
--------- ---------
Other income (expenses):
Interest income................................ 322 61
Interest expense............................... (10,000) (10,833)
Other, net..................................... (459) (357)
--------- ---------
Total other expense................................ (10,137) (11,129)
--------- ---------
(Loss) income before income taxes.................. (211) 1,148
Provision for income taxes......................... 400 630
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Net (loss) income.................................. $ (611) $ 518
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net cash provided by operating activities......... $ 27,117 $ 15,112
--------- ----------
Cash flows from investing activities:
Net capital expenditures...................... (8,886) (5,002)
Patents, trademarks and other................. (297) (125)
Payment for product distribution rights....... (800) -
--------- ----------
Net cash used in investing activities............. (9,983) (5,127)
--------- ----------
Cash flows from financing activities:
Principal payments on long-term debt.......... (5,993) (6,072)
Proceeds under revolving credit facility...... - 10,300
Repayments under revolving credit facility.... - (16,500)
Dividends to ALARIS Medical................... (1,046) (802)
--------- ----------
Net cash used in financing activities............. (7,039) (13,074)
--------- ----------
Effect of exchange rate changes on cash........... (63) (25)
--------- ----------
Net increase (decrease) in cash................... 10,032 (3,114)
Cash at beginning of period....................... 29,468 6,918
--------- ----------
Cash at end of period............................. $ 39,500 $ 3,804
--------- ----------
--------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDER'S EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
AND CAPITAL OTHER OTHER
IN EXCESS OF PAR VALUE COMPRE- TOTAL COMPRE-
---------------------- ACCUMULATED HENSIVE STOCKHOLDER'S HENSIVE
SHARES AMOUNT DEFICIT LOSS EQUITY LOSS
------ ------ ----------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998............... 1,000 $203,652 $(77,345) $(3,189) $123,118
Comprehensive loss
Net loss for the period................. (611) (611) $ (611)
Equity adjustment from foreign currency
translation........................... (918) (918) (918)
--------
Comprehensive loss......................... $(1,529)
--------
--------
Tax benefit from exercise of ALARIS
Medical stock options................... 5 5
Dividends to ALARIS Medical................ (1,046) (1,046)
----- -------- --------- -------- ---------
Balance at March 31, 1999.................. 1,000 $203,657 $(79,002) $(4,107) $120,548
----- -------- --------- -------- ---------
----- -------- --------- -------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
ALARIS MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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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, as well as cardiovascular and pacemaker monitoring
products. ALARIS Medical Systems is a wholly-owned subsidiary of ALARIS Medical,
Inc. ("ALARIS Medical"). 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, 1999, and the
results of its operations and its cash flows for the three months ended March
31, 1999 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 -- INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- -----------
<S> <C> <C>
Raw materials................................. $ 37,834 $ 35,024
Work-in-process............................... 7,263 5,719
Finished goods................................ 36,403 38,742
--------- ---------
$ 81,500 $ 79,485
--------- ---------
--------- ---------
</TABLE>
NOTE 3 -- SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards No. 131
("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." The prior year's segment
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<PAGE>
information has been conformed to present the Company's three reportable
segments in accordance with the new standard - (1) North America,
(2) International and (3) Instromedix.
The accounting policies of the segments are the same as those described in the
"Statement of Accounting Policy" (Note 1). Segment data does not include
intersegment revenues, or charges allocating corporate-headquarters costs to
each of its operating segments. The Company evaluates the performance of its
segments and allocates resources to them based on operating income and adjusted
earnings before interest, taxes, depreciation, and amortization (EBITDA).
The Company is organized primarily based on geographic location with the United
States and Canada drug infusion and patient monitoring business representing the
North American Segment. All other international operations including Europe,
Asia, Australia and Latin America represent the International segment. The
acquisition of Instromedix in 1998 resulted in a third separate operating
segment.
The table below presents information about reported segments for the three
months ended March 31:
<TABLE>
<CAPTION>
NORTH SHARED
AMERICA INTERNATIONAL INSTROMEDIX SERVICES TOTAL
------- ------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
Sales ................. $ 57,336 $ 32,062 $ 4,038 $ - $ 93,436
Operating Income....... 9,332 7,520 (2,853) (4,073) 9,926
Adjusted EBITDA........ 12,648 8,970 343 (757) 21,204
1998
Sales ................. $ 56,070 $ 30,901 $ - $ - $ 86,971
Operating Income....... 9,690 6,850 - (4,263) 12,277
Adjusted EBITDA........ 13,474 8,133 - (1,061) 20,546
</TABLE>
Reconciliation of total segment adjusted EBITDA to consolidated (loss) income
before taxes:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ADJUSTED EBITDA
Total adjusted EBITDA..................................... $ 21,204 $ 20,546
Depreciation and amortization............................. (9,179) (8,269)
Interest (net)............................................ (9,678) (10,772)
Integration and other non-recurring charges............... (2,099) -
Other reconciling items................................... (459) (357)
--------- ---------
Consolidated (loss) income before income taxes......... $ (211) $ 1,148
--------- ---------
--------- ---------
</TABLE>
NOTE 4 -- CONTINGENCIES AND LITIGATION
GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA"), pursuant to the
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), regulates the introduction
of medical devices into commerce, as well as testing manufacturing procedures,
labeling, adverse event reporting and record-keeping with respect to such
products. The process of obtaining market clearances from the FDA for new
products can be time-consuming and expensive and there can be no assurance that
such clearances will be granted or that FDA review will not involve delays
adversely affecting the marketing and sale of products. Enforcement of the FDC
Act depends heavily on administrative interpretation and there can be no
assurance that
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<PAGE>
interpretations made by the FDA or other regulatory bodies will not have a
material adverse effect on the business, financial condition, results of
operations or cash flows. The FDA and state agencies routinely inspect the
Company to determine whether the Company is in compliance with various
requirements relating to manufacturing practices, testing, quality control,
complaint handling, medical device reporting and product labeling. Such
inspections can result in such agencies requiring the Company to take certain
corrective actions for non-complying conditions observed during the inspections.
A determination that the Company is in violation of the FDC Act could lead to
the imposition of civil sanctions, including fines, recall orders, orders for
repair or refund or product seizures and criminal sanctions. Since 1994, the
Company has on seventeen occasions temporarily removed products from the market
or issued safety alerts regarding products that were found not to meet
performance standards. None of such recalls materially interfered with the
Company's operations and all such product lines, except the Model 599 Series
infusion pump, were subsequently returned to the market. The Company continues,
however, to sell administration sets and replacement parts for the Model 599
Series infusion pump. In addition, the Company has initiated a voluntary safety
alert of its Model 597/598 and Model 599 Series infusion pumps. Moreover, the
Company has initiated a voluntary recall of approximately 50,000 of its Gemini
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 may cause the battery to overheat. The
Company recorded a charge of $2,500 to cost of sales for the three months ended
March 31, 1997 on account of this voluntary recall. The Company initiated a
voluntary recall of its Signature Edition infusion pumps to correct a
malfunction of an electronic line filter component (which malfunction may occur
when a user fails to follow the Company's written cleaning instructions and can
result in an electrical short). The Company is not aware of the occurrence of
any injury incidents relating to a malfunction of this type. Further, in
November 1998, the Company initiated a voluntary safety alert regarding the
Signature Edition infusion pumps advising to check for the proper installation
of a spring in the pumping mechanism assembly. In the third quarter of 1998, the
Company initiated a recall of its Gemini PC-4 infusion pumps to correct certain
electro-mechanical problems which may cause one or more channels of the device
to audibly and visibly alarm and temporarily cease operation. The Company has
initiated a mandatory field upgrade of its P-1000, P-2000, P-3000 and P-4000
syringe pumps because under certain circumstances a rate change can occur. The
Company has also initiated a mandatory field upgrade of the Gemini PC-2T CE
(220V) product, distributed only in certain countries outside the U.S., for
failure to audibly alarm when a certain type of failure occurs. Although there
can be no assurance, the Company believes that these voluntary recalls, along
with adjustments and corrections that may be made to various Company products
from time to time as an ordinary part of the business of the Company, will not
have a material adverse effect on the business, financial condition, results of
operations or cash flows.
LITIGATION
The Company is a defendant in a lawsuit filed in June 1996 by Sherwood Medical,
Inc. against IVAC Medical Systems, Inc. ("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 sought injunctive relief, treble damages and the
recovery of costs and attorney fees. The jury failed to reach a verdict in this
litigation and the Court has declared a mistrial. Sherwood has asked the Court
for a retrial, which is tentatively scheduled for August 1999. 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 business, financial
condition, results of operations or cash flows.
-9-
<PAGE>
The Company is a defendant in a lawsuit filed on April 20, 1998 and served on
October 28, 1998, by Becton Dickinson and Company ("Becton") against ALARIS
Medical Systems, Inc., which alleges infringement of a patent licensed to Becton
by reason of certain activities, including the sale of the Company's SmartSite
needle-free system. Becton has requested a permanent injunction enjoining the
Company from infringing the patent in suit. No amount of monetary damages has
been specified by Becton, however, the complaint requests damages as appropriate
and all gains, profits and advantages derived by or from the Company's
infringement of the patent, as well as prejudgment interest, costs, expenses and
reasonable attorney's fees. The Company believes it has sufficient defenses to
all claims, and intends to vigorously defend this action. However, there can be
no assurance that the Company will successfully defend all claims made by Becton
and the failure of the Company to successfully prevail in this lawsuit could
have a material adverse effect on the business, financial condition, results of
operations or cash flows. In addition, the Company filed a lawsuit on December
4, 1998 against Becton. The lawsuit, which is pending in the United States
District Court for the Southern District of California, alleges infringement of
two patents, one owned by the Company and one licensed to the Company, by reason
of certain activities, including the sale of Becton's Atrium needle free valve.
The lawsuit seeks injunctive relief, damages and the recovery of costs and
attorney fees.
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 to 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 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. Cal Pacifico or Customs has not informed the
Company 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
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<PAGE>
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 the business, financial
condition, results of operations or cash flows.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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GENERAL
The Company is a leading provider of infusion systems and related technologies
to the United States hospital market, with the largest installed base of pump
delivery lines ("channels"). The Company is also a leader in the international
infusion systems market. Based on installed base of infusion pumps, the Company
has a number one or two market position in eight Western European countries, the
number three market position in Germany, the largest installed base of infusion
pumps in Australia and Canada and a developing position in Latin America and
Asia. The Company's infusion systems, which are used to deliver one or more
fluids, primarily pharmaceuticals or nutritionals, to patients, consist of
single and multi-channel infusion pumps and controllers, and proprietary and
non-proprietary disposable administration sets (i.e., plastic tubing and pump
interfaces). In addition, the Company is a leading provider of patient
monitoring products that measure and monitor temperature, pulse, pulse oximetry
and blood pressure, with the largest installed base of hospital thermometry
systems in the United States. Through its July 17, 1998 acquisition of
Instromedix, Inc. ("Instromedix"), the Company also designs, manufactures and
sells cardiology products such as arrhythmia-event recorders and pacemaker
monitors.
The Company sells a full range of products through a worldwide direct sales
force consisting of approximately 300 sales persons and through more than 150
distributors to over 5,000 hospitals worldwide. Sales by the Company's
International business unit represented 34.3% of the Company's total sales for
the period ended March 31, 1999. For the three months ended March 31, 1999, the
Company had sales of $93.4 million and Adjusted EBITDA of $21.2 million.
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 world-wide
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 insure 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. Finally, the enactment of national health care reform or other
legislation affecting payment mechanisms and health care delivery could affect
the Company's future results of operations. It is impossible to predict the
extent to which the Company may be affected by any such change in legislation.
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<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,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales............................................. 100.0% 100.0%
Cost of sales..................................... 48.8 51.6
-------- --------
Gross margin...................................... 51.2% 48.4%
Selling and marketing expenses.................... 21.3 19.7
General and administrative expenses............... 11.6 10.9
Research and development expenses................. 6.5 5.0
Integration and other non-recurring charges....... 2.2 -
Lease interest income............................. 1.1 1.3
-------- --------
Income from operations............................ 10.7 14.1
Interest expense.................................. (10.7) (12.5)
Other, net........................................ (.2) (.3)
-------- --------
(Loss) income before income taxes................. (.2) 1.3
Provision for income taxes........................ .4 .7
-------- --------
Net (loss) income................................. (.6%) .6%
-------- --------
-------- --------
OTHER DATA:
Adjusted EBITDA.............................. 22.7% 23.6%
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
----------- ----------
<S> <C> <C>
ADJUSTED EBITDA (1)............................... $ 21,204 $ 20,546
Integration and other non-recurring charges....... (2,099) -
Depreciation and amortization (2)................. (9,179) (8,269)
Interest income................................... 322 61
Interest expense.................................. (10,000) (10,833)
Other, net........................................ (459) (357)
Provision for income taxes........................ (400) (630)
--------- ----------
Net (loss) income........................... $ (611) $ 518
--------- ----------
--------- ----------
</TABLE>
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(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
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) Depreciation and amortization excludes amortization of debt discount and
issuance costs included in interest expense.
-13-
<PAGE>
The following table summarizes sales to customers by each business unit:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,(A)
----------------------------
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
North America sales................................ $ 57.3 $ 56.1
International sales................................ 32.1 30.9
Instromedix sales.................................. 4.0 -
-------- --------
Total sales................................... $ 93.4 $ 87.0
-------- --------
-------- --------
</TABLE>
(A) The Company's sales results are reported consistent with the Company's
three strategic business units: North America, International, and
Instromedix. As a result, Canadian sales of drug infusion and patient
monitoring products are now included in "North America" results.
Previously, Canadian sales were reported as "international" sales.
Prior year amounts have been reclassified for comparability with 1999.
For purposes of this discussion and analysis, the three months ended March 31,
1999 and 1998 are referred to as 1999 and 1998, respectively.
SALES
Sales increased $6.4 million, or 7%, during 1999 as compared with 1998.
International sales increased $1.2 million, or 4% while North America sales
increased $1.2 million, or 2%. Sales generated by Instromedix for 1999 were $4.0
million. Excluding Instromedix, sales increased approximately 3%. The increase
in International sales is primarily due to increases in volume of drug infusion
disposable administration sets. The increase in North America sales in 1999 as
compared with 1998 is primarily due to increases in drug infusion disposable
administration set revenue of $3.1 million, partially offset by a decrease in
drug infusion instrument and patient monitoring product revenue of $1.8 million.
GROSS MARGIN
The gross margin increased $5.7 million, or 14%, during 1999 as compared with
1998. The gross margin percentage increased from 48.4% in 1998 to 51.2% in 1999
primarily due to increased sales with lower product costs resulting from 1998
cost reduction efforts and to the mix of higher margin disposable administration
set sales in relation to total sales.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased $2.8 million, or 16%, during 1999 as
compared with 1998. As a percentage of sales, selling and marketing expenses
increased from 19.7% in 1998 to 21.3% in 1999. This increase is primarily due to
the addition of Instromedix as well as the addition of International personnel
and increased distribution cost. Instromedix selling and marketing expenses for
1999 were $1.2 million.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.3 million, or 14%, during 1999
as compared with 1998. As a percentage of sales, general and administrative
expenses increased from 10.9% in 1998 to 11.6% in 1999. This increase is
primarily due to the addition of Instromedix and an increase in information
technology costs for the Company's new domestic operating system implemented in
late 1998. Instromedix added approximately $1.0 million of general and
administrative cost in 1999, including $0.6 million of intangible asset
amortization.
-14-
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased approximately $1.7 million, or 39%,
during 1999 as compared with 1998 primarily due to the addition of Instromedix
and increased activities associated with the later development stages of various
domestic and international engineering projects.
INTEGRATION AND OTHER NON-RECURRING CHARGES
In connection with the Instromedix acquisition, management, with the assistance
of consultants performed a review of the operating activities of the acquired
company in order to assess how best to integrate and leverage the Instromedix
operations with ALARIS Medical Systems. As a result of this assessment, in
February 1999, the Company announced its plans to consolidate the operations of
Instromedix into its San Diego, California facilities. Such consolidation will
allow the Company to leverage its existing infrastructure and manufacturing
capacity in San Diego. In connection with these relocation and integration
activities, the Company incurred $2.1 million in costs, including severance and
related termination benefits of $1.1 million, retention bonuses of $0.2 million,
asset dispositions of $0.4 million, lease termination costs of $0.3 million and
$0.1 million in other related costs. Total integration costs for 1999 are
anticipated to be approximately $5.0 million.
INCOME FROM OPERATIONS
Income from operations decreased $2.3 million during 1999 as compared with 1998
primarily due to the 1999 Instromedix integration activities discussed above.
ADJUSTED EBITDA
Adjusted EBITDA increased $0.7 million during 1999 as compared with 1998. As a
percentage of sales, Adjusted EBITDA decreased from 23.6%, or $20.5 million,
during 1998 to 22.7%, or $21.2 million, during 1999 due to the reasons discussed
above. 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 decreased $0.8 million during 1999 primarily due to a decrease
in the amount of long-term debt outstanding as compared with 1998 (see Liquidity
and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
Management currently believes that sufficient cash will be available through
ALARIS Medical Systems, based upon current operations, to satisfy debt service
and other corporate expenses of ALARIS Medical, the holding Company for ALARIS
Medical Systems, in the foreseeable future. In November 1996, the Company
entered into a bank credit facility consisting of term loans and a revolving
credit facility (the "Credit Facility"). The Credit Facility permits ALARIS
Medical Systems to transfer to ALARIS Medical up to $1.5 million annually to
fund ALARIS Medical's operating expenses and additional amounts sufficient to
meet interest payment requirements.
-15-
<PAGE>
The Company expects to continue to meet its short-term and long-term liquidity
needs, including capital expenditure requirements with cash flow from
operations, borrowings under the Credit Facility, and the remaining cash
proceeds from the 11 1/8% Senior Discount Notes ("Senior Discount Notes") due
2008 which were issued, among other things, to fund the Instromedix acquisition
in July 1998. In addition to operating expenses, the Company's primary future
use of funds, on a short-term and long-term basis, will continue to be fund
capital expenditures and strategic acquisitions and to pay debt service on
outstanding indebtedness.
At March 31, 1999, the Company's outstanding indebtedness was $409.1 million,
which includes $208.5 million of bank term debt under the Credit Facility and
$200.0 million of 9 3/4% Senior Subordinated Notes due 2006 (the "9 3/4%
Notes"). 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
approximately 50% of its term loan borrowings. Such agreement fixed the interest
rate charged on such borrowings resulting in a weighted average interest rate of
8.9% on the Credit Facility borrowings at March 31, 1999. As a result, a one
percent increase in the rate of interest charged on indebtedness outstanding
under the Credit Facility at March 31, 1999 would result in additional annual
interest expense of approximately $1.2 million.
In July 1998, in connection with the Instromedix acquisition, the Company
amended the Credit Facility. The amendment provided for the banks' consent to
the Instromedix acquisition and increased the revolving credit facility from
$50.0 million to $60.0 million. The amended Credit Facility also provided the
Company an additional $30.0 million under the Tranche D term debt. The Company
used the $30.0 million term debt borrowing, along with approximately $2.0
million from the revolving credit line, to fund the initial payments required
upon closing the Instromedix acquisition. Subsequent to closing the Instromedix
acquisition, ALARIS Medical completed the sale of $109.9 million of Senior
Discount Notes, receiving net proceeds of approximately $106.3 million. Upon
receipt of the net proceeds from the Senior Discount Notes, ALARIS Medical paid
its remaining obligations of approximately $22.7 million to the Instromedix
shareholders and contributed the remaining net proceeds of approximately $81.7
million to ALARIS Medical Systems, as required under the amended Credit
Facility. ALARIS Medical Systems then repaid the amount outstanding under its
revolving credit line.
As a result of the Company's significant indebtedness, the Company expects to
incur significant interest expense in future periods. The Company believes that
its existing cash and cash provided by operations will be sufficient to meet its
interest expense obligations.
Annual principal amortization of the Company's indebtedness is $9.5 million for
the remaining nine months of 1999 and $14.1 million and $22.1 million for 2000
and 2001, respectively.
The 9 3/4% Notes and the Credit Facility permit ALARIS Medical Systems to fund
interest payments on ALARIS Medical's Convertible Debentures (the "Convertible
Debentures"), which provide for semi-annual interest payments of approximately
$0.6 million and mature on January 15, 2002, and to make limited distributions
to ALARIS Medical to fund operating expenses and to pay income taxes; provided
that, with respect to the Credit Facility, there exists no default or event of
default under the Credit Facility. The 9 3/4% Notes and the Credit Facility,
however, restrict distributions to ALARIS Medical to fund the repayment of the
Convertible Debentures at maturity.
During 1999, the Company made cash payments of approximately $0.1 million
related to merger and integration costs accrued at December 31, 1998. These
costs are in addition to approximately $1.0 million paid for Instromedix
integration in 1998. The integration activities primarily related to the
assessment and review of Instromedix operating activities and strategy. In
February 1999, as a result of this assessment,
-16-
<PAGE>
the Company announced it plans to consolidate the operations of Instromedix
into its San Diego, California facilities. Such consolidation will allow the
Company to leverage its existing infrastructure and manufacturing capacity in
San Diego. In connection with these relocation and integration activities, the
Company recorded a charge of $2.1 million during the quarter ended March 31,
1999. The Company expects to incur non-recurring integration and relocation
charges of approximately $5.0 million before related income tax benefits for
full year 1999.
The Company made capital expenditures of approximately $9.0 million during 1999
and anticipates additional capital expenditures of approximately $20.0 million
during the remainder of 1999. First quarter 1999 capital spending was higher
than historical quarterly levels due to approximately $1.8 million for a
significant U.S. hospital order of drug infusion instruments accounted for as an
operating lease, as well as approximately $1.0 million to upgrade sales force
demonstration and evaluation units for new product introductions.
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 equity securities.
The Company believes that, on both a short-term and long-term basis, based on
current levels of performance, it will generate cash flow from operations,
together with its existing cash, sufficient to fund its operations, make planned
capital expenditures and make principal amortization and interest payments under
the Credit Facility and interest payments on the 9 3/4% Notes. However, on a
long-term basis, the Company may not generate sufficient cash flow from
operations to repay the 9 3/4% Notes at maturity in the amount of $200.0
million. Accordingly, the Company may have to refinance the 9 3/4% at or prior
to maturity or sell assets or raise equity capital through ALARIS Medical to
repay such debt. Based on current interest rates and debt outstanding as of
March 31, 1999, over the next twelve months, the Company is required to make
principal and interest payments under its Credit Facility in the amount of $28.9
million and interest payments on the 9 3/4% Notes in the amount of $19.5
million. 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.
YEAR 2000 RISK
The Year 2000 problem arises from the use of a two-digit field to identify years
in computer programs, e.g., 85=1985, and the assumption of a single century, the
1900s. Any program so created may read, or attempt to read, "00" as the year
1900.
The Company has developed, and is implementing, a comprehensive program to
address Year 2000 issues pertaining to both information technology (IT) and
non-IT systems. The program is monitored by a steering committee comprised of
representatives from key functional areas, which periodically reports to senior
management and will be reporting to the board of directors throughout 1999 as to
the program's status. The program consists of identification, prioritization,
remediation and post-implementation phases and considers the worldwide effect of
the Year 2000 on the Company's operations and internal systems (including
non-
-17-
<PAGE>
information technology systems), customers, products and services, and
manufacturing systems, as well as on its third party suppliers and other
critical business partners. The committee has completed its initial assessment
and it is not currently aware of any material Year 2000 issues related to third
parties with whom the Company conducts business or in its non-information
technology systems. The committee's assessment will likely be a continuous
process through the remainder of 1999. In addition to its customers, the Company
conducts business with and utilizes the services of numerous third parties
including, but not limited to, suppliers, distributors, telecommunication
companies, financial institutions, governmental agencies, and utility companies.
The Company is working to identify and analyze the most reasonably likely
worst-case scenarios for third-party relationships affected by the Year 2000.
The ability of these third parties to adequately address their Year 2000 issues
is outside the Company's control. Failure by some or all of these parties to
adequately address their Year 2000 issues could have a material adverse effect
on the Company. Given the number of parties with whom the Company transacts
business, it is reasonably likely that some of these parties will not be able to
adequately solve their Year 2000 issues in a timely manner. Due to the Company's
inability to control third party compliance with Year 2000 issues, there can be
no assurances that such Year 2000 issues will not have a material adverse effect
on the financial condition, results of operations or cash flows of the Company.
In order to successfully provide product to its customers, the Company is
dependent upon the timely fulfillment of its supply orders from its chosen
vendors. The Company has identified potentially critical suppliers and attempted
to determine if such suppliers have identified and/or addressed their own Year
2000 issues by means of questionnaires. The Company is dependent on such
suppliers to provide timely responses to its questionnaires and is not in a
position to verify the truth or accuracy of the responses it receives to such
questionnaires. At this time, the Company has not identified or been informed of
any significant suppliers that will not be able to fulfill the Company's orders.
However, many of the Company's key suppliers have acknowledged that they must
make improvements to their systems to properly deal with the Year 2000 orders
and issues. As a result, there can be no assurances that key suppliers will be
able to timely fill the Company's future orders. The Company is in the process
of evaluating what alternatives are available if key suppliers could not provide
required materials and supplies to the Company when ordered. While a formal
contingency plan related to this risk has not yet been completed by the Company,
alternatives would be to increase inventory levels of key suppliers and seek
supplies from other vendors. The Company estimates that such contingency plans
will be completed by December 31, 1999. However, there can be no assurance that
all significant primary and back-up suppliers will be able to fill the Company's
orders due to their own Year 2000 issues. Such supplier failures could have a
material adverse impact on the Company's financial condition, results of
operations and cash flows.
In addition to routine capital expenditures, and in connection with prior
acquisitions, 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 manufacturer has represented that the
new system is Year 2000 compliant. The Company successfully implemented certain
financial applications of the new system and began utilizing such applications
at the beginning of 1998. The Company successfully converted the remainder of
its domestic business processes to the new system in September 1998. The Company
believes the primary information system for its International operations is not
directly affected by the Year 2000. However, due to the increased significance
of its International operations and the desire to integrate its reporting
systems, the Company will be converting the International information systems to
a system common with the domestic operations. The International project is
scheduled for completion in 1999. The International system is also designed to
properly process transactions denominated in the euro currency. Euro currency is
a new monetary unit which certain European countries can begin using in 1999.
-18-
<PAGE>
The Company has launched Year 2000 internet websites for its customers that
include a complete list of the Company's electronic medical products, detailed
and updated information regarding the status of the products and other
information regarding the Company's Year 2000 program. Certain of the Company's
products contain software in which the record keeping capabilities will be
affected beyond the Year 2000. Products affected by the Year 2000 issue have
been identified and information regarding user interventions and software
upgrades has been provided. The Company believes that these issues will not
interfere with the primary functions of the products involved, nor will they
affect the safety of patients; however, there can be no assurance in regard to
the foregoing nor can there be any assurance that the Company will not be
subject to legal claims for damages arising from products that are not Year 2000
compliant.
During the fiscal years 1996, 1997 and 1998 the Company made combined capital
and operating expenditures of approximately $13.9 million related to the new
enterprise-wide information system, and expenditures of $0.6 million in the
period ended March 31, 1999. To complete the identified phases of the project,
the Company anticipates additional expenditures for 1999 of approximately $3.4
million.
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, increased competitive
pressures and Year 2000 issues. Approximately 34% and 33% of the Company's sales
of drug infusion instruments occurred during the fourth quarters of 1997 and
1998, respectively. Sales of the Company's medical instrument products represent
capital expenditures to many of the Company's customers. The Company believes it
is possible that due to Year 2000 capital requirements by its customers during
1999, fourth quarter drug infusion instrument purchasing decisions could be
deferred until 2000. Additionally, the Company believes that customers' Year
2000 concerns and planning strategies may result in certain customers increasing
historical stock levels of the Company's disposable products resulting in
increased sales of such products during 1999.
Although the Company is dedicating substantial resources towards attaining Year
2000 readiness, there is no assurance it will be successful in its efforts to
identify and address all Year 2000 issues. Even if the Company acts in a timely
manner to complete all of its assessments; identifies, develops and implements
remediation plans believed to be adequate; and develops contingency plans
believed to be adequate some problems may not be identified or corrected in time
to prevent material adverse consequences to the Company. The discussion above
regarding estimated completion dates, costs, risks and other forward-looking
statements regarding Year 2000 is based on the Company's best estimates given
information that is currently available and is subject to change. As the Company
continues to progress with its Year 2000 initiatives, it may discover that
actual results will differ materially from these estimates. The information
provided above constitutes a "Year 2000 Readiness Disclosure" for purposes of
the Year 2000 Information and Readiness Disclosure Act.
BACKLOG
The backlog of orders, believed to be firm, at March 31, 1999 and 1998 was $6.9
million and $5.9 million, respectively.
FOREIGN OPERATIONS
The Company has significant foreign operations and, as a result, 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 1999 and 1998, primarily a strengthening of the U.S. dollar, the
Company's functional
-19-
<PAGE>
currency, against many European currencies, the Company recognized a foreign
currency transaction loss of approximately $0.4 million and $0.2 million during
1999 and 1998, respectively. For the three months ended March 31, 1999 and the
three months ended March 31, 1998, approximately 37% and 40% of the Company's
sales and 30% and 33% of the Company's operating expenses were denominated in
currencies other than the Company's functional currency, respectively. These
foreign currencies are primarily those of Western Europe, Canada and Australia.
Additionally, substantially all of the receivables and payables of the Company's
foreign subsidiaries are denominated in currencies other than the Company's
functional currency, and no formal hedging program exists to manage fluctuations
in these foreign currencies. The Company continues to evaluate hedging programs
to limit the exposure to the Company resulting from changes in foreign currency
exchange rates.
On December 31, 1998, Mexico enacted certain changes to its tax code which
broaden the definition of when a U.S. company using manufacturing services in
Mexico will be considered to have a "permanent establishment." These changes,
which would apply to the Company effective as of January 1, 2000, would result
in effective taxation of that portion of the Company's income attributable to
the Mexican subsidiary at a rate of 75% or higher. It is uncertain if any such
new tax imposed by Mexico will be granted a corresponding foreign tax credit
under the U.S. Internal Revenue Code. The Company is currently evaluating the
anticipated effect of such changes, which could have a material adverse effect
on its financial condition, results of operations and cash flows.
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; the effect of the Year 2000 risk; 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.
-20-
<PAGE>
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
See Note 4 to the Condensed Consolidated Financial Statements.
-21-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits
27 -- Financial Data Schedule
-----------------------------------------
(b) Reports on Form 8-K
None.
</TABLE>
-22-
<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 14, 1999 By: /s/ WILLIAM C. BOPP
---------------------------------
William C. Bopp
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit Page
No. No.
- ------- ----
<S> <C> <C>
27 -- Financial Data Schedule............................... 25
</TABLE>
-24-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE 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>
<CIK> 0001029069
<NAME> ALARIS MEDICAL SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 39,500
<SECURITIES> 0
<RECEIVABLES> 89,364
<ALLOWANCES> (2,816)
<INVENTORY> 81,500
<CURRENT-ASSETS> 233,755
<PP&E> 119,205
<DEPRECIATION> (53,258)
<TOTAL-ASSETS> 638,638
<CURRENT-LIABILITIES> 89,076
<BONDS> 396,109
<COMMON> 0
0
0
<OTHER-SE> 120,548
<TOTAL-LIABILITY-AND-EQUITY> 638,638
<SALES> 93,436
<TOTAL-REVENUES> 93,436
<CGS> 45,634
<TOTAL-COSTS> 45,634
<OTHER-EXPENSES> 38,921
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> (211)
<INCOME-TAX> 400
<INCOME-CONTINUING> (611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (611)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
