SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
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 0-18592
MERIT MEDICAL SYSTEMS, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Utah 87-0447695
---- ----------
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
1600 West Merit Parkway, South Jordan UT, 84095
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(801) 253-1600
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 7,781,810
---------------- ----------------------------
TITLE OR CLASS Number of Shares Outstanding at
November 13, 2000
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 .........................................................1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 1999..............................................3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999..............................................4
Notes to Consolidated Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................8
Item 3. Market Risk Disclosure.........................................................10
PART II. OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K.............................................11
SIGNATURES........................................................................ . . . .11
</TABLE>
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,041,721 $ 668,711
Trade receivables - net 13,575,251 12,550,132
Employee and related party receivables 402,037 502,803
Irish Development Agency grant receivable 93,779 93,059
Inventories 26,571,608 27,521,087
Prepaid expenses and other assets 930,798 564,213
Deferred income tax assets 1,029,147 1,052,745
Income tax refund receivable 210,112 210,112
------------ ------------
Total current assets 43,854,453 43,162,862
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,365,985 1,365,985
Building 1,500,000 1,500,000
Automobiles 127,766 133,316
Manufacturing equipment 19,964,265 17,617,798
Furniture and fixtures 9,325,320 8,883,297
Leasehold improvements 5,369,954 5,114,964
Construction-in-progress 2,553,253 1,669,725
------------ ------------
Total 40,206,543 36,285,085
Less accumulated depreciation
and amortization (17,074,644) (14,277,666)
------------ ------------
Property and equipment - net 23,131,899 22,007,419
------------ ------------
OTHER ASSETS:
Intangible assets - net 2,528,690 2,319,581
Cost in excess of the fair value of assets acquired - net 5,130,923 4,819,288
Deposits 37,280 51,319
------------ ------------
Total other assets 7,696,893 7,190,188
------------ ------------
TOTAL ASSETS $ 74,683,245 $ 72,360,469
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS (Continued)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,162,116 $ 1,001,917
Trade payables 2,921,928 4,749,432
Accrued expenses 4,119,732 3,092,280
Advances from employees 129,095 116,094
Income taxes payable 132,682 269,441
------------ ------------
Total current liabilities 8,465,553 9,229,164
DEFERRED INCOME TAX LIABILITIES 1,705,097 1,722,094
LONG-TERM DEBT 29,741,909 27,817,308
DEFERRED CREDITS 815,465 901,767
------------ ------------
Total liabilities 40,728,024 39,670,333
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock -5,000,000 shares authorized
as of September 30, 2000, and December 31, 1999,
no shares issued
Common stock - no par value;
20,000,000 shares authorized,
respectively, 7,767,458 and 7,591,236 shares
issued at September 30, 2000
and December 31, 1999, respectively 19,543,201 18,428,572
Retained earnings 15,070,360 14,790,518
Accumulated other comprehensive loss (658,340) (528,954)
------------ ------------
Total stockholders' equity 33,955,221 32,690,136
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,683,245 $ 72,360,469
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $23,330,203 $19,920,419 $68,963,497 $56,601,881
COST OF SALES 15,371,355 12,156,979 45,754,360 34,796,574
----------- ----------- ----------- -----------
GROSS PROFIT 7,958,848 7,763,440 23,209,137 21,805,307
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 5,738,691 5,071,648 17,766,023 14,871,567
Research and development 995,553 986,010 3,003,937 2,679,906
Severance Costs -- -- 277,300 --
----------- ----------- ----------- -----------
Total operating expenses 6,734,244 6,057,658 21,047,260 17,551,473
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,224,604 1,705,782 2,161,877 4,253,834
OTHER EXPENSE - NET 661,181 301,114 1,762,102 760,614
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 563,423 1,404,668 399,775 3,493,220
INCOME TAX EXPENSE 169,026 463,321 119,933 1,165,567
MINORITY INTEREST IN INCOME
OF SUBSIDIARY -- 12,579 -- 81,077
----------- ----------- ----------- -----------
NET INCOME $ 394,397 $ 928,768 $ 279,842 $ 2,246,576
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE -
Basic $ 0.05 $ .12 $ .04 $ .30
=========== =========== =========== ===========
Diluted $ 0.05 $ .12 $ .04 $ .30
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES -
Basic 7,767,458 7,535,735 7,712,979 7,531,319
=========== =========== =========== ===========
Diluted 7,878,497 7,709,815 7,852,630 7,590,329
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED September 30, 2000 and 1999 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 279,842 $ 2,246,576
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,283,694 2,575,323
Bad debt expense 573,906 110,977
Losses on sales and abandonment of
property and equipment 60,629 764
Amortization of deferred credits (96,680) (106,701)
Deferred income taxes 6,601 86,969
Minority interest in income of subsidiary - 81,077
Changes in operating assets and liabilities net of
effects from acquisitions:
Trade receivables (1,599,025) (1,965,157)
Employee and related party receivables 100,766 5,510
Irish Development Agency grant receivable (13,180) 183,392
Inventories 1,010,689 (4,312,626)
Prepaid expenses (366,585) 11,041
Deposits and other 14,039 29,414
Trade payables (1,827,504) 1,951,293
Accrued expenses 1,027,452 1,242,635
Advances from employees 13,001 23,026
Income taxes payable (136,759) 427,990
------------ ------------
Total adjustments 2 ,051,044 344,927
------------ ------------
Net cash provided by operating activities 2,330,886 2,591,503
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (3,532,240) (3,795,562)
Intangible assets (358,255) (188,692)
Acquisitions (660,649) (11,322,916)
Proceeds from the sale of property and equipment 33,188 503
------------ ------------
Net cash used in investing activities (4,517,956) (15,306,667)
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
--------------------------------------------------------------------------------
September 30, September 30,
2000 1999
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of common stock 1,114,629 291,215
Issuance of long-term debt 2,592,404 22,058,311
Principal payments on:
Long-term debt (1,017,567) (1,689,794)
Line of credit -- (7,634,607)
------------ ------------
Net cash provided by financing activities 2,689,466 13,025,125
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH (129,386) (430,435)
NET INCREASE IN CASH AND CASH EQUIVALENTS 373,010 (120,474)
CASH AT BEGINNING OF PERIOD 668,711 851,910
------------ ------------
CASH AT END OF PERIOD $ 1,041,721 $ 731,436
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH-
FLOW INFORMATION
Cash paid during the period for:
Interest (including capitalized interest
of $102,958 and $110,702, respectively) $ 1,609,922 $ 730,539
============ ============
Income taxes $ 250,091 $ 650,608
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 2000 and 1999 the Company issued
notes payable totaling $509,963 and $301,817, respectively, for manufacturing
equipment, furniture and fixtures, land and building.
During 1999, the Company acquired all of the assets of the "Angleton Division"
of Mallinckrodt Inc. (Angleton) in a purchase transaction for $7,867,699 in
cash. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired
(including goodwill of $1,949,383) $ 8,132,194
Cash paid 7,867,699
------------
Liabilities assumed $ 264,495
============
Additionally, during 1999, the Company acquired the minority interest in its
subsidiary, Sentir, Inc. (Sentir) in a purchase transaction of $3,455,217 in
cash. The minority interest carried by the Company at the date of the
acquisition was $629,577. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired
(including goodwill of $2,825,6400) $ 3,574,016
Cash paid 3,455,217
------------
Liabilities assumed $ 118,799
============
See Notes to Consolidated Financial Statements
5
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Basis of Presentation. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial
position of the Company as of September 30, 2000 and December 31, 1999, and the
results of its operations and cash flows for the three and nine months ended
September 30, 2000 and 1999, and its cash flows for the nine months September
30, 2000 and 1999. The results of operations for the three and nine months ended
September 30, 2000 and 1999 are not necessarily indicative of the results for a
full-year period.
2. Inventories. Inventories at September 30, 2000 and December 31, 1999
consisted of the following:
September 30, December 31,
2000 1999
------------ ------------
Raw materials $ 7,982,949 $ 8,554,635
Work-in-process 3,232,801 3,270,163
Finished goods 17,302,979 16,816,577
Less reserve for obsolete inventory (1,947,121) (1,120,288)
------------ ------------
Total $ 26,571,608 $ 27,521,087
============ ============
3. Income Taxes. The Company has not fully allocated income tax expense between
current and deferred for the quarters ended September 30, 2000 and 1999. The
effective tax rate for the three and nine months ended September 30, 2000 were
near or below the 35% federal statutory rate. Improvements in the effective tax
rate below the 35% federal statutory rate were largely the result of the
Company's operations in Ireland which are currently taxed at a lower rate than
the Company's overall effective tax rate as well as increased credits received
from research and development expenditures.
4. Reporting Comprehensive Income - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No.130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130.
Accordingly, the Company determined that the only transaction considered to be
an additional component of comprehensive income is the cumulative effect of
foreign currency translation adjustments. As of September 30, 2000 and December
31, 1999, the cumulative effect of such transactions reduced stockholders'
equity by $658,340 and $528,954, respectively. Comprehensive income for the
three and nine months ended September 30, 2000 and 1999 is shown as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 394,397 $ 928,768 $ 279,842 $ 2,246,576
Foreign currency translation (76,470) 187,200 (129,386) (430,435)
----------- ----------- ----------- -----------
Comprehensive income $ 317,927 $ 1,115,968 $ 150,456 $ 1,816,141
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
5. Recently Issued Financial Accounting Standards - On July 7, 1999, the
Financial Accounting Standards Board (FASB) issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities, Deferral of the Effective Date of
FASB Statement No. 133," an amendment of SFAS No. 133, which establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is
effective for all quarterly and annual financial statements of fiscal years
beginning after June 15, 2000. Company management is currently evaluating the
effects of this change in its accounting for derivatives and hedging activities,
but does not currently believe that the implementation of SFAS No. 133, will
have a material effect on the Company's financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101),
which summarizes certain of its staff's views in applying generally accepted
accounting principles in the United States to revenue recognition in financial
statements. SAB 101 is effective beginning with the Company's fourth quarter of
2000. Company management currently believes that SAB 101 will not have a
material effect on the Company's financial statements.
7
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
ITEM 2:
Overview
In the three and nine months ended September 30, 2000, the Company experienced a
significant growth in revenues due in large part to the addition of the Angleton
Catheter division. Despite the increase in sales, the Company's profits were
down from a year ago.
During the first half of 1999, shortly after the implementation of the Company's
new comprehensive Oracle software system, the planning, scheduling and
purchasing group, as well as other areas of the Company, experienced difficulty
in learning to effectively operate the system. One of the first concerns
identified was an increase in back orders to our customers, and Merit, being a
customer- driven company, responded by building inventory at rates that were
higher than the rate of sales. By doing so we were able to work out of back
orders in most catalog numbers. We also increased our safety stock levels of
inventory in the expectation of higher quantities ordered by hospitals in
anticipation of possible Y2K problems.
The combination of these increased production demands created a build-up of
capacity in labor and overhead. As the end of 1999 approached, however, we
needed to reduce production levels to match cash-flow expectations. The reduced
production volumes created higher overhead cost per unit, lower gross margins,
and lower bottom-line results.
The Company has implemented a plan to address these problems. First, we have
reduced substantially the amount of discretionary spending such as travel,
advertising and trade shows. Second, we have reduced, through attrition and
other means, the number of employees and will continue to do so as the
circumstances warrant. Expenses related to consultants and other programs have
been reduced or discontinued. In mid-May we realized a 23-person reduction in
force which is expected to save approximately $1 million per year, but caused an
unusual charge in the second quarter of $277,300 for termination costs. The most
important issue will be to balance our overhead and production costs. Ongoing
and new cost- reduction programs have been and will continue to be implemented.
In mid-April the Company also received notice that a large custom packer of
procedure trays for interventional cardiology and radiology procedures (Clinipad
Corporation) had been forced by the FDA into a significant recall for the
majority of their products. As result of this recall, Clinipad ceased its
operations and informed its vendors that there would be no assets left after the
secured lender satisfied its priority position. Therefore, the receivable the
Company had with Clinipad is expected to be uncollectible. This type of
subsequent event was determined to be applicable to the first quarter of 2000
and therefore an adjustment of $340,000 to write off the entire outstanding
balance of the Clinipad receivable was made in the first quarter.
Operations. The Company achieved record levels of sales for the three and nine
months ended September 30, 2000 compared to the same periods in 1999. The
following table sets forth certain operational data as a percentage of sales for
the three and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross Profit 34.1 39.0 33.7 38.5
Selling, General and Administrative 24.6 25.5 25.8 26.3
Research & Development 4.3 4.9 4.4 4.7
Income From Operations 5.2 8.6 3.1 7.5
Other Expense 2.8 1.5 2.6 1.3
Net Income 1.7 4.7 .4 4.0
</TABLE>
8
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
--------------------------------------------------------------------------------
Sales. Sales for the third quarter of 2000 ended September 30 were $23,330,203
compared to $19,920,419 for the same period last year, which represents a gain
of 17 percent. During the quarter the Company's catheter sales were up 158%,
compared to the third quarter of 1999, which only included five weeks of sales
from the recently required Angleton catheter line; inflation device sales
increased by 3 percent, and custom kit business grew by 2 percent during the
three-month period compared to the quarter ended September 30, 1999; while sales
of other devices including syringes, manifolds and needles grew by 23 percent.
Growth in all segments reflects continued market share gains and acceptance of
the Company's products, as well as hospital procedural growth. For example,
sales of the Company's inflation devices not sold in kits grew by 11 percent in
the quarter due to increased sales for new spinal procedures such as discography
and kyphoplasty. For the nine- month period ended September 30, 2000 total sales
were $68,963,497 compared with $56,601,881 for the same period in 1999, a gain
of 22 percent. These gains were led by sales of the Company's catheters which
were up 457%; Sentir's business grew by 47%; stand alone inflation devices,
which rose 8 percent; guide wires, which grew by 348 percent; Maps (Merit
Angioplasty Packs) which were up 47% and custom kits, (other than inflation and
manifold kits) which grew by 13 percent.
Gross Profit. Gross profit as a percentage of sales for the third quarter of
2000 was 34.1% compared to 39.0% for the same period of 1999. For the nine
months ended September 30, 2000 gross profit was 33.7% compared to 38.5% for the
first nine months of 1999. The decrease in gross profit for the three and nine
months ended September 30, 2000 was primarily due to sales in these periods of
higher cost product, carrying the extra overhead and labor costs from the
December 1999 through the second quarter of 2000 production periods. It is
important to note that margins as a percent of sales have improved in the third
quarter to 34.1 percent over 32.3 percent in the June quarter because of the
Company's efforts to reduce inventory, lower costs and increase employee
productivity.
Operating Expenses. Operating expenses were 28.9% of sales for the three months
ended September 30, 2000 compared to 30.4% for the third quarter of 1999. For
the first nine months of 2000 operating expenses decreased to 30.5% compared to
31.0% for the same period in 1999. Selling, general and administrative expenses
as a percentage of sales were 24.6% and 25.8% for the three and nine months
ended September 30, 2000 compared to 25.5% and 26.3% for the same periods in
1999. The decrease was primarily due to the successful implementation of the
Company's expense-reduction program as well as the strong increase in sales.
Research and development costs declined to 4.3% and 4.4% of sales, respectively,
for the three and nine months ended September 30, 2000 down from 4.9% and 4.7%
of sales, respectively, for the same periods of 1999.
Operating Income. During the quarter ended September 30, 2000, the Company
reported income from operations of $1.2 million compared to $1.7 million for the
comparable period in 1999. Operating income for the first nine months of 2000
was $2.2 million vs. $4.3 million for the same period in 1999. The decrease in
net earnings for the three and nine months ended September 30, 2000 was mainly
attributable to the decline in gross margins discussed above.
Liquidity and Capital Resources. At September 30, 2000, the Company's working
capital was $35.4 million which represented a current ratio of 5.2 to 1. During
the nine months ended September 30, 2000 the principal sources of funds were
$2.3 million generated from operations, $1.6 million in net long-term debt, and
1.1 million from the issuance of common stock. During this same period 1 million
was invested in the aquisition of the assets from Electro Catheter and
intangibles and $3.5 million in equipment. These factors resulted in an increase
of $.4 million in cash for the nine months ended September 30, 2000.
On March 2000, the Company increased its long-term revolving credit facilities
to $35 million with a bank for a term of six years. The credit facility bears
interest at or below the bank's prime rate, or can be fixed at between 140 and
160 points over LIBOR and contains various conditions and restrictions. At
September 30, 2000, the outstanding balance under the credit facility was $29.7
million. Historically, the Company has incurred significant expenses in
connection with product development and introduction of new products.
Substantial capital has also been required to finance growth in inventories and
receivables, particularly with the recent acquisitions and the introduction of
new product lines. The Company's principal source of funding for these and other
expenses has been the sale of equity and cash generated from operations, secured
loans on equipment and bank credit facilities. The Company believes that its
present sources of liquidity and capital are adequate for its current
operations.
9
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
--------------------------------------------------------------------------------
Item 3: Quantitative and Qualitative Disclosure About Market Risk.
Market Risk Disclosures.
The Company principally hedges the following EURO currencies: Belgian Francs,
French Francs, German Marks, Dutch Gilders, and Irish Pounds. The Company enters
into forward foreign exchange contracts to protect the Company from the risk
that the eventual net dollar cash flows resulting from transactions with foreign
customers and suppliers may be adversely affected by changes in currency
exchange rates. Such contracts are not significant.
Forward-looking Statements. Statements contained in this document which are not
purely historical are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These encompass Merit's
beliefs, expectations, hopes or intentions regarding the future. All
forward-looking statements included in this document are made as of the date
hereof and are based on information available to Merit as of such date. Merit
assumes no obligation to update any forward-looking statement. It is important
to note that actual outcomes and Merit's actual results may differ materially
from those in such forward-looking statements. Factors that could cause actual
results to differ materially include risks and uncertainties related to future
market growth such as delays in prodouct introductions, product acceptance,
product recalls, delays in obtaining regulatory approvals, cost increases, price
and product competition, availability of labor and materials related to health
care reform initiatives, or product obolescence relating to changes in product
technology.
10
<PAGE>
MERIT MEDICAL SYSTEMS, INC.
---------------------------
PART II - OTHER INFORMATION
ITEM 4: Exhibits and Reports on Form 8-K
S - K No. Description Exhibit No.
--------------------------------------------------------------------------------
27 Financial Data Schedule 1
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.
MERIT MEDICAL SYSTEMS, INC.
---------------------------
REGISTRANT
Date: NOVEMBER 13, 2000 By: /s/ Fred P. Lampropoulos
----------------------- ----------------------------
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: NOVEMBER 13, 2000 By: /s/ Kent W. Stanger
----- ----------------- -----------------------
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
11
