<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 No.: 0-19974
ICU MEDICAL, INC.
(Exact name of Registrant as provided in charter)
------------------------------------------------
Delaware 33-0022692
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
951 Calle Amanecer, San Clemente, California 92673
- --------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(949) 366-2183
--------------
(Registrant's Telephone No. Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports 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 XXX No____
---
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at July 31, 1999
----- ----------------------------
Common 8,204,493
<PAGE>
ICU Medical, Inc.
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page Number
- ------------------------------ -----------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the three months
ended June 30, 1999 and 1998 4
Consolidated Statements of Income for the six months
ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2.
- -------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk Not Applicable
Part II - Other Information 15
- ---------------------------
Signatures 16
</TABLE>
2
<PAGE>
ICU Medical, Inc.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(all dollar amounts in thousands except share data)
ASSETS
<TABLE>
<CAPTION>
6/30/99 12/31/98
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,967 $ 2,048
Liquid investments 36,191 36,041
------- -------
Cash and liquid investments 38,158 38,089
Accounts receivable, net of allowance for doubtful accounts of $324
and $342 as of June 30, 1999 and December 31, 1998, respectively 6,100 6,492
Inventories 2,044 1,991
Prepaid expenses and other 291 385
Deferred income taxes - current portion 991 991
------- -------
Total current assets 47,584 47,948
------- -------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 9,160 8,225
Furniture and fixtures 2,195 2,044
Molds 3,789 3,710
Land, building and building improvements 7,197 7,191
Construction in process 9,668 1,703
------- -------
32,009 22,873
Less--Accumulated depreciation (10,276) (9,109)
------- -------
21,733 13,764
------- -------
DEFERRED INCOME TAXES 92 92
OTHER ASSETS 710 555
------- -------
$70,119 $62,359
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 991 $ 683
Accrued liabilities 4,790 3,448
------- -------
Total current liabilities 5,781 4,131
------- -------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1.00 par value
Authorized -- 500,000 shares, issued and outstanding -- none - -
Common stock, $0.10 par value-
Authorized -- 20,000,000 shares, issued -- 8,867,162 shares 887 887
Additional paid-in capital 40,776 40,241
Treasury stock -- 668,169 and 807,847 shares at
June 30, 1999 and December 31, 1998, respectively (5,698) (7,117)
Retained earnings 28,373 24,217
------- -------
Total stockholders' equity 64,338 58,228
------- -------
$70,119 $62,359
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ICU Medical, Inc.
Consolidated Statements of Income
For the Three Months Ended
June 30, 1999 and June 30, 1998
(all dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------
6/30/99 6/30/98
---------------- ----------------
<S> <C> <C>
NET SALES $ 11,699 $ 10,430
COST OF GOODS SOLD 5,097 4,368
--------- ---------
Gross profit 6,602 6,062
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 3,096 3,357
Research and development 308 253
--------- ---------
Total operating expenses 3,404 3,610
--------- ---------
Income from operations 3,198 2,452
INVESTMENT INCOME 362 337
--------- ---------
Income before income taxes 3,560 2,789
PROVISION FOR INCOME TAXES 1,340 1,070
--------- ---------
NET INCOME $ 2,220 $ 1,719
========= =========
NET INCOME PER SHARE
Basic $0.27 $0.21
Diluted $0.25 $0.20
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 8,193,938 8,078,362
Diluted 8,749,597 8,469,353
========= =========
</TABLE>
<PAGE>
ICU Medical, Inc.
Consolidated Statements of Income
For the Six Months Ended
June 30, 1999 and June 30, 1998
(all dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------
6/30/99 6/30/98
---------------- ----------------
<S> <C> <C>
NET SALES $ 23,141 $ 20,412
COST OF GOODS SOLD 9,830 8,535
-------- --------
Gross profit 13,311 11,877
-------- --------
OPERATING EXPENSES:
Selling, general and administrative 6,466 6,528
Research and development 513 551
-------- --------
Total operating expenses 6,979 7,079
-------- --------
Income from operations 6,332 4,798
INVESTMENT INCOME 712 671
-------- --------
Income before income taxes 7,044 5,469
PROVISION FOR INCOME TAXES 2,640 2,090
-------- --------
NET INCOME $ 4,404 $ 3,379
======== ========
NET INCOME PER SHARE
Basic $0.54 $0.42
Diluted $0.50 $0.40
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 8,155,432 7,950,696
Diluted 8,783,089 8,375,356
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ICU Medical, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30, 1999 and June 30, 1998
(all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
6/30/99 6/30/98
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,404 $ 3,379
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 1,407 1,206
Net change in current assets and current liabilities, and other 1,864 (1,152)
------- -------
Net cash provided by operating activities 7,675 3,433
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,312) (3,237)
Net change in liquid investments (150) (2,800)
------- -------
Net cash (used in) investing activities (9,462) (6,037)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options and related income tax benefits, and other 1,706 3,252
------- -------
Net cash provided by financing activities 1,706 3,252
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (81) 648
CASH AND CASH EQUIVALENTS, beginning of the period 2,048 2,962
------- -------
CASH AND CASH EQUIVALENTS, end of the period $ 1,967 $ 3,610
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ICU Medical, Inc.
Notes to Consolidated Financial Statements
June 30, 1999
(All dollar amounts in thousands)
(unaudited)
Note 1: The accompanying unaudited interim consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments which are, in the opinion of
Management, necessary to a fair statement of the consolidated results for the
interim periods presented, which adjustments consist of only normal recurring
adjustments. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1998 Annual Report to Stockholders.
Note 2: Inventories consisted of the following:
<TABLE>
<CAPTION>
6/30/99 12/31/98
-------- ---------
<S> <C> <C>
Raw material $ 1,316 $ 1,121
Work in process 500 509
Finished goods 228 361
-------- ---------
Total $ 2,044 $ 1,991
======== =========
</TABLE>
Note 3: Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
share is computed by dividing net income by the weighted average number of
common shares outstanding plus dilutive securities. The Company's dilutive
securities are outstanding common stock options (excluding stock options with an
exercise price in excess of market value), less the number of shares that could
have been purchased with the proceeds from the exercise of the options, using
the treasury stock method, and were 555,659 and 390,991 for the three months
ended June 30, 1999 and 1998, respectively and 627,657 and 424,660 for the six
months ended June 30, 1999 and 1998, respectively.
Note 4: The effective tax rate differs from that computed at the federal
statutory rate of 34% principally because of the effect of state income taxes
partially offset by the effect of tax-exempt investment income.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
- -------
The following table sets forth the net sales by product as a percentage of
total net sales for the periods indicated:
<TABLE>
<CAPTION>
===========================================================================================================================
YTD YTD
Product Line 1996 1997 1998 Q2-98 Q2-99 Q2-98 Q2-99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLAVE(R) 68% 65% 69% 73% 71% 71% 70%
- ---------------------------------------------------------------------------------------------------------------------------
Click Lock(R) and Piggy Lock(R) 12% 7% 4% 3% 3% 4% 3%
- ---------------------------------------------------------------------------------------------------------------------------
McGaw Protected Needle 8% 5% 4% 6% 3% 5% 3%
- ---------------------------------------------------------------------------------------------------------------------------
Lopez Valve(R) and other 4% 4% 5% 2% 4% 4% 4%
- ---------------------------------------------------------------------------------------------------------------------------
RF100-RF150 ("Rhino") 3% 7% 5% 4% 6% 5% 6%
- ---------------------------------------------------------------------------------------------------------------------------
Budget Medical Products 2% 6% 8% 7% 9% 6% 10%
- ---------------------------------------------------------------------------------------------------------------------------
McGaw SafeLine Revenue Sharing 3% 6% 5% 5% 4% 5% 4%
- ---------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100% 100% 100%
===========================================================================================================================
</TABLE>
The Company sells its products to independent distributors and through
supply and distribution agreements with B.Braun Medical, Inc. ("B.Braun/McGaw"),
Abbott Laboratories ("Abbott") (the "B.Braun/McGaw Agreement" and the "Abbott
Agreement," respectively) and C. R. Bard, Inc. ("Bard"). Most independent
distributors handle the full line of the Company's products. B.Braun/McGaw and
Abbott both purchase CLAVE products, principally bulk, non-sterile connectors.
B.Braun/McGaw also purchases the McGaw Protected Needle and pays the Company
revenue sharing payments on its sales of its SafeLine products. Abbott also
purchases the Rhino, a low-priced connector specifically designed for Abbott.
Bard distributes the Lopez Valve under a five-year agreement signed in June
1999.
The B.Braun/McGaw Agreement extends to December 2002, and has extension
provisions beyond then.
In January 1999, the Company and Abbott agreed to a significant expansion
of their agreement for CLAVE products. The new agreement has assurances of
substantial increases in sales unit volume, accompanied by price reductions.
The new agreement was extended from April 2002 to December 2009, and designates
the Company as Abbott's preferred supplier for all Abbott's needlefree
technology. In July 1999 the contract was amended to add the CLC 2000(TM) to
the agreement.
Management believes that as the healthcare provider market continues to
consolidate, the Company's success in marketing and distributing CLAVE products
will depend, in part, on the Company's ability, either independently or through
strategic supply and distribution arrangements, to secure long-term CLAVE
contracts with major buying organizations. Further, the Company's marketing and
distribution strategy may result in a significant share of the Company's
revenues being concentrated among a small number of customers. The loss of a
strategic supply and distribution
8
<PAGE>
agreement with a customer or the loss of a large contract by such a customer,
could have a material adverse effect on operating results.
Management believes the success of the CLAVE has, and will continue to
motivate others to develop one piece needleless connectors which may incorporate
many of the same functional and physical characteristics as the CLAVE. The
Company is aware of a number of such products. In response to competitive
pressure, the Company has been reducing prices to its independent distributors,
as well as to I.V. product manufacturers, to protect and expand its market. The
price reductions to date have more than been offset by increased volume,
although this has not occurred to date for independent distributors in the
aggregate. Management expects that the average price of its CLAVE products will
continue to decline. There is no assurance that the Company's current or future
products will be able to successfully compete with products developed by others.
Quarter Ended June 30, 1999 Compared to the Same Quarter Last Year
- ------------------------------------------------------------------
Net sales increased $1,269,000, or approximately 12%, to $11,699,000 in the
second quarter of 1999, compared to $10,430,000 during the same period last
year. The increase was primarily attributable to a 9% increase in sales of
CLAVE products, including custom CLAVE I.V. sets sold by the Company's
subsidiary, Budget Medical Products ("BMP").
Net sales to Abbott in the second quarter of 1999 were $5,166,000, as
compared with net sales of $2,535,000 in the second quarter of 1998. Net sales
of CLAVE products increased to $4,477,000 in the second quarter of 1999 from
$2,183,000 in the second quarter of 1998 on a greater than three-fold increase
in unit volume. The balance of the increase in net sales to Abbott was in the
low-priced Rhino. Based on communication with Abbott, Management does not expect
net sales to Abbott in the second half of 1999 to be any greater than they were
in the second half 1998; that would be substantially less than the net sales in
the first half of 1999. However, Management does expect continued increases in
sales volume with Abbott after 1999. There can be no assurance as to the amount
or timing of future sales to Abbott and whether Management's expectations will
be realized.
Net sales to B.Braun/McGaw, including revenue sharing, amounted to
$3,206,000 in the second quarter of 1999, as compared with $4,617,000 in the
second quarter of 1998. CLAVE net sales decreased $1,203,000 on a decrease in
unit shipments. Estimated revenue sharing payments due on B.Braun/McGaw sales of
its SafeLine products and sales of McGaw Protected Needle both decreased from
last year. The decline in net sales of CLAVE products to B.Braun/McGaw was
principally because of the timing of orders and inventory reductions by
B.Braun/McGaw. Management expects unit shipments and net sales of CLAVE products
to B.Braun/McGaw in the second half of 1999 to exceed those in the second half
of 1998, although there is no assurance that these expectations will be
realized. Management expects that net sales of the McGaw Protected Needle will
continue to decline as the market for safe connectors continues its shift to
needleless technology. Management expects that SafeLine revenue sharing payments
will continue, although it is unable to accurately forecast such amounts.
Total net sales of CLAVE Products increased from $7,627,000 in the second
quarter of 1998 to $8,270,000 in the second quarter of 1999, or 8%. The
increase in unit shipments was approximately
9
<PAGE>
75%, substantially all of which was accounted for by Abbott. Unit shipments to
independent distributors were virtually unchanged. Average net selling prices
decreased approximately 35% on a year-to-year basis in response to market
pressures and because a greater proportion of sales were the lower priced bulk
non-sterile CLAVEs sold to Abbott and B.Braun/McGaw. Management expects unit
shipments of CLAVE Products to independent distributors in 1999 to be at or
somewhat below those for 1998. Net sales of CLAVE Products to independent
distributors are expected to decrease as average selling prices continue to
decline.
Net sales of Click Lock and Piggy Lock decreased approximately 9% in the
second quarter of 1999 compared to the same period last year. The decline is
because of the safe-connector market's continued shift to needleless technology.
Management expects the trend to continue.
Net sales of the Lopez Valve increased 75% in the second quarter compared
to the same period last year due to an increase in unit shipments. Management
expects that net sales of the Lopez Valve will continue to increase for the rest
of 1999 on increased shipments to independent distributors and to Bard under the
new agreement.
Net sales of custom I.V. sets through the Company's wholly-owned
subsidiary, Budget Medical Products ("BMP") increased to $1,075,000 in the
second quarter of 1999, as compared with $681,000 in the second quarter of 1998,
principally because of increased unit shipments of custom I.V. sets
incorporating the CLAVE. BMP's production, much of which is performed manually,
is relatively labor-intensive, resulting in a generally lower gross profit
margin than for the Company's other products. The Company is continuing steps to
expand BMP by increasing systems capabilities, improving manufacturing
efficiency, reducing labor cost and enhancing distribution. Because significant
innovation is required to achieve these goals, there is no assurance that these
steps will achieve the desired results. However, even if they are successful,
Management expects that gross profit margins in BMP will continue to be lower
than the average historical gross profit margins recorded by the Company because
production of its products will continue to be relatively labor intensive. BMP
has moved substantially all of its manual assembly operations to the facility
that the Company opened in December 1998 in Ensenada, Baja California, Mexico.
BMP had an improved gross profit in the first and second quarters of 1999 and
was profitable in both quarters.
Total sales to foreign distributors, principally in Europe, were $359,000
in the second quarter of 1999, as compared with $332,000 in the second quarter
of 1998. (Those amounts do not include distribution in Canada.) The Company had
a small operating loss on international operations in the first and second
quarters of 1999. In April 1998, BOC OHMEDA AB ("Ohmeda"), who was the Company's
principal distributor in Europe, sold its European distribution to a competitor
of the Company, and the Company has terminated substantially all distribution by
Ohmeda since August 1998. The Company believes that the loss of distribution
through Ohmeda had an adverse effect on the amount of European sales. The
Company is currently making new distribution arrangements in Europe. Management
expects that its sales to European and other foreign distributors will increase
in the future, although there can be no assurance that it will succeed in
arranging new distribution in Europe or increase sales in Europe or other areas
outside the United States.
10
<PAGE>
In November 1997, the Company commenced marketing the CLC 2000, a one
piece, swabable connector, engineered to prevent the back-flow of blood into the
catheter. Although the Company expects CLC 2000 sales to increase throughout
1999 based current conditions, sales to date have not been significant and the
Company does not expect CLC 2000 sales to make a significant contribution to
total sales for 1999. However, there can be no assurance as to the amount or
timing of future CLC 2000 sales.
In November 1998, the Company introduced the 1o2 Valve(TM), the first one-
way or two-way drug delivery system. The Company continues to work at
overcoming delays in production but did commence limited shipments to customers
late in the second quarter of 1999. However, there can be no assurance as to
when significant shipments will commence.
In the second quarter of 1999, the Company continued development work on
SetFinder(TM), which will directly distribute commodity-type standard I.V. sets.
Orders will be taken over the internet at a special "web-site" named
setfinder.com. Proprietary technology will enable the Company to minimize
working capital requirements. SetFinder products will be assembled at BMP's
facility in Mexico. Management expects to launch setfinder.com later in 1999.
Because significant innovation is required to launch and operate setfinder.com,
there is no assurance that it will be launched successfully or that current
plans for SetFinder will not change materially. Further, even if it is
launched, there can be no assurance that it will achieve sales and the amount of
future operating profits or losses is dependent upon future development of the
SetFinder business, the outcome of which is not known at this time.
Historically, the Company has experienced lower usage of its products in
the summer months due to lower censuses in healthcare facilities. That would
generally cause the Company's sales in the second and third quarters of the year
to be lower than sales in the first and fourth quarters. Since 1995, there have
been significant departures from that pattern because significant increases in
sales volumes with B.Braun/McGaw and Abbott have often offset the expected
seasonal sales decline. Further, those I.V. product manufacturers order bulk
non-sterile product many months before sale to the healthcare facility to allow
for normal manufacturing times. Thus, Management believes that the large
percentage of sales to I.V. product manufacturers could lead to non-seasonal
quarterly fluctuations in net sales because their ordering patterns may not
directly reflect their current sales volumes.
Because of the expected decline in net sales to Abbott in the second half
of 1999 as compared to the first half of 1999, Management currently expects
total net sales in the second half of 1999 to be somewhat less than the total
net sales of $23,141,000 in the first half of 1999. There can be no assurance
as to the amount or timing of future sales and whether Management's expectations
will be realized.
Gross margin was 56% during the second quarter of 1999 compared to 58%
during the same period last year. The decrease in the gross margin resulted
from a decrease in average selling prices that was not entirely offset by a
decrease in unit manufacturing costs. Management currently believes that the
gross margin percentage for the remainder of 1999 will be slightly lower than
that for the second quarter of 1999. The future gross margin is dependent upon
average selling prices, actual production costs and overhead absorption through
production volume. There can be no assurance that the company will be able to
maintain production volumes, which are dependent upon fluctuating sales
11
<PAGE>
volumes, or selling prices, at levels necessary to realize its expectations as
to the gross margin for the remainder of 1999.
Selling, general and administrative expenses ("SG&A"), excluding research
and development expenses, decreased 8% to $3,096,000, and decreased as a
percentage of net sales to 26% during the second quarter of 1999 compared to 32%
during the same period last year. A significant decrease in litigation costs was
only partially offset by increased sales and marketing expenses related to the
introduction of new products and expansion of the business.
Research and development expenses ("R&D") were higher in the second quarter
of 1999 than in the same quarter of 1998, and increased as a percentage of net
sales to 3% from 2%. Management expects R&D expenses to continue to increase as
the year progresses because of the clinical evaluations of the new CLC 2000.
However, no assurance can be given that such costs will not differ materially
from those estimates or that the R&D will be completed as expected.
Income from operations increased 30%, because of the increase in net sales
and reduction in SG&A expenses.
Net income increased 29% to $2,220,000 in the second quarter of 1998 as
compared with $1,719,000 in the comparable period last year. Net income per
share - diluted increased $0.05 or 25%, in the second quarter of 1999 over the
second quarter of 1998.
Six Months Ended June 30, 1998 Compared to the Same Six Months Last Year
- ------------------------------------------------------------------------
Net sales increased $2,729,000, or approximately 13%, to $23,141,000 in the
first six months of 1999 compared to $20,412,000 during the same period last
year. The increase was primarily attributable to increased sales of CLAVE
products including custom CLAVE I.V. sets sold by BMP.
Gross margin was 58% during the first six months of 1999 and 1998. Although
average selling prices have continued to decrease over the first six months of
1999, this was offset by a decrease in unit manufacturing costs.
Selling, general and administrative expenses ("SG&A"), excluding research
and development expenses, decreased slightly to $6,466,000, and decreased as a
percentage of net sales to 28% during the first half of 1999 compared to 32%
during the first half of 1998. In the first half of 1998, there were significant
costs related to patent litigation in which the Company was the plaintiff and
which was settled in the second quarter of 1998. The costs of that and other
litigation in the first half of 1998 was significantly higher than litigation
costs in the first half of 1999. The decrease in litigation costs was partially
offset by increased sales and marketing costs related to the introduction of new
products and the expansion of the business.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1999, the Company's cash and cash
equivalents and investment securities position increased $69,000 to $38,158,000.
Cash provided by operating activities and the exercise of stock options was
largely offset by the cost of additions to property and equipment.
Management expects that sales of the Company's products will continue to
grow after 1999. If sales continue to increase, accounts receivable and
inventories are expected to increase as well. As a result of these and other
factors, including increased capital expenditures, the Company's working capital
requirements may increase in the foreseeable future.
Management currently expects that capital expenditures for property and
equipment will be between approximately $14 million and $16 million in 1999 to
meet the future growth in CLAVE and other products. Most of the additions will
be in the Company's San Clemente, California production facilities and will be
for molding machines, molds and automated assembly machines, which are expected
to be placed in service later in 1999 or in 2000. In addition, the Company, in
April 1999 purchased a 28,000 square foot building near its other two buildings
in San Clemente to accommodate its expansion, and costs will be incurred to add
improvements to that building and one of the Company's existing buildings.
The Company has not purchased treasury stock since August 1998, but may
purchase additional shares in the future. However, future acquisitions, if any,
will depend on market conditions and other factors.
The Company believes that its existing working capital, supplemented by
income from operations, will be sufficient to fund capital expenditures and
increased working capital requirements for the foreseeable future.
Year 2000 Compliance
- --------------------
Many older computer programs use only the last two digits to refer to a
year. Therefore, they do not properly recognize a year that begins with "20"
rather than "19." This is referred to as the Year 2000, or Y2K problem. The Y2K
problem has been eliminated in many new programs and systems, which are said to
be "Y2K compliant." The Company has substantially completed its initial
assessment of Y2K and believes, based on manufacturers' specifications and
subject to completion of testing in 1999, that substantially all of its
information technology ("IT") systems and applications and related hardware and
its non-IT systems (e.g. manufacturing systems) are Y2K compliant. The Company
will attempt to assess in the third quarter of 1999 whether third parties with
whom it deals, such as customers, vendors and governments have any Y2K problems
that could affect the Company; such problems could result in interruptions in
delivery of services and materials and payments, among other things. The Company
has not developed Y2K non-compliance contingency plans, but will consider the
need for such plans upon completion of the Y2K compliance assessments. Costs to
assure Y2K compliance have so far been and are expected to remain nominal.
While the Company is not currently aware of any Y2K compliance problems in
its own systems, Y2K compliance of those systems cannot be assured until
completion of testing. Further, the Company
13
<PAGE>
cannot assure that the information it receives from third parties about their
Y2K compliance will be meaningful or accurate. Failure to achieve compliance for
the Company's systems, or failure of significant third parties with which the
Company deals to achieve Y2K compliance, could have a material adverse effect on
the Company's operations.
Forward Looking Statements
- --------------------------
Various portions of this Report, including this Management's Discussion and
Analysis, describe trends in the Company's business and finances that Management
perceives and state some of its expectations and beliefs about the Company's
future. These statements about the future are "forward looking statements," and
the Company identifies them by using words such as "believes," "expects,"
"estimates," "plans," "will," "continue," "could," and by similar expressions
and statements about aims, goals and plans. The forward looking statements are
based on the best information currently available to Management and assumptions
that Management believes are reasonable, but Management does not intend the
statements to be representations as to future results. They include, among
other things, statements about:
. future operating results and various elements of operating results, including
sales and unit volumes of products, production costs, gross margins, and
research and development expense;
. factors affecting operating results, such as shipments to specific customers,
product mix, selling prices, the market shift to needleless products,
achievement of business expansion goals, development of innovative systems
capabilities, sales of new products, manufacturing efficiencies, production
volumes, overhead absorption, expansion of markets, seasonality and
customers' ordering patterns;
. new contracts with buying organizations and dependence on a small number of
customers;
. competitive and market factors, including continuing development of competing
products by other manufacturers, consolidation of the healthcare provider
market and downward pressure on selling prices;
. working capital requirements, capital expenditures and common stock
repurchases; and
. Y2K issues.
The kinds of statements described above and similar forward looking
statements about the Company's future performance are subject to a number of
risks and uncertainties which one should consider in evaluating the statements.
First, one should consider the factors and risks described in the statements
themselves. These factors are uncertain, and if one or more of them turn out
differently than Management currently expects, the Company's operating results
may differ materially from Management's current expectations.
Second, one should read the forward looking statements in conjunction with
the Risk Factors in the Company's Current Report on Form 8-K to the Securities
and Exchange Commission dated November 5, 1998, which is incorporated by
reference.
Third, the Company's actual future operating results are subject to other
important factors that the Company cannot predict or control, including among
others the following:
. general economic and business conditions;
14
<PAGE>
. the effect of price and safety considerations on the healthcare industry;
. competitive factors, such as product innovation, new technologies, marketing
and distribution strength and price erosion;
. unanticipated market shifts and trends;
. the impact of legislation affecting government reimbursement of healthcare
costs;
. changes by the Company's major customers and independent distributors in
their strategies that might affect their efforts to market the Company's
products;
. unanticipated production problems; and
. the availability of patent protection and the cost of enforcing and of
defending patent claims.
The Company disclaims any obligation to update the statements or to
announce publicly the result of any revision to any of the statements contained
herein to reflect future events or developments.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The Company is from time to time involved in various other legal
proceedings, either as a defendant or plaintiff, most of which are routine
litigation in the normal course of business. The Company believes that the
resolution of the legal proceedings in which it is involved will not have a
material adverse effect on the Company's financial position or results of
operations.
Item 2. Changes in Securities
- ------------------------------
Inapplicable
Item 3. Default Upon Senior Securities
- ---------------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
See Item 4 in the Quarterly Report or Form 10-Q for the quarter ended March
31, 1999 for a description of matters submitted to a vote or Registrant's
stockholders at its annual Meeting of Stockholders held on April 24, 1999.
Item 5. Other Information
- --------------------------
None
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
ICU Medical, Inc.
(Registrant)
/s/ Francis J. O'Brien Date: August 13, 1999
- ----------------------
Francis J. O'Brien
Chief Financial Officer
(Principal Financial Officer and)
Chief Accounting Officer)
16
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