<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: MARCH 31, 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 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 April 19, 2000
----- -----------------------------
Common 8,298,039
<PAGE>
ICU MEDICAL, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
Consolidated Balance Sheets, March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2.
- -------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk Not Applicable
PART II - OTHER INFORMATION 13
- ---------------------------
SIGNATURES 15
2
<PAGE>
<TABLE>
ICU MEDICAL, INC.
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(all dollar amounts in thousands except share data)
ASSETS
03/31/2000 12/31/99
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS: (unaudited)
Cash and cash equivalents $ 2,398 $ 1,901
Liquid investments 40,041 36,541
---------------- ----------------
Cash and liquid investments 42,439 38,442
Accounts receivable, net of allowance for doubtful accounts of $461
and $368 as of March 31, 2000 and December 31, 1999, respectively 8,612 7,129
Inventories 1,331 2,056
Prepaid expenses and other 340 402
Deferred income taxes - current portion 1,345 1,345
---------------- ----------------
Total current assets 54,067 49,374
---------------- ----------------
PROPERTY AND EQUIPMENT, at cost:
Land, building and building improvements 12,173 12,173
Machinery and equipment 13,883 13,752
Furniture and fixtures 2,575 2,524
Molds 5,617 5,608
Construction in process 4,213 2,866
---------------- ----------------
38,461 36,923
Less--Accumulated depreciation (13,660) (12,483)
---------------- ----------------
24,801 24,440
---------------- ----------------
DEFERRED INCOME TAXES 806 806
OTHER ASSETS 866 744
---------------- ----------------
$ 80,540 $ 75,364
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,505 $ 965
Accrued liabilities 6,165 6,385
---------------- ----------------
Total current liabilities 7,670 7,350
---------------- ----------------
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 41,283 40,843
Treasury stock -- 569,123 and 765,123 shares at
March 31, 2000 and December 31, 1999, respectively (5,520) (7,153)
Retained earnings 36,220 33,437
---------------- ----------------
Total stockholders' equity 72,870 68,014
---------------- ----------------
$ 80,540 $ 75,364
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
ICU MEDICAL, INC.
Consolidated Statements of Income
For the Three Months Ended
March 31, 2000 and March 31, 1999
(all dollar amounts in thousands except per share data)
(unaudited)
For the Three Months Ended
--------------------------------------
3/31/2000 3/31/1999
---------------- ----------------
<S> <C> <C>
NET SALES $ 14,249 $ 11,442
COST OF GOODS SOLD 6,019 4,733
---------------- ----------------
Gross profit 8,230 6,709
---------------- ----------------
OPERATING EXPENSES:
Selling, general and administrative 3,870 3,370
Research and development 241 205
---------------- ----------------
Total operating expenses 4,111 3,575
---------------- ----------------
Income from operations 4,119 3,134
INVESTMENT INCOME 493 350
---------------- ----------------
Income before income taxes 4,612 3,484
PROVISION FOR INCOME TAXES 1,740 1,300
---------------- ----------------
NET INCOME $ 2,872 $ 2,184
================ ================
NET INCOME PER SHARE
Basic $ 0.35 $ 0.27
Diluted $ 0.33 $ 0.25
================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 8,200,286 8,116,925
Diluted 8,658,759 8,816,581
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
4
</TABLE>
<PAGE>
<TABLE>
ICU MEDICAL, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31, 2000 and March 31, 1999
(all dollar amounts in thousands)
(unaudited)
<CAPTION>
For the Three Months Ended
--------------------------------------
3/31/2000 3/31/1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,872 $ 2,184
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 1,238 617
Net change in current assets and current liabilities, and other (295) 1,265
---------------- ----------------
Net cash provided by operating activities 3,815 4,066
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,802) (4,468)
Net change in liquid investments (3,500) 698
---------------- ----------------
Net cash (used in) investing activities (5,302) (3,770)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options and related income tax benefits, and other 2,103 1,512
Purchase of treasury stock (119)
---------------- ----------------
Net cash provided by financing activities 1,984 1,512
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 497 1,808
CASH AND CASH EQUIVALENTS, beginning of the period 1,901 2,049
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of the period $ 2,398 $ 3,857
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
5
</TABLE>
<PAGE>
ICU MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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 1999 Annual Report to Stockholders.
NOTE 2: Net inventories consisted of the following:
3/31/00 12/31/99
------------ ------------
Raw material $ 849 $ 962
Work in process 363 287
Finished goods 119 807
------------ ------------
Total $ 1,331 $ 2,056
============ ============
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 458,473 and 699,656 for the three months
ended March 31, 2000 and 1999, 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.
NOTE 5: The Company is involved in litigation with Medex, Inc. over patent
matters. See Part II, Item 1, "Legal Proceedings."
6
<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>
================================== ========== ========= ========== ========= ==========
PRODUCT LINE 1997 1998 1999 Q1-99 Q1-00
---------------------------------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CLAVE(R) 65% 69% 68% 69% 72%
---------------------------------- ---------- --------- ---------- --------- ----------
CLC2000(TM) - - 1% - 3%
---------------------------------- ---------- --------- ---------- --------- ----------
Click Lock(R) and Piggy Lock(R) 7% 4% 3% 4% 2%
---------------------------------- ---------- --------- ---------- --------- ----------
McGaw Protected Needle 5% 4% 3% 3% 2%
---------------------------------- ---------- --------- ---------- --------- ----------
Lopez Valve(R) and other 4% 5% 4% 3% 4%
---------------------------------- ---------- --------- ---------- --------- ----------
RF100-RF150 ("Rhino") 7% 5% 6% 7% 5%
---------------------------------- ---------- --------- ---------- --------- ----------
Custom I.V. Systems 6% 8% 11% 10% 9%
---------------------------------- ---------- --------- ---------- --------- ----------
B. Braun SafeLine Revenue Sharing 6% 5% 4% 4% 3%
---------------------------------- ---------- --------- ---------- --------- ----------
Total 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"),
Abbott Laboratories ("Abbott") (the "B.Braun 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 and Abbott
both purchase CLAVE products, principally bulk non-sterile connectors. B.Braun
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 and, since July 1999,
the CLC2000. Bard distributes the Lopez Valve under a five-year agreement signed
in June 1999.
The B.Braun Agreement, except for the SafeLine Revenue Sharing, extends
to December 2002, and has extension provisions beyond then.
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 agreement with a customer or the loss of a
large contract by such a customer could have a material adverse effect on
operating results.
7
<PAGE>
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 protect and expand its market.
The price reductions to date have been more than offset by increased volume.
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.
The Company has commenced two initiatives that, if successful, will
reduce its dependence on its current proprietary products. It is seeking to
substantially expand its custom I.V. systems business with products sold to
medical product manufacturers and independent distributors. It is also launching
SETFINDER.COM, which will distribute commodity-type standard I.V. sets directly
to healthcare providers, when not in common with the Company's I.V. sets handled
by its other distributors. There is no assurance that either one of these
initiatives will succeed.
The Company is currently taking steps aimed at improving manufacturing
efficiency principally by reducing labor costs and minimizing investment in
inventory. The original focus was on production of custom I.V. systems, which is
relatively labor intensive; it has now been expanded to include all the
Company's automated and manual manufacturing operations. Substantially all
manual assembly is now performed at the facility that the Company opened in
December 1998 in Ensenada, Baja California, Mexico. In 1999, the Company made
significant investment in automated molding and assembly equipment. Both of
these steps should reduce unit production costs in 2000. Ongoing steps are aimed
at increasing systems capabilities, improving manufacturing efficiency and
enhancing distribution, as well as automation of the production of new products,
such as the CLC2000 and the 1o2 Valve, and other products for which volume is
growing. Because significant innovation is required to achieve these goals,
there is no assurance that these steps will achieve the desired results.
Effective January 1, 2000, the Company reoriented its manufacturing and
distribution operations. Marketing and sales operations are now in four groups:
medical product manufacturers under the ICU Medical name, independent domestic
distributors under the Budget Medical Products ("BMP") name, international
manufacturers and distributors under the ICU Medical name, and SetFinder.
Manufacturing is in a separate group, producing products for the four marketing
and sales groups. BMP, until this reorientation, had been responsible for
marketing and sales of only custom I.V. systems to both independent distributors
and medical product manufacturers. Because BMP now represents not a product
line, but a distribution channel, the custom I.V. systems product line, formerly
referred to as the BMP product line, is now referred to as the "custom I.V.
systems" product line.
Net sales for each distribution channel, based on the new grouping,
were as follows:
<TABLE>
<CAPTION>
============================================= ========== =========== ========== =========== ==========
CHANNEL 1997 1998 1999 Q1-99 Q1-00
- --------------------------------------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Medical product manufacturers 52% 64% 71% 68% 75%
- --------------------------------------------- ---------- ----------- ---------- ----------- ----------
Independent domestic distributors 45% 33% 25% 30% 22%
- --------------------------------------------- ---------- ----------- ---------- ----------- ----------
International 3% 3% 4% 2% 3%
- --------------------------------------------- ---------- ----------- ---------- ----------- ----------
Total 100% 100% 100% 100% 100%
============================================= ========== =========== ========== =========== ==========
</TABLE>
8
<PAGE>
QUARTER ENDED MARCH 31, 2000 COMPARED TO THE SAME QUARTER LAST YEAR
- -------------------------------------------------------------------
NET SALES increased $2,807,000, or approximately 25%, to $14,249,000 in
the first quarter of 2000 compared to $11,442,000 during the same period last
year. The increase was primarily attributable to increased sales of CLAVE
products, including custom CLAVE I.V. systems.
Net sales to Abbott in the first quarter of 2000 were $6,071,000, as
compared with net sales of $5,508,000 in the first quarter of 1999. Net sales of
CLAVE products to Abbott, excluding custom CLAVE I.V. systems, in the first
quarter of 2000 were approximately the same as in the first quarter of 1999. An
increase in unit volume was offset by a decrease in average selling prices. The
increase in net sales to Abbott was in custom CLAVE I.V. systems and CLC2000.
Based on terms of the Abbott agreement, Management expects a substantial
increase in CLAVE unit and dollar sales volume with Abbott in 2000, although
there is no assurance as to the amount or timing of such an increase.
Net sales to B.Braun, including revenue sharing, amounted to $4,625,000
in the first quarter of 2000, as compared with $2,240,000 in the first quarter
of 1999. Net sales of CLAVE products increased almost 300% on a substantial
increase in unit volume. Changes in other product lines were not significant.
Based on B.Braun's forecasts and market information, Management expects unit
shipments and net sales of CLAVE products to B.Braun to increase over 1999
levels, although increases will likely be at a lower rate than in the first
quarter of 2000, and there is no assurance that these expectations will be
realized. Management expects 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 the SafeLine agreement, which
expires in June 2000, will be extended, and that SafeLine revenue sharing
payments will continue, but there is no certainty as to this matter or the
amount of future payments, if any.
Net sales to independent domestic distributors decreased approximately
8% from $3,412,000 in 1999 to $3,137,000 in 2000. This is attributed to a 12%
decrease in CLAVE and custom I.V. systems sales, caused principally by lower
prices. Management expects a continued decrease in the net sales of standard
CLAVE products to the independent domestic distributors, but expects later in
2000 that the decrease will be more than offset by sales of custom I.V. systems
and new products such as the CLC2000 and the 1o2 Valve(TM). However, there is no
assurance that the Company will achieve increased net sales to independent
domestic distributors in the future. Further, the ability of the independent
distributors to sustain or increase their sales may be impacted by competition
from existing and new competitive products or acquisition of market share by
Abbott and B.Braun. Management expects to encounter continued pricing pressure
from individual end users, and expects continued declines in net prices to the
independent distributors.
Total sales to foreign distributors were $382,000 in the first quarter
of 2000, as compared with $253,000 in the first quarter of 1999 (Those amounts
do not include distribution in Canada.). The Company now has distribution
arrangements in all the principal countries in Europe. Net sales to European
customers increased 45% over the level in the first quarter of 1999. Management
expects that its sales to European and other foreign customers will continue to
increase in the future, although there is no assurance that those expectations
will be realized.
9
<PAGE>
In the fourth quarter of 1999, the Company launched SetFinder, doing
business as SETFINDER.COM. Net sales of SetFinder to date have not been
significant. The Company expects to spend a significant amount to continue the
launch and development of SetFinder in 2000. There is no assurance that
SetFinder will achieve sales and the amount of future operating profits or
losses is dependent upon the future development of the SetFinder business, the
outcome of which is not known at this time.
Total net sales of CLAVE products (excluding custom CLAVE I.V. systems)
increased to $10,242,000 in the first quarter of 2000 from $7,853,000 in the
first quarter of 1999, or 30%. The increase in unit shipments was approximately
64%, almost all of which is accounted for by medical products manufacturers.
Average net selling prices decreased approximately 21% in response to market
pressures and because a greater proportion of sales were the lower priced bulk
non-sterile CLAVEs sold to medical products manufacturers.
In November 1997, the Company commenced marketing the CLC2000, a
one-piece, swabable connector, engineered to prevent the back-flow of blood into
the catheter. Net sales through most of 1999 were not significant, but sales to
Abbott and the independent domestic distributors started to accelerate in late
1999. Abbott currently accounts for over half the net sales of the CLC2000.
Management expects continued increases in CLC2000 sales, but there is no
assurance as to the amount or timing of future CLC2000 sales.
Net sales of Click Lock and Piggy Lock decreased approximately 50% in
the first quarter of 2000 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 Lopez Valve increased 37% in the first quarter compared to
the same period last year due to an increase in unit shipments to independent
domestic distributors. Management expects that net sales of the Lopez Valve will
continue to increase for the remainder of 2000 on sales to independent domestic
distributors and Bard.
Net sales of custom I.V. systems were $1,295,000 in the first quarter
of 2000, up from the $1,176,000 recorded in the first quarter of 1999. Unit
sales increased approximately 33%, with most of that increase with the medical
product manufacturers.
In November 1998, the Company introduced the 1o2 Valve, the first
one-way or two-way drug delivery system. The Company now believes it has
overcome initial delays in production, and re-launched the product in January
2000. Sales to date have not been significant, and there is no assurance as to
the amount or timing of future 1o2 Valve sales.
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
volumes with B.Braun and Abbott have often offset the expected seasonal sales
decline. Further, those medical product manufacturers order bulk non-sterile
product many months before sale to the healthcare providers to allow for normal
manufacturing lead-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.
10
<PAGE>
GROSS MARGIN was 58% during the first quarter of 2000 compared to 59%
during the same period last year. Increases in production volume which resulted
in greater absorption of overhead and a decrease in unit manufacturing costs
offset most of the continued decrease in average selling prices. Management
expects that gross margins for custom I.V. systems, SetFinder products and
certain other manually assembled products will be lower than those historically
recorded by the Company because their production is relatively labor intensive.
The Company expects that its unit production costs will continue to decrease in
2000, but that the gross margin percentage will be equal to or slightly lower
than that achieved in the first quarter of 2000 as average unit sales prices
continue to decrease, and manually assembled products become a greater
percentage of the Company's sales.
SELLING, GENERAL AND ADMINISTRATIVE expenses ("SG&A"), excluding
research and development expenses, increased $500,000 to $3,870,000, but
decreased as a percentage of net sales to 27% during the first quarter of 2000
compared to 29% during the same period last year. Sales and marketing expenses
increased in the first quarter of 2000 over the levels in the first quarter of
1999 principally because of expenses related to SetFinder. Administrative
expenses also increased.
RESEARCH AND DEVELOPMENT EXPENSES ("R&D") increased in the first
quarter of 2000 as compared with the first quarter of 1999. This is principally
because of increased work on clinical evaluations of the new CLC2000 and
continued work on software development for SetFinder and the custom I.V. systems
business, in addition to work on new products. Management expects R&D expense to
increase later in 2000; however, there is no assurance that such costs will not
differ materially from current estimates or that the R&D will be completed as
expected.
INCOME FROM OPERATIONS increased $985,000 or 31% and was 29% of net
sales in the first quarter of 2000, as compared with 27% in the first quarter of
1999. Gross profit increased $1,521,000 while operating expenses increased only
$536,000.
NET INCOME increased 32% to $2,872,000 in the first quarter of 2000 as
compared with $2,184,000 in the comparable period last year, principally because
of the increase in income from operations. NET INCOME PER SHARE - DILUTED
increased $0.08 or 32%, in the first quarter of 2000 over the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three months ended March 31, 2000, the Company's cash and
cash equivalents and investment securities position increased $3,997,000 to
$42,439,000. Cash provided by operating activities and the exercise of stock
options was partially offset by the cost of additions to property and equipment.
Management expects that sales of the Company's products will continue
to grow in 2000. If sales continue to increase, accounts receivable and
inventories are expected to increase as well. As a result of these and other
factors, the Company's working capital requirements may increase in the
foreseeable future.
Management currently expects that capital expenditures for property and
equipment will be approximately $4 million to $5 million in 2000, principally
for production tooling for new products and expansion of its facility in Mexico.
All automated production is performed in San Clemente, California, and automated
production capacity, after the significant expenditures in 1999, significantly
exceeds the Company's current production requirements.
11
<PAGE>
The Company has not purchased treasury stock since October 1999, except
for a small amount in March 2000. It 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.
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:
o future operating results and various elements of operating results,
including sales and unit volumes of products, SafeLine revenue share,
production costs, gross margins, and research and development expense;
o 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, production
engineering and validation, manufacturing efficiencies, production volumes,
overhead absorption, expansion of markets and distribution costs,
seasonality and customers' ordering patterns;
o new contracts with buying organizations and dependence on a small number of
customers;
o outcome of litigation;
o 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 and market
acceptance of innovative ordering and distribution systems;
o working capital requirements, capital expenditures and common stock
repurchases.
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. Those 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.
12
<PAGE>
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, 1999, 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:
o general economic and business conditions;
o the effect of price and safety considerations on the healthcare industry; o
competitive factors, such as product innovation, new technologies,
marketing and distribution strength and price erosion;
o unanticipated market shifts and trends;
o the impact of legislation affecting government reimbursement of healthcare
costs;
o changes by the Company's major customers and independent distributors in
their strategies that might affect their efforts to market the Company's
products or products incorporating the Company's products;
o unanticipated production problems; and
o 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.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
In an action filed July 19, 1999, entitled Medex, Inc. v. ICU Medical,
Inc. pending in the United States District Court for the Southern District of
Ohio, Eastern Division, and served on the Company on November 4, 1999, Medex
alleges that ICU Medical infringes one of its patents by the manufacture and
sale of the CLAVE connector, and Medex seeks monetary damages and injunctive
relief. The Company, based on advice of counsel, believes the suit against the
Company is without merit and the Company intends to vigorously defend itself in
the action. On July 29, 1000, the Company brought an action entitled ICU
Medical, Inc. v. Medex, Inc. in the United States District Court for the Central
District of California against Medex, Inc. for infringing several patents of the
Company by the manufacture and sale of certain blood access devices. The Company
seeks monetary damages and injunctive relief. The Company intends to vigorously
pursue this matter.
On April 7, 1998, in an action entitled Allen Petty, dba Carmel
Development International v. ICU Medical, Inc., an Orange County, California,
Superior Court jury rendered a verdict in favor of the Plaintiff and against the
Company. The Company has appealed to have the judgment overturned. The Company
accrued a provision for this matter in its June 1998 financial statements.
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
- ------------------------------------------------------------
Inapplicable
ITEM 5. OTHER INFORMATION
- --------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
14
<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.
ICU Medical, Inc.
(Registrant)
/s/ Francis J. O'Brien Date: April 27, 2000
- ----------------------
Francis J. O'Brien
Chief Financial Officer
(Principal Financial Officer and)
Chief Accounting Officer)
15
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