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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 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 SPECIFIED IN ITS 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)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (949) 366-2183
Securities registered pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock, $.10 par value
Preferred Stock Purchase Rights
Indicate by check mark whether Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of Registrant as of January 31, 2002 was $369,789,239. *
The number of shares outstanding of Registrant's Common Stock, $.10 par
value, as of January 31, 2002 was 8,777,388.
Portions of the Proxy Statement for Registrant's 2002 Annual Meeting of
Stockholders, filed or to be filed pursuant to Regulation 14A within 120 days
following Registrant's fiscal year ended December 31, 2001, are incorporated by
reference into Part III of this Report.
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* Without acknowledging that any persons other than Dr. George A. Lopez and Dr.
Diana K. Lopez are affiliates, all directors and executive officers have been
included as affiliates solely for purposes of this computation.
PART I
ITEM 1. BUSINESS.
We are a leader in the development, manufacture and sale of
proprietary, disposable medical connection systems for use in intravenous
("I.V.") therapy applications. Our devices are designed to protect healthcare
workers and their patients from exposure to infectious diseases such as
Hepatitis B and C and Human Immunodeficiency Virus ("HIV") through accidental
needlesticks. We also produce custom I.V. systems that incorporate our
proprietary products and low-cost generic I.V. systems.
The CLAVE(R), a one-piece, needleless I.V. connection device, accounts
for approximately 74% of our sales excluding custom I.V. systems. Although CLAVE
sales have increased steadily since we introduced it in 1993, we have undertaken
a strategic initiative to reduce our dependence on the CLAVE. The initiative
involves a planned transition from being primarily a manufacturer of I.V. system
components to producing and distributing complete I.V. systems, both custom and
low-cost, generic systems. Many of the I.V. systems include our I.V. connection
products.
A key element of our strategy to expand our custom and generic I.V.
system business has been the development and implementation of our proprietary
software for customer orders and order tracking, combined with an innovative
system to coordinate manufacture of components in the U.S., assembly of
components into sets in Mexico and distribution of finished products. We believe
that we offer customers substantially shorter delivery times and lower costs
than other manufacturers of I.V. systems can currently offer.
We currently sell our products to I.V. product manufacturers and
through independent distributors. Our largest customers are Abbott Laboratories
("Abbott") and B.Braun Medical Inc. ("B.Braun"), who accounted for 53% and 19%,
respectively, of our sales in 2001.
First person pronouns used in this Report, such as "we," "us," and
"our," refer to ICU Medical, Inc. and its subsidiaries unless context requires
otherwise.
BACKGROUND
In 1993, we launched the CLAVE(R), an innovative one-piece, needleless
I.V. connection device that has become our largest selling product. We believe
that the CLAVE offers healthcare providers a combination of safety, ease of use,
reliability and cost effectiveness that is superior to any other protective I.V.
connection system on the market. It allows protected, secure and sterile I.V.
connections without needles and without failure-prone mechanical valves used in
the I.V. connection systems of some competitors. The CLAVE is a successor to our
protected needle products first introduced in 1984. We designed the CLAVE to
eliminate needles from certain applications by acute care hospitals, home
healthcare providers, ambulatory surgical centers, nursing homes, convalescent
facilities, physicians' offices, medical clinics, and emergency services.
Reduction in the use of needles not only decreases needlesticks but also reduces
the number of needles to be disposed of and certain safety risks inherent in
needle handling and disposal.
We have been manufacturing and distributing custom and generic I.V.
systems since late 1995. In 1999, we decided to substantially increase our
emphasis on marketing and selling custom and generic I.V. systems. A key element
of our strategy to expand our custom and generic I.V. system business has been
the development and implementation of our proprietary software for customer
orders and order tracking, combined with an innovative system to coordinate
manufacture of components in the U.S., assembly of components into sets in
Mexico and distribution of finished products. We believe that we offer customers
substantially shorter delivery times and lower costs than other manufacturers of
I.V. systems can currently offer.
The principal products that we have introduced in recent years are the
CLC2000(R) and the 1o2 Valve(TM).
I.V. USAGE AND INFECTION CONTROL
Primary I.V. therapy lines, used in hospitals, nursing homes, emergency
units and in home healthcare, consist of a tube running from a bottle or plastic
bag containing an I.V. solution to a catheter inserted in a patient's vein. The
tube typically has several injection ports or Y sites (conventionally, entry
tubes covered by latex caps) to which a secondary I.V. line can be connected to
permit constant intravenous administration of medications, fluids and nutrients,
and to allow instantaneous intravenous administration of emergency medication.
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In conventional practice, primary I.V. system connections are made by
inserting an exposed steel needle attached to the primary I.V. line into an
injection port connected to the catheter. Conventional secondary I.V.
connections, so called piggyback connections, are made by inserting an exposed
steel needle attached to a secondary I.V. line into an injection port or other
I.V. connector. In a conventional I.V. connection the needle, which typically is
secured only with tape, can detach from the catheter or injection port resulting
in disconnection and a serious and sometimes fatal interruption of the flow of
the I.V. solution to the patient. The exposed needles can easily be contaminated
by contact with unsterile objects or through contact with fluid in the I.V.
lines. A contaminated needle can result in infection to healthcare workers and,
less frequently, patients, as a result of accidental needlesticks. Increasing
awareness of the risk of infection from needlesticks and the substantial and
increasing expense to healthcare providers of complying with regulatory
protocols when needlesticks occur have led to a growing demand for safe medical
devices such as our protective I.V. connectors.
Hepatitis B and C and HIV are transmitted through blood and other body
fluids, and workers who come in contact with such infectious materials are at
risk of contracting these diseases. Transmissions may occur from needlesticks by
contaminated needles or exposure of mucous membranes to infectious body fluids
containing blood traces. Following each needlestick, the healthcare employer is
required to perform a series of tests on the healthcare worker for both
Hepatitis B and C and HIV, as well as track and record each needlestick
incident. Thus, needlesticks result in time lost from work and substantial
expense regardless of whether transmission of an infectious disease is detected.
Our protective I.V. connectors are designed to prevent accidental needlesticks
from needles originating from primary and secondary I.V. connections.
Heightened awareness of the risk of infection from needlesticks and the
substantial expense to healthcare providers of complying with regulatory
protocols when needlesticks occur have led to growing demand for safe medical
devices such as our needleless I.V. connectors. This awareness has also lead to
significant federal and state legislation. In addition, the federal Needlestick
Safety and Prevention Act, enacted in 2000, modified standards promulgated by
the Occupational Safety and Health Administration, to require employers to use
needle-safe systems where appropriate to reduce risk of injury to employees from
needlesticks. This is a significant expansion of the previous OSHA mandate that
"universal precautions" be observed to minimize exposure to blood and other body
fluids. In September 1998, the State of California enacted the bloodborne
pathogen standard under the state's occupational safety and health statute. The
standard mandates use of needlestick prevention controls, including needleless
systems. California was the first state to enact such legislation, and since
then 19 other states have enacted similar legislation. Our devices will allow a
healthcare provider to be compliant with any of these standards.
PRODUCTS
CLAVE PRODUCTS
A conventional I.V. line terminates with a male luer connector to which
a needle would be attached to penetrate a latex or non-latex rubber covered
injection port to make a primary or secondary I.V. connection. With the CLAVE
system, instead of attaching a needle to the male luer, a CLAVE is used in place
of the injection port and the male luer, without a needle, is simply threaded
into the CLAVE with a half turn. The CLAVE consists of a cylindrical housing,
which contains a silicone compression seal and a recessed plastic piercing
element. As the luer tip enters the CLAVE housing, it depresses the silicone
seal back into the housing and slides over the piercing element, which
penetrates through the compressed silicone. Fluid channels in the piercing
element create a continuous fluid pathway from the I.V. line, through the CLAVE
into the primary I.V. line and into the catheter. The luer tip creates a tight
seal against the top of the silicone thereby preventing contaminants from
entering the fluid pathway. When the I.V. line is disconnected from the CLAVE,
the silicone compression seal expands to again fill the housing and reseal the
opening. When the CLAVE is not in use, the silicone compression seal fills the
opening in the housing and covers the plastic piercing element, thus completely
sealing the connector and presenting a flush surface which can be cleansed with
an alcohol swab. The CLAVE contains no natural rubber latex.
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Emergency medications can be administered through the CLAVE by using a
standard syringe without a hypodermic needle attached. The CLAVE can be used
with any conventional primary I.V. system, acute and chronic central venous I.V.
system, acute care catheter, multi-lumen catheter, peripheral catheter and a
variety of other standard devices. The resilience of the silicone compression
seal permits repeated connections and disconnections without replacing the
CLAVE.
The CLAVE Integrated Y site is designed to be integrated directly into
primary and secondary I.V. sets, thus eliminating the need for special adapters,
pre-slit injection ports, or metal needles when making piggyback I.V.
connections. Currently, most popular I.V. connection systems that compete with
our systems require either a metal needle, a pre-slit injection port or a
special adapter to make piggyback connections. The original CLAVE can be used to
make a piggyback connection, but it also requires a special adapter when used in
piggyback applications. We believe the CLAVE Integrated Y site offers a lower
cost alternative to existing systems by eliminating the need for multiple parts.
The healthcare professional simply inserts the male luer of any secondary I.V.
set, without a needle, into the CLAVE Integrated Y site and twists to make the
connection. The CLAVE Integrated Y site will not replace CLAVE products used in
non-piggyback connections. Unlike the original CLAVE site, the CLAVE Integrated
Y site is marketed exclusively to I.V. set manufacturers, such as Abbott and
B.Braun to build directly into their I.V. sets.
The CLAVE is our largest selling product line, and accounted for 74% of
the Company's net sales in 2001.
In October 2001, we commenced production of the "MicroCLAVE(R)." It is
smaller than the existing CLAVE but is functionally similar. We will initially
market it as an extension of the CLAVE product line for use where its smaller
size is advantageous, such as pediatric care.
CUSTOM AND GENERIC I.V. SYSTEMS
During late 1995, we entered the low end of the safe medical connector
market by manufacturing and distributing I.V. sets which incorporated lower
priced safe medical connectors, and also commenced manufacturing and
distributing custom I.V. sets incorporating the CLAVE. In 1999, we decided to
substantially increase our emphasis on marketing and selling these systems. To
promote the growth of the business, we have developed innovative software
systems and manufacturing processes that permit us to design to a hospital's or
physician's exact specifications, commence production within less than a day
after we receive the customer order and ship the custom I.V. sets to the
customer generally within three days of receipt for smaller orders to
approximately two weeks for larger orders. This is a fraction of the time
required by other custom set manufacturers and we can generally produce the
custom sets at a lower cost. The use of sophisticated design, ordering and order
tracking systems and streamlined assembly and distribution processes allows us
to sell custom I.V. sets at prices substantially lower than those charged by
other producers of custom I.V. sets.
We have also developed proprietary Internet-based electronic ordering,
order tracking, invoicing and payment systems. This was originally designed for
use by a subsidiary formed in 1999, SetFinder, Inc., which operates a "web site"
named SETFINDER.COM. Hospitals and other healthcare providers have been slow to
change from traditional methods of ordering products and supplies to ordering
over the internet, and to date we receive most of our orders by facsimile or
telephone. We believe, however, that customers will gradually make the
transition from traditional ordering methods to internet ordering.
On February 27, 2001, we signed an agreement with Abbott under which we
will manufacture all new custom I.V. sets for sale by Abbott, and the two
companies will jointly promote the products under the name SetSource(TM). We
expect a significant increase in sales of custom I.V. systems, although there
can be no assurance that such increase will be achieved.
We have committed significant resources to the strategic initiative to
expand our custom and generic I.V. system businesses and expect to incur
additional expenses for continuing software development and enhancements in the
manufacturing process. To date, most of the I.V. set sales volume is in custom
I.V. systems, and we expect this to continue.
During 1999, 2000 and 2001, net sales of custom and generic I.V.
systems were approximately $5,300,000, $6,700,000, and $9,300,000, respectively.
Most of the growth in 2001 net sales was because of the SetSource program and
increased unit shipments of non-propriety custom I.V. systems.
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CLC2000
The CLC2000 is a one piece, swabable connector used to connect I.V.
lines to catheters, which is engineered to prevent the back-flow of blood into
the catheter. The CLC2000 does not permit the use of needles, thereby ensuring
compliance with needle-free policies of healthcare providers. The CLC2000 also
contains no natural rubber latex.
The CLC2000 is used on those I.V. catheters where catheter occlusion is
most prevalent. Generally, when an I.V. line is disconnected, there is a
back-flow of blood into the catheter that is in the patient's vein. That blood
in time coagulates and occludes the catheter. Occlusion ("clotting off") of
catheters requires expensive drugs and procedures to "flush" the catheter, or if
those procedures are not effective, replacement of the catheter. Flushing
carries the risk of infection from bacteria in the occluded blood.
The CLC2000 was developed to reduce clotting of catheters because of
"back-flow" after the I.V. line is disconnected. The CLC2000 consists of a "T"
shaped cylindrical housing, which contains a poppet that is depressed as the
luer tip enters the CLC2000. Fluid flows around the poppet and through the
housing and into the catheter. When the luer is removed from the CLC2000, a
portion of the fluid remaining in the housing is expelled out through the tip of
the catheter while a constant positive pressure is maintained to prevent any
back-flow into the catheter.
We began marketing the CLC2000 in November 1997. We are concentrating
the marketing of the CLC2000 where its "no back-flow" features are of maximum
benefit in patient care. These are generally therapies which use long-term
indwelling catheters such as oncology, dialysis and long-term infusion of
medication. We recently took delivery of automated assembly equipment and expect
to commence production on that equipment by the second quarter of 2002. CLC2000
accounted for 3% of our net sales in 2001.
POSI-LINK(TM)
The Posi-Link is a device which is functionally the same as the CLC2000
but designed for use on systems accessed by a blunt cannula, rather than a
standard male luer. The Posi-Link was introduced in 2000. Sales to date have not
been significant.
1o2 VALVE
The 1o2 Valve is the first one-way or two-way drug delivery system. It
functions as a single unit or in multiple "ganged" units as a manifold, for use
throughout a hospital. It provides the safety features of an automatic one-way
valve, yet allows aspiration, or two-way function by simply pushing a button.
The 1o2 Valve can be used in place of products such as stopcocks and check valve
manifolds. We actively commenced sales in April 2000. Initially, we are focusing
marketing efforts on anesthesia and critical care usage and we are selling the
1o2 Valve only as part of I.V. sets that we manufacture. We recently took
delivery of automated assembly equipment and expect to commence production on
that equipment by the second quarter of 2002. Sales to date, while not yet
significant, have been increasing.
LOPEZ VALVE(R)
The Lopez Valve is a small "T" valve designed to be connected into
nasogastric, gastric or jejunostomy tube systems. The valve permits intermittent
injection of medications, irrigation or suction without having to disconnect the
line and thereby opening the system. By eliminating the need to open the system,
the Lopez Valve helps prevent the splashing of and risk of contact with
potentially infectious stomach fluids and also saves valuable time.
RF100 AND RF150
We have developed a family of inexpensive single-use needleless
connectors for use in both piggyback and non-piggyback applications. The RF100,
designed for use in piggyback applications, is a one-piece, needleless I.V.
connector comprised of a small plastic piercing element that is recessed into a
plastic housing. The RF100 locks onto any standard Y site reducing the potential
for accidental disconnection. The RF150 is similar to the RF100 in that it is
comprised of a small plastic piercing element that is recessed into a plastic
housing. We developed the RF150, called the "Rhino," specifically for Abbott for
use with pre-slit injection ports in piggyback and non-piggyback applications.
Once the injection port is pierced, the protective housing opens much like a
clothes pin, and locks over the pre-slit injection port thus reducing the
5
potential for accidental disconnections. Although we believe that the CLAVE has
significant functional advantages over the RF100 and RF150, these products are
alternative and less expensive needleless I.V. connectors.
PROTECTED NEEDLE AND OTHER PRODUCTS
We manufacture and sell Click Lock and Piggy Lock products, which were
our first products, introduced in 1984. They use needles recessed in a clear
plastic shroud. We also manufacture the McGaw Protected Needle, which is similar
to the Click Lock, for B.Braun. B.Braun also pays us a share of its revenues on
its SafeLine products. The market for all of these products has been declining
as the market shifts to swabable needleless products, and in the aggregate they
accounted for less than 5% of our net sales in 2001.
NEW PRODUCTS
We are developing several new products that we intend to introduce in
2002 and later. We believe innovative products continue to be important to
maintaining and increasing our sales levels.
We plan to launch, in limited markets, a new I.V. connector currently
under development. We expect to apply in the first half of 2002 to the Food &
Drug Administration ("FDA") under Section 510(k) of the Federal Food, Drug and
Cosmetics Act ("FDC Act") for approval to market this new connector. There is no
assurance that the FDA will grant marketing clearance, that we will launch this
new product, or that it will achieve sales if and when we commence marketing it.
MARKETING AND DISTRIBUTION
The influence of managed care and the growing trend toward
consolidation among healthcare providers are the driving forces behind our sales
and marketing strategies. Many healthcare providers are consolidating to create
economies of scale and to increase negotiating power with suppliers. In an
effort to further control costs, many of these consolidated groups are entering
into long-term contracts with medical suppliers at fixed pricing. In this
changing market place, we believe it is becoming increasingly important to
secure contracts with major buying organizations in addition to targeting
specific healthcare providers.
Our distribution operations are organized into four groups: medical
product manufacturers under the ICU Medical(R) name, independent domestic
distributors under the Budget Medical Products name, international manufacturers
and distributors under the ICU Medical name, and SetFinder(TM).
MEDICAL PRODUCTS MANUFACTURERS
We have strategic supply and distribution relationships with Abbott and
B.Braun, two major I.V. product suppliers, each of whom has a significant share
of the I.V. set market under contract. The agreement with Abbott extends to
December 2009, and the agreement with B.Braun extends to December 2002. The
agreements confer to Abbott and B.Braun conditional exclusive and nonexclusive
rights to distribute certain CLAVE products to certain categories of customers.
Abbott and B.Braun purchase CLAVE products packaged separately and in
bulk for distribution to healthcare providers. CLAVE products purchased in bulk
are assembled into Abbott's and B.Braun's full range of I.V. products. Both
Abbott and B.Braun purchase other CLAVE products, which are sold as accessories.
Under an agreement signed with Abbott on February 27, 2001, and running
to December 2009, we have the exclusive right to manufacture all new custom I.V.
sets for sale by Abbott, and Abbott and ourselves will jointly promote the
products under the name SetSource. Abbott is the exclusive and non-exclusive
distributor and co-promoter of SetSource products to certain categories of
customers, including SetSource products containing both companies' proprietary
products.
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We employ 26 product specialists in the United States and Canada to
support the Abbott and B.Braun salespeople, calling on prospective customers,
demonstrating products and supporting programs to train the salespeople and
customers' staffs in the use of our products.
Sales to Abbott accounted for approximately 53%, 48% and 42% of net
sales in 2001, 2000 and 1999, respectively. Sales to B.Braun accounted for
approximately 19%, 26% and 28% of our net sales in 2001, 2000 and 1999,
respectively. The loss of Abbott or B.Braun as a customer could have a
significant adverse effect on our business and operating results because they
have full-line contracts with numerous healthcare providers to supply
substantially all I.V. products and solutions to those customers.
In 2001, we became involved as plaintiff in litigation with B.Braun
over contractual and patent matters. See Item 3. Legal Proceedings. While we
hope to resolve the matters which are the subject of the litigation, even if
they are resolved, the effect on our relationship with B.Braun is not known at
this time. B.Braun does have a product, called UltraSite, that is directly
competitive with the CLAVE, and which we have alleged is being marketed and sold
in violation of two of our patents and the provisions of our agreement with
B.Braun. However, if B.Braun continues to market the UltraSite and it erodes
B.Braun's sales of CLAVE Products, there could be an adverse effect on us, even
if we ultimately prevail on the patent matters. We believe many of B.Braun's
customers have a strong preference for the CLAVE over competitive products,
including the UltraSite, and that many of them will continue to buy CLAVE
Products through B.Braun or other distribution channels.
INDEPENDENT DOMESTIC DISTRIBUTORS
We currently have approximately 20 independent distributors in the
United States and Canada who employ approximately 125 salespeople in the
aggregate and accounted for approximately 19% of our net sales in 2001. We
include Canada as "domestic" for administrative purposes. In addition, we employ
10 product specialists to support our distributors. Distributors purchase and
stock our products for resale to healthcare providers.
No independent distributor accounts for as much as 5% of net sales.
Although the loss of one or more of our larger distributors could have an
adverse affect on our business, we believe we could readily locate other
distributors in the same territories who could continue to distribute our
products to the same customers.
For several years before 2001, our sales to independent distributors
had been declining. In 2001, they showed a modest 6% increase, after we
established a separate sales group at the beginning of 2000 to deal only with
the independent distributors and attempt to increase our net sales to them. It
is too soon for us to determine whether the declining trend in sales to the
independent distributors has been reversed, and there is no assurance that sales
to them will not decline in the future.
INTERNATIONAL
We distribute products in the principal countries in Western European
countries, the Pacific Rim and South America and in South Africa. Foreign sales
(excluding Canada) accounted for approximately 4%, 5% and 8% of the Company's
net sales in each of the years 1999, 2000 and 2001, respectively. The
International division currently has approximately 60 distributors. We have two
business development managers in Europe, one in New Zealand serving the entire
Pacific Rim, and one in South America. We expect to add several more business
development managers in 2002. Administrative operations are in Rome and San
Clemente.
Currently, we export from the United States substantially all the
products sold internationally. All sales are denominated in U.S. dollars. We
believe it will be necessary for us to establish production facilities in a
number of locations outside North America to meet local demands and avoid high
transportation costs. We are currently investigating opportunities in Europe and
the Far East.
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SETFINDER
In the fourth quarter of 1999, we launched SetFinder, doing business as
SETFINDER.COM. Net sales of SetFinder to date have not been significant. We
believe that, in time, a major portion of the sales of disposable medical
products will be initiated on the internet, although the transition to the
internet has been slow so far. We have spent a significant effort on the launch
and development of SetFinder, although it has temporarily curtailed internet
related marketing activities until market opportunities expand. There is no
assurance that SetFinder will achieve significant sales and the amount of future
operating profits or losses of SetFinder is dependent upon the future
development of the SetFinder business, the outcome of which is not known at this
time.
MANUFACTURING
Manufacturing of our products involves injection molding of plastic and
silicone parts, manual and automated assembly of the molded plastic parts,
needles and other components, quality control inspection, packaging and
sterilization. We mold all of our proprietary components, and perform all
assembly, quality control, inspection, packaging, labeling and shipping of our
products. Sterilization is performed under contract by independent companies.
Our manufacturing operations function as a separate group, producing products
for the four marketing and sales groups.
We have a fully integrated medical device manufacturing facility in two
adjacent buildings totaling 78,000 square feet in San Clemente, California. A
mold maintenance shop supports the repair and maintenance needs of our molding
operation and manufactures some of our production molds. In addition, the mold
maintenance shop serves as a research and development prototype shop, and
utilizes advanced computer assisted design systems and automated machining
equipment. The state-of-the-art medical device molding facility includes a
20,000 square foot class 100,000 clean room in which all molding and automated
assembly of our proprietary medical components is performed. The clean room is
equipped with 30 injection molding machines and ancillary equipment including
robots designed to minimize human intervention, and sophisticated, highly
automated assembly systems to assemble the CLAVE, CLAVE Integrated Y site, Click
Lock, RF150 and the McGaw Protected Needle products. We are currently expanding
the clean room to accommodate 40 injection molding machines. The assembly
systems are custom designed and manufactured for us.
Our state-of-the-art injection molding technology and highly automated
assembly systems are designed to maintain a high level of product quality and
achieve high volume production at low unit manufacturing costs. To achieve these
advantages and to gain greater control over raw material and finished product
delivery times, we mold our entire requirements of proprietary molded
components. Generic, "off-the-shelf" items are purchased from outside vendors
unless significant cost savings can be achieved by molding in-house. We are not
dependent on any individual vendor for purchased parts and have no contracts
with our suppliers beyond the terms of purchase orders issued.
Virtually all manual assembly is done at our facility in Ensenada, Baja
California, Mexico. Products assembled manually are I.V. sets, the Lopez Valve,
Piggy Lock and CLAVE ancillary products and accessories. The CLC2000 and 1o2
Valve are currently assembled manually pending installation of automated
assembly, currently scheduled for 2002.
Over the past several years, we have been conducting a program to
increase systems capabilities, improve manufacturing efficiency, reduce labor
costs and enhance distribution. These steps were initially focused on production
of custom I.V. systems and, in part, led to the transfer of most manual assembly
to a new 20,000 square foot facility in Ensenada, Baja California, Mexico.
Establishment of production facilities outside North America is a continuing
part of this process, and will build off the manufacturing, systems and software
expertise that we have developed in recent years. The program also includes
molding and automated assembly operations, where the focus is on improving
manufacturing efficiency, aggressive control of material and labor costs, and
control of inventory costs.
We believe we are building expertise that will enable us to reduce
labor costs and minimize investment in inventory, while at the same time
reducing to a bare minimum the time from when an order is received to when it is
shipped. Because significant innovation is required to achieve these goals,
there is no assurance that the programs will achieve the desired results beyond
those already achieved.
Our products are currently sterilized in processes which use either
gamma or electron beam ("e-beam") radiation. Most of the sterilization is by
e-beam, which is less expensive and quicker than gamma radiation sterilization.
Sterilization is performed by independent companies.
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GOVERNMENT REGULATION
Government regulation is a significant factor in the development,
marketing and manufacturing our products. The FDA regulates medical product
manufacturers and their products under a number of statutes including the FDC
Act, and we and our products are subject to the regulations of the FDA. The FDC
Act provides two basic review procedures for medical devices. Certain products
may qualify for a submission authorized by Section 510(k) of the FDC Act, under
which the manufacturer gives the FDA a pre-market notification of the
manufacturer's intention to commence marketing the product. The manufacturer
must, among other things, establish that the product to be marketed is
substantially equivalent to another legally marketed product. Marketing may
commence when the FDA issues a letter finding substantial equivalence. If a
medical device does not qualify for the Section 510(k) procedure, the
manufacturer must file a pre-market approval ("PMA") application. This requires
substantially more extensive pre-filing testing than the Section 510(k)
procedure and involves a significantly longer FDA review process. FDA approval
of a PMA application occurs only after the applicant has established safety and
efficacy to the satisfaction of the FDA. Each of our current products has
qualified, and we anticipate that any new products that it is likely to market
will qualify, for the expedited Section 510(k) clearance procedure. There is no
assurance, however, that new products that we develop or any manufacturers that
we might acquire, or claims that we may make concerning those products, will
qualify for expedited clearance rather than the more time consuming PMA
procedure or that, in any case, they will receive clearance from the FDA.
Certain product performance claims for the CLC2000 require FDA approval after
extensive testing that is not yet completed. FDA regulatory processes are time
consuming and expensive. Uncertainties as to time required to obtain FDA
clearances or approvals could adversely affect the timing and expense of new
product introductions. All of the regulated products that we currently
manufacture are classified as Class II medical devices by the FDA. Class II
medical devices are subject to performance standards relating to one or more
aspects of the design, manufacturing, testing and performance or other
characteristics of the product in addition to general controls involving
compliance with labeling and record keeping requirements.
We must comply with FDA regulations governing medical device
manufacturing practices. The FDA and the California Department of Health
Services ("DHS") require manufacturers to register and subject them to periodic
FDA and DHS inspections of their manufacturing facilities. We are an FDA
registered medical device manufacturer, and must demonstrate that we and our
contract manufacturers comply with the FDA's current Quality System Regulations
("QSR") regulations. Under these regulations, the manufacturing process must be
regulated and controlled by the use of written procedures and the ability to
produce devices which meet the manufacturer's specifications must be validated
by extensive and detailed testing of every critical aspect of the process. They
also require investigation of any deficiencies in the manufacturing process or
in the products produced and detailed record keeping. Further, the FDA's
interpretation and enforcement of these requirements has been increasingly
strict in recent years and seems likely to be even more stringent in the future.
Failure to adhere to QSRs would cause the products produced to be considered in
violation of the applicable law and subject to enforcement action. The FDA
monitors compliance with these requirements by requiring manufacturers to
register with the FDA, and by subjecting them to periodic FDA inspections of
manufacturing facilities. If an FDA inspector observes conditions that might be
violative, the manufacturer must correct those conditions or explain them
satisfactorily, or face potential regulatory action that might include physical
removal of the product from the marketplace.
We believe that our products and procedures are in compliance with all
applicable FDA and DHS regulations. There can be no assurance, however, that
other products we are developing or products that we may develop in the future
will be cleared by the FDA and classified as Class II products, or that
additional regulations restricting the sale of our present or proposed products
will not be promulgated by the FDA or DHS. In addition, changes in FDA, DHS or
other federal or state health, environmental or safety regulations or their
applications could adversely affect our business.
9
To market our products in the European Community ("EC"), we must
conform to additional requirements of the EC and demonstrate conformance to
established quality standards and applicable directives. As a manufacturer that
designs, manufactures and markets its own devices, we must comply with the
quality management standards of EN ISO 9001(1994) / EN 46001 (1996). Those
quality standards are similar to the QSR regulations but incorporate the quality
requirements for product design and development.
Manufacturers of medical devices must also conform to EC Directives
such as Council Directive 93/42/EEC ("Medical Device Directive") and their
applicable annexes. Those regulations assure that medical devices are both safe
and effective and meet all applicable established standards prior to being
marketed in the EC. Once a manufacturer and its devices are in conformance with
the Medical Device Directive, the "CE" Mark may be affixed to its devices. The
CE Mark gives devices an unobstructed entry to all the member countries of the
EC.
We have demonstrated conformity to the regulations of both EN ISO 9001
(1994) / EN 46001 (1996) and the Medical Device Directive and we affix the CE
Mark to our device labeling for product sold in member countries of the EC.
We believe our products and systems are in compliance with all EC
requirements. There can be no assurance, however, that other products we are
developing or products that we may develop in the future will conform or that
additional regulations restricting the sale of our present or proposed products
will not be promulgated by the EC.
COMPETITION
The market for I.V. products is intensely competitive. We believe that
our ability to compete depends upon our continued product innovation, the
quality, convenience and reliability of our products, access to distribution
channels, patent protection, and pricing. We encounter significant competition
in this market both from large established medical device manufacturers and from
smaller companies. Our ability to compete effectively depends on our ability to
differentiate our products based on safety features, product quality, cost
effectiveness, ease of use and convenience, as well as our ability to perceive
and respond to changing customer needs. In the long term, our ability to compete
may be affected by our ability to reduce unit manufacturing costs through higher
volume production.
In addition to competing with conventional needle I.V. connection
systems and protected needle connection systems marketed by companies such as
Baxter Healthcare Corporation ("Baxter") and Abbott, our present and future
products will compete with needleless I.V. connection systems like those
marketed by Baxter, Becton-Dickinson and Company, B.Braun, Alaris Corporation
and others. Although we believe that our needleless CLAVE has distinct
advantages over competing systems, there is no assurance that it will be able to
compete successfully with these products.
Manufacturers of products with which we currently compete, or might
compete in the future, include large companies with an established presence in
the healthcare products market and substantially greater financial, marketing
and distribution, managerial and other resources. In particular, Baxter, Abbott
and B.Braun are leading distributors of I.V. therapy systems, while
Becton-Dickinson and Company and Sherwood Medical Company dominate the
hypodermic needle market. Several of these competitors have broad product lines
and have been successful in obtaining full-line contracts with a significant
number of hospitals to supply substantially all of their I.V. product
requirements. In order to penetrate more of these hospitals, we have established
strategic supply and distribution relationships with Abbott and B.Braun.
We believe 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. We are aware of a
number of such products. We believe most of those products were developed
primarily by companies who currently do not have the distribution or financial
capabilities that we have, although some of those products may be distributed in
the future by larger companies that do have such capabilities. We believe these
products have had a modest impact on our CLAVE business to date, but there is no
assurance that our current or future products will be able to successfully
compete with these or future products developed by others.
10
We believe that our ability to compete in the custom I.V. systems
market will be impacted by the same factors affecting our existing products, but
will be particularly sensitive to cost to the customer and delivery times. While
we believe we have advantages in these two areas, there is no assurance that
other companies will not be able to compete successfully with our custom I.V.
systems.
PATENTS
We have United States and certain foreign patents on the CLAVE,
CLC2000, Click Lock, and Piggy Lock I.V. connectors and have United States
patents on the Lopez Valve connector. We have applications pending for
additional United States and foreign patents on the 1o2 Valve, CLC2000,
Posi-Link, CLAVE, Click Lock and Piggy Lock I.V. connectors. The expiration
dates of our patents range from 2003 to 2017.
Our success may depend in part on our ability to obtain patent
protection for our products and to operate without infringing the proprietary
rights of third parties. While we have obtained certain patents and applied for
additional United States and foreign patents covering certain of our products,
there is no assurance that any additional patents will be issued, that the scope
of any patent protection will prevent competitors from introducing similar
devices or that any of our patents will be held valid if subsequently
challenged. We also believe that patents on the Click Lock and the Lopez Valve
products may have been, and that patent protection on the CLAVE may be,
important in preventing others from introducing competing products which are as
effective as our products. The loss of patent protection on CLAVE, CLC2000,
Click Lock or Lopez Valve products could adversely affect our ability to exclude
other manufacturers from producing effective competitive products and could have
an adverse impact on our financial results.
The fact that a patent is issued to us does not eliminate the
possibility that patents owned by others may contain claims which are infringed
by our products.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation, which
would result in substantial cost to us and in diversion of our resources, may be
necessary to defend us against claimed infringement of the rights of others and
to determine the scope and validity of the proprietary rights of others. In
addition, our enforcement of our intellectual property rights through litigation
could result in substantial cost and diversion of resources. Adverse
determinations in litigation could subject us to significant liabilities to
third parties or could require us to seek licenses from third parties and could
prevent us from manufacturing, selling or using our products, any of which could
have a material adverse effect on our business.
In 1999, we became involved in patent litigation with Medex, Inc.,
which was settled in early 2002. In 2001we became involved in patent litigation
with Porex Medical Products, Inc., which is in the process of being dismissed.
Also, in 2001, we became involved in patent litigation with B.Braun. See: Item 3
"Legal Proceedings."
EMPLOYEES
At January 31, 2002, we had 476 full-time employees, consisting of 88
engaged in sales, marketing and administration, and 388 in manufacturing,
molding, product development and quality control, including 250 in Mexico. We
contract with an independent temporary agency to provide certain of its
production personnel at our manufacturing facility in San Clemente, California;
we employ none of the personnel provided through the agency. At January 31,
2002, the number of temporary production personnel was approximately 43.
ITEM 2. PROPERTIES.
We own two adjacent 39,000 square foot buildings in San Clemente,
California, another 28,000 square foot building in the same business park and a
20,000 square foot building on approximately 94 acres of land in Ensenada, Baja
California, Mexico.
11
ITEM 3. LEGAL PROCEEDINGS.
In an action filed July 19, 1999, entitled Medex, Inc. v. ICU Medical,
Inc. in the United States District Court for the Southern District of Ohio,
Eastern Division, Medex alleged that we infringe one of its patents by the
manufacture and sale of the CLAVE connector, and Medex sought monetary damages
and injunctive relief. On July 29, 1999, we 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 or our patents
by the manufacture and sale of certain blood access devices. We sought monetary
damages and injunctive relief. We reached agreement with Medex to settle and
dismiss these actions with prejudice in early 2002, and final documents are
currently being prepared.
In an action filed May 24, 2001, entitled Porex Medical Products, Inc.
v. ICU Medical, Inc. in the United States District Court for the Central
District of California, Porex alleged that ICU Medical infringes one of its
patents by the offering for sale and selling the CLC 2000, and Porex sought
monetary damages and injunctive relief. Porex has agreed to dismiss this action
without prejudice.
In an action filed June 29, 2001, entitled ICU Medical, Inc. v. B.Braun
Medical, Inc. filed originally in the Superior Court of the State of California,
County of Orange, we are seeking certain judicial declarations concerning a
controversy over each of the parties rights, duties and obligations under the
Manufacture and Supply Agreement for CLAVE Products. On July 27, 2001, the case
was removed to the United States District Court for the Central District of
California. On December 3, 2001, B.Braun filed a counter-claim against us
alleging that we breached the Manufacture and Supply Agreement and seeking
specific performance, a preliminary injunction and damages. We are not seeking
monetary damages at this time. Attempts at mediation in November 2001 to resolve
these issues were not successful.
In an action filed August 21, 2001 entitled ICU Medical, Inc. v. B
Braun Medical, Inc. pending in the United States District Court for the Northern
District of California, we allege that B.Braun Medical, Inc. infringes two of
our patents by the manufacture and sale of its UltraSite medical connector. We
seek monetary damages and injunctive relief and intend to vigorously pursue this
matter.
From time to time we are involved in various other legal proceedings,
either as a defendant or plaintiff, most of which are routine litigation in the
normal course of business. We believe that the resolution of the legal
proceedings in which we are involved will not have a material adverse effect on
our financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF REGISTRANT.
The following table lists the names, ages, certain positions and
offices held by our executive officers and key employees. Officers serve at the
pleasure of the Board of Directors.
EXECUTIVE OFFICERS: Age Office Held
--- -----------
George A. Lopez, M.D. 54 Chairman of the Board, President and Chief
Executive Officer
Richard A. Costello 38 Vice President of Sales
Evelyn L. Foss 46 Vice President of Marketing.
Francis J. O'Brien 59 Chief Financial Officer, Secretary and
Treasurer
12
Dr. Lopez is our founder and has served as Chairman of the Board,
President and Chief Executive Officer since August 1989.
Mr. Costello became Vice President of Sales in December 1997, after
having been National Sales Manager since August, 1996 and a product specialist
since 1992.
Ms. Foss became Vice President of Marketing in 1992. She resigned from
the position in February 2002 and continues as an officer of SetFinder, Inc., a
wholly-owned subsidiary of ICU Medical, Inc.
Mr. O'Brien became Chief Financial Officer in November 1996 and was
elected as Secretary in December 1996. From October 1994 to November 1996, he
was an independent consultant and prior to 1994 he was a partner with Ernst &
Young LLP.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock has been traded on the Nasdaq Stock Market National
Market Tier under the symbol "ICUI" since our initial public offering on March
31, 1992. The following table sets forth, for the quarters indicated, the high
and low closing prices for our Common Stock quoted by the Nasdaq:
2000 High Low
---- ---- ---
First Quarter $20 3/4 $14 1/4
Second Quarter 27 17 3/4
Third Quarter 30 3/8 19 3/8
Fourth Quarter 30 1/8 19 1/2
2001 High Low
---- ---- ---
First Quarter $35 3/8 $25 15/16
Second Quarter 42.10 32 9/16
Third Quarter 41.41 35.35
Fourth Quarter 47.00 37.70
We have never paid dividends and do not anticipate paying dividends in
the foreseeable future as the Board of Directors intends to retain future
earnings for use in our business. Any future determination as to payment of
dividends will depend upon our financial condition, results of operations and
such other factors as the Board of Directors deems relevant.
As of December 31, 2001 we had 104 stockholders of record and believe
we have approximately 2,000 beneficial stockholders.
13
ITEM 6. SELECTED FINANCIAL DATA
ICU MEDICAL, INC.
-----------------
SELECTED FINANCIAL DATA
-----------------------
Year ended December 31,
-----------------------------------------------------
(in thousands, except per share data)
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
INCOME DATA:
Net sales $ 69,055 $ 56,191 $ 47,014 $ 39,842 $ 30,404
Cost of goods sold 28,932 23,787 19,883 16,687 12,817
--------- --------- --------- --------- ---------
Gross profit 40,123 32,404 27,131 23,155 17,587
Operating expenses 18,004 15,782 13,743 13,141 9,725
--------- --------- --------- --------- ---------
Income from operations 22,119 16,622 13,388 10,014 7,862
Investment income 1,988 2,096 1,431 1,408 1,269
Provision for income taxes 8,720 6,930 5,400 4,200 3,450
--------- --------- --------- --------- ---------
Net income $ 15,387 $ 11,788 $ 9,419 $ 7,222 $ 5,681
========= ========= ========= ========= =========
Net income per share
Basic $ 1.80 $ 1.42 $ 1.16 $ 0.90 $ 0.71
Diluted $ 1.60 $ 1.30 $ 1.08 $ 0.86 $ 0.71
========= ========= ========= ========= =========
Weighted average number of shares
Basic 8,560 8,330 8,155 7,990 7,946
Diluted 9,636 9,059 8,690 8,423 8,029
========= ========= ========= ========= =========
CASH FLOW DATA:
Cash flows from operations,
excluding tax benefits from
exercise of stock options $ 20,565 $ 12,760 $ 14,767 $ 6,574 $ 8,666
Total cash flows from operations $ 24,329 $ 13,462 $ 15,518 $ 7,417 $ 8,674
BALANCE SHEET DATA:
Cash and liquid investments $ 73,027 $ 50,786 $ 38,442 $ 38,090 $ 35,112
Working capital 79,736 57,718 42,024 43,817 37,993
Total assets 117,342 92,860 75,364 62,360 51,186
Long-term debt -- -- -- -- --
Stockholders' equity 106,677 83,380 68,014 58,229 47,947
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Our principal product is our CLAVE needleless I.V. connection system.
The following table sets forth, for the periods indicated, net sales by product
as a percentage of total net sales:
------------------------------------ --------- ---------- ----------
Product Line 2001 2000 1999
------------------------------------ --------- ---------- ----------
CLAVE 74% 71% 68%
Custom and Generic I.V. Systems 13% 12% 11%
CLC2000 3% 4% 1%
Lopez Valve 2% 3% 4%
RF100-RF150 ("Rhino") 3% 5% 6%
Protected Needle and Other Products 5% 5% 10%
------------------------------------ --------- ---------- ----------
Total 100% 100% 100%
------------------------------------ --------- ---------- ----------
We sell our products to independent distributors and through agreements
with Abbott, B.Braun, (the "Abbott Agreements" and the "B.Braun Agreements,"
respectively) and certain other medical product manufacturers. Most independent
distributors handle the full line of our products. Abbott and B.Braun both
purchase CLAVE products, principally bulk, non-sterile connectors. Abbott also
purchases the Rhino, a low-priced connector specifically designed for Abbott,
and the CLC2000, and under an agreement signed February 27, 2001, custom I.V.
sets. B.Braun also purchases the McGaw Protected Needle and pays us revenue
sharing payments on its sales of its SafeLine products. We also sell certain
other products to a number of other medical product manufacturers.
The Abbott Agreements extend to December 2009. The B.Braun Agreement
for CLAVE extends to December 2002. All have extension provisions beyond those
dates.
We believe that as the healthcare provider market continues to
consolidate, our success in marketing and distributing CLAVE products will
depend, in part, on our ability, either independently or through strategic
supply and distribution arrangements, to secure long-term CLAVE contracts with
major buying organizations. Further, our marketing and distribution strategy may
result in a significant share of our revenues being concentrated among a small
number of distributors and manufacturers. 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 our operating results.
We believe 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. We are aware of a
number of such products. In response to competitive pressure, we have been
reducing prices to protect and expand our market. The price reductions to date
have been more than offset by increased volume. We expect that the average price
of our CLAVE products will continue to decline. There is no assurance that our
current or future products will be able to successfully compete with products
developed by others.
The federal Needlestick Safety and Prevention Act, enacted in November
2001, modified standards promulgated by the Occupational Safety and Health
Administration to require employers to use needleless systems where appropriate
to reduce risk of injury to employees from needlesticks. We believe the effect
of this law will be to accelerate sales of our needleless systems, although we
are unable to estimate the amount or timing of such sales.
We are taking steps to reduce our dependence on our current proprietary
products. We are seeking to substantially expand our custom I.V. systems
business with products sold to medical product manufacturers and independent
distributors and expand selectively into the production of generic I.V. sets. On
February 27, 2001, we signed an agreement with Abbott under which we will
15
manufacture all new custom I.V. sets for sale by Abbott, and we will jointly
promote the products under the name SetSource. We expect a significant increase
in sales of custom I.V. systems under this agreement. We also launched
SetFinder, a separate subsidiary, which will contract with and distribute
commodity-type standard I.V. sets directly to healthcare providers and to group
purchasing organizations and independent dealer networks when not in common with
our I.V. sets handled by our other distributors. There is no assurance that
either one of these initiatives will succeed, or that the expected increases in
sales under the February 2001 contract with Abbott will occur.
We have an ongoing program to increase systems capabilities, improve
manufacturing efficiency, reduce labor costs, reduce time needed to produce an
order, and minimize investment in inventory. The original focus was on
production of custom I.V. systems, which is relatively labor intensive; it now
includes all automated manufacturing operations as well. Manual assembly is now
performed at the facility 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 have reduced unit production costs.
Ongoing steps also include 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.
We distribute products through four distribution channels. Net sales
for each distribution channel were as follows:
---------------------------------- ------------- ------------ ------------
Channel 2001 2000 1999
---------------------------------- ------------- ------------ ------------
Medical product manufacturers 72% 74% 71%
Independent domestic distributors 19% 21% 25%
International 8% 5% 4%
SetFinder 1% - -
---------------------------------- ------------- ------------ ------------
Total 100% 100% 100%
---------------------------------- ------------- ------------ ------------
COMPARISON OF 2001 TO 2000
In 2001, we had net sales of $69,055,000 which was $12,864,000, or 23%,
higher than the net sales of $56,191,000 reported in 2000. The increase was
primarily attributable to the increase in sales of CLAVE products, including
custom CLAVE I.V. systems.
Net sales to Abbott were $36,793,000 in 2001, compared to $26,956,000
in 2000. CLAVE sales increased to $32,282,000 from $21,337,000 because of an
increase in unit volume somewhat offset by lower average selling prices. Sales
under the SetSource program approximated $1,200,000 for the year; they have been
increasing monthly and exceeded $250,000 for the month of December 2001. We
expect a substantial increase in CLAVE unit and dollar sales volume with Abbott
in 2002, as well as a significant increase in SetSource unit and dollar sales
volume. Net sales of the CLC2000 and Rhino declined as Abbott balanced its
inventory position. We expect sales of the CLC2000 to Abbott will increase in
the future. Sales of the Rhino are expected to continue the decline which
started in early 2001 as the market shifts to swabable technology. Sales of
custom CLAVE I.V. sets declined as production of several high-volume sets was
transferred to Abbott. There is no assurance as to the amount of any of the
future sales increases to Abbott.
Net sales to B.Braun, including revenue sharing, amounted to
$12,872,000 in 2001, compared to $14,610,000 in 2000. The decrease was
principally because of a decrease in CLAVE sales. Unit sales of CLAVE products
to B.Braun increased, but a decrease in average selling prices, in part because
of a decrease in prices and in part because of a change in the product mix to
lower priced products, more than offset the effect of higher unit volume. We
expect a decrease in CLAVE and dollar sales to B.Braun in 2002, particularly in
the first half of the year, at least in part because we believe that their
16
purchase of CLAVE products in the latter half of 2001 exceeded their sales to
their customers. Sales of the McGaw Protected Needle increased from last year,
but we expect sales to decline in the future, as they have in most recent
periods, as the market for safe connectors continues to shift to needleless
swabable technology. SafeLine revenue sharing payments decreased from last year;
such payments depend on the volume and selling prices of B.Braun's SafeLine
products, and although we cannot accurately forecast such amounts, we do expect
payments to trend downward in the future.
Net sales to independent domestic distributors increased approximately
6% to $12,748,000 in 2001 from $11,980,000 in 2000. The increase was due
principally to a 35% increase in custom and generic I.V. systems partially
offset by a 16% decrease in CLAVE product sales because of lower unit volume.
The increase in sales of custom and generic I.V. systems was attributable to an
increase in unit volume; approximately one-third of the increase was from
increased sales of custom I.V. systems incorporating the 1o2 Valve. The decrease
in CLAVE product sales was because of lower unit volume. We believe the decline
in sales of CLAVE products is principally because of acquisition of market share
by Abbott and B.Braun. We expect a continued decrease in the net sales of
standard CLAVE Products to the independent domestic distributors, but expect
that the decrease will be at least partially offset by sales of custom and
generic I.V. systems, including custom I.V. systems incorporating the 1o2 Valve,
and new products such as the CLC2000. There is no assurance that we 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.
Total sales to foreign distributors were $5,384,000 in 2001, as
compared with $2,437,000 in 2000 (Those amounts do not include distribution in
Canada.). We now have distribution arrangements in the principal countries in
Western Europe, the Pacific Rim and South America and in South Africa.
Approximately 30% of international sales in 2001 were to distributors selling in
Western Europe, approximately 30% in South Africa, approximately 25% in the
Pacific Rim and approximately 15% in Latin America. We expect significant
increases in sales to foreign customers will continue in the future, although
there is no assurance that those expectations will be realized.
Total net sales of CLAVE products (excluding custom CLAVE I.V. systems)
increased approximately 29% to $51,130,000 in 2001 from $39,665,000 in 2000.
Unit shipments of CLAVE products in 2001 increased approximately 63% over 2000.
Abbott accounted for 95% of the growth in dollar sales of CLAVE, International
approximately 24%, partially offset by the decline in B.Braun and independent
domestic distributors. The aggregate average net selling price of CLAVE products
in 2001 decreased approximately 15% as compared with 2000. That decrease
reflects lower prices on bulk, non-sterile CLAVE products sold to Abbott and
B.Braun, as well as a higher percentage of the sales mix being accounted for by
bulk, non-sterile CLAVEs. We expect continued significant growth in CLAVE unit
and dollar sales volume in 2002, notwithstanding any decline in sales to B.Braun
or independent domestic distributors because of the large growth that we expect
with Abbott and international distribution. Further, we expect the decline in
average selling prices to abate somewhat from the decline rates of the past
several years. However, we give no assurance that the expectations will be
realized.
Net sales of custom and generic I.V. systems were $9,263,000 in 2001
compared to $6,737,000 in 2000. Sales of non-proprietary and generic I.V. sets
accounted for substantially all of the net increase.
Net sales of the CLC2000 were approximately the same in 2001 as they
were in 2000. The decline in sales to Abbott was offset by increased sales to
domestic and foreign distributors. We expect sales of the CLC2000 to increase in
2002 and later years, but there is no assurance as to the amount or timing of
future CLC2000 sales.
Net sales of the Lopez Valve decreased 14% in 2001 to $1,444,000, on
lower unit volume to domestic and international distributors. We had expected
sales to increase in 2001, but we believe that the focus of the sales and
marketing efforts of our personnel and those of our distributors on other
products diluted the sales of the Lopez Valve. We are making improvements to the
product and expect sales to increase in 2002.
Net sales of protected needle products increased slightly, as increased
sales of the McGaw Protected Needle offset decreased sales of Click Lock and
Piggy Lock products. We expect sales of these products will decrease in the
future as the safe connector market continues its shift to needleless
technology.
17
Gross margin for 2001 was unchanged from the 58% registered in 2000.
The results of our continuing extensive efforts to improve manufacturing
efficiency and the increased absorption of overhead by higher production volumes
offset the effect of lower average unit selling prices. We expect that gross
margins for custom and generic I.V. systems and certain other manually assembled
products will be lower than those we have historically achieved because their
production is relatively labor intensive. We expect that our unit production
costs will continue to decrease in 2002, but that the gross margin percentage
will be slightly lower than that ultimately achieved for the full year 2001, as
average unit sales prices continue to decrease, and manually assembled products
become a greater percentage of the Company's sales.
Electrical energy costs at our manufacturing facilities in the second
half of 2001 continued to moderate somewhat from the first and second quarters
of 2001, but were still approximately double what they were in the first quarter
of 2000, the last quarter before the sharp rate increase experienced since May
2000. Most of the increase was because of rate increases. Electrical energy
costs were approximately 1% of sales in the second half of 2001, down from 2% of
sales in the third and fourth quarters of 2000 and the first quarter of 2001. We
are unable to predict what those costs will be in 2002, but do not expect them
to increase to the levels of the first half of 2001. There has been no
interruption in service. The significant uncertainty as to the availability of
electrical energy in California has abated, although there is still uncertainty
as to future costs. Any further significant increase in electrical costs or a
significant interruption in service could have an adverse effect on our
operations.
Selling, general and administrative ("SG&A") costs increased by
$2,514,000, or 18%, to $16,816,000 in 2000, compared to $14,302,000 in 2000.
SG&A costs were 24% of net sales in 2001 compared to 25% in 2000. Spending
increased for litigation and administrative costs. Sales and marketing costs
increased, but decreased as a percentage of sales. We expect SG&A costs to
increase in 2002, because of growth in the Company, promotional costs of new
products, international expansion, and expansion of the custom and generic I.V.
system business.
Research and development ("R&D") costs decreased in 2001 by $292,000 to
$1,188,000, or 2% of net sales, as compared to $1,480,000, or 3% of net sales in
2000. Spending on new product development including development of automated
production machinery in 2001 was lower than in 2000, as was spending on clinical
evaluations of the CLC2000, which we believe are nearing completion. Costs of
software development to support manufacturing and distribution of custom and
generic I.V. systems increased in 2001. We estimate that R&D costs will continue
in 2002 at approximately the same percentage of net sales as in 2001. However
R&D costs could differ from those estimates and the R&D may not be completed as
expected.
We plan to launch, in limited markets, a new I.V. connector currently
under development. We expect to apply in the first half of 2002 to the FDA under
Section 510(k) of the FDC Act for approval to market this new connector. There
is no assurance that the FDA will grant marketing clearance, that we will launch
this new product, or that it will achieve sales if and when we commence
marketing it.
The operating margin increased to 32% in 2001, compared to 30% in 2000,
principally because operating expenses decreased as a percentage of net sales.
Investment income decreased by $108,000 in 2001, notwithstanding an
increase in the investment portfolio, because of the effect of declines in
interest rates since the beginning of 2001.
Our effective income tax rate in 2001 was 36%, down from 37% in 2000
principally because of state tax credits. We expect our effective tax rate in
2002 to be approximately the same as the 2000 rate.
Net income in 2001 increased 31% from 2000 principally because the
gross profit increased 24%, but operating expenses increased only 14%. Net
income per share (diluted) increased $0.30, or 23%. The percentage increase in
earnings per share was less than that for net income, principally because the
increased average number of shares outstanding.
18
COMPARISON OF 2000 TO 1999
In 2000, we had net sales of $56,191,000 which was $9,177,000, or 20%,
higher than the net sales of $47,014,000 reported in 1999. The increase was
primarily attributable to the increase in sales of CLAVE products, including
custom CLAVE I.V. systems.
Net sales to Abbott were $26,956,000 in 2000, compared to $19,862,000
in 1999. The increase was principally because of an increase in unit sales of
CLAVE products, with most of the balance of the increase in the CLC2000 and
CLAVE custom I.V. systems.
Net sales to B.Braun, including revenue sharing, amounted to
$14,610,000 in 2000, compared to $12,974,000 in 1999. Net sales of CLAVE
products increased approximately 34%, while sales of the McGaw Protected Needle
decreased 48% and SafeLine revenue sharing payments decreased approximately
$484,000, or 28%.
Net sales to independent distributors increased approximately 1% from
$11,846,000 in 1999 to $11,980,000 in 2000. Increases were registered in sales
of custom I.V. systems, CLC2000 and Lopez Valves, offset by a decline in CLAVE
products and protected needle products.
Total sales to foreign distributors were $2,437,000 in 2000 compared to
$1,878,000 in 1999. (Those amounts do not include distribution in Canada.)
Approximately 60% of international sales were to distributors in Europe.
Total net sales of CLAVE products (excluding custom CLAVE I.V. systems)
increased approximately 24% to $39,665,000 in 2000 from $32,059,000 in 1999.
Unit shipments of CLAVE products in 2000 increased approximately 56% over 1999.
Abbott accounted for 66% of the growth in dollar sales of CLAVE, B.Braun
accounted for 40% and International approximately 2%, partially offset by the
decline in independent domestic distributors. The aggregate average net selling
price of CLAVE products in 2000 decreased approximately 21% as compared with
1999. That decrease reflects lower prices from independent distributors and
lower prices on bulk, non-sterile CLAVE products sold to Abbott and B.Braun, as
well as a higher percentage of the sales mix being accounted for by bulk,
non-sterile CLAVEs.
Net sales of custom I.V. systems were $6,737,000 in 2000 compared to
$5,251,000 in 1999. Most of the increase in 2000 net sales was because of
increased unit shipments of custom I.V. sets incorporating the CLAVE.
Net sales of the CLC2000 increased from $747,000 in 1999 to $2,080,000
in 2000. Most of the increase was sales to Abbott, with most of the balance of
the increase on sales to independent domestic distributors.
Net sales of the Lopez Valve in 2000 decreased 6% from those in 1999,
because C.R. Bard, Inc., who had signed a contract to buy Lopez Valves in 1999
purchased virtually no Lopez Valves in 2000. Sales to domestic and foreign
distributors were up approximately 21% in 2000 over 1999.
Net sales of protected needle products decreased approximately 40%
because of the safe connector market's continued shift to needleless technology.
Gross margin for 2000 was unchanged from the 58% registered in 1999.
The results of our continuing extensive efforts to improve manufacturing
efficiency and the increased absorption of overhead by higher production volumes
offset the effect of lower average unit selling prices.
SG&A costs increased by $1,773,000, or 14%, to $14,302,000 in 2000,
compared to $12,529,000 in 1999. Spending increased for administrative and
litigation costs, while sales and marketing costs were relatively unchanged.
R&D costs increased in 2000 by $266,000 to $1,480,000, or 3% of net
sales, compared to $1,214,000, or 3% of net sales, in 1999. Spending in 2000 was
principally on clinical evaluations of the CLC2000, software development for the
custom I.V. systems business and SetFinder and work on new products including
development of automated production machinery.
19
The operating margin increased to 30% in 2000, compared to 28% in 1999,
principally because SG&A costs decreased as a percentage of net sales.
The Company's effective income tax rate in 2000 was 37%, as compared
with 36% in 1999.
Net income in 2000 increased 25% from 1999 principally because the
gross profit increased 19%, but operating expenses increased only 15%. Net
income per share (diluted) increased $0.22, or 20%. The percentage increase in
earnings per share was less than that for net income, principally because the
increased average number of shares outstanding.
ACCOUNTING POLICIES
Our significant accounting policies are summarized in Note 1 to the
Consolidated Financial Statements. In applying those policies, estimates and
judgments affect the amounts at which accounts receivable and inventory and
certain liabilities are recorded and the useful lives of property and equipment.
We apply our accounting policies on a consistent basis. As
circumstances change, they are considered in our estimates and judgments, and
future changes in circumstances could result in changes in amounts at which
assets and liabilities are recorded. They could also affect the estimated useful
levels of property and equipment, which could result in changes in depreciation
expense or write-offs or write downs of such assets.
LIQUIDITY AND CAPITAL RESOURCES
During 2001, working capital increased approximately $22,018,000 to
$79,736,000 from $57,718,000. The Company's cash and cash equivalents and
investment securities, including liquid investments, increased by $22,241,000 to
$73,027,000 from $50,786,000. That increase was due primarily to $20,565,000 of
cash flows from operating activities (excluding tax benefits from exercise of
stock options) and $7,910,000 from exercise of stock options (including tax
benefits), partially offset by $6,234,000 used to purchase property and
equipment.
During 2000, working capital increased approximately $15,694,000 to
$57,718,000 from $42,024,000. The Company's cash and cash equivalents and
investment securities, including liquid investments, increased by $12,344,000 to
$50,786,000 from $38,442,000. That increase was due primarily to $12,760,000 of
cash flows from operating activities (excluding tax benefits from exercise of
stock options) and $3,697,000 from exercise of stock options (including tax
benefits), partially offset by $3,994,000 used to purchase property and
equipment, and $119,000 used to acquire treasury stock.
Capital expenditures increased in 2001 principally for investment in
molding machines, molds and automated assembly machines, as well as recurring
facilities improvements and acquisition of computer equipment and software. We
expect that capital expenditures in 2002 will be somewhat above those in 2001
for additional investments in molding machines, molds and automated assembly
machines in San Clemente, continuing acquisition of computer equipment and
software, and new facilities outside of North America.
We expect that sales of our products will continue to grow in 2002. If
sales continue to increase, accounts receivable and inventories are expected to
increase as well. As a result of these and other factors, we expect the use of
working capital to fund our operations to continue to increase.
We have not purchased treasury stock since October 1999, except for a
small amount in March 2000. We may purchase additional shares in the future.
However, future acquisitions, if any, will depend on market conditions and other
factors.
We believe that our existing working capital, supplemented by income
from operations, will be sufficient to fund our capital expenditures and
increased working capital requirements for the foreseeable future.
20
FORWARD LOOKING STATEMENTS
In various portions of this Report, including Management's Discussion
and Analysis, we describe trends in our business and finances that we perceive
and state some of our expectations and beliefs about our future. These
statements about the future are "forward looking statements," and we identify
them by using words such as "believes," "expects," "anticipates," "estimates,"
"intends," "plans," "will," "continuing," "could," and similar expressions and
by statements about aims, goals and plans. The forward looking statements are
based on the best information currently available to us and assumptions that we
believe are reasonable, but we do 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, future
increases in sales of custom and generic I.V. systems,
SafeLine revenue share, production costs, gross margins, SG&A,
promotional costs, and R&D expense and income taxes;
o factors affecting operating results, such as shipments to
specific customers, product mix, selling prices, the market
shift to needleless products, declines in sales of certain
products, impact of legislation, achievement of business
expansion goals, development of innovative systems
capabilities, introduction and sales of new products, sales
initiated on the internet, direct sales of commodity type
standard I.V. sets, manufacturing efficiencies, labor costs,
unit production costs, electrical energy costs and service,
production automation, expansion of markets and establishment
of production facilities outside North America;
o new or extended contracts with manufacturers and buying
organizations, ability to replace distributors, and dependence
on a small number of customers;
o regulatory approvals and 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
o working capital requirements, changes in accounts receivable
and inventories, capital expenditures and common stock
repurchases.
The kinds of statements described above and similar forward looking
statements about our 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 we currently expect, our operating results may differ materially from our
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 February 15, 2002, which is
incorporated by reference.
Third, our actual future operating results are subject to other
important factors that we 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 our major customers and independent distributors in
their strategies that might affect their efforts to market our
products;
o unanticipated production problems; and
o the availability of patent protection and the cost of
enforcing and of defending patent claims.
We disclaim 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.
21
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We invest in corporate preferred stocks and federal-tax-exempt state
and municipal government debt securities. The securities are all "investment
grade" and we believe that we have virtually no exposure to credit risk.
Dividend and interest rates reset at auction for most of the securities from
between seven and forty-nine day intervals, with some longer but none beyond
twelve months, so we have very little market risk, that is, risk that the fair
value of the security will change because of changes in market interest rates.
Our future earnings are subject to potential increase or decrease
because of changes in short-term interest rates. Generally, each one-percentage
point change in the discount rate will cause our overall yield to change by
two-thirds to three-quarters of a percentage point, depending upon the relative
mix of federal-tax-exempt securities and corporate preferred stocks in the
portfolio and market conditions specific to the securities in which we invest.
We do not have any significant foreign currency risk. Sales to foreign
distributors are all denominated in U.S. dollars. Cash and receivables in
entities outside the United States, principally in Mexico, which are denominated
in foreign currency are insignificant and are generally offset by accounts of
payable in the same foreign currency.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Board of Directors and Stockholders
of ICU Medical, Inc.:
We have audited the accompanying consolidated balance sheets of ICU MEDICAL,
INC. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ICU
Medical, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)2 of this Form 10-K is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
January 29, 2002
23
ICU MEDICAL, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
December 31,
-------------------------------
2001 2000
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,901,000 $ 1,945,000
Liquid investments 69,126,000 48,841,000
-------------- --------------
Cash and liquid investments 73,027,000 50,786,000
Accounts receivable, net of
allowance for doubtful accounts
of $581,000 in 2001 and $505,000 in 2000 13,062,000 12,425,000
Inventories 1,594,000 1,435,000
Prepaid expenses and other 605,000 402,000
Deferred income taxes - current portion 2,113,000 2,150,000
-------------- --------------
Total current assets 90,401,000 67,198,000
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Land, building and building improvements 13,584,000 13,505,000
Machinery and equipment 15,663,000 15,601,000
Furniture and fixtures 3,568,000 2,763,000
Molds 8,566,000 6,804,000
Construction in process 3,566,000 1,458,000
-------------- --------------
44,947,000 40,131,000
Less--Accumulated depreciation (19,825,000) (16,210,000)
-------------- --------------
25,122,000 23,921,000
-------------- --------------
DEFERRED INCOME TAXES - non current portion 963,000 889,000
OTHER ASSETS - net 856,000 852,000
-------------- --------------
$ 117,342,000 $ 92,860,000
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
24
ICU MEDICAL, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
-------------------------------
2001 2000
-------------- --------------
CURRENT LIABILITIES:
Accounts payable $ 2,401,000 $ 1,687,000
Accrued liabilities 8,264,000 7,793,000
-------------- --------------
Total current liabilities 10,665,000 9,480,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES
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 in 2001 and 2000 887,000 887,000
Additional paid-in capital 45,765,000 41,702,000
Treasury stock, at cost -- 116,459 shares in 2001
and 472,933 shares in 2000 (987,000) (4,819,000)
Retained earnings 61,012,000 45,610,000
-------------- --------------
Total stockholders' equity 106,677,000 83,380,000
-------------- --------------
$ 117,342,000 $ 92,860,000
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
25
ICU MEDICAL, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
For the years ended December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
NET SALES $69,055,000 $56,191,000 $47,014,000
COST OF GOODS SOLD 28,932,000 23,787,000 19,883,000
------------ ------------ ------------
Gross profit 40,123,000 32,404,000 27,131,000
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 16,816,000 14,302,000 12,529,000
Research and development 1,188,000 1,480,000 1,214,000
------------ ------------ ------------
Total operating expenses 18,004,000 15,782,000 13,743,000
------------ ------------ ------------
Income from operations 22,119,000 16,622,000 13,388,000
INVESTMENT INCOME 1,988,000 2,096,000 1,431,000
------------ ------------ ------------
Income before income taxes 24,107,000 18,718,000 14,819,000
PROVISION FOR INCOME TAXES 8,720,000 6,930,000 5,400,000
------------ ------------ ------------
NET INCOME $15,387,000 $11,788,000 $ 9,419,000
============ ============ ============
NET INCOME PER SHARE
Basic $ 1.80 $ 1.42 $ 1.16
Diluted $ 1.60 $ 1.30 $ 1.08
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 8,560,371 8,330,069 8,154,859
Diluted 9,636,058 9,058,853 8,690,443
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
26
ICU MEDICAL, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Number Common Additional
of Shares Stock Paid-In Treasury Retained
Outstanding Amount Capital Stock Earnings Total
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, December 31, 1998 8,059,315 $ 887,000 $ 40,241,000 $ (7,117,000) $ 24,218,000 $ 58,229,000
Acquire shares for treasury (121,000) -- -- (1,650,000) -- (1,650,000)
Exercise of stock options and
related income tax benefits,
and other 163,724 -- 602,000 1,614,000 (200,000) 2,016,000
Net Income -- -- -- -- 9,419,000 9,419,000
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, December 31, 1999 8,102,039 887,000 40,843,000 (7,153,000) 33,437,000 68,014,000
Acquire shares for treasury (6,000) -- -- (119,000) -- (119,000)
Exercise of stock options and
related income tax benefits,
and other 298,190 -- 859,000 2,453,000 385,000 3,697,000
Net Income -- -- -- -- 11,788,000 11,788,000
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, December 31, 2000 8,394,229 887,000 41,702,000 (4,819,000) 45,610,000 83,380,000
Exercise of stock options and
related income tax benefits,
and other 356,474 -- 4,063,000 3,832,000 15,000 7,910,000
Net Income -- -- -- -- 15,387,000 15,387,000
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, December 31, 2001 8,750,703 $ 887,000 $ 45,765,000 $ (987,000) $ 61,012,000 $ 106,677,000
============== ============== ============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
27
ICU MEDICAL, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the years ended December 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,387,000 $ 11,788,000 $ 9,419,000
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 5,034,000 4,612,000 3,917,000
Deferred income taxes, non-current (74,000) (83,000) (714,000)
(Increase) decrease in:
Accounts receivable (637,000) (5,409,000) (637,000)
Inventories (159,000) 621,000 (66,000)
Prepaid expenses and other assets (208,000) (94,000) (17,000)
Increase (decrease) in:
Accounts payable 714,000 722,000 282,000
Accrued liabilities 471,000 1,408,000 2,937,000
Deferred income taxes, current 37,000 (805,000) (354,000)
------------- ------------- -------------
20,565,000 12,760,000 14,767,000
Tax benefits from exercise of stock options 3,764,000 702,000 751,000
------------- ------------- -------------
Net cash provided by operating activities 24,329,000 13,462,000 15,518,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,234,000) (3,994,000) (14,781,000)
Net change in liquid investments (20,285,000) (12,300,000) (500,000)
------------- ------------- -------------
Net cash (used in) investing activities (26,519,000) (16,294,000) (15,281,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and other 4,146,000 2,995,000 1,265,000
Purchase of treasury stock -- (119,000) (1,650,000)
------------- ------------- -------------
Net cash provided by (used in) financing activities 4,146,000 2,876,000 (385,000)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,956,000 44,000 (148,000)
CASH AND CASH EQUIVALENTS, beginning of year 1,945,000 1,901,000 2,049,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 3,901,000 $ 1,945,000 $ 1,901,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for income taxes $ 5,685,000 $ 6,706,000 $ 4,555,000
============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
28
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. General
-------
ICU Medical, Inc. (the "Company" - a Delaware corporation) operates
principally in one business segment engaged in the development and marketing of
disposable medical devices designed to protect healthcare workers and patients
from the spread of infectious diseases. The Company's devices are sold
principally to distributors and medical product manufacturers throughout the
United States. All wholly owned subsidiaries are included in the consolidated
financial statements.
b. Inventories
-----------
Inventories are stated at the lower of cost or market with cost
determined using the first-in, first-out method. Inventory costs include
material, labor and overhead related to the manufacturing of medical devices.
Inventories at December 31, consist of the following:
2001 2000
----------- -----------
Raw materials $1,290,000 $1,050,000
Work in process 179,000 140,000
Finished goods 125,000 245,000
----------- -----------
$1,594,000 $1,435,000
=========== ===========
c. Property and Equipment
----------------------
The Company uses the straight-line method for depreciating property and
equipment over their estimated useful lives. Estimated useful lives are:
Buildings 15 - 30 years
Building improvements 15 years
Machinery and equipment 5 - 10 years
Furniture, fixtures and molds 3 - 5 years
The Company follows the policy of capitalizing expenditures that
materially increase the life of the related assets; maintenance and repairs are
expensed as incurred. The costs and related accumulated depreciation applicable
to property and equipment sold or retired are removed from the accounts and any
gain or loss is reflected in the statements of income.
29
d. Patents and Licenses
--------------------
Patents and licenses, which are shown in other assets in the
accompanying consolidated balance sheets, are stated at cost and are amortized
using the straight-line method over 10 years which is the estimated useful life
of the patent or license. At December 31, 2001 and 2000, the net book value of
patents and licenses was $348,000 and $350,000, respectively, net of accumulated
amortization of $671,000 and $551,000, respectively.
e. Research and Development
------------------------
The Company expenses research and development costs as incurred.
f. Cash Equivalents
----------------
Cash equivalents include certificates of deposit and money market funds
with initial maturities of three months or less.
g. Net Income Per Share
--------------------
"Basic" earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding. "Diluted" earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding. Dilutive securities are outstanding common stock
options (excluding stock options with an exercise price in excess of average
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.
h. Investment Securities
---------------------
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. It requires that securities classified as available for sale be
carried at their market values and changes in the securities market values be
recorded, net of income tax effect, as a separate component of stockholders'
equity. Debt securities that the Company intends to hold to maturity are carried
at amortized cost with no accounting for market value fluctuations.
i. Income Taxes
------------
The Company accounts for income taxes using the asset and liability
approach. Under this approach, deferred taxes are determined based on the
differences between the financial statements and the tax bases using rates as
enacted in tax laws. A valuation allowance is established if it is "more likely
than not" that all or a portion of the deferred tax asset will not be realized.
j. Revenue Recognition
-------------------
Sales and related costs are recorded by the Company upon shipment of
products to non-related distributors and end-users. Distributors and end-users
do not retain any right of return or price protection with respect to unsold
product. The Company warrants products against defects and has a policy
permitting the return of products under such circumstances. The Company provides
a reserve for future returns and price adjustments (including rebates) based on
historical experience. Revenue sharing payments are estimated and recorded in
the period earned, and adjusted to actual amounts when reports are received from
payers; if there is insufficient data to make such estimates, the revenue
sharing is not recorded until reported by the payers.
30
k. Post-retirement and Post-employment Benefits
--------------------------------------------
The Company does not provide post-retirement or post-employment
benefits to employees.
l. Stock Options
-------------
The Company accounts for its stock options under Accounting Principles
Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations as permitted by SFAS No. 123 "Accounting for Stock-Based
Compensation".
m. Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LIQUID INVESTMENTS
The Company's liquid investments, all of which are marketable and are
considered "available for sale," consist principally of corporate preferred
stocks and federal-tax-exempt state and municipal government debt securities
that reset dividend or interest rates at auction, principally from between seven
and forty-nine day intervals. They are carried at cost, which closely
approximates both fair value and par value throughout the period they are held.
Balances consist of:
2001 2000
------------ ------------
Corporate preferred stocks $12,400,000 $18,000,000
Federal tax-exempt debt securities 55,635,000 29,750,000
Certificate of deposit 1,091,000 1,091,000
------------ ------------
$69,126,000 $48,841,000
============ ============
Investment income, including interest on certificates of deposit and
money market funds, consisted of:
2001 2000 1999
----------- ----------- -----------
Corporate dividends $ 527,000 $ 835,000 $ 699,000
Tax-exempt interest 1,330,000 993,000 551,000
Other interest 131,000 268,000 181,000
----------- ----------- -----------
$1,988,000 $2,096,000 $1,431,000
=========== =========== ===========
31
3. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
2001 2000
----------- -----------
Accrued incentive compensation $2,353,000 $1,744,000
Taxes payable 1,939,000 2,523,000
Other accruals 3,972,000 3,526,000
----------- -----------
$8,264,000 $7,793,000
=========== ===========
4. COMMON STOCK AND COMMON STOCK OPTIONS GRANTED
In 1993, the Company adopted the 1993 Stock Incentive Plan (the "1993
Plan"). In 1996, the 1993 Plan was amended to increase the number of shares
reserved for issuance to employees from 1,275,000 to 3,275,000, and in 1999 it
was again amended to increase the number of shares reserved for issuance to
employees to 4,775,000. Options granted under the 1993 Plan expire eleven years
from issuance and all options issued through early 2000 are time-accelerated
options which vest upon the earlier of the Company attaining specific operating
performance levels or ten years from the date of grant. Almost all options
issued after early 2000 vest in equal amounts on the first, second and third
anniversary of their issuance ("time vested"). The 1993 Plan includes conditions
whereby options not vested are canceled if employment is terminated. All options
have been granted at the fair market value of the Company's stock on the date of
grant. Upon exercise of options, the Company is generally entitled to a tax
deduction for an amount equal to the excess over the exercise price of the fair
market value of the shares at the date of exercise.
In 1997, the Directors' Stock Award Plan, under which each non-employee
Director is awarded 1,000 shares of Common Stock annually, was adopted. Further,
grants under the Directors' Stock Option Plan, which had been adopted in 1993
and under which all options granted had vested, were discontinued.
The 2,925,732 options outstanding at December 31, 2001 were all issued
under the 1993 Plan. 2,133,998 of those options are vested. Of the 791,734
unvested options, 226,247 options are time-accelerated options issued from 1996
to 2001 and 565,487 options are time vested with vesting dates through 2004. Of
the options outstanding at December 31, 2001, 117,700 were issued in 1993 to
1995 at an average exercise price of $10.93 and expire in 2004 through 2006;
448,000 issued in 1996 at an average exercise price of $14.26 expire in 2007;
568,187 issued in 1997 at an average exercise price of $9.44 expire in 2008;
778,118 issued in 1998 at an average exercise price of $12.29 expire in 2009,
275,989 issued in 1999 at an average exercise price of $16.69 expire in 2010;
384,238 issued in 2000 at an average exercise price of $28.12 expire in 2011;
and 353,500 issued in 2001 at an average exercise price of $34.88 expire in
2012.
Dilutive stock options account for the difference in the number of
shares used to calculate basic and diluted net income per share and were
1,075,687 in 2001, 728,784 in 2000, and 535,584 in 1999. Stock options of
subsidiaries did not have a dilutive effect. Options which are anti-dilutive
because their average exercise price exceeded the average market price of the
Company's common stock approximated 20,000, 100,000, and 90,000 in 2001, 2000,
and 1999, respectively. At December 31, 2001, all outstanding options had
exercise prices less than the market price of the Company's common stock.
32
A summary of the Company's stock option activity is as follows:
Exercise Price Weighted
Shares Range Average
---------- -------------------------- -------------
Outstanding at December 31, 1998 2,719,152 $ 7.19 - $ 16.38 $ 11.15
Granted 330,000 12.75 - 21.44 16.90
Exercised 158,724 7.19 - 14.28 8.65
Forfeited 27,060 13.00 - 21.31 16.14
---------- -------- -------- --------
Outstanding at December 31, 1999 2,863,368 7.63 - 21.44 11.91
Granted 438,876 14.38 - 28.46 21.98
Exercised 293,190 7.63 - 18.31 9.72
Forfeited 18,000 13.50 - 26.34 19.84
---------- -------- -------- --------
Outstanding at December 31, 2000 2,991,054 7.63 - 28.46 13.55
Granted 365,710 25.50 - 43.75 34.85
Exercised 351,307 7.63 - 27.00 11.27
Forfeited 79,725 10.94 - 38.13 13.63
---------- -------- -------- --------
Outstanding at December 31, 2001 2,925,732 $ 7.63 - $ 43.75 $ 16.43
========== ======== ======== ========
Exercisable at December 31:
1999 1,357,656 7.63 - 16.13 10.84
2000 1,923,073 7.63 - 18.31 11.75
2001 2,133,998 7.63 - 28.47 13.21
Available for grant at December 31, 2001 757,518
==========
In 2000, two of the Company's wholly owned subsidiaries, Budget Medical
Products, Inc. and SetFinder, Inc. adopted stock option plans. Options are
granted at fair market value and expire ten years from issuance, except
Incentive Stock Options which expire five years from issuance, and all options
issued to date vest over a three-year period, except options issued to
non-employee members of the Company's Board of Directors which vest six months
after issuance. The terms of the plans are similar to those of the Company's
1993 Plan, and also provide the subsidiaries with certain rights to repurchase
shares issued under options. In 2000, options were issued for approximately
fifteen percent of the outstanding shares of those subsidiaries. At December 31,
2001, approximately one-third of outstanding options are exercisable.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock options granted to employees and directors, and does not
recognize compensation expense because the exercise price of the options equals
the fair market value of the underlying shares at the date of grant.
Under SFAS No. 123, the Company is required to present certain pro
forma earnings information determined as if employee stock options were
accounted for under the fair value method of that Statement. The fair value for
options granted in 2001, 2000 and 1999 was estimated as of the date of grant
using a Black-Scholes option pricing model. For options under the Company's 1993
Plan, the following weighted-average assumptions in the respective years were
used: risk-free interest rate of 4.9, 6.1 and 5.4 percent, respectively;
expected option life of 6.2, 7.4 and 4.1 years, respectively; expected
volatility of 50, 54 and 58 percent, respectively; and, no dividends. The
33
Black-Scholes option valuation model was developed for use in estimating fair
value of fully transferable traded options with no vesting restrictions, and,
similar to other option valuation models, requires use of highly subjective
assumptions, including expected stock price volatility. The characteristics of
the Company's stock options differ substantially from those of traded stock
options, and changes in the subjective assumptions can materially affect
estimated fair values; therefore, in Management's opinion, existing option
valuation models do not necessarily provide a reliable single measure of the
fair value of the Company's stock options.
The fair value of the options of the subsidiaries was estimated using
the same methodology as for grants by the Company; substantially all options
were granted in 2000, when assumptions were a 6.8 percent risk free interest
rate, option life of 6.9 years, and expected volatility of 53 percent.
Volatility was estimated using the Company's volatility since there is no market
for the subsidiaries' shares.
For purposes of the following required pro forma information, the
weighted average fair value of stock options granted under the 1993 Plan in
2001, 2000 and 1999 was $18.73, $13.36 and $8.36, respectively. The total
estimated fair value is amortized to expense over the vesting period. The effect
of the pro forma amortization of the value of the subsidiaries' options on pro
forma income was a net reduction of approximately $400,000 in 2001 and $758,000
in 2000.
2001 2000 1999
------------ ----------- -----------
Pro forma:
Net Income....................... $11,417,000 $9,481,000 $7,005,000
Net Income per share - basic..... $1.38 $1.21 $0.89
- diluted... $1.22 $1.10 $0.83
Weighted average number of
common shares - basic..... 8,287,000 7,863,000 7,891,000
- diluted... 9,362,000 8,592,000 8,426,000
5. STOCKHOLDER RIGHTS PLAN
In July 1997, the Board of Directors adopted a Stockholder Rights Plan.
The Company distributed a Preferred Share Purchase Right (a "Right") for each
share of the Company's Common Stock outstanding. The Rights generally will not
be exercisable until a person or group has acquired 15% or more of the Company's
Common Stock in a transaction that is not approved in advance by the Board of
Directors or ten days after the commencement of a tender offer which could
result in a person or group owning 15 percent or more of the Common Stock.
On exercise, each Right entitles the holder to buy one share of Common
Stock at an exercise price of $50.00. In the event a third party or group were
to acquire 15 percent or more of the Company's outstanding Common Stock without
the prior approval of the Board of Directors, each Right will entitle the
holder, other than the acquirer, to buy Common Stock with a market value of
twice the exercise price, for the Right's then current exercise price. In
addition, if the Company were to be acquired in a merger, shareholders with
unexercised Rights could purchase common stock of the acquirer with a value of
twice the exercise price of the Rights.
The Company's Board of Directors may redeem the Rights for a nominal
amount at any time prior to the tenth business day following an event that
causes the Rights to become exercisable. The Rights will expire unless
previously redeemed or exercised on August 7, 2007.
34
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 2001,
2000 and 1999, is as follows:
2001 2000 1999
------------ ------------ ------------
Current:
Federal $ 7,165,000 $ 6,070,000 $ 5,093,000
State 1,592,000 1,748,000 1,375,000
------------ ------------ ------------
8,757,000 7,818,000 6,468,000
------------ ------------ ------------
Deferred:
Federal (85,000) (706,000) (852,000)
State 48,000 (182,000) (216,000)
------------ ------------ ------------
(37,000) (888,000) (1,068,000)
------------ ------------ ------------
$ 8,720,000 $ 6,930,000 $ 5,400,000
============ ============ ============
Current income taxes payable were reduced from the amounts in the above
table by $3,764,000, $702,000 and $751,000 in 2001, 2000 and 1999, respectively,
equal to the tax benefit that the Company receives upon exercise of stock
options by employees and directors. That benefit is allocated to stockholders'
equity.
A reconciliation of the provision for income taxes at the statutory
rate to the Company's effective rate is as follows:
2001 2000 1999
----------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
Federal tax at the
expected statutory rate $8,196,000 34.0 % $6,364,000 34.0% $5,038,000 34.0%
State income tax, net of
federal benefit 1,347,000 5.7 1,169,000 6.2 794,000 5.3
Tax-exempt interest and
dividends (553,000) (2.4) (537,000) (2.9) (353,000) (2.4)
Tax credits (270,000) (1.1) (66,000) (0.3) (79,000) (0.5)
----------- ------- ----------- ------- ----------- -------
Provision $8,720,000 36.2% $6,930,000 37.0% $5,400,000 36.4%
=========== ======= =========== ======= =========== =======
The components of the Company's deferred income tax provision for the
years ended December 31, 2001, 2000 and 1999 are as follows:
2001 2000 1999
------------ ------------ ------------
Allowance for doubtful accounts $ (24,000) $ (68,000) $ (11,000)
Inventory reserves (32,000) 86,000 --
Accruals 363,000 (810,000) (317,000)
State income taxes (270,000) (13,000) (26,000)
Depreciation (74,000) (83,000) (714,000)
------------ ------------ ------------
$ (37,000) $ (888,000) $(1,068,000)
============ ============ ============
35
The components of the Company's deferred income tax benefit are as
follows:
2001 2000
----------- -----------
Current deferred tax benefit:
Allowance for doubtful accounts $ 249,000 $ 225,000
Inventory reserves 216,000 184,000
Accruals 1,246,000 1,609,000
State income taxes 402,000 132,000
----------- -----------
$2,113,000 $2,150,000
=========== ===========
Non-current deferred tax benefit:
Depreciation $ 963,000 $ 889,000
=========== ===========
7. PRODUCTS, MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISKS
All the Company's products are disposable medical devices. Its
principal product is its CLAVE needleless I.V. connection system which accounted
for $51,130,000 of consolidated net sales in 2001, $39,665,000 in 2000 and
$32,059,000 in 1999. Custom I.V. systems, many of which incorporate the CLAVE
connector, accounted for $9,263,000 of consolidated net sales in 2001,
$6,737,000 in 2000 and $5,251,000 in 1999. All other products account for less
than 3% of net sales.
The Company sells products, which are sold on credit terms principally
throughout the United States to medical product manufacturers, independent
medical supply distributors, and in selected cases to hospitals and homecare
providers. The manufacturers and distributors, in turn, sell the Company's
products to healthcare providers. For the years ended December 31, 2001, 2000
and 1999, the Company had sales of 10 percent or greater to two manufacturers as
follows:
2001 2000 1999
---- ---- ----
Manufacturer A 19% 26% 28%
Manufacturer B 53 48 42
8. COMMITMENTS AND CONTINGENCIES
The Company is from time to time involved in various legal proceedings,
most of which are routine litigation, in the normal course of business. In the
opinion of management, the resolution of the legal proceedings in which the
Company is involved will not have a material adverse impact on the Company's
financial position or results of operations.
36
9. QUARTERLY FINANCIAL DATA -- UNAUDITED -- (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Quarter Ended
-----------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
2001
Net Sales $15,006 $16,952 $16,214 $20,883
Gross Profit 8,549 10,061 9,347 12,166
Net Income 3,533 3,764 3,319 4,771
Net Income Per Share:
Basic $0.42 $0.44 $0.39 $0.55
Diluted $0.38 $0.39 $0.34 $0.49
2000
Net Sales $14,249 $13,623 $11,698 $16,621
Gross Profit 8,230 7,843 6,181 10,150
Net Income 2,872 2,970 2,123 3,823
Net Income Per Share:
Basic $0.35 $0.36 $0.25 $0.46
Diluted $0.33 $0.33 $0.23 $0.41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The information about Registrant's directors and disclosure of Form 3,
4 or 5 delinquent filers called for by Item 10, Part III of Form 10-K is set
forth in Registrant's definitive Proxy Statement filed or to be filed pursuant
to Regulation 14A within 120 days of Registrant's fiscal year ended December 31,
2001, and such information is incorporated herein by this reference. Pursuant to
Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K, information about Registrant's executive officers called for by Item 10,
Part III of Form 10-K is set forth in Part I of this Report in a separate item
captioned "Executive Officers of Registrant."
ITEMS 11 THOUGH 13.
The information called for by Part III of Form 10-K (Item 11 -
Executive Compensation, Item 12 - Security Ownership of Certain Beneficial
Owners and Management and Item 13 - Certain Relationships and Related
Transactions) is set forth in Registrant's definitive Proxy Statement filed or
to be filed pursuant to Regulation 14A within 120 days of Registrant's fiscal
year ended December 31, 2001, and such information is incorporated herein by
this reference.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements
FORM 10-K
The financial statements listed below are set forth in Item 8 of this Annual Report. PAGE NO.
-----------
Report of Independent Public Accountants......................................................... 23
Consolidated Balance Sheets at December 31, 2001 and 2000........................................ 24-25
Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999........... 26
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.............................................................. 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999....... 28
Notes to Consolidated Financial Statements....................................................... 29-37
2. Financial Statement Schedules
The Financial Statement Schedules required to be filed as a part of
this Report are:
Schedule II - Valuation and Qualifying Accounts.................................................. 41
Schedules other than those listed above are omitted since they are not
applicable, not required or the information required to be set forth therein is
included in Consolidated Financial Statements or Notes thereto included in this
Report.
3. Exhibits
Exhibits required to be filed as part of this report are:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Registrant's Certificate of Incorporation, as amended.(1)
3.2 Registrant's Bylaws, as amended.(1)
10.1 Form of Indemnity Agreement with Executive Officers.(1)
10.2 Registrant's Amended and Restated 1993 Incentive Stock Plan.(2)
10.3 Manufacture and Supply Agreement dated September 13, 1993 between
Registrant and B.Braun, Inc. relating to the Protected Needle
product.(3)
10.4 Supply and Distribution Agreement dated April 3, 1995 between
Registrant and Abbott Laboratories, Inc. relating to the CLAVE
product.(4)
10.5 Registrant's Director's Stock Award Plan.(5)
10.6 Rights Agreement dated July 15, 1998 between Registrant and ChaseMellon
Shareholder Services, L.L.C. as Rights Agent.(6)
38
10.7 Manufacture and Supply Agreement dated January 1, 1999 by and between
Registrant and B.Braun Medical, Inc. relating to the CLAVE product.(7)
10.8 SafeLine Agreement effective October 1, 1999 by and between Registrant
and B.Braun Medical, Inc.(7)
10.9 Amendment to Abbott and ICU Medical Agreement, dated January 1, 1999
between Registrant and Abbott Laboratories.(8)
10.10 Amendment No. 1 to Rights Agreement, dated January 30, 1999, between
Registrant and ChaseMellon Shareholder Services, L.L.C. as Rights
Agent.(9)
10.11 Co-Promotion and Distribution Agreement, dated February 27, 2001
between Registrant and Abbott Laboratories.(10)
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
(1) Filed as an exhibit to Registrant's Registration Statement Form S-1
(Registration No. 33-45734) filed on February 14, 1992, and
incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's definitive Proxy Statement filed
pursuant to Regulation 14A on March 4, 1999 and incorporated herein by
reference.
(3) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended September 30, 1993, and incorporated herein by
reference.
(4) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1995, and incorporated herein by reference.
(5) Filed as exhibit to Registrant's definitive Proxy Statement filed
pursuant to Regulation 14A on April 11, 1998 and incorporated herein by
reference.
(6) Filed as an exhibit to Registrant's Registration Statement on Form 8-A
dated July 23, 1998 and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
June 18, 1999, and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
February 23, 1999, and incorporated herein by reference.
(9) Filed as an exhibit to Registrant's Registration Statement on Form
8-A/A dated February 9, 1999 and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
March 7, 2001 and incorporated herein by reference.
(b) Reports on Form 8-K.
None
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICU MEDICAL, INC.
By: /s/ George A. Lopez, M.D.
--------------------------
George A. Lopez, M.D.
Chairman of the Board
Dated: February 25, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George A. Lopez, M.D. Chairman of the Board, President, February 25, 2002
- -------------------------- and Chief Executive Officer, (Principal
George A. Lopez, M.D. Executive Officer)
/s/ Francis J. O'Brien Chief Financial Officer February 25, 2002
- ----------------------- and Principal Accounting Officer
Francis J. O'Brien
/s/ Jack W. Brown Director February 25, 2002
- -----------------
Jack W. Brown
/s/ John J. Connors Director February 25, 2002
- --------------------
John J. Connors
/s/ Michael T. Kovalchik, III, M.D. Director February 25, 2002
- -----------------------------------
Michael T. Kovalchik, III, M.D.
/s/ Joseph R. Saucedo Director February 25, 2002
- ---------------------
Joseph R. Saucedo
/s/ Richard H. Sherman, M.D. Director February 25, 2002
- ----------------------------
Richard H. Sherman, M.D.
/s/ Robert S. Swinney, M.D. Director February 25, 2002
- ---------------------------
Robert S. Swinney, M.D.
40
SCHEDULE II
ICU MEDICAL, INC.
-----------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
Additions
------------------------------
Balance at Charged to Balance
Beginning Costs and Charged to Write-offs/ at End
Description of Period Expenses Other Accounts Disposals of Period
----------- --------- -------- -------------- --------- ---------
For the year ended December 31, 1999:
Allowance for
doubtful accounts $342,000 $100,000 $ - $74,000 $368,000
=========== =========== =========== =========== ===========
For the year ended December 31, 2000:
Allowance for
doubtful accounts $368,000 $195,000 $ - $ 58,000 $505,000
=========== =========== =========== =========== ===========
For the year ended December 31, 2001:
Allowance for
doubtful accounts $505,000 $100,000 $ - $24,000 $581,000
=========== =========== =========== =========== ===========
41
EXHIBIT INDEX
Exhibit Number Description Sequentially Numbered Page
- --------------------------------------------------------------------------------
21.1 Subsidiaries of Registrant 43
23.1 Consent of Arthur Andersen LLP 44
42