Securities and exchange commission


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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM: _______ TO _________
COMMISSION FILE NO.: 0-19974
ICU MEDICAL, INC.

(Exact name of Registrant as provided in charter)

------------------------------------------------
Delaware 33-0022692

-------- ----------

(State or Other Jurisdiction of (I.R.S. Employer

Incorporation or Organization) Identification No.)
951 Calle Amanecer, San Clemente, California 92673

-------------------------------------------- -----

(Address of Principal Executive Offices) (Zip Code)
(949) 366-2183

(Registrant's Telephone No. Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports to be

filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant was required

to file such reports), and (2) has been subject to such filing requirements for

the past 90 days:
Yes XXX No

--- ---
Indicate by check mark whether the registrant is an accelerated filer (as

defined in the Exchange Act).
Yes XXX No

--- ---
Indicate the number of shares outstanding in each of the issuer's classes of

common stock, as of the latest practicable date:
Class Outstanding at November 12, 2002

----- --------------------------------

Common 14,144,526

ICU MEDICAL, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER

------------------------------ -----------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

-----------------------------------------
Condensed Consolidated Balance Sheets, September 30, 2002 and

December 31, 2001 3
Condensed Consolidated Statements of Income for the three months ended

September 30, 2002 and 2001 4
Condensed Consolidated Statements of Income for the nine months ended

September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows for the nine months ended

September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2.

-------

Management's Discussion and Analysis of Financial Condition and Results of

Operations 8
ITEM 3.

-------

Quantitative and Qualitative Disclosures About Market Risk 19
ITEM 4.

-------

Controls and Procedures 19
PART II - OTHER INFORMATION 19

---------------------------
SIGNATURES 21
2

ICU MEDICAL, INC.

Condensed Consolidated Balance Sheets

September 30, 2002 and December 31, 2001

(all dollar amounts in thousands except share data)

(unaudited)

ASSETS
9/30/02 12/31/01

---------- ----------
CURRENT ASSETS:

Cash and cash equivalents $ 5,269 $ 3,901

Liquid investments 84,950 69,126

---------- ----------

Cash and liquid investments 90,219 73,027

Accounts receivable, net of allowance for doubtful accounts of $658 and

$581 as of September 30, 2002 and December 31, 2001, respectively 15,079 13,062

Inventories 5,326 1,594

Prepaid expenses and other 843 605

Deferred income taxes - current portion 2,461 2,113

---------- ----------

Total current assets 113,928 90,401

---------- ----------
PROPERTY AND EQUIPMENT, at cost: 52,941 44,947

Less--Accumulated depreciation (23,060) (19,825)

---------- ----------

Property and equipment, net 29,881 25,122

DEFERRED INCOME TAXES 1,129 963

OTHER ASSETS 915 856

---------- ----------

$ 145,853 $ 117,342

========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

Accounts payable $ 2,898 $ 2,401

Accrued liabilities 6,677 8,264

---------- ----------

Total current liabilities 9,575 10,665

---------- ----------
STOCKHOLDERS' EQUITY:

Convertible preferred stock, $1.00 par value

Authorized -- 500,000 shares, issued and outstanding -- none -- --

Common stock, $0.10 par value-

Authorized -- 80,000,000 shares, issued -- 13,937,376 and 13,300,743

shares at September 30, 2002 and December 31, 2001, respectively 1,394 887

Additional paid-in capital 60,075 45,765

Treasury stock, at cost -- 174,688 shares at December 31, 2001 -- (987)

Retained earnings 74,809 61,102

---------- ----------

Total stockholders' equity 136,278 106,677

---------- ----------

$ 145,853 $ 117,342

========== ==========
The accompanying notes are an integral part of these

condensed consolidated financial statements.
3

ICU MEDICAL, INC.

Condensed Consolidated Statements of Income

For the Three Months Ended

September 30, 2002 and September 30, 2001

(all dollar amounts in thousands except share and per share data)

(unaudited)
For the Three Months Ended

------------------------------
9/30/02 9/30/01

------------ ------------
NET SALES $ 20,105 $ 16,214

COST OF GOODS SOLD 8,541 6,867
------------ ------------

Gross profit 11,564 9,347

------------ ------------
OPERATING EXPENSES:

Selling, general and administrative 4,743 4,287

Research and development 384 241
------------ ------------

Total operating expenses 5,127 4,528

------------ ------------
Income from operations 6,437 4,819
INVESTMENT INCOME 339 450

------------ ------------
Income before income taxes 6,776 5,269
PROVISION FOR INCOME TAXES 2,500 1,950

------------ ------------
NET INCOME $ 4,276 $ 3,319

============ ============
NET INCOME PER SHARE

Basic $ 0.31 $ 0.26

Diluted $ 0.28 $ 0.23

============ ============
WEIGHTED AVERAGE NUMBER OF SHARES

Basic 13,895,280 12,903,625

Diluted 15,375,757 14,531,707

============ ============
The accompanying notes are an integral part of these

condensed consolidated financial statements.
4

ICU MEDICAL, INC.

Condensed Consolidated Statements of Income

For the Nine Months Ended

September 30, 2002 and September 30, 2001

(all dollar amounts in thousands except share and per share data)

(unaudited)
For the Nine Months Ended

------------------------------
9/30/02 9/30/01

------------ ------------
NET SALES $ 63,678 $ 48,172

COST OF GOODS SOLD 26,429 20,215
------------ ------------

Gross profit 37,249 27,957

------------ ------------
OPERATING EXPENSES:

Selling, general and administrative 15,398 11,890

Research and development 1,033 872
------------ ------------

Total operating expenses 16,431 12,762

------------ ------------
Income from operations 20,818 15,195
INVESTMENT INCOME 1,079 1,626

------------ ------------
Income before income taxes 21,897 16,821
PROVISION FOR INCOME TAXES 8,100 6,205

------------ ------------
NET INCOME $ 13,797 $ 10,616

============ ============
NET INCOME PER SHARE

Basic $ 1.01 $ 0.83

Diluted $ 0.90 $ 0.74

============ ============
WEIGHTED AVERAGE NUMBER OF SHARES

Basic 13,710,168 12,764,133

Diluted 15,281,644 14,360,578

============ ============
The accompanying notes are an integral part of these

condensed consolidated financial statements.
5

ICU MEDICAL, INC.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended

September 30, 2002 and September 30, 2001

(all dollar amounts in thousands)

(unaudited)

For the Nine Months Ended

-------------------------
9/30/02 9/30/01

--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 13,797 $ 10,616

Adjustments to reconcile net income to net cash

provided by operating activities --

Depreciation and amortization 3,748 3,475

Net change in current assets and liabilities, and other (7,711) 2,292

--------- ---------

9,834 16,383
Tax benefits from exercise of stock options 8,141 2,365
--------- ---------

Net cash provided by operating activities 17,975 18,748

--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (8,446) (4,011)

Net change in liquid investments (15,824) (16,530)
--------- ---------

Net cash used in investing activities (24,270) (20,541)

--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options 7,663 2,109
--------- ---------

Net cash provided by financing activities 7,663 2,109

--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,368 316
CASH AND CASH EQUIVALENTS, beginning of the period 3,901 1,945

--------- ---------
CASH AND CASH EQUIVALENTS, end of the period $ 5,269 $ 2,261

========= =========
The accompanying notes are an integral part of these

condensed consolidated financial statements.
6

ICU MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002

(All dollar amounts in thousands)

(unaudited)
NOTE 1: The accompanying unaudited interim condensed consolidated financial

statements have been prepared in accordance with accounting principles generally

accepted in the United States of America and pursuant to the rules and

regulations of the Securities and Exchange Commission and reflect all

adjustments, which consist of only normal recurring adjustments, which are, in

the opinion of Management, necessary to a fair statement of the consolidated

results for the interim periods presented. Results for the interim period are

not necessarily indicative of results for the full year. Certain information and

footnote disclosures normally included in consolidated financial statements

prepared in accordance with generally accepted accounting principles have been

condensed or omitted pursuant to such rules and regulations. The consolidated

financial statements should be read in conjunction with the consolidated

financial statements and notes thereto included in our 2001 Annual Report to

Stockholders.
NOTE 2: Inventories consisted of the following:
9/30/02 12/31/01

------- --------
Raw material $2,686 $1,290

Work in process 411 179

Finished goods 2,229 125

------- -------

Total $5,326 $1,594

======= =======
NOTE 3: Property and equipment, at cost, consisted of the following:
9/30/02 12/31/01

------- --------

Land, building and building

improvements $13,584 $13,584

Machinery and equipment 18,502 15,663

Furniture and fixtures 3,445 3,568

Molds 8,589 8,566

Construction in process 8,821 3,566

-------- --------

Total $52,941 $44,947

======== ========
NOTE 4: Basic net income per share is computed by dividing net income by the

weighted average number of common shares outstanding. Diluted net income per

share is computed by dividing net income by the weighted average number of

common shares outstanding plus dilutive securities. Our dilutive securities are

outstanding common stock options (excluding stock options with an exercise price

in excess of market value), less the number of shares that could have been

purchased with the proceeds from the exercise of the options, using the treasury

stock method, and were 1,480,477 and 1,628,082 for the three months ended

September 30, 2002 and 2001, respectively and 1,571,476 and 1,596,445 for the

nine months ended September 30, 2002 and 2001, respectively. Options that are

antidilutive because their average exercise price exceeded the average market

price of our common stock for the period approximated 210,000 and 105,000 for

the three months ended September 30, 2002 and 2001, respectively, and

approximately 145,000 and 85,000 for the nine months ended September 30, 2002

and 2001, respectively. Stock options of subsidiaries did not have a dilutive

effect.
7

All share and per share data for periods prior to 2002 has been

restated for a three-for-two stock split effected March 15, 2002.
NOTE 5: The effective tax rate differs from that computed at the federal

statutory rate of 34% principally because of the effect of state income taxes

partially offset by the effect of tax-exempt investment income and state tax

credits.
NOTE 6: We had sales to two customers equal to ten percent or greater of net

sales, as follows:


Quarter ended September 30, Nine Months ended September 30,

---------------------------- -------------------------------

2002 2001 2002 2001

---- ---- ---- ----
Abbott Laboratories 61% 57% 64% 51%

B. Braun Medical Inc. 10% 20% 10% 21%

NOTE 7: We are from time to time involved in various 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 effect on our financial position

or results of operations.
NOTE 8: In a series of transactions from October 31 to November 13, 2002, we

acquired Bio-Plexus, Inc. for approximately $10 million cash and assumption of

$1.2 million of debt. We currently estimate transaction costs and integration

costs will aggregate approximately $1 million. Bio-Plexus is located in Vernon,

Connecticut. Its principal products are blood collection needles under the

PUNCTURE-GUARD(R) name, which are designed to eliminate exposure to sharp,

contaminated needles. Bio-Plexus's sales for its year ended December 31, 2001

were $6.4 million. Bio-Plexus will be included in our consolidated financial

statements commencing November 1, 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS
We develop, manufacture, sell and distribute disposable medical

connection products. Our principal products are proprietary safe medical

connection devices for use in intravenous ("I.V.") therapy applications. We also

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