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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, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
MERIT MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Utah 0-18592 87-0447695
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1600 West Merit Parkway
South Jordan, Utah 84095
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 253-1600
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, No Par Value
Indicate by check mark whether the 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 the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
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 the 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. |X|
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant, based upon the closing sale price of the Common Stock on the
NASDAQ National Market System on March 28, 2001, was approximately $48,274,801.
Shares of Common Stock held by each officer and director and by each person who
may be deemed to be an affiliate have been excluded.
As of March 28, 2001 the Registrant had 7,801,988 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
Parts II, III and IV of this Report: the Registrant's definitive Proxy Statement
relating to the Annual Meeting of Shareholders scheduled for May 23, 2001 (Part
III).
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TABLE OF CONTENTS
PART I................................................................................................. 1
Disclosure regarding forward-looking statements.................................................................. 1
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Item 1. Business............................................................................................... 1
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GENERAL ............................................................................................... 1
PRODUCTS............................................................................................... 2
Inflation Devices.............................................................................. 2
Control Syringes............................................................................... 3
Specialty Syringes............................................................................. 3
High Pressure Contrast Injection Line and Sherlock Connectors.................................. 3
Manifolds...................................................................................... 3
Waste Containment Systems...................................................................... 4
Hemostasis Valves.............................................................................. 4
Torque Device.................................................................................. 4
Marquis Series Stopcock........................................................................ 4
Contrast Management Systems.................................................................... 4
Majestik Angiographic Needles.................................................................. 4
Fountain Infusion Catheter..................................................................... 4
Tomcat (PTCA) Guide Wire ...................................................................... 4
Squirt Wound Irrigation ....................................................................... 4
Angiography Pigtail Catheter .................................................................. 4
Pericardiocentesis............................................................................. 4
Meritrans Pressure Transducers ................................................................ 5
ShortStop ..................................................................................... 5
Custom Kits.................................................................................... 5
Diagnostic Cardiology Catheters ............................................................... 5
Diagnostic Radiology Catheters................................................................. 5
Vessel-Sizing Catheters ....................................................................... 5
Percutaneous Sheath Introducers................................................................ 5
Diagnostic Guide Wires......................................................................... 5
Guide Catheters................................................................................ 5
MARKETING AND SALES............................................................................ 5
Market Strategy................................................................................ 5
U.S. Sales..................................................................................... 6
International Sales............................................................................ 6
CUSTOMERS.............................................................................................. 6
RESEARCH AND DEVELOPMENT............................................................................... 7
MANUFACTURING.......................................................................................... 7
COMPETITION............................................................................................ 7
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS...................................... 8
REGULATION............................................................................................. 9
EMPLOYEES.............................................................................................. 9
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES................................................................................. 9
Item 2. Properties............................................................................................. 9
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Item 3. Legal Proceedings..................................................................................... 10
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Item 4. Submission of Matters to a Vote of Security Holders................................................... 10
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PART II ...................................................................................................... 11
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.................................. 11
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Item 6. Selected Financial Data............................................................................... 11
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 12
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Item 7A. Quantitative and Qualitative Disclosure About Market Risk ............................................. 14
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(Continued)
Item 8. Financial Statements and Supplementary Data........................................................... 15
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Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure..................... 37
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PART III ...................................................................................................... 37
Items 10, 11, 12 and 13......................................................................................... 37
PART IV ...................................................................................................... 37
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 37
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SIGNATURES...................................................................................................... 39
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PART I
DISCLOSURE REGARDING FORWARD -LOOKING STATEMENTS
This Report includes "Forward-Looking Statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "Forward-Looking Statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or services,
any statements regarding future economic conditions or performance, and any
statements of assumptions underlying any of the foregoing. All Forward- Looking
Statements included in this document are made as of the date hereof and are
based on information available to Merit as of such date. Merit assumes no
obligation to update any Forward-Looking Statement. In some cases,
Forward-Looking Statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "intends" or "believes,"
"estimates," "potential," or "continue," or the negative thereof or other
comparable terminology. Although the Company believes that the expectations
reflected in the Forward-Looking Statements contained herein are reasonable,
there can be no assurance that such expectations or any of the Forward- Looking
Statements will prove to be correct, and actual results could differ materially
from those projected or assumed in the Forward-Looking Statements. Future
financial condition and results of operations, as well as any Forward- Looking
Statements are subject to inherent risks and uncertainties, including market
acceptance of the Company's products, product introductions potential product
recalls, delays in obtaining regulatory approvals, cost increases, fluctuations
in and obsolescence of inventory, price and product competition, availability of
labor and materials, development of new products and techniques that render the
Company's products obsolete, foreign currency fluctuations, changes in health
care markets related to health care reform initiatives and other factors
referred to in the Company's press releases and reports filed with the
Securities and Exchange Commission. All subsequent Forward- Looking Statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements.
Item 1. Business.
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GENERAL
Merit Medical Systems, Inc. (the "Company") was formed in 1987 by
members of its current management for the purpose of producing single-use
medical products of high quality and superior value primarily for use in
diagnosis and treatment of cardiovascular disease. The Company's products are
designed to provide physicians and other health care professionals with devices
that enable them to perform interventional and diagnostic procedures safely and
effectively. Initially, the Company's expertise in product design and its
proprietary technology and skills in injection and insert molding enabled it to
introduce innovative new products and capture significant market share. The
Company subsequently combined its plastics molding capability with the
application of proprietary electronics and sensor-based technologies to develop
a line of angioplasty inflation products with electronic sensing and display
features. These devices are now included in a group of sensor-based products
that address a broad range of needs related to diagnostic and interventional
catheterization procedures performed in hospitals. Since 1997 the Company has
expanded its product offerings to include catheters, guide wires, sheath
introducers, needles and drug infusion devices.
The Company's strategy is to offer a broad line of innovative,
disposable products for diagnosis and intervention in radiology and cardiology.
Merit continues to increase market acceptance and penetration for both its
existing and new products in the U.S. and in international markets. Longer term,
the Company's strategy is to extend the application of its sensor-based
technologies, plastics molding, catheter, guide wire, and electronic
capabilities and to develop products for diagnostic and interventional
procedures in additional markets such as neuroradiology, nephrology, pain
management and critical care. The Company's sales of stand-alone products in
combination with custom kits have increased as additions have been made to the
Company's product lines. In 2000, approximately 53% of the Company's sales were
made directly to U.S. hospitals and approximately 22% of sales were made to
custom packagers, distributors and O.E.M. companies who also distribute to U.S.
hospitals. Approximately 25% of the Company's sales in 2000 were made in
international markets.
1
The Company was organized in July 1987 as a Utah corporation. In July
1994, the Company purchased a controlling interest in Sentir, Inc., a
California-based manufacturer of silicon sensors, ("Sentir") and during 1999 the
Company purchased the remaining interest. The Company also has established
subsidiaries in Ireland, Germany, France, the United Kingdom, Belgium, and in
the case of Sentir, the Netherlands to conduct its international business. On
January 31, 1997, the Company purchased the operating assets and product lines
of Universal Medical Instruments Corp. ("UMI"). On August 20, 1999 the Company
purchased the operating assets and product lines of the Angleton Texas division
of Mallinckrodt Inc. ("Mallinckrodt"). The Company's principal offices are
located in a manufacturing and office facility at 1600 West Merit Parkway, South
Jordan, Utah 84095, and its telephone number is (801) 253-1600.
See "Item 2. Properties."
PRODUCTS
The Company's products have been designed and developed in response to
the needs of customers and patients. These needs have been identified primarily
through observation of procedures in the cardiac catheterization and radiology
laboratories, consultation with the Company's medical advisors and consultants
and through direct communication with customers. Since 1988, the Company has
developed and introduced several product lines, including control syringes
(CCS(TM)and Smart Tip(TM)), inflation devices (Intellisystem(R) Monarch(R),
Basix(TM), and basixCOMPAK(TM) including new 25-atmosphere versions), specialty
syringes (Medallion(R),and VacLok(R)), high-pressure tubing and connectors
(Excite(TM), flexible, braided, rigid, pvc, and Sherlock(TM)) , waste handling
and disposal products (Merit Disposal Depot(R) and Backstop(R)), a disposable
blood pressure transducer (Meritrans(R)), disposable hemostasis valves (MBA(TM),
Passage(R), Access-9,(TM) Access Plus(TM), Double-Play(TM) and Inspector(TM)),
manifolds and stopcocks (Marquis(R) Series), a torque device, contrast
management systems (Miser(R) and In-Line Contrast Management System(TM)),
angiography needles (Majestik(R) Series), blood containment devices (Captiva(R)
), pericardiocentesis catheters and procedure trays, PTCA guide wires (TomCat(R)
) and extension wires, thrombolytic infusion catheters (Fountain(R) and
Mistique(TM)) and accessories (Squirt(TM)), diagnostic angiographic pigtail
catheters, and diagnostic cardiology and radiology catheters, (SofTouch(R) and
Performa(R), sheath introducers (DialEase(TM)) and diagnostic guide wires,
RadStat(TM) and BackStop(TM). These products are sold separately and in custom
kits consisting primarily of selected combinations of products.
The Company has not experienced any product liability claims; however,
the sale and use of its products entails an inherent risk that product liability
claims may be asserted against the Company. The Company maintains product
liability insurance in the amount of $5,000,000 per occurrence and in the
aggregate, which may not be adequate for expenses or liabilities actually
incurred.
Inflation Devices. Inflation devices are large, specialized syringes
used in interventional catheterization procedures to inflate and deflate
balloon-tipped catheters. The Company has received 510(k) approval from the U.S.
Food and Drug Administration ("the FDA") for use of its digital inflation
devices for a wide range of additional clinical applications such as
discography, esophageal dilitation, trigeminal nerve compression, and retinal
detachment. Each of the Company's inflation devices and universal fluid
dispensing syringes incorporates patented, proprietary design features which
contribute to ease of use, including allowing the clinicians to engage or
release the syringe plunger with one hand while increasing or decreasing the
pressure. Each syringe also provides a clear view of the fluid path that
simplifies debubbling and contributes to accurate measurement of pressure.
The Company's IntelliSystem(R) 25 inflation device, which was the
first such device to incorporate electronic sensing and display features,
consists of a disposable 20cc inflation syringe and an integral pressure
transducer which connects to an electronic monitor outside of the sterile field.
To aid the marketing process and encourage use of the Company's products, the
electronic monitor is provided without charge to large volume customers using
the IntelliSystem. The IntelliSystem measures, times, records and digitally
displays information concerning the pressure, duration and number of each
inflation and deflation of the angioplasty balloon. When used in other clinical
applications such as discography, the Intellisystem accurately dispenses fluid
while documenting and graphing pressures in the disc. The Company believes that
electronic sensing and display of such information is much more accurate and
precise than that which can be obtained from conventional analog gauges. The
data is stored and may be displayed, retrieved, graphed and printed.
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The patented IntelliSystem II color monitor is the most advanced on
the market and gives physicians several highly desirable options. These include
a large, touch screen and display, an instant display of positive and negative
pressures and enlarged graphing display to show extremely subtle changes in
pressure measurements. In addition the display and readouts are available in
four languages by touching the screen. Merit is the only company with digital
technology sensitive enough to show minute changes in pressure.
The Monarch 25 is a disposable inflation device which digitally
displays data concerning pressure and duration of inflations and deflations on a
small electronic monitor mounted on the barrel of the inflation syringe. The
monitor does not offer all of the same display, storage or printing capabilities
of the IntelliSystem & IntelliSystem II but offers the convenience of portable
operation.
The Basix(R) 25 and the new BasixCOMPAK are disposable inflation
devices which incorporate a conventional analog pressure gauge mounted on the
barrel of the inflation syringe. The Basix more closely resembles devices
marketed by the Company's competitors but includes the Company's proprietary
design features and benefits. The Company believes that the Basix and
BasixCOMPAK represent a significant addition to its line of inflation devices
that will contribute to sales where both clinical and economic outcomes are a
priority.
Control Syringes. The Company's disposable control syringes are
utilized for one-handed control of the injection of contrast media and other
fluids during angiography, angioplasty and stent placement. The control syringes
are molded from polycarbonate material which is stronger than glass and other
plastics used in the industry. The Company offers different models and sizes of
the control syringes with varying features, according to physician preference.
These features include different configurations of syringe handles, plungers and
connectors which allow operation of the syringe in a fixed or rotating position
and varying volume sizes, including a popular 8ml mode, Inject8(TM). (In
response to customer demand, Merit launched latex-free control syringes in
1998).
Specialty Syringes. Merit's Medallion syringes, a line of disposable,
latex-free, color-coded specialty syringes are used for injection of
medications, flushing of manifolds and other general purposes. These syringes
are molded of polycarbonate material for added strength and are available in
hundreds of sizes, colors and custom printing combinations. The color coding
allows a clinician to assign a color for each medication to be dispensed and to
differentiate syringes by their contents. The syringes can also be custom
printed to the specifications of the user. In response to customer requests, the
Company has developed and added additional sizes of its specialty syringes which
have applications in dispensing various medications required in a broader range
of peripheral procedures. The Company believes that the design, color coding and
materials used in its specialty syringes contribute to patient safety and more
efficient procedures. The specialty syringes are sold separately and are an
important component of the Company's custom kits.
High-Pressure Contrast Injection Line and Sherlock Connectors. During
angiographic and diagnostic radiology procedures, contrast media must be
injected through a catheter into the blood vessel. This is sometimes
accomplished by a mechanical injector which can generate pressures up to 1200
pounds per square inch ("psi"), and requires tubing that can withstand these
pressures. The Company offers high-pressure, specialty tubing with proprietary
Sherlock connectors. In 1998 the Company launched Excite(TM), a new line of
clear, flexible high-pressure tubing that combines the features of tubing
clarity and strength. Sherlock connectors allow coupling and uncoupling of
tubing with injectors, syringes and manifolds without over-tightening or
breakage. The Company is currently offering specialty tubing that can handle
pressures ranging from 500 to 1200 psi. The specialty tubing with Sherlock
connectors is an important component of custom kits.
Manifolds. The administration of saline, imaging and contrast fluids
and the management of blood-pressure monitoring, fluid injection and waste
collection in angiography or angioplasty procedures is accomplished through a
series of valves on a manifold which control the flow of various fluids in
different directions. The Company has designed its own manifold consisting of
two, three, four or five valves. The Company believes its manifold offers
greater ease of use, simplified identification of flow direction and leak-free
operation under the pressures of manual or mechanical injection of fluids when
compared to manifolds sold by competitors. The Merit Manifold is sold separately
but is also a key component of the Company's custom kits.
3
Waste Containment Systems. Because of heightened awareness of the
risks associated with blood and related waste materials, hospitals have moved
toward closed systems whenever possible. To address these concerns, the Company
has designed a waste containment bag which connects to a manifold and collects
waste materials such as blood and other fluids during angiography, angioplasty
or other procedures. The Merit Disposal Depot(TM) is self-contained for ease of
disposal and reduces risk of contamination. The Backstop(TM) is a unique and
proprietary alternative fluid disposal basin designed to reduce exposure to
blood-borne pathogens.
Hemostasis Valves. The MBA, Passage, Access 9, Access Plus,
Double-Play, and Inspector hemostasis valves are used in conjunction with the
Company's inflation devices and as a component of the Company's angioplasty
packs. These valves are made of polycarbonate plastic for clarity and include
Sherlock connectors. The devices differ in size and function. The MBA features a
valve mechanism that minimizes blood loss during exchange of wires, catheters
and other tools through the valve.
Torque Device. The Merit torque device is a guide wire steering tool
with a tapered design and contrasting colors for improved visibility. The torque
device typically is included as a component of the Company's angioplasty packs.
Marquis(TM) Series Stopcock. The Company's Marquis Series Stopcock
offers improvements to competitive stopcock devices, including a large, easy
grip handle. The Marquis Series Stopcock is used in connection with Sherlock
connectors to provide improved connections during procedures.
Contrast Management Systems. The Miser(TM) and the In-Line Contrast
Management System have been designed to increase catheterization lab
efficiencies by reducing contrast media waste.
Majestik(TM) Angiographic Needles. The angiography needle creates the
percutaneous (through the skin) access site for all angiography and angioplasty
procedures. This site is the point of entry for the introducer sheath, guide
wires, catheters and any other interventional devices. The Merit Majestik Needle
helps the physician achieve precision vascular access with one of the sharpest
angiography needles on the market.
Fountain(TM) Infusion Catheter. The Fountain catheter delivers
therapeutic solutions to dissolve blood clots (thrombi) in peripheral vessels.
This catheter is used to treat peripheral arterial occlusions, hemodialysis
graft occlusions, and deep vein thrombosis. This product incorporates the
Squirt(TM) fluid dispensing system for controlled fluid delivery.
Tomcat(TM) (PTCA) Guide Wire. Tomcat guide wires are used in
percutaneous transluminal coronary angioplasty (PTCA) and stent deployment
procedures. Guide wires are used to guide and place balloon angioplasty and
stent deployment catheters into coronary arteries. This product complements our
existing lines of inflation devices and accessories currently used in balloon
angioplasty procedures and was designed, developed and manufactured in the
Company's Ireland facility.
Squirt Wound Irrigation. In any traumatic wound, the risk of infection
is greatly decreased by the removal of bacteria and foreign matter from the
site. Merit launched a line of Squirt wound irrigation products in 1998 designed
for the emergency room to deliver large volumes of irrigation fluid. The product
features a proprietary, one-handed Squirt fluid delivery syringe, an adjustable
nozzle and splash protecting shield.
Angiography Pigtail Catheter. In 1997 Merit acquired new product lines
and technologies from UMI, a small specialty medical manufacturing firm in
upstate New York. At that time the Company began marketing a new line of
thin-wall, FEP (Teflon), high-flow, pigtail angiographic catheters ideally
suited for smaller patients.
Pericardiocentesis. Merit offers a complete pericardiocentesis kit
which combines a high-flow drainage catheter and virtually all components needed
to place the device in the pericardial sack. This combination saves the
physician both time and money by having all components in one convenient tray.
On occasion, the sack surrounding the heart becomes filled with blood or fluid.
4
To remove the fluid and the potential for cardiac tamponade, a catheter is
placed in the pericardial sack. The Company designed, manufactured and launched
two proprietary kits (pigtail and straight) including the catheter and necessary
components to perform the procedure.
Meritrans(TM) Pressure Transducers. Diagnostic blood pressure
monitoring is a clinical priority in virtually all diagnostic and interventional
procedures. The Meritrans provides clinicians with reliable and precise
blood-pressure measurement. The clear, flow-through design makes flushing and
debubbling simple and safe. The transducer is a critical component in many
custom kit configurations.
ShortStop(TM). In 2000, Merit introduced the ShortStop, a small
container with an adhesive base that fits on the back table in a clinical lab.
It is used for the temporary containment of needles, scalpels and other sharp
tools to and in the prevention of inadvertent needles sticks .
Custom Kits. Custom kits allow physicians to obtain the medical
devices and accessories they most frequently use during angiography, angioplasty
and similar procedures in a convenient, pre-packaged and pre-assembled form.
Custom kits also provide cost savings over purchasing single products and reduce
the hospital's administrative costs associated with maintaining an inventory of
individual, sterile products.
Diagnostic Cardiology Catheters. Cardiac catheterization is performed
to diagnose the nature, severity, and precise location of blockages and other
abnormalities of the heart. This technique represents the most essential
diagnostic tool in the management of patients with cardiovascular disease. The
Company manufactures and sells a complete line of diagnostic catheters used for
these procedures.
Diagnostic Radiology Catheters. Radiology catheters are engineered and
designed with distinct tip configurations to access specific vessels and organs
outside the heart (head, kidneys, etc). Merit acquired a strong radiology
catheter product portfolio from Mallickrodt's Angleton Division in 1999.
Vessel-Sizing Catheters. In 2000 Merit introduced a complete line of
vessel-sizing catheters, which are used by radiology physicians to measure the
internal diameter and length of a blood vessel under fluoroscopy. Procedures in
which these catheters are used include angioplasty, embolization, abnormal
aortic aneurysm (AAA) stent-grafts and vena cava filter placements. In the
fourth quarter, Merit introduced its most popular model, the 20-band version,
for use in measuring the aorta in a AAA stent-graft procedure.
Percutaneous Sheath Introducers. Sheaths are used to create the access
through which guide wires and catheters are passed into the vasculature. Most
sheaths incorporate a valve hub to minimize bleeding and a side port for drug
delivery. (The Company acquired the Performa line of sheath introducers from
Mallinckrodt in 1999).
Diagnostic Guide Wires. Guide wires are relatively simple, spring-type
products that provide the necessary firmness and control to advance catheters to
the site where angiograms will be taken. Guide wires vary in length, outside
diameter and tip configuration. The Company distributes an OEM guide wire made
to exact specifications.
Guide Catheters. Coronary angioplasty requires the use of a guiding
catheter to place the balloon within the arterial system. The catheter is
inserted through the sheath into the arterial system. Once in place, the guiding
catheter acts as a conduit for the guide wire, the dilating balloon catheter,
coronary stents and the radiopaque dye that is used to provide fluoroscopic
visualization during the procedure. The Mallinckrodt acquisition brought with it
a line of high- quality guide catheters used in cardiology. The Company intends
to dedicate resources to expand this offering.
MARKETING AND SALES
Market Strategy. The Company's marketing strategy is strongly focused
on identifying and introducing highly profitable, differentiated products that
meet customer needs. The Company has targeted selected hospital market segments
in cardiology and radiology where its products are used. Suggestions for new
products and product improvements may come from engineers, sales persons,
physicians and technicians who perform the clinical procedures.
5
When a product suggestion demonstrates sustainable competitive
advantage, meets customer needs, fits strategically and technologically, and has
good potential financial return, a "project team" is chartered with individuals
from the Company's marketing, engineering, manufacturing and quality assurance
departments . This team identifies the customer requirements, integrates the
design, compiles all necessary documentation and testing and prepares the
product for market introduction. The Company strongly believes that one of its
marketing strengths is its capacity to rapidly conceive, design, develop, and
introduce new products.
Cardiovascular disease is the number-one health problem in the U.S.
According to American Heart Association estimates, nearly 60 million Americans,
or approximately 25% of the population, has one or more types of the disease.
Cardiovascular disease accounts for an estimated one million deaths annually,
more than 40% of the U.S. total. Transcatheter modalities currently represent
the greatest potential to diagnose and treat the disease. The Company intends to
leverage its strong market position in both catheter technology and accessory
products to continue sales growth.
The global market for transcatheter products stands at a major
crossroad, even when considering the continued dynamic evolution in vascular
stent placement. Laser techniques have not demonstrated the success that was
expected in the last few years. The core diagnostic and therapeutic applications
for basic transcatheter technologies (balloons, stents and defect repair) are
well established, with the future growth of procedures and products dependent
upon demographic trends. This has not, however, prevented significant investment
of new technologies and applications designed to enhance patient outcomes and
enable the treatment of new populations that have been traditionally limited to
surgical intervention. The Company believes it is well positioned to monitor
these trends and launch catheters and accessories to support growing clinical
applications.
There are a large number of projects focused on improving the
diagnosis of cardiovascular disease, solving the issue of restenosis and other
less invasive alternatives to open-heart surgery. In recent years researchers
have focused their interests on technologies and products that support the
growth of transcatheter approaches to reducing the morbidity and mortality of
cardiovascular disease, including: radiated stents and balloons, anti-platelet
therapy, gene therapy, percutaneous coronary thrombectomy and transmyocardial
revascularization. One area of specific interest to the Company is transradial
catheterization. The Company will continue to develop and launch innovative
products to support these clinical trends.
U.S. Sales. The Company's direct sales force currently consists of a
vice president of sales, two executive sales managers, five regional sales
managers and 46 direct sales representatives located in major metropolitan areas
throughout the U.S. The Company's sales people are trained by Company personnel
at the Company's facilities, by a senior sales person in their respective
territories, at regular national and regional sales meetings by consulting
cardiologists and employees of the Company, and by observation of procedures in
catheterization laboratories.
International Sales. Outside of the U.S., the Company's products are
presently sold by 42 independent dealer organizations and 15 direct sales
representatives in Germany, France, the United Kingdom, Canada, Belgium,
Netherlands, and Ireland. In 2000, the Company's international sales grew by 26%
and accounted for approximately 25% of total sales. The Company has appointed a
vice president for international sales and established an international sales
and distribution office in Maastricht, The Netherlands. With the recent and
planned additions to its product lines, the Company believes that international
sales will continue to increase.
International dealers are required to inventory products and sell
directly to customers within defined sales territories. Each of the Company's
products must be approved for sale under the laws of the country in which it is
sold. International dealers are responsible for compliance with all applicable
laws and regulations in their respective countries.
CUSTOMERS
The Company serves hospital-based cardiologists, radiologists,
anesthesiologists, physiatrists (pain management), neurologists, ER physicians,
technicians and nurses who influence the purchasing decision for Merit's
products. Hospitals also purchase the Company's products in the U.S. through
custom packagers and packers who assemble and combine products in custom kits
6
and packs. The Company's customers outside the U.S. are hospitals and other end
users in those countries where a direct sales force has been established, and in
other countries are independent dealers in medical products who resell to
hospitals and other customers.
In 2000, approximately 53% of the Company sales were made directly
to domestic hospitals, 22% to custom packagers and packers and 25% to
international markets. Sales to the Company's single largest customer, a foreign
dealer, accounted for 6.0% of total sales during the year ended December 31,
2000. Merit manufactures products for other medical device companys through its
OEM program. In 2000, OEM sales represented 5.4% of Merit's total revenue. The
Company is investing heavily in people and programs to expand the OEM business.
Merit recognizes the growth opportunity in this area.
RESEARCH AND DEVELOPMENT
The Company believes that one of its important strengths is its
ability to quickly adapt its expertise and experience in injection molding and
to apply its electronic and sensor technologies to a perceived need for a new
product or product improvement. The Company's development efforts are presently
focused on disposable, innovative single-patient or single-use items which can
be included in the Company's custom kits or sold separately. Longer-term
projects include use of sensor-based technologies in a variety of applications
and additional inflation devices with added capacities and features. There is a
new focus on interventional vascular access products, such as needles, guide
wires, and catheters. Certain of the Company's executive officers also devote a
substantial portion of their time to research and development. Research and
development expenses were $3,864,171, $3,618,041 and $3,244,477 in 2000, 1999
and 1998, respectively. There was no customer-sponsored research and
development. The Company anticipates that its research and developement expenses
will range between approximately 4.0% and 5% of net sales for 2001.
MANUFACTURING
Many of the Company's products are manufactured utilizing its
proprietary technology and expertise in plastic injection and insert molding.
Tooling of molds is contracted with third parties, but the Company designs and
owns all of its molds. The Company utilizes its experience in injection and
insert molding technologies in the manufacture of most of the custom components
used in its products.
The electronic monitors and sensors used in the Company's
IntelliSystem and Monarch inflation devices are assembled from standard
electronic components or purchased from suppliers. (In July 1994, the Company
acquired a 73% interest and in August 1999 the Company acquired the remaining
interest in Sentir, which is engaged in development and marketing of silicon
sensors. Sentir is presently providing virtually all of the sensors utilized by
the Company in its digital inflation devices).
The Company's products are manufactured at several facilities including
South Jordan, Utah; Galway, Ireland; Angleton, Texas and a leased expansion
facility in Murray, Utah. See "Item 2. Properties."
COMPETITION
The principal competitive factors in the markets in which the
Company's products are sold are quality, performance, service and price. The
Company believes that its products have achieved rapid market acceptance due, in
part, to the quality of materials and workmanship, innovative design and ease of
operation, and the Company's prompt attention to customer inquiries. The
Company's products are priced competitively, but generally not below prices for
competing products.
There are several companies which are in the business of designing,
manufacturing and marketing devices similar to the Company's products, most of
which have substantially greater financial, technical and marketing resources
than the Company. The Company believes, based on available industry data with
respect to the number of procedures performed, that it is one of two market
leaders in the U.S. for control syringes, tubing and manifold kits (together
7
with NAMIC USA Corporation, a subsidiary of Boston Scientific), and is the
leader in the U.S. market for inflation devices and hemostasis accessories. The
Company also believes that the recent and planned additions to its product lines
will enable it to compete more effectively in both U.S. and international
markets. The Company's new IntelliSystem(R) II color monitor provides
considerable improvements, including sensitivity, in existing digital
technology. The Company is the only provider of digital inflation technology in
the world. There is no assurance, however, that the Company will be able to
maintain its existing competitive advantages or to compete successfully in the
future.
A substantial majority of the Company's revenues are presently derived
from sales of products used in coronary angiography and angioplasty procedures.
Other procedures, devices and drugs for the treatment and prevention of coronary
artery disease have been developed and are currently being used such as laser
angioplasty, atherectomy procedures and drug therapies, the effect of which may
be to render certain of the Company's products obsolete or to limit the markets
for its products. However, with the advent of vascular stents and other
procedures such as discography, the Company has experienced continued growth in
its proprietary inflation technology. The radiology and cardiology markets
encompass a large number of suppliers of many different sizes. The Company
competes with small firms, such as Possis Medical and Microtherapeutics;
medium-sized companies like Cook, Arrow and Angio Dynamics; and large,
international, multi-supply medical companies, such as Johnson & Johnson, Boston
Scientific, Guidant, Medtronic and C.R. Bard.
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS
The Company considers its proprietary technology to be important in
the development and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Two U.S. patents were issued in 1991 covering the
mechanical aspects of the Company's angioplasty inflation devices which relate
to the ability of the user to engage or release the syringe plunger while
increasing or decreasing pressure, and two U.S. patents were obtained in 1992
and 1993 covering digital control aspects of the Company's IntelliSystem
inflation device and for displaying, storing and retrieving inflation data. The
Company has obtained other patents covering each of its Monarch and Basix
inflation devices and additional features of the IntelliSystem.
Corresponding patent applications covering the claims included in the
Company's U.S. patents and patent applications have been initiated in several
foreign countries. The Company deems its patents and patents pending to be
materially important to its business but does not believe its business is
dependent on securing such patents. The Company negotiated a license in 1992
with respect to patents concerning technology utilized in its IntelliSystem and
Monarch inflation devices in consideration of a 5.75% ongoing royalty, not to
exceed $450,000 annually. Royalties paid in each of 2000, 1999 and 1998 were
$450,000.
While the Company has obtained U.S. patents and filed additional U.S.
and foreign patent applications as discussed above, there can be no assurance
that issued patents will provide the Company with any significant competitive
advantages or will not be challenged by third parties or that the patents of
others will not have an adverse effect on the ability of the Company to conduct
its business. The Company could incur substantial costs in seeking enforcement
of its patents against infringement or the unauthorized use of its proprietary
technology by others or in defending itself against similar claims of others.
Insofar as the Company relies on trade secrets and proprietary know-how to
maintain its competitive position, there can be no assurance that others may not
independently develop similar or superior technologies.
The Company has registered or applied for registration of several
tradenames or trademarks. See "Products." (Page 2). The Company also places
copyright notices on its instructional and advertising materials and has
registered copyrights relating to certain software used in its electronic
inflation devices.
8
REGULATION
The development, testing, packaging, labeling and marketing of medical
devices and the manufacturing procedures relating to these devices are regulated
under the Federal Food, Drug and Cosmetic Act and additional regulations
promulgated thereunder by the FDA. In general, these statutes and regulations
require that manufacturers adhere to certain standards designed to ensure the
safety and effectiveness of medical devices. The Company employs a director of
regulatory affairs who is responsible for compliance with all applicable FDA
regulations. Although the Company believes it is currently in material
compliance with all applicable FDA requirements, the Company's business could be
adversely affected by failure to comply with all applicable FDA and other
government regulations presently existing or promulgated in the future.
The FDA's Good Manufacturing Practices standards regulate the
Company's manufacturing processes, require the maintenance of certain records
and provide for unscheduled inspections of the Company's facilities. Certain
requirements of state, local and foreign governments must also be complied with
in the manufacture and marketing of the Company's products.
New medical devices may also be subject to either the Section 510(k)
Pre-Market Notification regulations or the Pre-Market Approval ("PMA")
regulations of the FDA and similar regulatory authorities in foreign countries.
New products in either category require extensive documentation, careful
engineering and manufacturing controls to ensure quality. Products needing PMA
approval require extensive pre-clinical and clinical testing and clearance by
the FDA prior to marketing. Products subject to the Section 510(k) regulations
require FDA clearance prior to marketing. To date, the Company's products have
required only compliance with the Section 510(k) regulations. The Company's
products are subject to foreign regulatory approvals before they may be marketed
abroad. The Company places the "CE" mark on devices and products sold in Europe.
The Company has received ISO 9001 certification for its South Jordan facility,
as well ISO 9002 certification for its Galway, Ireland facility.
EMPLOYEES
As of March 20, 2001, the Company employed 1,038 persons, including
800 in manufacturing, 101 in sales and marketing, 66 in engineering, research
and development and 71 in administration.
Many of the Company's present employees are highly skilled. The
Company's failure or success will depend, in part, upon its ability to retain
such employees. Management is of the opinion that an adequate supply of skilled
employees is available. The Company has from time to time experienced rapid
turnover among its entry level assembly workers as well as occasional shortages
of such workers, resulting in increased labor costs and administrative expenses
related to hiring and training of replacement and new entry-level employees. The
Company has confidentiality agreements with its key employees, including each of
its executive officers. None of the Company's employees is represented by a
union or other collective bargaining group and management of the Company
believes that its relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For financial information relating to the Company's foreign and
domestic sales, transfers between geographic areas, net income and identifiable
assets, see Note 9 to the Consolidated Financial Statements incorporated by
reference in this report.
Item 2. Properties.
-----------
The Company is the owner of approximately 35 acres of real property
situated in the City of South Jordan, Utah, which surrounds the site of its
175,000 square foot principal office and manufacturing facility where it
relocated and consolidated its operations in November 1994. The Company sold to
the developer ten acres of land on which the facility was constructed and
entered into a 25-year lease agreement to finance the new facility. Monthly
9
lease payments are approximately $122,000. The Company also holds an option to
purchase the facility, exercisable at market value after ten years and, if not
exercised, after 25 years. The new facility has been constructed to the
Company's specifications and is presently estimated to be estimated to be 80%
utilized.
The Company is leasing a building of approximately 26,500 square feet
in Galway, County Galway, Republic of Ireland as its principal office and
manufacturing facility for European operations. This facility is used as the
administrative headquarters to support the European direct sales force. The
facility also houses a research and development team which has developed a new
PTCA guide wire and is developing other new products. Beginning in the fourth
quarter of 1997, the Company initiated manufacturing operations for several new
and existing products at the Galway facility, including custom kits, the BASIX
inflation device and the Company's PTCA guide wire. In 1998 Merit began the
manufacture of the hemostasis valve products in Ireland. The property has been
improved and equipped on terms favorable to the Company in connection with
economic development grant incentives and grants provided by the Irish
Government. This lease is for 20 years at approximately $135,000 per year, less
a 40% subsidy from the Irish government, available through 2000. The Company
also has a purchase option exercisable on terms deemed favorable to the Company
through the term of the lease.
In October 1997, the Company began manufacturing operations in a
facility of approximately 25,000 square feet of manufacturing space formerly
occupied by the Company in Murray, Utah and shifted production of several well-
established products to this facility. In 1998 Merit added an additional 25,000
square feet of manufacturing space to its Murray location. The additional
manufacturing space was obtained to create room at the Company's principal
manufacturing facility for production of new products. The leases are for a term
of five years with monthly lease payments of approximately $27,000.
In August 1999, the Company purchased the operating assets of
Mallinckrodt's Angleton division, including approximately 19 acres of land and a
75,000 square feet building in Angleton, Texas.
The Company believes that its facilities are generally adequate for
its present level of operations and for anticipated increases in the level of
operations.
Item 3. Legal Proceedings.
------------------
In the course of business, the Company is involved in litigation and
claims which management believes will not have a materially adverse effect on
the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.
--------------------------------------------------------------------
The "Market Information" included in the Company's Annual Report to
Shareholders for the year ended December 31, 2000, furnished herewith to the
Commission as Exhibit 13.1 to this Report, is incorporated herein by reference.
Item 6. Selected Financial Data.
------------------------
Year Ended December 31,
------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------- ------------------- --------------------- ----------
Operating Data:
Sales $91,447,512 $77,959,576 $68,377,357 $60,579,011 $50,455,766
Cost of Sales 60,823,459 47,917,815 42,433,873 37,766,116 29,319,617
Gross Profit 30,624,053 30,041,761 25,943,484 22,812,895 21,136,149
Selling, General
and Administrative
Expenses 23,300,352 20,406,927 17,528,002 15,726,651 14,311,049
Research and Develop-
ment Expenses 3,864,171 3,618,041 3,244,477 4,446,795 2,533,171
Severance Costs 330,975
Income from operations 3,128,555 6,016,793 5,171,005 2,639,449 4,291,929
Other Expense 2,354,710 1,255,364 880,659 863,933 661,777
Income Before Income
Tax Expense 773,845 4,761,429 4,290,346 1,775,516 3,630,152
Income Tax Benefit
(Expense) 52,712 (1,454,762) (1,687,379) (944,981) (1,277,431)
Minority Interest in Income
of Subsidiary 81,077 151,808 33,003 190,113
Net Income 826,557 3,225,590 2,451,159 797,532 2,162,608
Net Income Per Share $ 0.11 $ 0.43 $ 0.33 $ 0.11 $ 0.31
Weighted Average Shares
Outstanding (Diluted) 7,860,905 7,565,673 7,488,225 7,369,668 7,051,911
Balance Sheet Data:
Working Capital $32,447,007 $33,933,698 $15,779,725 $14,737,971 $12,761,211
Total Assets 71,446,631 72,360,469 50,664,786 45,269,678 41,718,553
Long-Term Debt 24,011,778 27,817,308 3,388,835 3,913,686 4,822,126
Stockholders' Equity $34,772,702 $32,690,136 $29,086,368 $25,802,149 $22,487,123
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
----------------------------------------------------------------------
OVERVIEW
The year 2000 has been a year of growth, challenges and transition
for the Company and its employees. The Company has added significantly to its
product offering through acquisition, internal development and a distribution
agreement. Merit has overcome some important challenges in its operations, with
a new integrated business management software system as a long-term foundation,
and is poised for many more improvements in capacities and efficiency than we've
seen to date. The Company is positioned to reap the benefits of a larger, stable
sales force with an expanded product offering.
The year 2000 has been a time for adjustment from excess inventory and
manufacturing capacity and their associated effects on margins. This past year
in Europe has continued to be difficult financially, particularly with the
dramatic rise of the dollar against the Euro and its negative effect on revenues
and gross margins for this sector of the business. In response the entire
organization has had a renewed focus on cost reduction and efficiency. While
sales grew 17% in 2000 the average head count declined by approximately 100, and
the inventory went down by $2.3 million while we added over $1 million in
inventory for new product introductions. The Company's line of credit balance
has declined from its high of $30.4 million on August 24, 2000 to approximately
$18.9 million on March 21, 2001. So while the Company must report a very
disappointing year in terms of margins and net income, it is also very
optimistic about what was accomplished this year and how Merit is positioned for
improvements in almost every area. There are still challenges to grow the top
line, to get new products to market, to get Europe's direct sales operations
profitable, and to balance the production capacities of the Angleton catheter
facility. Management believes that gross margins net income and cash flow are
all on their way up, and interest costs and tax rates are going to also be
favorable.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operational
data as a percentage of sales:
2000 1999 1998
---- ---- ----
Sales 100.0% 100.0% 100.0%
Gross profit 33.5 38.5 37.9
Selling, general and administrative 25.5 26.2 25.6
Research and development 4.2 4.6 4.7
Income from operations 3.4 7.7 7.6
Income before income tax expense .8 6.1 6.3
Net Income .9 4.1 3.6
Sales increased by $13,487,936 or 17.3%, in 2000 compared to an increase of
$9,582,219, or 14.0%, in 1999, and an increase of $7,798,346, or 12.9%, in 1998.
Incremental sales of $7.1 million from the August 1999 Angleton catheter line
acquisition was the largest contributing factor to the sales rise in 2000. Sales
growth from 1998 through 2000 was also favorably affected by the introduction of
new products and increased sales of existing products sold separately and
packaged in custom kits, and increased penetration of the market by Merit's
inflation devices. International sales in 2000 were approximately $23.0 million
or 25%, compared to $18.3 million, or 24%, in 1999, and $15.2 million or 22%, in
1998. These increases were primarily a result of the addition of the Angleton
product lines, ongoing growth in the direct sales in Europe, as well as greater
acceptance of the Company's products in other international markets. Direct
sales in France, Germany, the U.K., Belgium, the Netherlands and Canada were
$8,621,681, $8,217,814, and $7,334,793 in 2000, 1999 and 1998, respectively.
Gross profit as a percent of sales was 33.5%, 38.5%, and 37.9% in 2000,
1999, and 1998, respectively. The Company is operating in a generally declining
price market. There is also a general cost-increasing manufacturing environment.
12
Merit has been able to battle this difficult situation with ever-increasing
production volumes until 2000. Beginning in early 1999, the Company suffered
through the implementation of a comprehensive new software system, which in the
operations areas lead to difficulties in efficiently operating the purchasing,
planning and manufacturing processes of the business. Merit also made a
purposeful effort to increase its safety stock levels of inventory in
preparation for higher, anticipated sales orders ahead of Y2K. The combination
of these increased production demands created a build-up of capacity in labor
and overhead. As the end of 1999 approached, however, the Company needed to
reduce production levels to match cash-flow expectations. The reduced production
volumes created higher overhead cost per unit, lower gross margins, and lower
bottom-line results. Another important factor negatively effecting gross margins
was the large (13.2%) drop in the Euro in relation to the dollar during 2000.
This reduced revenues and gross profit of the European operation by $1,076,975
and reduced over all gross margins by 1.2%. In December 1999, the Company began
the difficult process of down-sizing the labor and overhead capacities in the
operation of its Utah facilities. The Company has made significant progress
toward eliminating the large excess negative production variances that were
caused by the slow-down in production volumes. This was accomplished by the
reduction of approximately 240 people from its high point in December of 1999,
or an average reduction of 100 people in 2000 compared to 1999. This was
accomplished primarily by attrition. There have been many cost reductions and
efficiency gains which will lead to improved margins in 2001. Margins improved
in 1999 compared to 1998, principally through increased production volumes,
automation and efficiencies in manufacturing, and tighter price controls on some
of the Company's lower margin products. Part of the increased production volumes
resulted in a significant increase in inventories in 1999.
Selling, general and administrative expenses increased $2,893,425, or
14.2%, in 2000 over 1999 and $2,878,926, or 16.4%, in 1999 over 1998. These
additional expenditures were related principally to increased costs of expanding
the direct sales force and their management both in U.S. and Europe. Another
important factor has been the costs of implementing and supporting the Company's
new Oracle system and the development of new business opportunities such as
acquisitions, product distribution agreements, national accounts and the O.E.M
segment of the business. These increases in costs have grown slower than sales
causing selling, general and administrative expenses as a percent of sales to
decrease to 25.5% in 2000, compared to 26.2% in 1999 after increasing from 25.6%
in 1998.
Research and development expenditures for 2000 were $3,864,171, an increase
of 7%, compared to $3,618,041 in 1999. Most of this increase was due to the
addition of the R&D capabilities in Angleton, Texas with the Company's newly
acquired catheter technologies. R&D expenses increased in 1999 by 12%, compared
to $3,244,477 in 1998. Research and development costs as a percent of sales were
4.2%, 4.6% and 4.7% for 2000, 1999 and 1998, respectively.
Significantly lower gross margins have more than offset the gains in sales
as well as the efficiencies in SG&A and R&D Expenses, the net of which resulted
in income from operations of $3,128,555 down 48% from 1999. The higher sales and
gross margins, together with modest increases in operating expenses, positively
affected income from operations in 1999 which increased to $6,016,792, up 16.4%,
compared to $5,171,005 in 1998. The income tax benefit for 2000 was $52,712, an
effective rate of -6.8%. This unusual tax rate was due principally to R&D tax
credits which the Company was able to realize in the fourth quarter of 2000
including amended returns for the 1997, 1998 and 1999 tax years. Management
expects the R&D tax credit to continue to favorably affect the Company's tax
rate for at least the next two years. The income tax provision for 1999 was
$1,687,379, an effective rate of 30.6%, compared to $1,454,762, or 39.3 % in
1998. The effective tax rate improved significantly in 1999 as the Ireland
facility became profitable and the 10% tax rate became a benefit.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000 the Company's working capital was $32,447,007, a
decrease of over 4%, representing a current ratio of 4.4 to 1. This decrease was
due primarily to the reduction of $2.3 million in inventory and the repayment of
long-term debt. In October 2000, the Company also negotiated an increase in its
line of credit, to $35 million. The Company had $23 million outstanding under
its line of credit at December 31, 2000. Merit has financed leasehold
improvements and equipment acquisitions through secured notes payable and
capital lease arrangements with an outstanding balance of $2,103,503 at December
31, 2000. For the year ended December 31, 2000 the Company generated cash from
operations in the amount of $7,127,597 the most in the history of the Company.
13
Historically, the Company has incurred significant expenses in connection
with product envelopment and introduction of new products. This was particularly
true in 1999 with regard to an increase in inventory, plant and equipment
associated with the Company's acquisition and new product introductions. The
Company's principal source of funding for these and other expenses has been the
cash generated from operations, secured loans on equipment, bank lines of credit
and sales of equity. The Company believes that its present sources of liquidity
and capital are adequate for its current operation.
Item 7A. Quantitative and Qualitative Disclosure About Market Rider
----------------------------------------------------------
The Company principally hedges the following currencies: Belgian Francs,
German marks, Dutch Gilders, and Irish Pounds. The Company enters into forward
foreign exchange contracts to protect the Company from the risk that the
eventual net dollar cash flows resulting from transactions with foreign
customers and suppliers may be adversely affected by changes in currency
exchange rates. Such contracts are not significant.
As of December 31, 2000, the Company had $23.0 million (1999- $ 25.9 million) of
variable rate debt, all denominated in U.S. dollars. Interest expense would
change by approximately $230,000 for every 1% change in interest rates.
14
Item 8. Financial Statements and Supplementary Data.
MERIT MEDICAL SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements as of December 31, 2000 and 1999 and for Each
of the Three Years in the Period Ended December 31, 2000 and Independent
Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Merit Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Merit Medical
Systems, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Merit Medical Systems, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
By: /s/ DELOITTE & TOUCHE LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 23, 2001
15
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
ASSETS 2000 1999
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 412,384 $ 668,711
Trade receivables - net of allowance for uncollectible
accounts: 2000 - $440,275; 1999 - $305,475 13,235,858 12,550,132
Employee and related party receivables 440,654 502,803
Irish Development Agency grant receivable 177,477 93,059
Inventories 25,273,428 27,521,087
Prepaid expenses and other assets 663,101 564,213
Deferred income tax assets 1,183,944 1,052,745
Income tax refund receivable 588,640 210,112
---------- ----------
Total current assets 41,975,486 43,162,862
---------- ----------
PROPERTY AND EQUIPMENT:
Land 1,260,985 1,365,985
Building 1,500,000 1,500,000
Automobiles 131,036 133,316
Manufacturing equipment 19,696,550 17,617,798
Furniture and fixtures 9,576,084 8,883,297
Leasehold improvements 5,420,194 5,114,964
Construction-in-progress 2,120,671 1,669,725
---------- ----------
Total 39,705,520 36,285,085
Less accumulated depreciation and amortization (17,860,490) (14,277,666)
---------- ----------
Property and equipment - net 21,845,030 22,007,419
---------- ----------
OTHER ASSETS:
Patents and trademarks - net of accumulated amortization:
2000 - $1,382,672; 1999 - $1,179,246 2,522,384 2,319,581
Cost in excess of the fair value of assets acquired - net
of accumulated amortization: 2000 - $417,398; 1999 - $138,022 5,062,458 4,819,288
Deposits 41,273 51,319
---------- ----------
Total other assets 7,626,115 7,190,188
---------- ---------
TOTAL ASSETS $71,446,631 $72,360,469
=========== ==========
(Continued)
See Notes To Consolidated Financial Statements.
16
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,091,725 $ 1,001,917
Trade payables 4,835,517 4,749,432
Accrued expenses 3,471,039 3,092,280
Advances from employees 96,778 116,094
Income taxes payable 33,420 269,441
----------- -----------
Total current liabilities 9,528,479 9,229,164
DEFERRED INCOME TAX LIABILITIES 2,177,833 1,722,094
LONG-TERM DEBT 24,011,778 27,817,308
DEFERRED CREDITS 955,839 901,767
----------- -----------
Total liabilities 36,673,929 39,670,333
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares authorized as of
December 31, 2000 and 1999, no shares issued
Common stock - no par value; 20,000,000 shares
authorized; 7,788,208 and 7,591,236 shares issued
at December 31, 2000 and 1999, respectively 19,779,765 18,428,572
Retained earnings 15,617,075 14,790,518
Accumulated other comprehensive loss (624,138) (528,954)
----------- -----------
Total stockholders' equity 34,772,702 32,690,136
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $71,446,631 $72,360,469
=========== ===========
(Concluded)
See Notes To Consolidated Financial Statements.
17
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
NET SALES $91,447,512 $77,959,576 $68,377,357
COST OF SALES 60,823,459 47,917,815 42,433,873
----------- ----------- -----------
GROSS PROFIT 30,624,053 30,041,761 25,943,484
----------- ----------- -----------
OPERATING EXPENSES:
Selling, general, and administrative 23,300,352 20,406,927 17,528,002
Research and development 3,864,171 3,618,041 3,244,477
Severance costs 330,975 -- --
----------- ----------- -----------
Total operating expenses 27,495,498 24,024,968 20,772,479
----------- ----------- -----------
INCOME FROM OPERATIONS 3,128,555 6,016,793 5,171,005
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 39,091 50,391 33,662
Interest expense (2,319,500) (1,293,023) (826,778)
Miscellaneous expense (74,301) (12,732) (87,543)
----------- ----------- -----------
Other expense - net (2,354,710) (1,255,364) (880,659)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 773,845 4,761,429 4,290,346
INCOME TAX BENEFIT (EXPENSE) 52,712 (1,454,762) (1,687,379)
MINORITY INTEREST IN INCOME OF
SUBSIDIARY -- (81,077) (151,808)
----------- ----------- -----------
NET INCOME $ 826,557 $ 3,225,590 $ 2,451,159
=========== =========== ===========
EARNINGS PER COMMON SHARE -
Basic and diluted $ .11 $ .43 $ .33
=========== =========== ===========
AVERAGE COMMON SHARES:
Basic 7,729,294 7,541,562 7,420,224
=========== =========== ===========
Diluted 7,860,905 7,565,673 7,488,225
=========== =========== ===========
See Notes To Consolidated Financial Statements.
18
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre-
-------------------------- hensive Retained
Total Shares Amount Loss Earnings
------------ ----------- ------------ ----------- ------------
BALANCE, JANUARY 1, 1998 $ 25,802,149 7,395,091 $ 17,178,971 $ (490,591) $ 9,113,769
============ =========== ============ ============ ============
Comprehensive income:
Net income 2,451,159 2,451,159
Other comprehensive income -
Foreign currency translation adjustment (net of tax) 218,937 218,937
------------
Comprehensive income 2,670,096
Tax benefit attributable to appreciation of common
stock options exercised 33,398 33,398
Issuance of common stock for cash 81,850 13,819 81,850
Issuance of common stock under Employee
Stock Purchase Plans 267,549 52,425 267,549
Options and warrants exercised 370,914 64,840 370,914
Shares surrendered in exchange for the
recording of payroll tax liabilities (4,588) (569) (4,588)
Shares surrendered in exchange for the
exercise of stock options (135,000) (16,692) (135,000)
------------ ----------- ------------
BALANCE, DECEMBER 31, 1998 29,086,368 7,508,914 17,793,094 (271,654) 11,564,928
Comprehensive income:
Net income 3,225,590 3,225,590
Other comprehensive loss -
Foreign currency translation adjustment (net of tax) (257,300) (257,300)
------------
Comprehensive income 2,968,290
Tax benefit attributable to appreciation of common
stock options exercised 245,200 245,200
Issuance of common stock for cash 62,600 10,990 62,600
Issuance of common stock under Employee
Stock Purchase Plans 312,027 66,330 312,027
Options and warrants exercised 114,746 22,080 114,746
Shares surrendered in exchange for the
recording of payroll tax liabilities (1,583) (264) (1,583)
Shares surrendered in exchange for the
exercise of stock options (97,512) (16,814) (97,512)
------------ ----------- ------------
BALANCE, DECEMBER 31, 1999 32,690,136 7,591,236 18,428,572 (528,954) 14,790,518
============ =========== ============ ============ ============
(Continued)
19
Accumulated
Other
Common Stock Compre-
-------------------------- hensive Retained
Total Shares Amount Loss Earnings
------------ ----------- ------------ ----------- ------------
Comprehensive income:
Net income 826,557
Other comprehensive loss - 826,557
Foreign currency translation adjustment (net of tax) (95,184) (95,184)
------------
Comprehensive income 731,373
Tax benefit attributable to appreciation of common
stock options exercised 172,818 172,818
Issuance of common stock under Employee
Stock Purchase Plans 350,248 64,172 350,248
Options and warrants exercised 933,605 146,660 933,605
Shares surrendered in exchange for the
recording of payroll tax liabilities (9,109) (1,071) (9,109)
Shares surrendered in exchange for the
extinguishment of related party receivable (45,004) (6,546) (45,004)
Shares surrendered in exchange for the exercise of
stock options (51,365) (6,243) (51,365)
------------ ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 $ 34,772,702 7,788,208 $ 19,779,765 $ (624,138) $ 15,617,075
============ =========== ============ ============ ============
(Concluded)
See Notes To Consolidated Financial Statements.
20
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 826,557 $ 3,225,590 $ 2,451,159
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating
activities:
Depreciation and amortization 4,486,291 3,757,539 2,923,484
Losses on sales and abandonment of
property and equipment 49,833 8,339 46,897
Amortization of deferred credits (166,609) (215,894) (114,607)
Deferred income taxes 389,635 450,734 435,489
Tax benefit attributable to appreciation of
common stock options exercised 172,818 245,200 33,398
Minority interest in income of subsidiary -- 81,077 151,808
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade receivables (685,726) (2,113,647) (837,042)
Employee and related party receivables 17,145 (29,809) (184,182)
Irish Development Agency grant receivable (84,418) 105,386 549,443
Income tax refund receivable (378,528) (210,112)
Inventories 2,274,934 (7,150,393) (3,250,303)
Prepaid expenses and other assets 6,112 71,911 (97,865)
Deposits 10,046 22,899 (27,606)
Trade payables 86,085 1,176,099 134,984
Accrued expenses 378,759 771,936 (358,201)
Advances from employees (19,316) 42,004 (7,155)
Income taxes payable (236,021) 74,719 (174,973)
----------- ----------- -----------
Total adjustments 6,301,040 (2,912,012) (776,431)
----------- ----------- -----------
Net cash provided by operating activities 7,127,597 313,578 1,674,728
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (4,690,107) (4,750,608) (4,138,219)
Intangible assets (406,229) (269,388) (522,671)
Acquisitions (607,129) (11,322,916)
Proceeds from the sale of property and equipment 1,347,613 584,688
----------- ----------- -----------
Net cash used in investing activities (4,355,852) (16,342,912) (4,076,202)
----------- ----------- -----------
(Continued)
See Notes To Consolidated Financial Statements.
21
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) line of
credit facility $(2,907,596) $(7,567,655) $ 3,009,880
Proceeds from:
Issuance of common stock 1,223,379 390,278 580,725
Long-term debt 25,907,596 677,802
Deferred credits 132,513 93,800
Principal payments on:
Long-term debt (1,316,089) (2,403,143) (2,172,753)
Deferred credits (37,899)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (2,867,793) 16,420,876 2,057,755
----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (160,279) (574,741) 218,937
----------- ----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (256,327) (183,199) (124,782)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 668,711 851,910 976,692
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 412,384 $ 668,711 $ 851,910
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid during
the year for:
Interest (including capitalized interest of
approximately $128,000, $143,000, and $93,000
during 2000, 1999, and 1998, respectively) $ 2,309,634 $ 1,288,301 $ 995,417
=========== =========== ===========
Income taxes $ 172,202 $ 684,109 $ 1,393,465
=========== =========== ===========
See Notes To Consolidated Financial Statements.
22
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
o During 2000, 1999, and 1998, the Company entered into capital lease
obligations and notes payable for approximately $508,000, $50,000, and
$868,000, respectively, for manufacturing equipment.
o In connection with the sale in 1998 of the Company's manufacturing facility
in Castlerea, Ireland, the buyer assumed debt of the Company in the amount
of approximately $259,000.
o During 2000, 1999, and 1998, options to purchase 1,071, 264, and 569 shares
of the Company's common stock were surrendered in exchange for the
Company's recording of payroll tax liabilities in the amount of
approximately $9,100, $1,600, and $4,600.
o During 2000, 1999, and 1998, 6,243, 16,814, and 16,692 shares of Company
common stock with a value of approximately $51,000, $98,000, and $135,000,
respectively, were surrendered in exchange for the exercise of stock
options.
o uring 1999, the Company acquired substantially all of the assets of the
"Angelton Division" of Mallinckrodt Inc. (Angelton) in a purchase
transaction for $7,867,699 in cash. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired (including goodwill of $ 1,949,383) $ 8,132,194
Cash Paid 7,867,699
------------
Liabilities assumed $ 264,495
============
o Additionally, during 1999, the Company acquired the minority interest in
its subsidiary, Sentir, Inc. (Sentir) in a purchase transaction for
$3,455,217 in cash. The minority interest carried by the Company at the
date of acquisition was $629,577. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired (including goodwill of $ 2,825,640) $ 3,574,016
Cash Paid 3,455,217
------------
Liabilities assumed $ 118,799
============
See Notes To Consolidated Financial Statements. (Concluded)
23
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Merit Medical Systems, Inc. (Merit) and its wholly-owned
subsidiaries, Merit Holdings, Inc. (MHI), and Sentir collectively own 100%
of Merit Medical Systems LP (MMSLP). Combined with its other wholly-owned
subsidiary, Merit Medical International, Inc. (MMI), Merit, MHI, and Sentir
collectively own 100% of Merit Services, Inc. (MSI) (collectively, the
Company). The Company develops, manufactures, and markets disposable
medical products primarily for use in the diagnosis and treatment of
cardiovascular disease which is considered to be one segment line of
business. The Company manufactures its products in plants located in the
United States and in Ireland. The Company has export sales to dealers and
has direct sales forces in the United States, Canada, and Western Europe
(see Note 9).
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United
States of America. The following is a summary of the more significant of
such policies.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America 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.
Principles of Consolidation - The consolidated financial statements include
those of Merit, MMI, MHI, MSI, MMSLP and Sentir. All material intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition - The Company recognizes revenues when the product is
shipped which meets the criteria required by Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, which was
issued by the Securities and Exchange Commission in December 1999. The
adoption of SAB No. 101, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements, during 2000
was not significant to the Company's financial statements.
Inventories - Inventories are stated at the lower of cost (computed on a
first-in, first-out basis) or market.
Income Taxes - The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes
are provided for temporary differences in the bases of assets and
liabilities as reported for financial statement and income tax purposes.
Long-Lived Assets - The Company evaluates the carrying value of long-term
assets based on current and anticipated undiscounted cash flows and
recognizes impairment when such cash flows will be less than the carrying
values. There were no impairments as of December 31, 2000 or 1999.
24
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method
over estimated useful lives as follows:
Building 20 years
Automobiles 4 years
Manufacturing equipment 5 to 12 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 4 to 25 years
Intangible Assets - Costs associated with obtaining patents, issued and
pending, and trademarks have been capitalized and are amortized over the
patent or trademark period or charged to expense if not approved. Cost in
excess of fair value of assets acquired has been allocated to goodwill,
which is amortized over twelve to twenty years. Amortization of intangibles
is done on a straight-line basis.
Research and Development - Research and development costs are expensed as
incurred.
Earnings per Common Share - Net income per common share is computed by both
the basic method, which uses the weighted average number of the Company's
common shares outstanding, and the diluted method, which includes the
dilutive common shares from stock options and warrants, as calculated using
the treasury stock method. The amounts of such options and warrants are not
significant and, accordingly, the Company's basic and diluted earnings per
share are the same.
Financial Instruments - The Company's financial instruments, when valued
using market interest rates, would not be materially different from the
amounts presented in the consolidated financial statements.
Stock-Based Compensation - The Company accounts for its stock compensation
arrangements under the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, (APB 25) and intends to
continue to do so. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation.
Statements of Cash Flows - For purposes of the statements of cash flows,
the Company considers interest bearing deposits with an original maturity
date of three months or less to be cash equivalents.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
temporary cash and cash equivalents and accounts receivable. The Company
provides credit, in the normal course of business, primarily to hospitals
and independent third-party packers and distributors. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses.
Foreign Currency Translation Adjustment - The financial statements of the
Company's foreign subsidiaries are generally measured using local
currencies as the functional currency. Assets and liabilities are
translated into U.S. dollars at year-end rates of exchange and results of
operations are translated at average rates for the year. Gains and losses
resulting from these translations are included in accumulated other
comprehensive loss as a separate component of stockholders' equity.
Comprehensive Loss - Accumulated other comprehensive loss consists entirely
of foreign currency translation adjustments.
25
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Recently Issued Financial Accounting Standards - SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, requires that
all derivative instruments be recognized as either assets or liabilities at
fair market value. The Company adopted this statement beginning January 1,
2001. The effect on the Company's financial statements of adopting this
statement was not significant.
2. SEVERANCE COSTS
During the year ended December 31, 2000, the Company terminated
approximately 30 employees and correspondingly accrued a termination cost
of approximately $331,000. This amount is included in operating expenses as
severance costs. As of December 31, 2000, all but approximately $67,000 of
the above amount had been paid to the terminated employees.
3. ACQUISITIONS
On July 27, 1999, the Company acquired the 28% minority interest in its
subsidiary, Sentir, for a purchase price of $3,574,016 consisting of
$3,455,217 in cash and the assumption of liabilities in the amount of
$118,799. Of the $3,574,016 purchase price, $226,463 was paid to related
parties. The acquisition has been accounted for using the purchase method
of accounting; as such, 100 percent of Sentir's results of operations have
been included in the accompanying consolidated financial statements from
the date of acquisition. Previous to the acquisition date, the minority
interest's share of operations was excluded from net income in the
consolidated statements of operations. The cost of this acquisition
exceeded the estimated fair value of the acquired net assets by $2,825,640.
Such excess has been allocated to goodwill and is being amortized on a
straight-line basis over 20 years.
On August 20, 1999, the Company acquired substantially all of the assets
and assumed certain liabilities of the Angelton Division of Mallinckrodt,
Inc. (Angelton) for a purchase price of $8,132,194 consisting of $7,867,699
in cash and the assumption of liabilities in the amount of $264,495.
Angelton is a manufacturer and marketer of medical catheters, introducers,
guide wires, and needles. The acquisition has been accounted for using the
purchase method of accounting; as such, Angelton's results of operations
have been included in the accompanying consolidated financial statements
from the date of acquisition. The cost of this acquisition exceeded the
estimated fair value of the acquired net assets by $1,949,383. Such excess
has been allocated to goodwill and is being amortized on a straight-line
basis over 20 years.
The unaudited pro forma results of operations of the Company for the years
ended December 31, 1999 and 1998 (assuming the acquisition of Angelton had
occurred as of January 1, 1998) are as follows:
1999 1998
------------- -------------
Net sales $ 87,606,126 $ 79,368,263
Net income 3,944,207 3,816,143
Net income per share (basic and diluted) 0.52 0.51
On May 18, 2000, the Company acquired certain assets of Electro-Catheter
Corporation (Elecath) for a purchase price of $607,129 in cash. Elecath
develops, manufactures and sells a broad range of cardiovascular catheters
for use primarily in the Electro physiology, Cath Lab and Critical Care
departments of hospitals. The cost of this acquisition exceeded the
estimated fair value of the acquired assets by $533,793. Such excess has
been allocated to goodwill and is being amortized on a straight-line basis
over 12 years.
26
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
4. INVENTORIES
Inventories consist of the following at December 31, 2000 and 1999:
2000 1999
------------- --------------
Finished goods $ 15,255,622 $ 16,816,578
Work in-progress 3,678,807 3,270,163
Raw materials 8,325,314 8,554,635
Less reserve for obsolete inventory (1,986,315) (1,120,289)
------------- --------------
Total $ 25,273,428 $ 27,521,087
5. INCOME TAXES
Deferred income tax assets and liabilities at December 31, 2000 and 1999
consist of the following temporary differences and carryforward items:
Current Long-Term
-------------------------------- -------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- -------------
Deferred income tax assets:
Allowance for uncollectible
accounts receivable $ 17,788 $ 123,026
Accrued compensation expense 198,338 200,799 $ 9,612
Tax credits 282,630 $ 126,563
Inventory capitalization for
tax purposes 137,513 338,753
Inventory obsolescence reserve 576,319 241,150
Net operating losses of subsidiaries 95,704 90,254 231,989 298,323
Other 192,113 65,078 407,810 367,025
---------------- --------------- ---------------- -------------
Total deferred income tax assets 1,217,775 1,059,060 932,041 791,911
Deferred income tax liabilities:
Tax credits (6,315)
Differences between tax basis
and financial reporting basis
of property and equipment (3,098,747) (2,514,005)
Other (33,831) (11,127)
---------------- --------------- ---------------- -------------
Net $ 1,183,944 $ 1,052,745 $ (2,177,833) $ (1,722,094)
================ =============== ================ =============
27
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Income tax expense for the years ended December 31, 2000, 1999, and 1998
differs from amounts computed by applying the statutory Federal rate to
pretax income as follows (foreign taxes are not considered significant):
2000 1999 1998
--------------- ---------------- -------------
Computed Federal income tax expense at
statutory rate of 35% $ 270,846 $ 1,666,500 $ 1,501,621
State income taxes 25,153 124,352 186,948
Creation of tax credits (444,551) (140,369) (133,529)
Tax benefit of foreign sales corporation (53,139) (109,579) (96,808)
(Gains) losses of subsidiaries recorded
at foreign rates (13,746) (115,803) 183,622
Other - including the effect of graduated rates 162,725 29,661 45,525
--------------- ---------------- -------------
Total income tax (benefit) expense $ (52,712) $ 1,454,762 $ 1,687,379
=============== ================ =============
Consisting of:
Current $(442,347) $ 1,004,028 $ 1,251,890
Deferred 389,635 450,734 435,489
--------------- ---------------- -------------
Total $ (52,712) $ 1,454,762 $ 1,687,379
6. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Revolving Credit Facility - In August 1999, the Company entered into a $28
million long-term revolving credit facility (the Facility) with a bank,
which enables the Company to borrow funds at variable interest rates. In
March 2000, the Company amended the Facility by increasing the amount of
borrowings available to $35 million. The Facility is fully due and payable
on June 30, 2006. The weighted average interest rates applied to the
outstanding balances at December 31, 2000 and 1999 were 8.20% and 7.55%,
respectively. Under the terms of the Facility, among other things, the
Company is required to maintain a ratio of total liabilities to tangible
net worth not to exceed 2.0 to 1.0, maintain a ratio of current assets to
current liabilities of at least 1.5 to 1.0, maintain minimum working
capital of $25,000,000, and is restricted from paying dividends to
shareholders. For the years ended December 31, 2000 and 1999, management of
the Company believes the Company was in compliance with all debt covenants.
As of December 31, 2000 and 1999, the Company owed approximately
$23,000,000 and $26,000,000 under the Facility, respectively. The Facility
is collateralized by trade receivables, inventories, property and
equipment, and intangible assets.
28
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Long-term Debt - Long-term debt consists of the following at December 31,
2000 and 1999:
2000 1999
---------------- -------------
Notes payable to financial institutions; payable in monthly installments
through 2004, including interest at rates ranging
from 6.26% to 8.89%; collateralized by equipment $ 1,963,368 $ 2,634,977
Capital lease obligations (see Note 7) 140,135 276,652
Revolving credit facility (see above) 23,000,000 25,907,596
---------------- -------------
Total 25,103,503 28,819,225
Less current portion 1,091,725 1,001,917
---------------- -------------
Long-term portion $ 24,011,778 $ 27,817,308
================ =============
Scheduled maturities of long-term debt at December 31, 2000 are as follows:
Year ending December 31:
2001 $ 1,091,725
2002 508,664
2003 361,231
2004 61,227
2005 65,764
Thereafter 23,014,892
-------------
Total $ 25,103,503
7. COMMITMENTS AND CONTINGENCIES
Leases - The Company has noncancelable operating lease agreements for
off-site office and production facilities and equipment. The leases for the
off-site office and production facilities are for five years and have
renewal options of one to five years. The Company subleased these
facilities during 1997 for approximately $97,000. Total rental expense on
these operating leases and on the Company's new manufacturing and office
building (see below) for the years ended December 31, 2000, 1999, and 1998
approximated $2,539,000, $3,094,000, and $3,293,000, respectively.
In June 1993, the Company entered into a 25 year lease agreement with a
developer for a new manufacturing and office building. Under the agreement,
the Company was granted an option to purchase the building at fair market
value after 10 years and, if not exercised, after 25 years. In connection
with this lease agreement, the Company in 1993 sold to the developer 10
acres of land on which the building was constructed. The $166,136 gain on
the sale of the land has been recorded as a deferred credit and is being
amortized as a reduction of rent expense over ten years. In connection with
the lease agreement, the Company issued to the developer warrants to
purchase 155,461 shares of the Company's common stock at $4.95 per share
subject to carrying cost increases of 3% per year ($5.74 as of December 31,
2000). The warrants expire in 2005.
On December 22, 2000, the Company sold certain of its manufacturing
equipment with a net carrying value of approximately $1,210,000 to a
financial institution. The Company then entered into a six-year operating
lease agreement for the same equipment. The approximate $70,000 gain on
sale has been recorded as a deferred credit and is being amortized as a
reduction of rental expense over six years.
29
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
The Company leases certain manufacturing and office equipment under
long-term capital lease agreements, some of which require the lease
payments over a period shorter than the lease term. Capital leases are
collateralized by equipment with a recorded cost approximating $848,500
with accumulated amortization of approximately $210,000 and $157,000 as of
December 31, 2000 and 1999, respectively.
The future minimum lease payments, together with the present value of the
net minimum capital lease payments as of December 31, 2000, are as follows:
Operating Capital
Leases Leases
Year ending December 31:
2001 $ 2,497,179 $ 146,213
2002 2,227,406
2003 2,060,857
2004 2,045,507
2005 1,985,963
Thereafter 22,188,192
---------------- -------------
Total minimum lease payments $ 33,005,104 146,213
Less amount representing interest and executory costs ================ (6,078)
Present value of net minimum lease payments (see Note 6) -------------
140,135
=============
Irish Government Development Agency Grants - Through December 31, 2000, the
Company has entered into several grant agreements with the Irish Government
Development Agency of which approximately $177,000 and $93,000 remained in
receivables at December 31, 2000 and 1999, respectively. The grant
agreements reimburse the Company for a portion of the cost of property and
equipment purchased in Ireland, specific research and development projects
in Ireland, and costs of hiring and training employees located in Ireland.
The Company has recorded the grants related to research and development
projects and costs of hiring and training employees as a reduction of
operating expenses in 2000, 1999, and 1998 in the amounts of approximately
$67,000, $154,000, and $164,000, respectively. Grants related to the
acquisition of property and equipment purchased in Ireland are recorded as
deferred credits and are amortized to income over lives corresponding to
the depreciable lives of such property. During 2000, 1999, and 1998,
approximately $149,000, $142,000, and $98,000, respectively, of the
deferred credit was amortized as a reduction of operating expenses.
Preferred Share Purchase Rights - In August 1997, the Company declared a
dividend of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock which entitles the holder of a Right to
purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock at an exercise price of $40 in the event a person or group
acquires, or announces an intention to acquire, 15% or more of the
Company's common stock. Until such an event, the Rights are not exercisable
and are transferable with the common stock and may be redeemed at a price
of $.0001 per Right.
Litigation - In the ordinary course of business, the Company is involved in
litigation and claims which management believes will not have a materially
adverse effect on the Company's operations.
30
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
8. EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTIONS AND WARRANTS
The Company offers to its employees an Employee Stock Purchase Plan which
allows the employee on a quarterly basis to purchase shares of the
Company's common stock at the lesser of 85% of the market value on the
offering commencement date or offering termination date. The total number
of shares available to employees to purchase under this plan is 500,000 of
which 236,921 have been purchased as of December 31, 2000.
The Company has a long-term incentive plan which provides for the issuance
of incentive stock options, nonstatutory stock options, and certain
corresponding stock appreciation rights. The maximum number of shares of
common stock for which options may be granted is 2,400,000. Options may be
granted to directors, officers, outside consultants, and key employees of
the Company and may be granted upon such terms and such conditions as the
Compensation Committee in its sole discretion shall determine. In no event,
however, shall the exercise price be less than the fair market value on the
date of grant.
Changes in stock options and warrants for the years ended December 31,
2000, 1999, and 1998 are as follows:
Options Warrants
--------------------------------- -------------------------------
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
2000:
Granted 485,600 $4.50
Exercised 146,660 6.37
Forfeited/expired 124,440 6.94
Outstanding at December 31 1,727,940 6.14 155,461 $5.74
Exercisable 820,200 6.97 155,461 5.74
Weighted average fair value of
options granted during year $2.00
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $0.96
31
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Options Warrants
--------------------------------- -------------------------------
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
1999:
Granted 448,900 $5.84
Exercised 22,080 4.96
Forfeited/expired 61,150 5.70
Outstanding at December 31 1,513,440 7.02 155,461 $5.57
Exercisable 740,480 7.20 155,461 5.57
Weighted average fair value of
options granted during year $2.98
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $0.83
Options Warrants
--------------------------------- -------------------------------
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
1998:
Granted 203,500 $6.41
Exercised 64,840 5.80
Forfeited/expired 47,990 6.41
Outstanding at December 31 1,147,770 6.76 155,461 $5.41
Exercisable 486,230 7.45 155,461 5.41
Weighted average fair value of
options granted during year $3.14
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $0.90
32
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
The following table summarizes information about stock options and warrants
outstanding at December 31, 2000:
Options and Warrants
Options and Warrants Outstanding Exercisable
- ------------------------------------------------------------------------ ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (in years) Price Exercisable Price
Options:
$4.50-$7.25 1,276,540 3.24 $ 5.47 457,200 $ 6.01
7.50-10.625 451,400 1.30 8.05 363,000 8.17
Warrants:
$ 5.74 155,461 4.00 5.74 155,461 5.74
The Company accounts for stock options granted using APB 25. Accordingly,
no compensation cost has been recognized for its fixed stock option plans.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
those plans consistent with SFAS No. 123, the Company's net income and net
income per common and common equivalent share would have changed to the pro
forma amounts indicated below:
2000 1999 1998
Net income:
As reported $ 826,557 $ 3,225,590 $ 2,451,159
Pro forma 140,145 2,480,928 1,840,182
Net income per common (both basic and diluted) share:
As reported $0.11 $ 0.43 $ 0.33
Pro forma 0.02 0.33 0.25
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999, and 1998: dividend yield of 0%;
expected volatility of 61.04%, 56.0%, and 55.2% for 2000, 1999, and 1998,
respectively; risk-free interest rates ranging from 4.58% to 7.36%; and
expected lives ranging from 2.33 to 4.5 years.
9. SEGMENT REPORTING AND FOREIGN OPERATIONS
During the years ended December 31, 2000, 1999, and 1998, the Company had
foreign sales of approximately $22,968,000, $18,336,000, and $15,198,000 or
approximately 25%, 24%, and 22%, respectively, of total sales, primarily in
Japan, Germany, France, and the United Kingdom.
The Company operates primarily in one segment in which it develops,
manufactures, and markets disposable medical products, principally for use
in the diagnosis and treatment of cardiovascular disease. Major operations
outside the United States include a leased manufacturing and distribution
facility in Ireland and sales subsidiaries in Europe. The following is a
summary of the Company's foreign operations by geographic area for fiscal
years 2000, 1999, and 1998:
33
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Transfers
Sales to Between Net
Unaffiliated Geographic Income Identifiable
Customers Areas Revenue (Loss) Assets
Fiscal year ended December 31, 2000:
United States, Canada, and
international distributors $ 80,380,485 $ 1,060,749 $ 81,441,234 $ 2,301,524 $ 61,897,460
Europe direct and European
distributors 11,067,027 4,906,800 15,973,827 (1,608,513) 9,549,171
Eliminations (5,967,549) (5,967,549) 133,546
------------ ------------ ------------ ----------- ------------
Consolidated $ 91,447,512 None $ 91,447,512 $ 826,557 $ 71,446,631
============ ============ ============ =========== ============
Fiscal year ended December 31, 1999:
United States, Canada, and
international distributors $ 69,595,418 $ 1,288,485 $ 70,883,903 $ 3,761,605 $ 62,666,167
Europe direct and European
distributors 8,364,158 4,281,400 12,645,558 (319,784) 9,694,302
Eliminations (5,569,885) (5,569,885) (216,231)
------------ ------------ ------------ ----------- ------------
Consolidated $ 77,959,576 None $ 77,959,576 $ 3,225,590 $ 72,360,469
============ ============ ============ =========== ============
Fiscal year ended December 31, 1998:
United States, Canada, and
international distributors $ 60,407,019 $ 1,386,073 $ 61,793,092 $ 3,373,280 $ 41,547,669
Europe direct and European
distributors 7,970,338 2,546,099 10,516,437 (593,677) 9,117,117
Eliminations (3,932,172) (3,932,172) (328,444)
------------ ------------ ------------ ----------- ------------
Consolidated $ 68,377,357 None $ 68,377,357 $ 2,451,159 $ 50,664,786
============ ============ ============ =========== ============
Transfers between geographic areas are accounted for at amounts which are
generally above cost and consistent with the rules and regulations of
governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Net income by geographic areas reflects
foreign earnings reported by the foreign entities. Identifiable assets are
those assets that can be directly associated with a particular foreign
entity and thus do not include assets used for general corporate purposes.
10. RELATED PARTY TRANSACTIONS
Receivables from employees and related parties at December 31, 2000 and
1999 totaled approximately $441,000 and $503,000, respectively, (including
approximately $208,000 and $267,000, respectively, from officers of the
Company). During 2000, approximately 45,000 shares of Company stock were
surrendered in exchange for the extinguishment of a related party
receivable.
11. ROYALTY AGREEMENT
On April 8, 1992, the Company settled litigation involving, among other
things, allegations that certain of the Company's inflation device products
infringed patents issued to another medical product manufacturing company
(the Licensor).
34
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
Pursuant to the settlement, the Company entered into a license agreement
with the Licensor, whereby the Licensor granted to the Company a
nonexclusive right and license to manufacture and sell products which are
subject to the patents issued to the Licensor. For the rights and license
granted under the agreement, the Company paid the Licensor a nonrefundable
prepaid royalty in the amount of $600,000. The royalty was paid upon
execution of the agreement and represented a prepaid royalty covering the
first seven years of the agreement, which concluded during the year ended
December 31, 1999. In addition to the prepaid royalty, the Company agreed
to pay the Licensor a continuing royalty beginning January 1, 1992 of 5.75%
of sales (which will not exceed $450,000 for any calendar year) made in the
United States, of products covered by the license agreement. Royalties of
$450,000 were paid or accrued in each of the years ended December 31, 2000,
1999, and 1998.
The Licensor has released the Company from all damages, claims, or rights
of action which the Licensor may have had related to the alleged
infringement of the patents issued to the Licensor. The Company has also
agreed to not proceed against the Licensor for the alleged misappropriation
by the Licensor of the Company's confidential and proprietary information.
12. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings and profit sharing plan (the
Plan) covering all full-time employees who are at least 21 years of age and
have a minimum of six months of service to the Company. The Company may
contribute at its discretion matching contributions based on the employees'
compensation. Contributions made by the Company to the Plan for the years
ended December 31, 2000, 1999, and 1998 totaled approximately $258,000,
$88,000, and $18,000, respectively.
The Plan purchased unissued shares of the Company's common stock at market
value during each of the three years ended December 31, 2000 as follows:
Market
Shares Value
Years ended December 31:
2000 None None
1999 10,990 $62,600
1998 13,819 81,850
35
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly data (unaudited) for the years ended December 31, 2000, 1999, and
1998 is as follows:
Quarter Ended
-----------------------------------------------------------------------
2000 March 31 June 30 September 30 December 31
Net sales $ 22,080,435 $ 23,552,859 $ 23,330,203 $ 22,484,015
Gross profit 7,634,050 7,616,239 7,958,848 7,414,916
Income from operations 289,575 647,698 1,224,604 966,678
Income tax expense (benefit) (68,347) 19,254 169,026 (172,645)
Net income (loss) (159,482) 44,927 394,397 546,715
Basic and diluted net income
(loss) per share (0.02) 0.01 0.05 0.07
1999
Net sales $ 17,701,723 $ 18,979,739 $ 19,920,419 21,357,695
Gross profit 6,692,102 7,349,765 7,763,440 8,236,454
Income from operations 1,070,736 1,477,316 1,705,782 1,762,959
Income tax expense 255,731 446,516 463,321 289,194
Net income 565,123 752,684 928,768 979,015
Basic and diluted net income
per share 0.08 0.10 0.12 0.13
1998
Net sales $ 16,466,015 $ 17,974,170 $ 16,703,033 17,234,139
Gross profit 6,163,161 6,812,741 6,432,783 6,534,799
Income from operations 1,108,003 1,382,228 1,543,092 1,137,682
Income tax expense 459,115 548,306 542,743 137,215
Net income 427,655 586,558 722,836 714,110
Basic and diluted net income
per share 0.06 0.08 0.10 0.09
******
36
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.
----------------------------------------------------------------------
None.
PART III
Items 10, 11, 12 and 13.
These items are incorporated by reference to the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders scheduled for May
23, 2001. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 2000, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) Documents filed as part of this report:
(1)Financial Statements. The following financial statements are
incorporated by reference as provided in -------------------- Item 8
of this report:
-- Independent Auditors' Report
-- Consolidated Balance Sheets as of December 31, 2000 and 1999
-- Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998
-- Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998
-- Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
-- Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
----------------------------
-- Schedule II - Valuation and qualifying account
all other schedules have been omitted because they
are not required, not applicable, or the information
is otherwise set forth in the financial statements or
notes thereto.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The following exhibits required by Item 601 of Regulation S-K
are filed herewith or have been filed previously with the Commission
as indicated below:
37
Description Exhibit No.
------------------------------------------------------------------ ------------------------------
3.1 Articles of Incorporation of the Company, as amended and restated* [Form 10-Q filed August 14,
1996, Exhibit No. 1]
3.2 Bylaws of the Company* [Form S-18 filed October 19,
1989, Exhibit No. 2]
4 Specimen Certificate of the Company's Common Stock, no par [Form S-18 filed October 19,
value* 1989, Exhibit No. 10]
10.1 Merit Medical Systems, Inc. Long Term Incentive Plan (as amended [Form 10-Q filed August 14,
and restated) dated March 25, 1996* 1996, Exhibit No. 2]
10.2 Merit Medical Systems, Inc. 401(k) Profit Sharing Plan (as amended [Form S-1 filed February 14,
effective January 1, 1991* 1992, Exhibit No. 8]
10.3 License Agreement, dated April 8, 1992 between the Company and [Form S-1 filed February 14,
Utah Medical Products, Inc.* 1992, Exhibit No. 5]
10.4 Lease Agreement dated as of June 8, 1993 for office and [Form 10-K for year ended
manufacturing facility* December 31, 1994, Exhibit
No. 10.5]
10.5 Loan Agreement with Zions First National Bank dated October 10, [Form 10-K for year ended
1995* December 31, 1995, Exhibit
No. 10.5
10.6 Amendment to Loan Agreement with Zions First National Bank [Form 10-K for year ended
dated October 10, 1997 December 31, 1997, Exhibit
No. 10.5]
[Form 10-K for year ended
10.7 Amendment to Loan Agreement with Zions First National Bank December 31, 1998, Exhibit
dated August 11, 1999 No.10.7]
[Form 10-K for year ended
December 31, 1999, Exhibit
10.8 Amendment to Loan Agreement with Zions First National Bank No.10.8]
dated
10.9 Agreement of sale by and between Merit Medical Systems, Inc. and [Form 8-K dated August 20,
Mallinckrodt Inc. dated August 20, 1999 1999, Exhibit No. 10.1]
10.10 Amendment to Loan Agreement with Zions First National Bank Filed herewith
3/11/2000
10.11 Merit Medical Systems, Inc. Highly Compansated Deferred Filed herewith
Compenstaion Plan.
13.1 Annual Report to Shareholders for the year ended December 31,
2000. Certain portions of this exhibit are incorporated by
reference into this Report on Form 10-K; except as so
incorporated by reference, the Annual Report to Shareholders is
not deemed filed as part of this Report on Form 10-K.
23.1 Consent of Independent Auditors Filed herewith
- -------------------------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules: There are no financial statement
schedules required to be filed with this report.
38
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2001.
MERIT MEDICAL SYSTEMS, INC.
By: FRED P. LAMPROPOULOS, PRESIDENT
----------------------------------
Fred P. Lampropoulos, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29,2001.
Signature Capacity in Which Signed
--------- ------------------------
/s/: FRED P. LAMPROPOULOS President, Chief Executive Officer and Director
- ---------------------------
Fred P. Lampropoulos
/s/:KENT W. STANGER Chief Financial Officer, Secretary, Treasurer and
- ---------------------------- Director (Principal financial and accounting
Kent W. Stanger officer)
/s/:RICHARD W. EDELMAN Director
- ---------------------------
Richard W. Edelman
/s/:REX C. BEAN
- ---------------------------
Rex C. Bean Director
/s/:JAMES J. ELLIS
- ---------------------------
James J. Ellis Director
/s/:MICHAEL E. STILLABOWER
- ---------------------------
Michael E. Stillabower Director
39