| ICU MEDICAL INC/DE Item 1A Risk Factors |
| In evaluating an investment in our common stock, investors should consider carefully, among other things, the following risk factors, as well as the other information contained in this Annual Report and our other reports and registration statements filed with the Securities and Exchange Commission |
| Because we are increasingly dependent on Hospira for a substantial portion of our sales, any change in our arrangements with Hospira causing a decline in our sales to it could result in a significant reduction in our sales and profits |
| We have steadily increased our sales to Hospira in recent years, except for 2004 when sales to Hospira declined as Hospira reduced its inventories of our products |
| As a result, we depend on Hospira for a high percentage of our sales |
| Sales to Hospira increased by approximately dlra75dtta2 million in 2005 |
| Approximately dlra46dtta7 million of the increase was attributable to the purchase of Hospira’s Salt Lake City plant and commencement of production under a twenty-year MCDA as of May 1, 2005 |
| The balance of the increase was attributable to the resumption of more normal levels of CLAVE sales to Hospira in 2005 after a sharp decline in 2004 described below |
| The table below shows our total revenue to various types of customers for 2005, 2004 and 2003 (dollars in millions): 11 ______________________________________________________________________ Years Ended December 31, 2005 2004 2003 Hospira (US) $ 115dtta0 73 % $ 39dtta8 53 % $ 71dtta3 67 % Other manufacturers 2dtta2 1 % 1dtta5 2 % 1dtta5 1 % Domestic distributors 24dtta4 16 % 22dtta4 30 % 24dtta1 23 % International distributors 13dtta0 8 % 9dtta0 12 % 5dtta8 5 % Other revenue 2dtta9 2 % 2dtta8 3 % 4dtta6 4 % Our principal agreements with Hospira are the MCDA, a strategic supply and distribution agreement for most of our other medical devices in the domestic and international markets and an agreement to sell Hospira custom IV systems; the latter two agreements extend through 2014 |
| In 2004, Hospira substantially reduced its purchases of CLAVE products because it was reducing its inventories of our products |
| This caused a significant reduction in our sales and led to a net loss in the third and fourth quarters of 2004 |
| If the steps we have taken to monitor and control the amount of Hospira’s inventory of CLAVE products to avoid future inventory reductions are not successful we could experience sharp declines in sales of CLAVE products to Hospira in the future |
| In the past several years, our prices to Hospira have declined by only a small amount |
| Any significant decrease in our prices to Hospira, unless accompanied by an offsetting increase in purchasing volume, could have an adverse effect on our sales and profits |
| Under the terms of our agreements with Hospira, including the MCDA, we are dependent on the marketing and sales efforts of Hospira for a large percentage of our sales, and Hospira determines the prices at which the products that we sell to Hospira will be sold to its customers |
| Hospira has conditional exclusive rights to sell CLAVE and our other products as well as custom IV systems under the SetSource program in many of its major accounts, and exclusive rights to sell products we produce under the MCDA If Hospira is unable to maintain its position in the marketplace, or if Hospira should experience significant price deterioration, our sales and operations could be adversely affected |
| Our ability to maintain and increase our market penetration depends on the success of our arrangement with Hospira and Hospira’s arrangements with major buying organizations and its ability to renew such arrangements, as to which there is no assurance |
| Our business could be materially adversely affected if Hospira terminates its arrangement with us, negotiates lower prices, sells more competing products, whether manufactured by themselves or others, or otherwise alters the nature of its relationship with us |
| Although we believe that Hospira views us as a source of innovative and profitable products, there is no assurance that our relationship with Hospira will continue in its current form |
| In contrast to our dependence on Hospira, our principal competitors in the market for protective IV connection systems are much larger companies that dominate the market for IV products and have broad product lines and large internal distribution networks |
| In many cases, these competitors are able to establish exclusive relationships with large hospitals, hospital chains, major buying organizations and home healthcare providers to supply substantially all of their requirements for IV products |
| In addition, we believe that there is a trend among individual hospitals and alternate site healthcare providers to consolidate into or join large major buying organizations with a view to standardizing and obtaining price advantages on disposable medical products |
| These factors may limit our ability to gain market share through our independent dealer network, resulting in continued concentration of sales to and dependence on Hospira |
| If we are unable to reduce substantially the cost of manufacturing products that we will sell to Hospira under the MCDA, our financial performance may be adversely affected |
| The prices at which we sell products to Hospira and the gross margins that we realize under the MCDA depend on the cost savings that we expect to achieve in producing those products over Hospira’s cost to manufacture the same products at the purchase date |
| Achieving substantial cost reductions requires moving manufacturing operations to lower-cost locations and the development and implementation of innovative manufacturing and assembly processes and techniques |
| There is no assurance that these efforts will be successful |
| If we are unable to achieve the cost savings that we expect, our profits on products manufactured under the MCDA will be adversely affected |
| 12 ______________________________________________________________________ The relocation of our manufacturing and assembly operations imposes a significant burden on our resources, will require specialized expertise, will result in interruption of production and will require relocation and training of personnel ,any of which could have an adverse effect on our operations and financial results |
| We intend to relocate substantial portions of our manufacturing facilities by early 2007 |
| We plan to move all manufacturing in San Clemente, consisting of molding and automated assembly, to our Salt Lake City facility |
| We also plan to move remaining manufacturing operations in Connecticut to the Salt Lake City facility |
| We plan to move most of the manual assembly operations currently performed in Salt Lake City to our Ensenada, Mexico facility, although we may move some of them to another low-cost location and expect that some highly skilled processes may stay in Salt Lake City |
| Before the move to our Ensenada, Mexico facility we will need to build additional production and warehouse space in that facility |
| Our performance under the MCDA, the relocation of our California and Connecticut manufacturing operations, the expansion of our Mexico facility, the implementation of new manufacturing and assembly processes and techniques and the establishment of financial controls impose a significant burden on our management, human resources, operating and financial and accounting functions |
| We need to expand our capabilities in each of these areas and devote significant time and effort to integrating the production under the MCDA with our existing operations, all of which divert management’s attention from our other operations |
| In addition, we may require additional expertise, capability and capacity that can best be obtained through other acquisitions |
| The molding and assembly machines are large and require special handling to move them |
| Installation in a new location can be very difficult and require specialized engineering expertise |
| This will tax our existing resources |
| At the same time, we will be attempting to relocate personnel who are important to our manufacturing processes, and failure to accomplish this could substantially hamper the installation and operation of the equipment in Salt Lake City |
| While we expect to build extra inventory before moving equipment, and move the equipment in phases and maintain production at both locations for a period of time, failure to successfully complete the move and installation of the equipment and critical personnel could cause production interruptions and production quality issues which could adversely affect our sales and income |
| Certain of the manual assembly operations require expertise that will require significant and ongoing training of the personnel at the location performing the assembly |
| The products currently made using manual assembly in Salt Lake City are different than the products that we currently make in Mexico |
| The transfer of production will require a significant transfer of knowledge from Salt Lake City to the new manufacturing location, and if this is not completed successfully, we could experience production interruptions and production quality issues which could adversely affect our sales and income |
| If we are unable to manage effectively our internal growth or growth through acquisitions of companies, assets or products, our financial performance may be adversely affected |
| We intend to continue to expand our marketing and distribution capability internally, by expanding our sales and marketing staff and resources and may expand it externally, by acquisitions both in the United States and foreign markets |
| We may also consider expanding our product offerings through further acquisitions of companies or product lines |
| We intend to build additional production facilities or contract for manufacturing in markets outside the United States to reduce labor costs and eliminate transportation and other costs of shipping finished products from the United States and Mexico to customers outside North America |
| The expansion of our manufacturing, marketing, distribution and product offerings both internally and through acquisitions or by contract may place substantial burdens on our management resources and financial controls |
| Decentralization of assembly and manufacturing could place further burdens on management to manage those operations, and maintain efficiencies and quality control |
| The increasing burdens on our management resources and financial controls resulting from internal growth and acquisitions could adversely affect our operating results |
| In addition, acquisitions may involve a number of special risks in addition to the difficulty of integrating cultures and operations and the diversion of management’s attention, including adverse short-term effects on our reported operating results, dependence on retention, hiring and training of key personnel, risks associated with unanticipated problems or legal liabilities and amortization of acquired intangible assets, some or all of which could materially and adversely affect our operations and financial performance |
| Because we are dependent on the CLAVE for a major portion of our sales, any decline in CLAVE sales could result in a significant reduction in our sales and profits |
| 13 ______________________________________________________________________ For 2005, CLAVE products accounted for approximately 40prca of our revenue and 55prca of our revenue including custom IV systems incorporating a CLAVE We depend heavily on sales of CLAVE products, especially sales of CLAVE products to Hospira |
| Most of our CLAVE sales are in the United States, where we expect our growth in sales to moderate in the future as further penetration of markets available to our existing customers in the United States becomes increasingly difficult |
| Future significant sales increases for CLAVE products may depend on increases in sales of custom IV systems expansion in the international markets, which we are aggressively pursuing, or acquisition of new customers in the United States |
| We cannot give any assurance that sales of CLAVE products will increase indefinitely or that we can sustain current profit margins on CLAVE products indefinitely |
| Management believes that the success of the CLAVE has motivated, and will continue to motivate, others to develop one piece needleless connectors |
| In addition to products that emulate the characteristics of the CLAVE, it is possible that others could develop new product concepts and technologies that are functionally equivalent or superior to the CLAVE If other manufacturers successfully develop and market effective products that are competitive with CLAVE products, CLAVE sales could decline as we lose market share, and/or we could encounter sustained price and profit margin erosion |
| If our efforts to increase substantially our custom products business is not successful or we cannot increase sales of other products and develop new, commercially successful products, our sales may not continue to grow |
| Our continued success may be dependent both on the success of our strategic initiative to increase substantially our custom product business and develop significant market share on a profitable basis and on new product development |
| Our total sales of custom products including custom IV products and custom critical care products reached dlra42dtta6 in 2005, an increase of 63prca over 2004; however, only 22prca of this increase was in custom IV products |
| The success of our custom product sales program will require a larger increase in sales in the future than was achieved in 2005 and 2004 and there is no assurance that such an increase will be achieved |
| Although we are seeking to continue to develop a variety of new products, there is no assurance that any new products will be commercially successful or that we will be able to recover the costs of developing, testing, producing and marketing such products |
| Certain healthcare product manufacturers, with financial and distribution resources substantially greater than ours, have developed and are marketing products intended to fulfill the same functions as our products |
| International sales pose additional risks related to competition with larger international companies and established local companies, our possibly higher cost structure, our ability to open foreign manufacturing facilities that can operate profitably, higher credit risks and exchange rate risk |
| We have undertaken a program to increase significantly our international sales, and have distribution arrangements in all the principal countries in Western Europe, the Pacific Rim and Latin America, and in South Africa |
| Currently, we export from the United States and Mexico most of our products sold internationally |
| Our principal competitors in international markets are a number of much larger companies as well as smaller companies already established in the countries into which we sell our products |
| Our cost structure is often higher than that of our competitors because of the relatively high cost of transporting product to the local market as well as our competitors’ lower local labor costs in some markets |
| For these reasons, among others, we expect to open manufacturing facilities in foreign locations |
| There is no certainty that we will be able to open local manufacturing facilities or that those facilities will operate on a profitable basis |
| Our international sales are subject to higher credit risks than sales in the United States |
| Many of our distributors are small and may not be well capitalized |
| Payment terms are relatively long |
| Our prices to our international distributors, outside of Europe, for product shipped to the customers from the United States or Mexico are set in US dollars, but their resale prices are set in their local currency |
| A decline in the value of the local currency in relation to the US dollar may adversely affect their ability to profitably sell in their market the products they buy from us, and may adversely affect their ability to make payment to us for the products they purchase |
| Legal recourse for non-payment of indebtedness may be uncertain |
| In 2003, we acquired a small manufacturer of IV systems in northern Italy, and have since transferred our European distribution to this subsidiary |
| Sales and most other transactions by this subsidiary are denominated in Euros |
| As the subsidiary increases in size, a decline in the value of the Euro in relation to the US dollar could have an adverse effect on our reported operating results |
| There is no assurance as to the growth of this subsidiary or its future operating results |
| Continuing pressures to reduce healthcare costs may adversely affect our prices |
| If we cannot reduce manufacturing costs of 14 ______________________________________________________________________ existing and new products, our sales may not continue to grow and our profitability may decline |
| Increasing awareness of healthcare costs, public interest in healthcare reform and continuing pressure from Medicare, Medicaid and other payers to reduce costs in the healthcare industry, as well as increasing competition from other protective products, could make it more difficult for us to sell our products at current prices |
| In the event that the market will not accept current prices for our products, our sales and profits could be adversely affected |
| We believe that our ability to increase our market share and operate profitably in the long term may depend in part on our ability to reduce manufacturing costs on a per unit basis through high volume production using highly automated molding and assembly systems |
| If we are unable to reduce unit manufacturing costs, we may be unable to increase our market share for CLAVE products or lose market share to alternative products, including competitors’ products |
| Similarly, if we cannot reduce unit manufacturing costs of new products as production volumes increase, we may not be able to sell new products profitably or gain any meaningful market share |
| Any of these results would adversely affect our future results of operations |
| If we are unable to compete successfully on the basis of product innovation, quality, convenience, price and rapid delivery with larger companies that have substantially greater resources and larger distribution networks, we may be unable to maintain market share, in which case our sales may not grow and our profitability may be adversely affected |
| The market for IV products is intensely competitive |
| We believe that our ability to compete depends upon continued product innovation, the quality, convenience and reliability of our products, access to distribution channels, patent protection and pricing |
| The ability to compete effectively depends on our ability to differentiate our products based on safety features, product quality, cost effectiveness, ease of use and convenience, as well as our ability to perceive and respond to changing customer needs |
| We encounter significant competition in our markets both from large established medical device manufacturers and from smaller companies |
| Many of these firms have introduced competitive products with protective features not provided by the conventional products and methods they are intended to replace |
| Most of our current and prospective competitors have economic and other resources substantially greater than ours and are well established as suppliers to the healthcare industry |
| Several large, established competitors offer broad product lines and have been successful in obtaining full-line contracts with a significant number of hospitals to supply all of their IV product requirements |
| There is no assurance that our competitors will not substantially increase resources devoted to the development, manufacture and marketing of products competitive with our products |
| The successful implementation of such a strategy by one or more of our competitors could materially and adversely affect us |
| We may not be able to significantly expand our sales of custom IV systems, or critical care products, if we are unable to lower manufacturing costs, price our products competitively and shorten delivery times significantly |
| We believe that the success of our IV systems operations will depend on our ability to lower per unit manufacturing costs and price our products competitively and on our ability to shorten significantly the time from customer order to delivery of finished product, or both |
| To reduce costs, we have moved labor intensive assembly operations to our facility in Mexico |
| To shorten delivery times, we have developed proprietary systems for order processing, materials handling, tracking, labeling and invoicing and innovative procedures to expedite assembly and distribution operations |
| Many of these systems and procedures require continuing enhancement and development |
| There is a possibility that our systems and procedures may not continue to be adequate and meet their objectives |
| We plan to introduce many of the systems and procedures that we have used in our IV systems operations into the production of critical care products |
| If we are unable to do this successfully, we may not be successful in increasing sales of critical care products |
| If demand for our CLAVE products were to decline significantly, we might not be able to recover the cost of our expensive automated molding and assembly equipment and tooling, which could have an adverse effect on our results of operations |
| Our production tooling is relatively expensive, with each “module,” which consists of an automated assembly machine and the molds and molding machines which mold the components, costing several million dollars |
| Most of the modules are for the CLAVE and the integrated Y-CLAVE If the demand for either of these products changes significantly, as might happen with the loss of a customer or a change in product mix, it might be necessary for us to account for the impairment in value of the production tooling because its cost may not be recovered through production of saleable product |
| 15 ______________________________________________________________________ If we were to experience problems with our highly complex manufacturing and automated assembly processes, as we have at times in the past, or if we cannot obtain additional custom tooling and equipment on a timely enough basis to meet demand for our products, we might be unable to increase our sales or might lose customers, in which case our sales could decline |
| We manufacture substantially all of our product components, except for standard components which are available as commodity items, and assemble them into finished products |
| Automated assembly of components into finished products involves complex procedures requiring highly sophisticated assembly equipment which is custom designed, engineered and manufactured for us |
| As a result of the critical performance criteria for our products, we have at times experienced problems with the design criteria for or the molding or assembly of our products |
| We believe that we have resolved all design, manufacturing and assembly problems with respect to products manufactured in San Clemente and Connecticut |
| We are continuing our assessment of design, manufacturing and assembly operations at the Salt Lake City facility and that assessment has resulted in changes and will result in future changes, some of which may be significant |
| There is no assurance that operations will not be adversely affected by unanticipated problems with current or future products |
| We have expanded our manufacturing capacity substantially in recent years, and we expect continuing expansion will be necessary |
| Molds and automated assembly machines generally have a long lead-time with vendors, often six months or longer |
| Inability to secure such tooling in a timely manner, or unexpected increases in production demands, could cause us to be unable to meet customer orders |
| Such inability could cause customers to seek alternatives to our products |
| We are increasingly dependent on manufacturing in Mexico |
| Any political or economic disruption in Mexico or a change in the local economy could have an adverse effect on our operations We continue to expand our production in Mexico |
| Most of the material we use in manufacturing is imported into Mexico, and substantially all the production in Mexico is exported |
| We depend on our ability to move goods across the border quickly |
| Any disruption in the free flow of goods across the border could have an adverse effect on our business |
| As of January 31, 2006, we employed 573 people in our plant in Ensenada, Mexico, and expect this to increase in the future |
| Business activity in the Ensenada area is expanding significantly, providing increasing employment opportunities |
| This could have an adverse effect on our ability to hire or retain necessary personnel and increase amounts we must pay them |
| We continue to take steps to compete for labor through attractive employment conditions and benefits, but there is no assurance that these steps will continue to be successful or that we will not face increasing labor costs in the future |
| Increases in costs of electricity or interruptions in electrical service could have an adverse effect on our operations |
| We use a significant amount of electricity in our molding and automated assembly operations in San Clemente, California |
| Rates are substantially higher than what they were six years ago, and there is no certainty that they will not increase further in the future |
| In addition, public concerns are again being raised about possible interruptions in service because of a lack of availability of electricity |
| Any significant increase in electrical costs or a significant interruption in service could have an adverse effect on our operations |
| We believe that the move of our San Clemente production to Salt Lake City will substantially mitigate this risk, but we do not expect that move to be completed until approximately the fall of 2006 |
| Increases in the cost of petroleum-based and natural gas-based products could have an adverse effect on our profitability |
| Most of the material used in our products is resins, plastics and other material that depend upon oil or natural gas as their raw material |
| Crude oil and natural gas supplies continue to be negatively impacted by the recent hurricanes in the Gulf Coast |
| Related production and supply problems have had a small impact our ability to get uninterrupted supplies of raw materials, which has caused some minor delay in deliveries of certain products under the MCDA There is no assurance that these supply problems will not persist or get worse |
| Also, crude oil and natural gas prices in 2005 are at record highs |
| Our suppliers have passed some of their cost increases on to us, and if such prices are sustained or increase further, our suppliers may pass further cost increases on to us |
| In addition to the effect on resin prices, transportation costs have increased because of the effect of higher crude oil prices, and at least some of these costs have been passed on to us |
| Our ability to recover those higher costs may depend upon our ability to raise prices to our customers |
| Our inability to raise prices in those circumstances could have an adverse effect on our profitability |
| 16 ______________________________________________________________________ Because we depend to a significant extent on our founder for new product concepts, the loss of his services could have a material adverse effect on our business |
| We depend on Dr |
| George A Lopez, our founder, Chairman of the Board, President and Chief Executive Officer for new product concepts and manufacturing innovation |
| Lopez has conceived substantially all of our current and proposed new products and the systems and procedures to be used in the custom IV products and their manufacturing |
| We believe that the loss of his services could have a material adverse effect on our business |
| Because we have substantial cash balances and liquid investments in interest sensitive securities, continued low interest rates would have an adverse effect on our investment income and on our net income |
| We have accumulated a substantial balance of cash and liquid investments principally through profitable operations and the exercise of stock options |
| These balances amounted to dlra86dtta7 million at December 31, 2005, of which over 93prca was invested in interest sensitive securities |
| Such securities consist principally of corporate preferred stocks and federal tax-exempt state and municipal government debt securities |
| Short-term interest rates have been the lowest in decades for the past four years and, notwithstanding recent increases, are still low by historic standards |
| In 2000, our investment income was dlra2dtta1 million on average on cash and liquid investments of approximately dlra43dtta4 million |
| For 2005, the comparable numbers were approximately dlra2dtta2 million and dlra82dtta5 million, respectively; investment income was approximately dlra1dtta8 million lower than it would have been at the rates in 2000 |
| Continued low interest rates would continue to have an adverse effect on our investment income |
| Our business could be materially and adversely affected if we fail to defend and enforce our patents, if our products are found to infringe patents owned by others or if the cost of patent litigation becomes excessive |
| We have patents on certain products, software and business methods, and pending patent applications on other intellectual property and inventions |
| There is no assurance, however, that patents pending will issue or that the protection from patents which have issued or may issue in the future will be broad enough to prevent competitors from introducing similar devices, that such patents, if challenged, will be upheld by the courts or that we will be able to prove infringement and damages in litigation |
| We are substantially dependent upon the patents on our proprietary products such as the CLAVE to prevent others from manufacturing and selling products similar to ours |
| In April 2005, we settled litigation against B Braun |
| We have ongoing litigation against Alaris, a part of Cardinal, for violating our patents and we are seeking injunctive relief and monetary damages |
| Failure to prevail in this litigation or litigation we may bring against others violating our patents in the future could adversely affect our sales |
| We have faced patent infringement claims related to the CLAVE and the CLC-2000 |
| We believe the claims had no merit, and all have been settled or dismissed |
| We may also face claims in the future |
| From time to time we become aware of newly issued patents on medical devices which we review to evaluate any infringement risk |
| We are aware of a number of patents for IV connection systems that have been issued to others |
| While we believe these patents will not affect our ability to market our products, there is no assurance that these or other issued or pending patents might not interfere with our right or ability to manufacture and sell our products |
| There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry |
| Patent infringement litigation, which may be necessary to enforce patents issued to us or to defend ourselves against claimed infringement of the rights of others, can be expensive and may involve a substantial commitment of our resources which may divert resources from other uses |
| Adverse determinations in litigation or settlements could subject us to significant liabilities to third parties, could require us to seek licenses from third parties, could prevent us from manufacturing and selling our products or could fail to prevent competitors from manufacturing products similar to ours |
| Any of these results could materially and adversely affect our business |
| Our ability to market our products in the United States and other countries may be adversely affected if our products or our manufacturing processes fail to qualify under applicable standards of the FDA and regulatory agencies in other countries |
| 17 ______________________________________________________________________ Government regulation is a significant factor in the development, marketing and manufacturing of our products |
| Our products are subject to clearance by the United States FDA under a number of statutes including the FDC Act |
| Each of our current products has qualified, and we anticipate that any new products we are likely to market will qualify, for clearance under the FDA’s expedited pre-market notification procedure pursuant to Section 510(k) of the FDC Act |
| There is no assurance, however, that new products developed by us or any manufacturers that we might acquire will qualify for expedited clearance rather than a more time consuming pre-market approval procedure or that, in any case, they will receive clearance from the FDA FDA regulatory processes are time consuming and expensive |
| Uncertainties as to the time required to obtain FDA clearances or approvals could adversely affect the timing and expense of new product introductions |
| In addition, we must manufacture our products in compliance with the FDA’s Quality System Regulations |
| The FDA has broad discretion in enforcing the FDC Act, and noncompliance with the Act could result in a variety of regulatory actions ranging from warning letters, product detentions, device alerts or field corrections to mandatory recalls, seizures, injunctive actions and civil or criminal penalties |
| If the FDA determines that we have seriously violated applicable regulations, it could seek to enjoin us from marketing our products or we could be otherwise adversely affected by delays or required changes in new products |
| In addition, changes in FDA, or other federal or state, health, environmental or safety regulations or in their application could adversely affect our business |
| To market our products in the European Community (“EC”), we must conform to additional requirements of the EC and demonstrate conformance to established quality standards and applicable directives |
| As a manufacturer that designs, manufactures and markets its own devices, we must comply with the quality management standards of EN ISO 9001(1994)/ISO 13485 (1996) |
| Those quality standards are similar to the FDA’s Quality System Regulations but incorporate the quality requirements for product design and development |
| Manufacturers of medical devices must also be in conformance with EC Directives such as Council Directive 93/42/EEC (“Medical Device Directive”) and their applicable annexes |
| Those regulations assure that medical devices are both safe and effective and meet all applicable established standards prior to being marketed in the EC Once a manufacturer and its devices are in conformance with the Medical Device Directive, the “CE” Mark maybe affixed to its devices |
| The CE Mark gives devices an unobstructed entry to all the member countries of the EC We cannot assure that we will continue to meet the requirements for distribution of our products in Europe |
| Distribution of our products in other countries may be subject to regulation in those countries, and there is no assurance that we will obtain necessary approvals in countries in which we wants to introduce our products |
| Product liability claims could be costly to defend and could expose us to loss |
| The use of our products exposes us to an inherent risk of product liability |
| Patients, healthcare workers or healthcare providers who claim that our products have resulted in injury could initiate product liability litigation seeking large damage awards against us |
| Costs of the defense of such litigation, even if successful, could be substantial |
| We maintain insurance against product liability and defense costs in the amount of dlra10cmam000cmam000 per occurrence |
| There is no assurance that we will successfully defend claims, if any, arising with respect to products or that the insurance we carry will be sufficient |
| A successful claim against us in excess of insurance coverage could materially and adversely affect us |
| Furthermore, there is no assurance that product liability insurance will continue to be available to us on acceptable terms |
| Our Stockholder Rights Plan, provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock |
| On July 15, 1997, our Board of Directors adopted a Stockholder Rights Plan (the “Plan”) and, pursuant to the Plan, declared a dividend distribution of one Right for each outstanding share of our common stock to stockholders of record at the close of business on July 28, 1997 |
| Under its current provisions, each Right entitles the registered holder to purchase from us one one-hundredth of a share of Series A Junior participating Preferred Stock, no par value, at a Purchase Price of dlra115 per one one-hundredth of a share, subject to adjustment |
| The Plan is designed to afford the Board a great deal of flexibility in dealing with any attempted takeover of and will cause persons interested in acquiring us to deal directly with the Board, giving it an opportunity to negotiate a transaction that maximizes stockholder values |
| The Plan may, however, have the effect of discouraging persons from attempting to acquire us |
| Investors should refer to the description of the Plan in our Current Report to the Securities and Exchange Commission on Form 8-K dated July 15, 1997 filed July 23, 1997, as updated by our Current Report dated January 30, 1999 filed February 9, 1999, and the terms of the Rights set forth in an Amended and Restated Rights Agreement, dated as of May 10, 2002 between 18 ______________________________________________________________________ ICU Medical, Inc |
| and Mellon Investor Services, LLC, as Rights Agent, which are filed as an exhibit to the May 14, 2002 Form 8-A/A Our Certificate of Incorporation and Bylaws include provisions that may discourage or prevent certain types of transactions involving an actual or potential change of control, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices |
| In addition, the Board of Directors has the authority to issue shares of Preferred Stock and fix the rights and preferences thereof, which could have the effect of delaying or preventing a change of control otherwise desired by the stockholders |
| In addition, certain provisions of Delaware law may discourage, delay or prevent someone from acquiring or merging with us |
| The price of our common stock has been and may continue to be highly volatile due to many factors |
| The market for small-market capitalization companies can be highly volatile, and we have experienced significant volatility in the price of our common stock in the past |
| From the beginning of 2005 through January 2006, our trading price ranged from a high of dlra43dtta09 per share to a low of dlra23dtta01 per share |
| We believe that factors such as quarter-to-quarter fluctuations in financial results, differences between stock analysts’ expectations and actual quarterly and annual results, new product introductions by us or our competitors, changing regulatory environments, litigation, changes in healthcare reimbursement policies, sales or the perception in the market of possible sales of common stock by insiders and substantial product orders could contribute to the volatility in the price of our common stock |
| General economic trends unrelated to our performance such as recessionary cycles and changing interest rates may also adversely affect the market price of our common stock |
| Most of our common stock is held by, or included in accounts managed by, institutional investors or managers |
| Several of those institutions own or manage a significant percentage of our outstanding shares, with the ten largest interests accounting for 54prca of our outstanding shares |
| If one or more of the institutions should decide to reduce or eliminate its position in our common stock, it could cause a decrease in the price of the common stock that could be significant |
| For the past several years there has been a significant “short” position in our common stock, consisting of borrowed shares sold, or shares sold for future delivery which may not have been borrowed |
| We do not know whether any of these short positions are covered by “long” positions owned by the short seller |
| The short position, as reported by the Nasdaq stock market on February 15, 2006 was 2cmam067cmam228 shares, or approximately 15prca of our outstanding shares |
| Any attempt by the short sellers to liquidate their position over a short period of time could cause very significant volatility in the price of our common stock |
| We have outstanding stock options which may dilute the ownership of existing shareholders At December 31, 2005, we had outstanding stock options to purchase 4dtta0 million shares, of which 3dtta9 million had an exercise price below the market price of our stock |
| Exercise of those options would dilute the ownership interest of existing shareholders |
| Continued compliance with recent securities legislation could be uncertain and could substantially increase our administrative expenses |
| The Sarbanes-Oxley Act of 2002 imposed significant new requirements on public companies |
| We have complied with most of these without undue effort or expense |
| However, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 requiring management to document and report on the effectiveness of internal controls of financial reporting and our independent registered public accounting firm to audit and report on the design and effectiveness of our internal controls of financial reporting has been extremely expensive |
| Further, there is no certainty that we will continue to receive unqualified reports on our internal controls of financial reporting from our independent registered public accounting firm and what actions might be taken by securities regulators or investors if we are unable to obtain an unqualified report |