What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-10 compared with 2020-05-08 · 266 added, 157 removed, 595 unchanged (42% of the section changed)

4 unchanged sentences

(In thousands, except par value data)

2020 December 31,

(Unaudited) (1)

CURRENT ASSETS:

2 unchanged sentences

TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES 460,698 292,637

Accounts receivable, net of allowance for doubtful accounts of $19,856 at March 31, 2020 and $20,219 at December 31, 2019

Accounts receivable, net of allowance for doubtful accounts of $ 19,648 at June 30, 2020 and $ 20,219 at December 31, 2019

197,775 202,219

Inventories 322,766 337,640

Prepaid income tax 11,694 15,720

3 unchanged sentences

OPERATING LEASE RIGHT-OF-USE ASSETS 49,712 34,465

GOODWILL 32,472 31,245

INTANGIBLE ASSETS, net 203,720 211,408

DEFERRED INCOME TAXES 28,776 27,998

OTHER ASSETS 52,853 48,984

TOTAL ASSETS $ 1,859,062 $ 1,692,382

LIABILITIES AND STOCKHOLDERS’ EQUITY

14 unchanged sentences

Common stock, $ 0.10 par value — Authorized, 80,000 shares;

Issued — 20,833 shares at March 31, 2020 and 20,743 shares at December 31, 2019 and outstanding — 20,825 shares at March 31, 2020 and 20,742 shares at December 31, 2019

Issued — 20,937 shares at June 30, 2020 and 20,743 shares at December 31, 2019 and outstanding — 20,936 shares at June 30, 2020 and 20,742 shares at December 31, 2019

Additional paid-in capital 675,497 668,947

12 unchanged sentences

Three months ended

June 30, Six months ended

2020 2019 2020 2019

TOTAL REVENUES $ 303,379 $ 312,282 $ 631,986 $ 643,214

COST OF GOODS SOLD 197,095 208,413 404,287 404,042

GROSS PROFIT 106,284 103,869 227,699 239,172

OPERATING EXPENSES:

7 unchanged sentences

INTEREST EXPENSE ( 771 ) ( 139 ) ( 967 ) ( 272 )

OTHER (EXPENSE) INCOME, net

OTHER INCOME (EXPENSE), net 2,053 1,479 ( 3,427 ) 4,670

INCOME BEFORE INCOME TAXES 20,838 27,606 41,219 61,036

PROVISION FOR INCOME TAXES ( 1,930 ) ( 4,773 ) ( 5,477 ) ( 7,205 )

NET INCOME $ 18,908 $ 22,833 $ 35,742 $ 53,831

NET INCOME PER SHARE

Basic $ 0.91 $ 1.11 $ 1.72 $ 2.62

Diluted $ 0.88 $ 1.06 $ 1.66 $ 2.50

WEIGHTED AVERAGE NUMBER OF SHARES

Basic 20,880 20,622 20,831 20,577

Diluted 21,506 21,520 21,545 21,546

The accompanying notes are an integral part of these condensed consolidated financial statements.

4 unchanged sentences

Three months ended

June 30, Six months ended

2020 2019 2020 2019

NET INCOME $ 18,908 $ 22,833 $ 35,742 $ 53,831

Other comprehensive income (loss), net of tax:

Cash flow hedge adjustments, net of taxes of $932 and $205 for the three months ended March 31, 2020 and 2019, respectively

Cash flow hedge adjustments, net of taxes of $356 and $116 for the three months ended June 30, 2020 and 2019, respectively, and ($577) and $322 for the six months ended June 30, 2020 and 2019, respectively 1,126 369 ( 1,826 ) 1,019

Foreign currency translation adjustment, net of taxes of $0 for all periods 4,604 2,838 ( 5,872 ) 1,246

Other adjustments, net of taxes of $0 for all periods 4 — ( 78 ) 6

Other comprehensive loss, net of taxes

Other comprehensive income (loss), net of taxes 5,734 3,207 ( 7,776 ) 2,271

TOTAL COMPREHENSIVE INCOME $ 24,642 $ 26,040 $ 27,966 $ 56,102

4 unchanged sentences

(Amounts in thousands)

Comprehensive

Common Stock Accumulated

Additional Other

Shares Amount Paid-In

Capital Treasury

Stock Retained

Earnings Comprehensive

Balance, January 1, 2020 20,742 $ 2,074 $ 668,947 $ ( 157 ) $ 721,782 $ ( 15,402 ) $ 1,377,244

3 unchanged sentences

Other comprehensive loss, net of tax — — — — — ( 13,510 ) ( 13,510 )

Net income — — — — 16,834 — 16,834

Balance, March 31, 2020 20,833 $ 2,083 $ 665,679 $ ( 1,573 ) $ 738,616 $ ( 28,912 ) $ 1,375,893

Comprehensive

Issuance of restricted stock and exercise of stock options 106 11 4,408 1,820 — — 6,239

Tax withholding payments related to net share settlement of equity awards ( 2 ) — — ( 387 ) — — ( 387 )

Stock compensation — — 5,410 — — — 5,410

Other comprehensive income, net of tax — — — — — 5,734 5,734

Net income — — — — 18,908 — 18,908

Balance, June 30, 2020 20,937 $ 2,094 $ 675,497 $ ( 140 ) $ 757,524 $ ( 23,178 ) $ 1,411,797

Common Stock Accumulated

Additional Other

Shares Amount Paid-In

Capital Treasury

Stock Retained

Earnings Comprehensive

Balance, January 1, 2019 20,492 $ 2,049 $ 657,899 $ ( 95 ) $ 620,747 $ ( 16,945 ) $ 1,263,655

3 unchanged sentences

Other comprehensive loss, net of tax — — — — — ( 936 ) ( 936 )

Net income — — — — 30,998 — 30,998

Balance, March 31, 2019 20,668 $ 2,067 $ 659,819 $ ( 13,056 ) $ 651,745 $ ( 17,881 ) $ 1,282,694

Issuance of restricted stock and exercise of stock options — — ( 8,505 ) 11,514 — — 3,009

Tax withholding payments related to net share settlement of equity awards — — — ( 108 ) — — ( 108 )

Stock compensation — — 6,229 — — — 6,229

Other comprehensive income, net of tax — — — — — 3,207 3,207

Net income — — — — 22,833 — 22,833

Balance, June 30, 2019 20,668 $ 2,067 $ 657,543 $ ( 1,650 ) $ 674,578 $ ( 14,674 ) $ 1,317,864

ICU MEDICAL, INC.

2 unchanged sentences

(In thousands)

Three months ended

Six months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Net income $ 35,742 $ 53,831

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 42,575 37,838

9 unchanged sentences

Usage of spare parts 5,045 14,649

Other 1,615 ( 346 )

Changes in operating assets and liabilities:

Accounts receivable 5,293 ( 46,861 )

Inventories 8,481 ( 16,060 )

Prepaid expenses and other assets ( 9,333 ) 6,111

Other assets ( 7,223 ) ( 18,079 )

Accounts payable ( 23,305 ) 2,032

1 unchanged sentence

Income taxes, including excess tax benefits and deferred income taxes 2,657 735

Net cash provided by (used in) operating activities

Net cash provided by operating activities 68,740 2,258

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Proceeds from sale of asset 147 19

Business acquisitions, net of cash acquired — ( 4,600 )

Intangible asset additions ( 4,104 ) ( 4,088 )

5 unchanged sentences

Proceeds from exercise of stock options 6,799 3,934

Payments on finance leases ( 116 ) —

Tax withholding payments related to net share settlement of equity awards ( 12,561 ) ( 18,265 )

9 unchanged sentences

(In thousands)

Three months ended

Six months ended

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

15 unchanged sentences

All intercompany balances and transactions have been eliminated.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

These reclassifications had no impact on net income, stockholders' equity or cash flows as previously reported.

We reclassified the usage of spare parts to separately state the amounts as an adjustment to reconcile net income to net cash provided by (used in) operating activities.

The usage of spare parts was reported in the "Other" line item in the previously reported operating cash flows.

New Accounting Pronouncements

25 unchanged sentences

the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period;

and the range and weighted average of significant

and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

The amendments in ASU 2018-02 are effective for fiscal years

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

unobservable inputs used to develop Level 3 fair value measurements.

The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2019.

beginning after December 15, 2019.

Early adoption is permitted.

29 unchanged sentences

Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $ 12.3 million and $ 24.4 million for the three months ended March 31, 2020 and 2019, respectively.

Restructuring, strategic transaction and integration expenses were $ 6.5 million and $ 18.8 million for the three and six months ended June 30, 2020, respectively, as compared to $ 37.0 million and $ 61.4 million for the three and six months ended June 30, 2019, respectively.

Restructuring

During the three months ended March 31, 2020 and 2019, restructuring charges were $ 7.2 million and $ 0.8 million , respectively.

Restructuring charges for the three months ended March 31, 2020, were primarily related to severance and costs related to office and other facility closures.

During the three and six months ended June 30, 2020, restructuring charges were $ 0.9 million and $ 8.1 million, respectively.

During the three and six months ended June 30, 2019, restructuring charges were $ 6.9 million and $ 7.7 million, respectively.

Restructuring charges for the three and six months ended June 30, 2020 were primarily related to severance and costs related to office and other facility closures.

Restructuring charges for the three and six months ended June 19, 2019 were primarily related to a one-time charge to move our U.S.

pump service depot to our existing Salt Lake City facility.

Restructuring charges are included in the restructuring, strategic transaction and integration line item in our condensed consolidated statement of operations.

During the year ended December 31, 2015, we incurred restructuring charges related to an agreement with Dr.

2 unchanged sentences

The buy-out, including payroll taxes, is paid in equal monthly installments until December 2020.

The following table summarizes the details of changes in our restructuring-related accrual for the period ended March 31, 2020 (in thousands):

The following table summarizes the details of changes in our restructuring-related accrual for the period ended June 30, 2020 (in thousands):

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued Balance January 1, 2020

Accrued Balance

March 31, 2020

Accrued Balance January 1, 2020 Charges

Incurred Payments Currency

Translation Accrued Balance

June 30, 2020

Severance pay and benefits $ 3,878 $ 3,706 $ ( 4,219 ) $ ( 83 ) $ 3,282

1 unchanged sentence

Facility closure expenses 1,211 4,384 ( 4,239 ) 203 1,559

$ 5,549 $ 8,090 $ ( 8,737 ) $ 120 $ 5,022

Strategic transaction and integration expenses

We incurred and expensed $ 5.1 million and $ 23.6 million in strategic transaction and integration expenses during the three months ended March 31, 2020 and 2019, respectively.

The strategic transaction and integration expenses during the three months ended March 31, 2020 and 2019, were primarily related to the integration of the Hospira Infusion Systems ("HIS") business acquired in 2017 from Pfizer.

For the three months ended March 31, 2020, the expenses included the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during the three months ended March 31, 2019, were primarily related to our final Pfizer separation costs and clean-up, which included a $ 12.7 million non-cash write-off of related assets.

We incurred and expensed $ 5.6 million and $ 10.7 million in strategic transaction and integration expenses during the three and six months ended June 30, 2020, respectively, as compared to $ 30.1 million and $ 53.7 million during the three and six months ended June 30, 2019, respectively.

The strategic transaction and integration expenses during the three and six months ended June 30, 2020 and 2019, were primarily related to the integration of the Hospira Infusion Systems ("HIS") business acquired in 2017 from Pfizer, which for the six months ended June 30, 2020, included expenses for the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during the three and six months ended June 30, 2019, included a one-time strategic supply chain restructuring charge of $ 22.1 million, which reduced our contracted commitments to our third party manufacturer.

The six months ended June 30, 2019 also included a $ 12.7 million non-cash write-off of assets related to our final Pfizer separation costs.

Our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions and Critical Care.

14 unchanged sentences

For the three months

ended March 31,

ended June 30, For the six months

ended June 30,

Geography 2020 2019 2020 2019

Europe, the Middle East and Africa $ 28,583 $ 32,978 $ 66,511 $ 65,356

3 unchanged sentences

Total Revenues $ 303,379 $ 312,282 $ 631,986 $ 643,214

The following table represents our revenues disaggregated by product (in thousands):

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table represents our revenues disaggregated by product (in thousands):

For the three months ended

June 30, For the six months ended

Product line 2020 2019 2020 2019

Infusion Consumables $ 110,993 $ 117,669 $ 234,500 $ 238,249

Infusion Systems 91,088 81,309 179,468 165,591

IV Solutions 89,178 102,635 193,469 215,817

Critical Care 12,120 10,669 24,549 23,557

1 unchanged sentence

Contract balances

The following table presents our changes in the contract balances for the three months ended March 31, 2020 and 2019 (in thousands):

The following table presents our changes in the contract balances for the six months ended June 30, 2020 and 2019 (in thousands):

Contract Liabilities

4 unchanged sentences

Software revenue deferred due to implementation ( 3,643 )

Ending balance, March 31, 2020

Ending balance, June 30, 2020 $ ( 12,242 )

Beginning balance, January 1, 2019 $ ( 4,282 )

3 unchanged sentences

Software revenue deferred due to implementation ( 2,366 )

Ending balance, March 31, 2019

As of March 31, 2020, revenue from remaining performance obligations related to implementation of software and equipment is $ 6.8 million .

We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restriction due to COVID-19.

Ending balance, June 30, 2019 $ ( 5,892 )

As of June 30, 2020, revenue from remaining performance obligations related to implementation of software and equipment is $ 10.7 million.

We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to COVID-19.

Revenue from remaining performance obligations related to annual software licenses is $ 1.5 million.

We expect to recognize substantially all of this revenue over the next twelve months.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We determine if an arrangement is a lease at inception.

6 unchanged sentences

Our lease terms include options to extend when it is reasonably certain that we will exercise that option.

All of our operating leases have stated lease payments, which may include fixed rental increases.

All of our leases have stated lease payments, which may include fixed rental increases.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our leases are for corporate offices, sales and support offices, a distribution facility, device service centers and certain equipment.

2 unchanged sentences

The following table presents the components of our lease cost (in thousands):

For the three months ended March 31,

For the three months

ended June 30, For the six months

ended June 30,

2020 2019 2020 2019

Operating lease cost $ 2,776 $ 2,101 $ 5,567 $ 4,531

Finance lease cost

Finance lease cost - interest 26 — 32 —

Finance lease cost - amortization of ROU asset 102 — 126 —

Short-term lease cost 73 84 128 180

Total lease cost $ 2,977 $ 2,185 $ 5,853 $ 4,711

Interest expense on our finance leases is included in other income (expense), net in our condensed consolidated statement of operations.

The amortization of the operating and finance ROU asset is included in selling, general and administrative expenses in our condensed consolidated statement of operations.

The following table presents the supplemental cash flow information related to our leases (in thousands):

For the three months ended March 31,

For the six months ended June 30,

Cash paid for amounts included in the measurement of lease liabilities:

8 unchanged sentences

The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):

March 31, 2020

June 30, 2020 As of

December 31, 2019

5 unchanged sentences

Weighted Average Remaining Lease Term

Operating leases

Operating leases 7.0 years 6.0 years

Weighted Average Discount Rate

1 unchanged sentence

The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):

March 31, 2020

June 30, 2020

Financing leases

4 unchanged sentences

Weighted Average Remaining Lease Term

Financing leases

Financing leases 7.3 years

Weighted Average Discount Rate

Financing leases 4.26 %

As of March 31, 2020, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):

Operating Leases

Finance Leases

As of June 30, 2020, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):

Operating Leases Finance Leases

Remainder of 2020 $ 5,260 $ 272

2021 10,484 544

2022 9,563 544

2023 8,649 544

2024 8,214 264

2025 4,937 189

Thereafter 15,039 806

Total Lease Payments 62,146 3,163

Less imputed interest ( 9,620 ) ( 426 )

Total $ 52,526 $ 2,737

ICU MEDICAL, INC.

6 unchanged sentences

Options and restricted stock units that are anti-dilutive are not included in the treasury stock method calculation.

There were 15,333 and 9,998 anti-dilutive securities for the three months ended March 31, 2020 and 2019, respectively.

There were 57,091 and 6,462 anti-dilutive securities for the three months ended June 30, 2020 and 2019, respectively.

There were 15,045 and 5,908 anti-dilutive securities for the six months ended June 30, 2020 and 2019, respectively.

The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in thousands, except per share data):

Three months ended

June 30, Six months ended

2020 2019 2020 2019

Net income $ 18,908 $ 22,833 $ 35,742 $ 53,831

Weighted-average number of common shares outstanding (for basic calculation) 20,880 20,622 20,831 20,577

1 unchanged sentence

Weighted-average common and common equivalent shares outstanding (for diluted calculation) 21,506 21,520 21,545 21,546

EPS — basic $ 0.91 $ 1.11 $ 1.72 $ 2.62

EPS — diluted $ 0.88 $ 1.06 $ 1.66 $ 2.50

8 unchanged sentences

In March 2020, we entered into a one-year cross-currency par forward contract that extends our current hedge of a portion of our Mexico forecasted expenses denominated in Pesos ("MXN").

The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 473.2 million MXN.

The total notional amount of this outstanding derivative as of June 30, 2020 was approximately 473.2 million MXN.

The term of the one-year contract is November 3, 2020 to December 1, 2021.

1 unchanged sentence

In November 2018, we entered into a one-year cross-currency par forward contract that hedges of a portion of our Mexico forecasted expenses denominated in MXN.

The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 265.3 million MXN.

The total notional amount of this outstanding derivative as of June 30, 2020 was approximately 165.8 million MXN.

The term of the one-year hedge is November 1, 2019 to November 3, 2020.

The derivative instrument matures in equal monthly amounts at a fixed forward rate of 22.109 MXN/USD.

The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (in thousands):

The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (in thousands):

ICU MEDICAL, INC.

2 unchanged sentences

Condensed Consolidated Balance Sheet

March 31, 2020

Location June 30, 2020 December 31,

Derivatives designated as cash flow hedging instruments

1 unchanged sentence

Prepaid expenses and other current assets $ — $ 2,366

Other assets 38 —

Accrued liabilities ( 75 ) —

Other long-term liabilities

Total derivatives designated as cash flow hedging instruments $ ( 37 ) $ 2,366

The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (in thousands):

The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

Line Item in the

Condensed Consolidated Statements of Operations

Three months ended

Condensed Consolidated Statements of Operations Three months ended

June 30, Six months ended

2020 2019 2020 2019

Derivatives designated as cash flow hedging instruments

Foreign exchange forward contracts

Cost of goods sold

We recognized the following (losses) gains on our foreign exchange contracts designated as a cash flow hedge (in thousands):

Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives

Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income

Three months ended

Foreign exchange forward contracts Cost of goods sold $ ( 219 ) $ 190 $ 473 $ 345

We recognized the following gains (losses) on our foreign exchange contracts designated as a cash flow hedge (in thousands):

Amount of Gain Recognized in Other Comprehensive Income on Derivatives Amount of (Loss) Gain Reclassified From Accumulated Other Comprehensive Income into Income

Three months ended

June 30, Three months ended

2020 2019 Location of (Loss) Gain Reclassified From Accumulated Other Comprehensive Income into Income 2020 2019

Derivatives designated as cash flow hedges:

Foreign exchange forward contract $ 1,262 $ 675 Cost of goods sold $ ( 219 ) $ 190

Total derivatives designated as cash flow hedging instruments $ 1,262 $ 675 $ ( 219 ) $ 190

Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income

Six months ended

June 30, Six months ended

2020 2019 Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income 2020 2019

Derivatives designated as cash flow hedges:

Foreign exchange forward contract

Cost of goods sold

Foreign exchange forward contract $ ( 1,930 ) $ 1,685 Cost of goods sold $ 473 $ 345

Total derivatives designated as cash flow hedging instruments $ ( 1,930 ) $ 1,685 $ 473 $ 345

As of March 31, 2020 , we expect approximately $ 1.0 million of the deferred losses on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next twelve months concurrent with the underlying hedged transactions also being reported in net income.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2020, we expect approximately $ 75,000 of the deferred losses on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next twelve months concurrent with the underlying hedged transactions also being reported in net income.

Fair Value Measurement

3 unchanged sentences

inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

8 unchanged sentences

At each reporting date subsequent to the acquisition we remeasured the earn-out using the same methodology above and recognized any changes in value.

As of December 31, 2019, it was determined that we did not meet the necessary performance targets that would require payout of any of the HIS earn-out liability.

As of December 31, 2019, we determined that we did not meet the necessary performance targets that would require payout of any of the HIS earn-out liability.

As of the date of this filing, Pfizer has disputed our determination that the performance targets requiring payout of the HIS earn-out liability were not met.

If we do not reach agreement on this issue with Pfizer, the dispute will be resolved by binding arbitration, that will likely be concluded in the second half of this calendar year.

In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit Vascular, Inc.

10 unchanged sentences

The following tables provide a reconciliation of the Level 3 earn-out liabilities measured at estimated fair value (in thousands):

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earn-out Liability

2 unchanged sentences

Accrued balance, March 31, 2020 $ 17,300

Change in fair value of earn-out (included in income from operations as a separate line item) 2,700

Accrued balance, June 30, 2020 $ 20,000

Earn-out Liability

2 unchanged sentences

Accrued balance, March 31, 2019 $ 39,700

The fair value of the earn-out was the same at March 31, 2020 as the fair value calculated at December 31, 2019 as the underlying target forecast did not change.

Change in fair value of earn-out (included in income from operations as a separate line item) ( 39,500 )

Accrued balance, June 30, 2019 $ 200

The fair value of the Pursuit earn-out increased at June 30, 2020 from the fair value calculated at December 31, 2019 primarily due to changes in the probabilities within the valuation model.

The following tables provide quantitative information about Level 3 inputs for fair value measurement of our earn-out liabilities:

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pursuit Earn-out

Simulation Input

March 31, 2020

At Acquisition November 2, 2019

Simulation Input As of

June 30, 2020 At Acquisition November 2, 2019

Revenue/Gross Profit Volatility 30.00 % 20.00 %

2 unchanged sentences

Counter Party Risk 6.30 % 6.00 %

Simulation Input

March 31, 2019

Simulation Input As of

June 30, 2019 As of

December 31, 2018

Adjusted EBITDA Volatility 30.00 % 30.00 %

WACC 8.25 % 8.25 %

20-year risk free rate 2.31 % 2.87 %

Market price of risk 5.77 % 5.24 %

Cost of debt 4.13 % 5.25 %

Investments and Foreign Currency Contracts

3 unchanged sentences

Our assets and liabilities measured at fair value on a recurring basis consisted of the following (Level 1, 2 and 3 inputs as defined above) (in thousands):

Fair value measurements at March 31, 2020

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair value measurements at June 30, 2020

Total carrying

Quoted prices

assets (level 1)

inputs (level 2)

value Quoted prices

assets (level 1) Significant

inputs (level 2) Significant

inputs (level 3)

Available for sale securities:

Short-term $ 14,564 $ — $ 14,564 $ —

Foreign exchange forwards:

Other assets 38 — 38 —

Total Assets $ 14,602 $ — $ 14,602 $ —

Earn-out liability $ 20,000 $ — $ — $ 20,000

1 unchanged sentence

Accrued liabilities 75 — 75 —

Other long-term liabilities

Total Liabilities $ 20,075 $ — $ 75 $ 20,000

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair value measurements at December 31, 2019

Total carrying

Quoted prices

assets (level 1)

inputs (level 2)

value Quoted prices

assets (level 1) Significant

inputs (level 2) Significant

inputs (level 3)

Available for sale securities:

Short-term $ 23,967 $ — $ 23,967 $ —

Foreign exchange forwards:

Prepaid expenses and other current assets 2,366 — 2,366 —

Total Assets $ 26,333 $ — $ 26,333 $ —

Earn-out liability $ 17,300 $ — $ — $ 17,300

7 unchanged sentences

The amortized cost of the debt securities are adjusted for the amortization of premiums computed under the effective interest method.

Such amortization is included in investment income in other income on our condensed consolidated statements of operations.

Such amortization is included in investment income in other income (expense), net on our condensed consolidated statements of operations.

There have been no realized gains or losses on their disposal.

3 unchanged sentences

Our short investment securities consisted of the following (in thousands):

As of March 31, 2020

Amortized Cost

Unrealized Holding Gains (Losses)

Short-term corporate bonds

As of December 31, 2019

Amortized Cost

Unrealized Holding Gains (Losses)

Short-term corporate bonds

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prepaid Expenses, Other Current Assets

As of June 30, 2020

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

Short-term corporate bonds $ 14,564 $ — $ 14,564

As of December 31, 2019

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

Short-term corporate bonds $ 23,967 $ — $ 23,967

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Other prepaid expenses and receivables 16,213 13,778

3 unchanged sentences

Deferred tax charge 4,398 1,266

Deposits 1,327 1,375

Other 1,462 4,358

$ 43,772 $ 33,981

Inventories are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method.

1 unchanged sentence

Inventories consisted of the following (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Raw materials $ 128,972 $ 119,709

4 unchanged sentences

Property and equipment consisted of the following (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Machinery and equipment $ 246,955 $ 219,057

Land, building and building improvements 233,931 230,454

Molds 60,378 60,155

Computer equipment and software 96,711 83,217

1 unchanged sentence

Instruments placed with customers (1)

80,445 74,434

Construction in progress 76,733 101,425

3 unchanged sentences

______________________________

(1) Instruments placed with customers consist of drug-delivery and monitoring systems placed with customers.

Depreciation expense was $ 15.2 million and $ 15.1 million for the three months ended March 31, 2020 and 2019, respectively.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1) Instruments placed with customers consist of drug-delivery and monitoring systems placed with customers under operating leases.

Depreciation expense was $ 15.8 million and $ 31.0 million for the three and six months ended June 30, 2020, respectively, as compared to $ 14.7 million and $ 29.8 million for the three and six months ended June 30, 2019, respectively.

Goodwill and Intangible Assets, Net

2 unchanged sentences

Currency translation ( 119 )

Balance as of March 31, 2020

Balance as of June 30, 2020 $ 32,472

_______________________________________________

(1) Other relates to a measurement period adjustment to deferred taxes related to our 2019 acquisition of Pursuit.

Intangible Assets, Net

Intangible assets, carried at cost less accumulated amortization and amortized on a straight-lined basis, were as follows (in thousands):

March 31, 2020

Life in Years

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Average June 30, 2020

Life in Years Cost Accumulated

Amortization Net

Patents 10 $ 23,579 $ 14,263 $ 9,316

Customer contracts 12 10,192 5,671 4,521

Non-contractual customer relationships 9 56,868 22,924 33,944

Trademarks 4 425 425 —

Trade name 15 18,253 2,871 15,382

Developed technology 13 152,893 30,578 122,315

Non-compete 3 2,500 556 1,944

Total amortized intangible assets $ 264,710 $ 77,288 $ 187,422

3 unchanged sentences

* Internally developed software will be amortized when the projects are complete and the assets are ready for their intended use.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2019

Life in Years

Average December 31, 2019

Life in Years Cost Accumulated

Amortization Net

Patents 10 $ 22,322 $ 13,519 $ 8,803

Customer contracts 12 10,122 5,506 4,616

Non-contractual customer relationships 9 57,296 19,787 37,509

Trademarks 4 425 425 —

Trade name 15 18,256 2,254 16,002

Developed technology 13 152,354 24,228 128,126

Non-compete 3 2,500 139 2,361

Total amortized intangible assets $ 263,275 $ 65,858 $ 197,417

4 unchanged sentences

Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.

During the three months ended March 31, 2020 and 2019, intangible asset amortization expense was $ 5.8 million and $ 4.0 million , respectively.

As of March 31, 2020 estimated annual amortization for our intangible assets for each of the next five years is approximately (in thousands):

Remainder of 2020

During the three and six months ended June 30, 2020, intangible asset amortization expense was $ 5.8 million and $ 11.6 million, respectively, as compared to $ 4.0 million and $ 8.0 million for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020 estimated annual amortization for our intangible assets for each of the next five years is approximately (in thousands):

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Remainder of 2020 $ 11,828

Thereafter 70,312

Total $ 187,422

Accrued Liabilities and Other Long-Term Liabilities

Accrued liabilities consist of the following (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Salaries and benefits $ 26,181 $ 21,116

14 unchanged sentences

Contract settlement 833 1,667

Other 8,051 6,801

$ 107,083 $ 117,776

Other long-term liabilities consist of the following (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Operating lease liability-LT $ 44,281 $ 28,896

Benefits 1,114 1,131

Accrued rent 1,466 1,642

Contract liabilities-LT 404 472

Financing lease liability-LT 2,298 —

Deferred revenue

Income taxes were accrued at an estimated effective tax rate of 17 % and 7 % for the three months ended March 31, 2020 and 2019, respectively.

The effective tax rate for the three months ended March 31, 2020 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII") and tax credits.

The effective tax rate for the three months ended March 31, 2019 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, GILTI and tax credits.

The effective tax rate during the three months ended March 31, 2019 included a discrete tax benefit of $ 5.6 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

In addition, the effective tax rate during the three months ended March 31, 2019 included a discrete tax provision of $ 1.8 million as a result of a revaluation of the contingent consideration.

Other 320 679

$ 49,883 $ 32,820

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes were accrued at an estimated effective tax rate of 9 % and 13 % for the three and six months ended June 30, 2020, respectively, as compared to 17 % and 12 % for the three and six months ended June 30, 2019, respectively.

The effective tax rate for the three and six months ended June 30, 2020 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII") and tax credits.

The effective tax rate during the three and six months ended June 30, 2020 included a discrete tax benefit of $ 3.0 million and $ 3.5 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

The effective tax rate for the three and six months ended June 30, 2019 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, GILTI and tax credits.

The effective tax rate during the three and six months ended June 30, 2019 included a discrete tax benefit of $ 1.8 million and $ 7.4 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

In addition, the effective tax rate during the three and six months ended June 30, 2019 included a discrete tax provision of $ 9.5 million and $ 11.3 million as a result of a revaluation of the contingent consideration.

Long-Term Obligations

4 unchanged sentences

We plan to hold the proceeds of these borrowings as cash while the COVID-19 situation and market conditions remain uncertain.

As of March 31, 2020 , we had $ 150.0 million in borrowings and no availability under the Credit Facility.

As of June 30, 2020, we had $ 150.0 million in borrowings and no availability under the Credit Facility.

Principal payments on the revolving Credit Facility are made at our discretion with the unpaid amount due at maturity.

9 unchanged sentences

The minimum Consolidated Fixed Charge Coverage Ratio is 2.00 to 1.00.

We were in compliance with all financial covenants as of March 31, 2020.

We were in compliance with all financial covenants as of June 30, 2020.

ICU MEDICAL, INC.

5 unchanged sentences

This plan replaced our existing plan and has no expiration date.

During the three months ended March 31, 2020 , we did not purchase any shares of our common stock under our stock purchase plans.

As of March 31, 2020 , all of the $ 100.0 million available for purchase was remaining under the plan.

During the six months ended June 30, 2020, we did not purchase any shares of our common stock under our stock purchase plans.

As of June 30, 2020, all of the $ 100.0 million available for purchase was remaining under the plan.

We are currently limited on share purchases in accordance with the terms and conditions of our Credit Facility (see Note 16:

Long-Term Obligations).

For the three months ended March 31, 2020 , we withheld 63,511 shares of our common stock from employee vested restricted stock units in consideration for $ 12.2 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

For the three months ended March 31, 2019, we withheld 77,642 shares of our common stock from employee vested restricted stock units in consideration for $ 18.2 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

For the six months ended June 30, 2020, we withheld 65,392 shares of our common stock from employee vested restricted stock units in consideration for $ 12.6 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

For the six months ended June 30, 2019, we withheld 78,108 shares of our common stock from employee vested restricted stock units in consideration for $ 18.3 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

Treasury stock is used to issue shares for stock option exercises, restricted stock grants and employee stock purchase plan stock purchases.

1 unchanged sentence

The components of accumulated other comprehensive (loss) income ("AOCI"), net of tax, were as follows (in thousands):

Foreign Currency Translation Adjustments

Unrealized Gains on Cash Flow Hedges

Other Adjustments

Foreign Currency Translation Adjustments Unrealized Gains on Cash Flow Hedges Other Adjustments Total

Balance as of January 1, 2020 $ ( 17,310 ) $ 1,880 $ 28 $ ( 15,402 )

3 unchanged sentences

Balance as of March 31, 2020 $ ( 27,787 ) $ ( 1,072 ) $ ( 53 ) $ ( 28,912 )

Foreign Currency Translation Adjustments

Unrealized Gains on Cash Flow Hedges

Other Adjustments

Other comprehensive loss before reclassifications 4,604 960 4 5,568

Amounts reclassified from AOCI — 166 — 166

Other comprehensive loss 4,604 1,126 4 5,734

Balance as of June 30, 2020 $ ( 23,183 ) $ 54 $ ( 49 ) $ ( 23,178 )

Foreign Currency Translation Adjustments Unrealized Gains on Cash Flow Hedges Other Adjustments Total

Balance as of January 1, 2019 $ ( 17,682 ) $ 638 $ 99 $ ( 16,945 )

3 unchanged sentences

Balance as of March 31, 2019 $ ( 19,274 ) $ 1,288 $ 105 $ ( 17,881 )

Other comprehensive income before reclassifications 2,838 513 — 3,351

Amounts reclassified from AOCI — ( 144 ) — ( 144 )

Other comprehensive income 2,838 369 — 3,207

Balance as of June 30, 2019 $ ( 16,436 ) $ 1,657 $ 105 $ ( 14,674 )

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and Contingencies

12 unchanged sentences

On July 5, 2018, the District Court granted defendants’ motion to dismiss the operative complaint for failing to state a

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

valid antitrust claim, but allowed the plaintiffs to file a second amended complaint.

2 unchanged sentences

The District Court concluded that it would be futile to permit plaintiffs to amend their complaint again, and dismissed the case with prejudice.

The plaintiffs may file an appeal or other type of challenge to the District Court’s order.

On February 3, 2017, we completed the acquisition of the HIS business from Pfizer.

This litigation is the subject of a claim for indemnification against us by Pfizer and a cross-claim for indemnification against Pfizer by us under the HIS stock and asset purchase agreement.

The plaintiffs did not file an appeal.

From time to time, we are involved in various legal proceedings, most of which are routine litigation, in the normal course of business.

13 unchanged sentences

The initial supply price, which will be annually updated, is in full consideration for all costs associated with the manufacture, documentation, packaging and certification of the products.

Subsequent Events

COVID-19 Pandemic

In late 2019, a novel coronavirus (“COVID-19”) was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic.

3 unchanged sentences

however, it may result in a material adverse impact on our financial position, results of operations and cash flows.

Possible impact may include, but is not limited to:

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

impact may include, but is not limited to:

lost revenue or additional costs associated with a disruption to our production or distribution facilities;

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements