What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 132 added, 299 removed, 600 unchanged (42% of the section changed)

4 unchanged sentences

(In thousands, except par value data)

September 30,

2021 December 31,

4 unchanged sentences

TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES 435,942 410,784

Accounts receivable, net of allowance for doubtful accounts of $ 22,299 at September 30, 2020 and $ 20,219 at December 31, 2019

Accounts receivable, net of allowance for doubtful accounts of $ 21,782 at March 31, 2021 and $ 21,490 at December 31, 2020

120,365 124,093

5 unchanged sentences

OPERATING LEASE RIGHT-OF-USE ASSETS 45,259 46,571

LONG-TERM INVESTMENT SECURITIES 18,834 12,974

GOODWILL 32,952 33,001

8 unchanged sentences

Income tax liability 1,457 303

TOTAL CURRENT LIABILITIES 185,359 248,468

Contingent earn-out liability 26,300 26,300

TOTAL CURRENT LIABILITIES 179,862 195,488

OTHER LONG-TERM LIABILITIES 46,110 47,835

6 unchanged sentences

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

Issued — 20,969 shares at September 30, 2020 and 20,743 shares at December 31, 2019 and outstanding — 20,968 shares at September 30, 2020 and 20,742 shares at December 31, 2019

Issued — 21,219 shares at March 31, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,192 shares at March 31, 2021 and 21,058 shares at December 31, 2020

Additional paid-in capital 701,586 693,068

Treasury stock, at cost ( 180 ) ( 157 )

Treasury stock, at cost ( 26,785 and 209 shares, respectively)

( 5,410 ) ( 39 )

Retained earnings 832,383 808,652

10 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

TOTAL REVENUES $ 318,046 $ 328,607

26 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

NET INCOME $ 23,731 $ 16,834

Other comprehensive income (loss), net of tax:

Cash flow hedge adjustments, net of taxes of ($321) and $118 for the three months ended September 30, 2020 and 2019, respectively, and $256 and ($204) for the nine months ended September 30, 2020 and 2019, respectively 1,016 ( 375 ) ( 810 ) 644

Cash flow hedge adjustments, net of taxes of $ 298 and $ 932 for the three months ended March 31, 2021 and 2020, respectively

( 945 ) ( 2,952 )

Foreign currency translation adjustment, net of taxes of $ — for all periods

( 7,458 ) ( 10,477 )

Other adjustments, net of taxes of $ — for all periods

Other comprehensive income (loss), net of taxes 7,645 ( 7,908 ) ( 131 ) ( 5,637 )

Other comprehensive loss, net of taxes ( 8,391 ) ( 13,510 )

TOTAL COMPREHENSIVE INCOME $ 15,340 $ 3,324

17 unchanged sentences

Balance, March 31, 2021 21,219 $ 2,122 $ 701,586 $ ( 5,410 ) $ 832,383 $ ( 9,913 ) $ 1,520,768

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

Issuance of restricted stock and exercise of stock options 33 3 1,564 220 — — 1,787

Tax withholding payments related to net share settlement of equity awards ( 1 ) — — ( 260 ) — — ( 260 )

Stock compensation — — 6,265 — — — 6,265

Other comprehensive income, net of tax — — — — — 7,645 7,645

Net income — — — — 24,986 — 24,986

Balance, September 30, 2020 20,969 $ 2,097 $ 683,326 $ ( 180 ) $ 782,510 $ ( 15,533 ) $ 1,452,220

ICU MEDICAL, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) - CONTINUED

(Amounts in thousands)

Common Stock Accumulated

11 unchanged sentences

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

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

Issuance of restricted stock and exercise of stock options 4 — ( 1,556 ) 1,863 — — 307

Tax withholding payments related to net share settlement of equity awards ( 1 ) — — ( 213 ) — — ( 213 )

Stock compensation — — 3,722 — — — 3,722

Other comprehensive loss, net of tax — — — — — ( 7,908 ) ( 7,908 )

Net income — — — — 26,563 — 26,563

Balance, September 30, 2019 20,671 $ 2,067 $ 659,709 $ — $ 701,141 $ ( 22,582 ) $ 1,340,335

ICU MEDICAL, INC.

2 unchanged sentences

(In thousands)

Nine months ended

September 30,

Three months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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Debt issuance costs amortization 72 72

Change in fair value of contingent earn-out 7,000 ( 47,400 )

Product-related charges — 2,626

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Proceeds from sale of asset 55 131

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

Intangible asset additions ( 1,874 ) ( 1,958 )

4 unchanged sentences

Proceeds from short-term debt — 150,000

Repayment of short-term debt ( 150,000 ) —

Proceeds from exercise of stock options 4,864 560

1 unchanged sentence

Tax withholding payments related to net share settlement of equity awards ( 7,723 ) ( 12,174 )

Net cash used in financing activities ( 4,466 ) ( 14,238 )

Net cash (used in) provided by financing activities ( 3,000 ) 138,386

Effect of exchange rate changes on cash ( 1,287 ) ( 3,546 )

NET INCREASE (DECREASE) CASH AND CASH EQUIVALENTS 82,323 ( 28,832 )

NET INCREASE CASH AND CASH EQUIVALENTS 28,152 150,887

CASH AND CASH EQUIVALENTS, beginning of period 396,097 268,670

5 unchanged sentences

(In thousands)

Nine months ended

September 30,

Three months ended

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

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New Accounting Pronouncements

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal use software license.

Costs to develop or obtain internal-use software that cannot be capitalized under subtopic 350-40, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract.

Therefore, an entity in a hosting arrangement that is a service contract determines which project stage (that is, preliminary project stage, application development stage, or post-implementation stage) an implementation activity relates to.

Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed.

The amendments in this update require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.

The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

We adopted this ASU effective January 1, 2020.

This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments in this update modify the disclosure requirements in Topic 820.

The amendments remove from disclosure:

the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

the policy for timing of transfers between levels;

and the valuation processes for Level 3 fair value measurements.

The amendments also made the following disclosure modifications:

for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly;

and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

The amendments also added the following disclosure requirements:

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 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

beginning after December 15, 2019.

Early adoption is permitted.

We adopted this ASU effective January 1, 2020.

This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This update amends the FASB's guidance on the impairment of financial instruments by requiring timelier recording of credit losses on loans and other financial instruments.

The ASU adds an impairment model that is based on expected losses rather than incurred losses.

The ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

In April 2019, the FASB issued ASU No.

2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses and in May 2019, the FASB issued ASU No.

2019-05, Financial Instruments-Credit Losses to Topic 326, Financial Instruments - Targeted Transition Relief.

ASU 2019-04 clarifies and corrects certain areas of the Codification and ASU 2019-05 provides entities with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326.

The amendments in these updates will be effective for fiscal years beginning after December 15, 2019.

Early adoption is permitted as of the fiscal years beginning after December 15, 2018.

The updated guidance requires a modified retrospective adoption.

We adopted this ASU effective January 1, 2020.

This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

Recently Issued Accounting Standards

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The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022.

We are currently reviewing the impact of this ASU on our contracts.

The impact of this ASU on our contracts has not been material.

Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $ 4.1 million and $ 22.9 million for the three and nine months ended September 30, 2020, respectively, as compared to $ 8.0 million and $ 69.4 million for the three and nine months ended September 30, 2019, respectively.

Restructuring, strategic transaction and integration expenses were $ 2.9 million and $ 12.3 million for the three months ended March 31, 2021, and 2020 respectively.

Restructuring

During the three and nine months ended September 30, 2020, restructuring charges were $ 0.0 million and $ 8.1 million, respectively.

During the three and nine months ended September 30, 2019, restructuring charges were $ 0.8 million and $ 8.4 million, respectively.

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

Restructuring charges for the three and nine months ended September 30, 2019 were primarily related to a one-time charge to move our U.S.

pump service depot to our existing Salt Lake City facility and other plant restructuring.

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.

Lopez, a member of our Board of Directors and a former employee in our research and development department, pursuant to which we bought out Dr.

Lopez's right to employment under his then-existing employment agreement.

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 September 30, 2020 (in thousands):

During the three months ended March 31, 2021 and 2020, restructuring charges were $ 0.0 million and $ 7.2 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.

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

The following table summarizes the details of changes in our restructuring-related accrual for the period ended March 31, 2021 (in thousands):

ICU MEDICAL, INC.

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Translation Accrued Balance

September 30, 2020

March 31, 2021

Severance pay and benefits $ 1,858 $ 43 $ ( 435 ) $ 12 $ 1,478

Employment agreement buyout 460 — ( 370 ) — 90

Facility closure expenses 1,563 — — 17 1,580

1 unchanged sentence

Strategic transaction and integration expenses

We incurred and expensed $ 4.1 million and $ 14.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2020, respectively, as compared to $ 7.2 million and $ 61.0 million during the three and nine months ended September 30, 2019, respectively.

The strategic transaction and integration expenses during the three and nine months ended September 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 nine months ended September 30, 2020, included expenses for the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during the nine months ended September 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 nine months ended September 30, 2019 also included a $ 12.7 million non-cash write-off of assets related to our final Pfizer separation costs.

We incurred and expensed $ 2.9 million and $ 5.1 million in strategic transaction and integration expenses during the three months ended March 31, 2021 and 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations.

The strategic transaction and integration expenses during the three months ended March 31, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives.

The strategic transaction and integration expenses during the three months ended March 31, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

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

1 unchanged sentence

Revenue is typically recognized upon transfer of control of the products, which we deem to be at point of shipment.

However, for purposes of revenue recognition for our software licenses and renewals, we consider the control of these products to be transferred to a customer at a certain point in time;

therefore, we recognize revenue at the start of the applicable license term.

Payment is typically due in full within 30 days of delivery or the start of the contract term.

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We also provide chargebacks to distributors that sell to end-customers at prices determined under a contract between us and the end-customer.

We use information available at the time and our historical experience to estimate and record provisions for chargebacks.

We also warrant products against defects and have a policy permitting the return of defective products, for which we accrue and expense at the time of sale using information available at that time and our historical experience.

Chargebacks are the difference between the prices we charge our distribution customers and the contracted prices we have with the end customer which are processed as credits to our distribution customers.

In estimating the expected value of chargeback amounts in order to determine the transaction price, we use information available at the time, including our historical experience.

We also warranty products against defects and have a policy permitting the return of defective products, for which we accrue and expense at the time of sale using information available at that time and our historical experience.

We also provide for extended service-type warranties, which we consider to be separate performance obligations.

We allocate a portion of the transaction price to the extended service-type warranty based on its estimated relative selling price, and recognize revenue over the period the warranty service is provided.

Our revenues are recorded at the net sales price, which includes an estimate for variable consideration related to rebates, chargebacks and product returns.

Revenue disaggregated

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For the three months

ended September 30, For the nine months

ended September 30,

ended March 31,

Geography 2021 2020

4 unchanged sentences

Total Revenues $ 318,046 $ 328,607

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

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three months ended

September 30, For the nine months ended

September 30,

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

For the three months

ended March 31,

Product line 2021 2020

5 unchanged sentences

Contract balances

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

The following table presents our changes in the contract balances for the three months ended March 31, 2021 and 2020 (in thousands):

Contract Liabilities

4 unchanged sentences

Software revenue deferred due to implementation ( 1,794 )

Ending balance, September 30, 2020 $ ( 8,932 )

Ending balance, March 31, 2021 $ ( 8,888 )

Beginning balance, January 1, 2020 $ ( 4,855 )

3 unchanged sentences

Software revenue deferred due to implementation ( 2,664 )

Ending balance, September 30, 2019 $ ( 7,692 )

As of September 30, 2020, revenue from remaining performance obligations related to implementation of software and equipment is $ 7.6 million.

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

Ending balance, March 31, 2020 $ ( 8,472 )

As of March 31, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $ 7.3 million.

We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to the novel coronavirus and its variants ("COVID-19").

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

8 unchanged sentences

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

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.

All of our leases have

ICU MEDICAL, INC.

1 unchanged sentence

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.

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.

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

Our leases have original lease terms of one year to fifteen years , some of which include options to extend the leases for up to an additional five years .

2 unchanged sentences

For the three months

ended September 30, For the nine months

ended September 30,

2020 2019 2020 2019

ended March 31

Operating lease cost $ 2,835 $ 2,791

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

For the nine months ended September 30,

For the three months ended March 31,

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

4 unchanged sentences

Finance leases $ 184 $ 800

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

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

September 30, 2020 As of

March 31, 2021 As of

December 31, 2020

9 unchanged sentences

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

September 30, 2020

March 31, 2021 As of

December 31, 2020

Financing leases

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Weighted Average Remaining Lease Term

Financing leases 7.0 years

Financing leases 6.2 years 6.4 years

Weighted Average Discount Rate

Financing leases 4.27 % 4.27 %

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

As of March 31, 2021, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):

Operating Leases Finance Leases

9 unchanged sentences

Total $ 48,460 $ 2,913

Net Income Per Share

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net Income Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

2 unchanged sentences

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

There were 14,017 and 20,116 anti-dilutive securities for the three months ended September 30, 2020 and 2019, respectively.

There were 12,182 and 9,375 anti-dilutive securities for the nine months ended September 30, 2020 and 2019, respectively.

There were 12,080 and 15,333 anti-dilutive securities for the three months ended March 31, 2021 and 2020, 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

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Net income $ 23,731 $ 16,834

13 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 September 30, 2020 was approximately 473.2 million MXN.

The total notional amount of this outstanding derivative as of March 31, 2021 was approximately 327.6 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 September 30, 2020 was approximately 66.3 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 September 30, 2020 and December 31, 2019 (in thousands):

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

The derivative instrument matured 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, 2021 and December 31, 2020 (in thousands):

ICU MEDICAL, INC.

2 unchanged sentences

Condensed Consolidated Balance Sheet

Location September 30, 2020 December 31,

Location March 31, 2021 December 31, 2020

Derivatives designated as cash flow hedging instruments

1 unchanged sentence

Prepaid expenses and other current assets $ 2,312 $ 3,555

Other assets 216 —

Accrued liabilities ( 6 ) —

Total derivatives designated as cash flow hedging instruments $ 2,312 $ 3,555

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

The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (in thousands):

Line Item in the

Condensed Consolidated Statements of Operations Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Derivatives designated as cash flow hedging instruments

Foreign exchange forward contracts Cost of goods sold $ 841 $ 692

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

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

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

Three months ended

September 30, Three months ended

September 30,

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 $ 1,287 $ ( 264 ) Cost of goods sold $ ( 49 ) $ 229

Total derivatives designated as cash flow hedging instruments $ 1,287 $ ( 264 ) $ ( 49 ) $ 229

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

Nine months ended

September 30, Nine months ended

September 30,

March 31, Three months ended

2021 2020 Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income 2021 2020

2 unchanged sentences

Total derivatives designated as cash flow hedging instruments $ ( 402 ) $ ( 3,192 ) $ 841 $ 692

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 30, 2020, we expect approximately $ 1.1 million of the deferred gains 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.

As of March 31, 2021, we expect approximately $ 2.3 million of the deferred gains 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.

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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.

1 unchanged sentence

In 2017, we recognized an earn-out liability upon the acquisition of HIS from Pfizer.

Pfizer was entitled up to $ 225 million in cash if certain performance targets for the combined company for the three years ending December 31, 2019 were achieved.

Pfizer was entitled to receive between $ 191.3 million and $ 225.0 million in additional cash consideration based on the achievement of certain performance targets for the combined company for the three years ending December 31, 2019.

The initial fair value of the earn-out was determined by employing a Monte Carlo simulation in a risk neutral framework.

6 unchanged sentences

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 within the next three to six months.

The dispute is being resolved by binding arbitration that will likely be concluded during the third quarter of 2021.

Given the uncertainty of any arbitration, it may be possible that we will incur a loss with regards to this matter.

If we are unsuccessful in arbitration such that it is determined that we met the necessary performance targets for any of the HIS earn-out liability, we will be obligated to pay Pfizer between $191.3 million and $225.0 million in additional cash consideration.

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, 2021 $ 26,300

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

Change in fair value of earn-out (included in income from operations as a separate line item) 4,300

Accrued balance, September 30, 2020 $ 24,300

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) ( 39,500 )

Accrued balance, June 30, 2019 $ 200

Change in fair value of earn-out (included in income from operations as a separate line item) ( 200 )

Accrued balance, September 30, 2019 $ —

The fair value of the Pursuit earn-out increased at September 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:

Pursuit Earn-out

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Simulation Input As of

September 30, 2020 At Acquisition November 2, 2019

March 31, 2021 As of

December 31, 2020 As of

March 31, 2020

Revenue/Gross Profit Volatility 25.00 % 25.00 % 20.00 %

2 unchanged sentences

Counter Party Risk 3.10 % 3.10 % 6.00 %

Simulation Input As of

December 31, 2018

Adjusted EBITDA Volatility 30.00 %

20-year risk free rate 2.87 %

Market price of risk 5.24 %

Cost of debt 5.25 %

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments and Foreign Currency Contracts

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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 September 30, 2020

Fair value measurements at March 31, 2021

Total carrying

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Short-term $ 11,693 $ — $ 11,693 $ —

Long-term 18,834 — 18,834 —

Foreign exchange forwards:

Prepaid expenses and other current assets 2,312 — 2,312 —

Other assets 216 — 216 —

Total Assets $ 32,839 $ — $ 32,839 $ —

Earn-out liability $ 26,300 $ — $ — $ 26,300

Foreign exchange forwards:

Accrued liabilities 6 — 6 —

Total Liabilities $ 26,300 $ — $ — $ 26,300

7 unchanged sentences

Short-term $ 14,687 $ — $ 14,687 $ —

Long-term 12,974 — 12,974 —

Foreign exchange forwards:

3 unchanged sentences

Total Liabilities $ 26,300 $ — $ — $ 26,300

Investment Securities

Our investment securities currently consist of short-term corporate bonds.

Our investment securities are considered available-for-sale and are “investment grade” and carried at fair value.

Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income.

Unrealized losses on available-for-sale securities are charged against net earnings when a decline in fair value is determined to

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

be other than temporary.

Investment Securities

Our investment securities currently consist of short-term and long-term corporate bonds.

Our investment securities are considered available-for-sale and are “investment grade” and carried at fair value.

Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income.

Unrealized losses on available-for-sale securities are charged against net earnings when a decline in fair value is determined to be other than temporary.

Our management reviews several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near term prospects of the issuer, and for equity investments, our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

6 unchanged sentences

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

As of September 30, 2020

As of March 31, 2021

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

Short-term corporate bonds $ 11,693 $ — $ 11,693

Long-term corporate bonds 18,834 — 18,834

Total investment securities $ 30,527 $ — $ 30,527

As of December 31, 2020

1 unchanged sentence

Short-term corporate bonds $ 14,687 $ — $ 14,687

Long-term corporate bonds 12,974 — 12,974

Total investment securities $ 27,661 $ — $ 27,661

Prepaid Expenses and Other Current Assets

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Other prepaid expenses and receivables $ 16,084 $ 14,964

3 unchanged sentences

Deferred tax charge 3,856 3,542

Foreign exchange forward contract 2,312 3,555

Deposits 1,343 1,353

4 unchanged sentences

Inventories consisted of the following (in thousands):

September 30, 2020 December 31, 2019

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021 December 31, 2020

Raw materials $ 122,703 $ 126,499

2 unchanged sentences

Total inventories $ 300,086 $ 314,928

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and Equipment

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Machinery and equipment $ 293,653 $ 291,331

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

Depreciation expense was $ 15.6 million and $ 46.7 million for the three and nine months ended September 30, 2020, respectively, as compared to $ 14.8 million and $ 44.6 million for the three and nine months ended September 30, 2019, respectively.

Depreciation expense was $ 16.3 million and $15.2 million for the three months ended March 31, 2021 and 2020, respectively.

Goodwill and Intangible Assets, Net

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Currency translation ( 49 )

Balance as of September 30, 2020 $ 32,651

_______________________________________________

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

Balance as of March 31, 2021 $ 32,952

Intangible Assets, Net

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Average September 30, 2020

Average March 31, 2021

Life in Years Cost Accumulated

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

During the three and nine months ended September 30, 2020, intangible asset amortization expense was $ 5.8 million and $ 17.4 million, respectively, as compared to $ 4.4 million and $ 12.4 million for the three and nine months ended September 30, 2019, respectively.

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

During the three months ended March 31, 2021 and 2020, respectively, intangible asset amortization expense was $ 5.8 million and $ 5.8 million, respectively.

As of March 31, 2021 estimated annual amortization for our intangible assets for each of the next five years is approximately (in thousands):

ICU MEDICAL, INC.

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Accrued liabilities consist of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Salaries and benefits $ 26,118 $ 25,786

Incentive compensation 8,130 27,023

Accrued supply chain restructuring costs 753 23,119

Operating lease liability-ST 8,872 8,740

Accrued product field action 334 2,096

Accrued sales taxes 2,435 2,146

7 unchanged sentences

Accrued freight 7,715 6,784

Contract liabilities-ST — 1,935

Contract settlement 417 1,667

Other 5,955 5,515

1 unchanged sentence

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Operating lease liability-LT $ 39,588 $ 41,019

3 unchanged sentences

Financing lease liability-LT 2,330 2,388

Deferred revenue 693 864

Other 589 582

$ 46,110 $ 47,835

Income taxes were accrued at an estimated effective tax rate of 12 % and 17 % for the three months ended March 31, 2021 and 2020, respectively.

The effective tax rate for the three months ended March 31, 2021 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 months ended

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes were accrued at an estimated effective tax rate of 5 % and 10 % for the three and nine months ended September 30, 2020, respectively, as compared to 19 % and 14 % for the three and nine months ended September 30, 2019, respectively.

The effective tax rate for the three and nine months ended September 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"), tax credits and the following discrete tax items recognized during the interim periods:

• Excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the three and nine months ended September 30, 2020 of $ 0.1 million and $ 3.6 million, respectively.

• The revaluation of the contingent consideration during the three and nine months ended September 30, 2020, which resulted in a tax benefit of $ 0.7 million and $ 1.1 million, respectively.

federal and state return-to-provision adjustments net of related reserve changes for the year ended December 31, 2019 resulted in a tax benefit of $ 3.8 million primarily due to changes in estimates for GILTI, FDII, and related foreign tax credits.

The effective tax rate for the three and nine months ended September 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 and the following discrete tax items recognized during the interim periods:

• Excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the three and nine months ended September 30, 2019 of $ 0.3 million and $ 7.7 million, respectively.

• The revaluation of the contingent consideration during the nine months ended September 30, 2019 resulted in a tax expense of $ 11.4 million.

• The repatriation of certain intellectual property and assets from one of our foreign subsidiaries to the U.S.

parent resulted in a net tax benefit of $ 3.8 million.

• A return-to-provision adjustment for the year ended December 31, 2018 included a tax expense of $ 2.2 million primarily due to changes in estimates for GILTI.

March 31, 2021 included a discrete tax benefit of $ 1.8 million related to 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 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, GILTI, FDII and tax credits.

Long-Term Obligations

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In September 2020, we fully repaid the borrowings under our Credit Facility.

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

As of March 31, 2021, we had no borrowings and $ 150.0 million of availability under the Credit Facility.

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

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In addition, the Credit Facility has restrictions pertaining to limitations on debt, liens, negative pledges, loans, advances, acquisitions, other investments, dividends, distributions, redemptions, repurchases of equity interests, fundamental changes and asset sales and other dispositions, prepayments, redemptions and purchases of subordinated debt and other junior debt, transactions with affiliates, dividend and payment restrictions affecting subsidiaries, changes in line of business, fiscal year and accounting practices and amendment of organizational documents and junior debt documents.

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Consolidated Leverage Ratio is defined as the ratio of Consolidated Total Funded Indebtedness on such date, to Consolidated Adjusted EBITDA, as defined under the Credit Facility Agreement, for the most recently completed four fiscal quarters.

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

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

We were in compliance with all financial covenants as of March 31, 2021.

Stockholders' Equity

2 unchanged sentences

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

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

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

During the three months ended March 31, 2021, we did not purchase any shares of our common stock under our stock purchase plans.

As of March 31, 2021, 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 nine months ended September 30, 2020, we withheld 66,749 shares of our common stock from employee vested restricted stock units in consideration for $ 12.8 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

For the nine months ended September 30, 2019, we withheld 79,313 shares of our common stock from employee vested restricted stock units in consideration for $ 18.5 million in payments made on the employee's behalf for their minimum statutory income tax withholding obligations.

For the three months ended March 31, 2021, we withheld 37,423 shares of our common stock from employee vested restricted stock units in consideration for $ 7.7 million in payments made on the employee's behalf for their minimum statutory income tax withholding 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.

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

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive (Loss) Income

2 unchanged sentences

Balance as of January 1, 2021 $ ( 4,381 ) $ 2,784 $ 75 $ ( 1,522 )

Other comprehensive loss before

Other comprehensive (loss) income before

reclassifications ( 7,458 ) ( 306 ) 12 ( 7,752 )

Amounts reclassified from AOCI — ( 639 ) — ( 639 )

Other comprehensive loss ( 10,477 ) ( 2,952 ) ( 81 ) ( 13,510 )

Other comprehensive (loss) income ( 7,458 ) ( 945 ) 12 ( 8,391 )

Balance as of March 31, 2021 $ ( 11,839 ) $ 1,839 $ 87 $ ( 9,913 )

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

Amounts reclassified from AOCI — 166 — 166

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

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

Other comprehensive income before reclassifications 6,626 978 3 7,607

Amounts reclassified from AOCI — 38 — 38

Other comprehensive income 6,626 1,016 3 7,645

Balance as of September 30, 2020 $ ( 16,557 ) $ 1,070 $ ( 46 ) $ ( 15,533 )

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 )

Other comprehensive (loss) income before reclassifications ( 1,592 ) 768 6 ( 818 )

Other comprehensive loss before reclassifications ( 10,477 ) ( 2,426 ) ( 81 ) ( 12,984 )

Amounts reclassified from AOCI — ( 526 ) — ( 526 )

Other comprehensive (loss) income ( 1,592 ) 650 6 ( 936 )

Other comprehensive loss ( 10,477 ) ( 2,952 ) ( 81 ) ( 13,510 )

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

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 )

Other comprehensive income before reclassifications ( 7,533 ) ( 201 ) — ( 7,734 )

Amounts reclassified from AOCI — ( 174 ) — ( 174 )

Other comprehensive income ( 7,533 ) ( 375 ) — ( 7,908 )

Balance as of September 30, 2019 $ ( 23,969 ) $ 1,282 $ 105 $ ( 22,582 )

Commitments and Contingencies

12 unchanged sentences

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 (see Note 8, Fair Value Measurements).

We have non-cancellable operating lease agreements where we are contractually obligated to pay certain lease payment amounts (see Note 5:

The dispute is being resolved by binding arbitration that will likely be concluded during the third quarter of 2021.

Given the uncertainty of any arbitration, it may be possible that we will incur a loss with regards to this matter.

If we are unsuccessful in arbitration such that it is determined that we met the necessary performance targets for any of the HIS earn-

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

out liability, we will have to pay between $191.3 million and $225.0 million in additional cash consideration (see Note 8, Fair Value Measurements).

We have non-cancellable operating lease agreements where we are contractually obligated to pay certain lease payment amounts (see Note 5:

Collaborative and Other Arrangements

2 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.

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.

The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S.

and international markets.

During the first nine months of 2020, our operations have been impacted globally by lower admission rates and procedural volumes at our hospital customers.

Specifically, since the beginning of the second quarter we have generally seen decreased demand for products within our Infusion Consumables and IV Solutions businesses along with the dedicated infusion sets within Infusion Systems.

This decline has been partially offset by increased demand for infusion pump hardware within Infusion Systems.

We have also incurred increased expenses as a result of COVID-19 for additional compensation paid to our manufacturing and distribution facility workers along with personal protection equipment and other items.

At the same time, we have seen some expense decreases due to reductions in travel and other discretionary spending.

We have also incurred foreign exchange losses related to fluctuations in certain foreign currencies as a result of deteriorating economic conditions.

However, the impacts of COVID-19 and the measures taken to limit its spread may increase in severity and may result in a material adverse impact on our financial position, results of operations and cash flows in the future.

In addition to the effects discussed above, possible impact may include, but is not limited to:

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

customers may experience financial difficulties and may be unable to pay within payment terms for the products they purchased;

reduced revenue due to restricted access to healthcare customers;

lower revenue and income due to foreign currency fluctuations;

lower travel and entertainment costs due to travel restrictions;

and lower income due to a delay in cost savings projects.

While our operations have been designated as essential activities by certain state and city jurisdictions, COVID-19 is likely to negatively impact our operating results and financial position, the extent and duration cannot be reasonably estimated at this time.

On January 1, 2021, we amended our MSA with Pfizer, whereby we manufacture and supply certain agreed upon products to Pfizer.

The amendments included a change to the term of the agreement to end on December 31, 2024 with Pfizer's unilateral election to extend through December 31, 2025.

Other changes to the terms of the MSA included (i) amendments to our level of supply of products to Pfizer, (ii) certain changes to our manufacturing lines, (iii) updates to our supply price with added volume price tiers for annual periods and (iv) certain minimum purchase requirements for certain products.

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