What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-04 · 224 added, 137 removed, 648 unchanged (36% 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 537,494 410,784

Accounts receivable, net of allowance for doubtful accounts of $ 14,590 at June 30, 2021 and $ 21,490 at December 31, 2020

Accounts receivable, net of allowance for doubtful accounts of $ 7,126 at September 30, 2021 and $ 21,490 at December 31, 2020

116,043 124,093

18 unchanged sentences

TOTAL CURRENT LIABILITIES 185,077 195,488

CONTINGENT EARN-OUT LIABILITY 3,100 —

OTHER LONG-TERM LIABILITIES 40,853 47,835

6 unchanged sentences

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

Issued — 21,219 shares at June 30, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,208 shares at June 30, 2021 and 21,058 shares at December 31, 2020

Issued — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020

Additional paid-in capital 711,152 693,068

13 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

11 unchanged sentences

INTEREST EXPENSE ( 168 ) ( 616 ) ( 492 ) ( 1,583 )

OTHER INCOME (EXPENSE), net 525 2,053 1,208 ( 3,427 )

OTHER (EXPENSE) INCOME, net ( 287 ) 1,252 921 ( 2,175 )

INCOME BEFORE INCOME TAXES 37,925 26,166 99,849 67,385

13 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

NET INCOME $ 31,081 $ 24,986 $ 83,210 $ 60,728

Other comprehensive income (loss), net of tax:

Cash flow hedge adjustments, net of taxes of $( 111 ) and $ 356 for the three months ended June 30, 2021 and 2020, respectively, and $( 409 ) and $( 577 ) for the six months ended June 30, 2021 and 2020, respectively

Other comprehensive (loss) income, net of tax:

Cash flow hedge adjustments, net of taxes of $ 259 and $( 321 ) for the three months ended September 30, 2021 and 2020, respectively, and $ 668 and $ 256 for the nine months ended September 30, 2021 and 2020, respectively

( 819 ) 1,016 ( 2,116 ) ( 810 )

3 unchanged sentences

12 3 36 ( 75 )

Other comprehensive income (loss), net of taxes 962 5,734 ( 7,429 ) ( 7,776 )

Other comprehensive (loss) income, net of taxes ( 6,167 ) 7,645 ( 13,596 ) ( 131 )

TOTAL COMPREHENSIVE INCOME $ 24,914 $ 32,631 $ 69,614 $ 60,597

22 unchanged sentences

Balance, June 30, 2021 21,219 $ 2,122 $ 705,582 $ ( 2,269 ) $ 860,781 $ ( 8,951 ) $ 1,557,265

Issuance of restricted stock and exercise of stock options 20 2 ( 963 ) 2,511 — — 1,550

Tax withholding payments related to net share settlement of equity awards ( 1 ) — — ( 290 ) — — ( 290 )

Stock compensation — — 6,533 — — — 6,533

Other comprehensive loss, net of tax — — — — — ( 6,167 ) ( 6,167 )

Net income — — — — 31,081 — 31,081

Balance, September 30, 2021 21,238 $ 2,124 $ 711,152 $ ( 48 ) $ 891,862 $ ( 15,118 ) $ 1,589,972

Shares Amount Additional

16 unchanged sentences

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.

2 unchanged sentences

(In thousands)

Six months ended

Nine months ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 66,564 64,037

Amortization of right-of-use assets 4,780 4,527

Noncash lease expense 7,165 6,859

Provision for doubtful accounts 342 2,785

21 unchanged sentences

Intangible asset additions ( 10,216 ) ( 6,325 )

Investments in non-marketable equity investments ( 3,250 ) —

Purchases of investment securities ( 10,034 ) ( 9,603 )

3 unchanged sentences

Proceeds from short-term debt — 150,000

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

Proceeds from exercise of stock options 6,966 8,586

1 unchanged sentence

Tax withholding payments related to net share settlement of equity awards ( 8,109 ) ( 12,821 )

Net cash (used in) provided by financing activities ( 2,699 ) 144,122

Net cash used in financing activities ( 1,591 ) ( 4,466 )

Effect of exchange rate changes on cash ( 2,192 ) ( 201 )

7 unchanged sentences

(In thousands)

Six months ended

Nine months ended

September 30,

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

Accounts payable for property and equipment $ 2,897 $ 3,633

Non-compete agreement with associated contingent earn-out liability $ 3,100 $ —

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

27 unchanged sentences

Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $ 3.8 million and $ 6.6 million for the three and six months ended June 30, 2021 respectively, as compared to $ 6.5 million and $ 18.8 million for the three and six months ended June 30, 2020 respectively.

Restructuring, strategic transaction and integration expenses were $ 2.4 million and $ 9.0 million for the three and nine months ended September 30, 2021 respectively, as compared to $ 4.1 million and $ 22.9 million for the three and nine months ended September 30, 2020 respectively.

Restructuring

During the three and six months ended June 30, 2021 restructuring charges were $ 0.1 million and $ 0.1 million, respectively.

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

Restructuring charges for the three and six months ended June 30, 2021 were primarily related to severance charges.

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

During the third quarter we adjusted certain facility restructuring liabilities by $2.0 million, shown in the table below under "other adjustments", to reflect actual amounts owed which resulted in net restructuring credits of $( 1.9 ) million and $( 1.8 ) million, for the three and nine months ended September 30, 2021, respectively.

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

Restructuring charges for the three and nine months ended September 30, 2020 were primarily related to severance charges 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 June 30, 2021 (in thousands):

The following table summarizes the details of changes in our restructuring-related accrual for the period ended September 30, 2021 (in thousands):

ICU MEDICAL, INC.

3 unchanged sentences

Incurred Payments Currency

Translation Accrued Balance

June 30, 2021

Translation Other Adjustments(1) Accrued Balance

September 30, 2021

Severance pay and benefits $ 1,858 $ 143 $ ( 872 ) $ ( 3 ) $ ( 528 ) $ 598

1 unchanged sentence

$ 3,421 $ 143 $ ( 872 ) $ 28 $ ( 1,957 ) $ 763

_______________________________

(1) The estimated liabilities related to a prior year's facility closure restructuring were adjusted to actual amounts owed during the third quarter ended September 30, 2021.

We expect to pay our unpaid restructuring charges as of September 30, 2021 by the end of the year.

Strategic transaction and integration expenses

We incurred and expensed $ 3.7 million and $ 6.5 million in strategic transaction and integration expenses during the three and six months ended June 30, 2021, as compared to $ 5.6 million and $ 10.7 million during the three and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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.

We incurred and expensed $ 4.3 million and $ 10.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2021, as compared to $ 4.1 million and $ 14.8 million during the three and nine months ended September 30, 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 September 30, 2021 were primarily related to transaction expenses incurred related to entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths") (see Note 20:

Acquisitions).

The strategic transaction and integration expenses for the nine months ended September 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer, one-time costs incurred to comply with regulatory initiatives and the transaction costs related to the Smiths transaction.

The strategic transaction and integration expenses during the three and nine months ended September 30, 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.

17 unchanged sentences

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

For the three months

ended June 30, For the six months

ended June 30,

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three months ended

September 30, Nine months ended

September 30,

Geography 2021 2020 2021 2020

4 unchanged sentences

Total Revenues $ 336,060 $ 318,567 $ 975,783 $ 950,553

ICU MEDICAL, INC.

AND SUBSIDIARIES

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 June 30,

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

Three months ended

September 30, Nine months ended

September 30,

Product line 2021 2020 2021 2020

5 unchanged sentences

Contract balances

The following table presents our changes in the contract balances for the six months ended June 30, 2021 and 2020 (in thousands):

The following table presents our changes in the contract balances for the nine months ended September 30, 2021 and 2020 (in thousands):

Contract Liabilities

4 unchanged sentences

Software revenue deferred due to implementation ( 2,967 )

Ending balance, June 30, 2021 $ ( 4,968 )

Ending balance, September 30, 2021 $ ( 4,662 )

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

3 unchanged sentences

Software revenue deferred due to implementation ( 5,033 )

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

As of June 30, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $ 3.7 million.

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

As of September 30, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $ 3.3 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").

1 unchanged sentence

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 leases have

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

3 unchanged sentences

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

For the three months

ended June 30 For the six months

ended June 30

Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

1 unchanged sentence

Finance lease cost - interest 29 29 92 62

Finance lease cost - amortization of ROU asset 166 102 317 126

Finance lease cost - reduction of ROU asset 166 125 478 252

Short-term lease cost 4 74 14 200

1 unchanged sentence

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 reduction of the operating and finance ROU assets is included as noncash lease expense 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 six months ended

Nine months ended

September 30,

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2021 As of

September 30, 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):

June 30, 2021 As of

September 30, 2021 As of

December 31, 2020

8 unchanged sentences

Financing leases 4.27 % 4.27 %

As of June 30, 2021, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):

As of September 30, 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

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

There were 12,107 and 57,091 anti-dilutive securities for the three months ended June 30, 2021 and 2020, respectively.

There were 12,080 and 15,045 anti-dilutive securities for the six months ended June 30, 2021 and 2020, respectively.

There were 12,235 and 14,017 anti-dilutive securities for the three months ended September 30, 2021 and 2020, respectively.

There were 12,132 and 12,182 anti-dilutive securities for the nine months ended September 30, 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

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

14 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 June 30, 2021 was approximately 218.4 million MXN.

The total notional amount of this outstanding derivative as of September 30, 2021 was approximately 109.2 million MXN.

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

3 unchanged sentences

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 June 30, 2021 and December 31, 2020 (in thousands):

The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (in thousands):

ICU MEDICAL, INC.

2 unchanged sentences

Condensed Consolidated Balance Sheet

Location June 30, 2021 December 31, 2020

Location September 30, 2021 December 31, 2020

Derivatives designated as cash flow hedging instruments

2 unchanged sentences

Total derivatives designated as cash flow hedging instruments $ 772 $ 3,555

The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following table presents the gain (loss) affecting the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Line Item in the

Condensed Consolidated Statements of Operations Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

2 unchanged sentences

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 Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income

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

Three months ended

June 30, Three months ended

September 30, Three months ended

September 30,

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount of Gain (Loss) 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

Amount of Loss 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,

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 $ ( 70 ) $ ( 642 ) $ 2,713 $ 423

As of June 30, 2021, we expect approximately $ 1.8 million of the deferred gains on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next six months concurrent with the underlying hedged transactions also being reported in net income.

As of September 30, 2021, we expect approximately $ 0.7 million of the deferred gains on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next three months concurrent with the underlying hedged transactions also being reported in net income.

Fair Value Measurement

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Earn-out Liability

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

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.

The underlying simulated variable was adjusted EBITDA.

The adjusted EBITDA volatility estimate was based on a study of historical asset volatility for a set of comparable public companies.

The model included other assumptions including the market price of risk, which was calculated as the weighted average cost of capital ("WACC") less the long term risk free rate.

The initial value assigned to the contingent consideration was a result of forecasted product demand of our HIS business.

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

Pfizer disputed our determination that the performance targets requiring payout of the HIS earn-out liability were not met, therefore the dispute is being resolved by binding arbitration.

As of this filing, we expect the arbitrator to render a decision on this matter in August 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 August 2021, we entered into an agreement with one of our international distributors whereby that distributor would not compete with us in a specific territory for a three-year period that will end in September 2024.

The terms of the agreement include a contingent earn-out payment.

The contingent earn-out payment shall not exceed $ 6.0 million, which will be earned based on certain revenue targets over a twelve-month measurement period determined by the highest four consecutive quarters commencing over a two-year period starting on the closing date of the agreement and provided that the distributor is in compliance with its obligations under the agreement.

As of September 30, 2021, the fair value of the contingent earn-out is estimated at $ 3.1 million.

The estimated fair value of the contingent earn-out was calculated using a probability-weighted cash flow model based on historical revenue streams and the likelihood that the revenue targets will be met.

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

Pursuit's former equity holders are entitled up to $ 50.0 million in additional cash consideration contingent upon the achievement of certain sales and gross profit targets for specific customers.

The earn-out is calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit, not to exceed $ 50.0 million.

Pursuit's former equity holders were entitled up to $ 50.0 million in additional cash consideration contingent upon the achievement of certain sales and gross profit targets for specific customers.

The earn-out was calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit, not to exceed $ 50.0 million.

During the earn-out period, we used a Monte Carlo simulation model to determine the fair value of the earn-out liability.

The Monte Carlo

The Monte Carlo simulation model utilized multiple input variables to determine the value of the earn-out liability including historical volatility, a risk free interest rate, counter party credit risk and projected future gross profit (see the simulation input table below related to Pursuit).

The historical volatility was based on the median of ICU and a certain peer group.

The risk-free interest rate was equal to the yield, as of the valuation date, of the zero-coupon U.S.

Treasury bill that was commensurate with the term of the earn-out.

The counter party credit risk was based on a synthetic credit rating of B1.

As of June 30, 2021, the earn-out measurement period ended.

Based on the actual sales and gross profit achieved during the measurement period, we calculated the actual earn-out amount to be $ 26.3 million.

The $ 26.3 million earn-out calculation was finalized and accepted by

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

simulation model utilizes multiple input variables to determine the value of the earn-out liability including historical volatility, a risk free interest rate, counter party credit risk and projected future gross profit (see the simulation input table below related to Pursuit).

The historical volatility is based on the median of ICU and a certain peer group.

The risk-free interest rate is equal to the yield, as of the valuation date, of the zero-coupon U.S.

Treasury bill that is commensurate with the term of the earn-out.

The counter party credit risk is based on a synthetic credit rating of B1.

As of June 30, 2021, the earn-out measurement period had ended.

Based on the actual sales and gross profit achieved during the measurement period, we calculated the actual earn-out amount to be $ 26.3 million.

Pursuit's former equity holders are entitled to an earn-out review period during which they may dispute the final earn-out amount.

Assuming Pursuit's former equity holders accept out calculation, we expect to pay the $ 26.3 million earn-out during the third quarter of 2021.

Our contingent earn-out liability is separately stated in our condensed consolidated balance sheets.

Pursuit's former equity holders and was paid out in October 2021.

The Pursuit earn-out liability was transferred out of Level 3 and into Level 2 as the amount of the actual payment in known.

Our contingent earn-out liabilities are separately stated in our condensed consolidated balance sheets.

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

5 unchanged sentences

Accrued balance, June 30, 2021 $ 26,300

Contingent earn-out - non-compete arrangement 3,100

Transfer of Pursuit earn-out liability into Level 2 ( 26,300 )

Accrued balance, September 30, 2021 $ 3,100

Earn-out Liability

4 unchanged sentences

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

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

2 unchanged sentences

December 31, 2020 As of

June 30, 2020

September 30, 2020

Revenue/Gross Profit Volatility 25.00 % 35.00 %

6 unchanged sentences

These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative.

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):

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 June 30, 2021

Fair value measurements at September 30, 2021

Total carrying

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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.

Investments in Available-for-sale Securities

Our available-for-sale investment securities currently consist of short-term and long-term corporate bonds and are considered “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.

7 unchanged sentences

All short-term investment securities are callable within one year.

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

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2021

Our short and long-term investments in available-for-sale securities consisted of the following (in thousands):

As of September 30, 2021

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

7 unchanged sentences

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

Prepaid Expenses and Other Current Assets

Investments in Non-Marketable Equity Securities

In September 2021, we acquired approximately a 20% non-marketable equity interest in a nonpublic company and entered into a three-year distribution agreement where we have the exclusive rights to market, sell and distribute the company's products in exchange for a cash payment of $3.3 million.

In addition, we were granted an exclusive license for all of the sellers intellectual property.

At the expiration of the distribution agreement we have the right but not the obligation to acquire the remaining interest in the business.

We apply the equity method of accounting for investments when we determine we have a significant influence, but not a controlling interest in the investee.

We determine whether we have significant influence by considering key factors such as ownership interest, representation on the board of directors, participation in policy making decisions, business relationship and material intercompany transactions, among other factors.

Our equity method investment is reported at cost and adjusted each period for our share of the investee's income or (loss) and dividend paid, if any.

We eliminate any intra-entity profits to the extent of our beneficial interest.

We record our share of the investee's income or (loss) on a one quarter lag.

We report our proportionate share of the investee's income or (loss) resulting from this investment in "other income (expense), net" in our Condensed Consolidated Statements of Operations.

The carrying value of our equity method investment is reported in "Other Assets" in our Condensed Consolidated Balance Sheets (see Note 10, Prepaid Expenses and Other Current Assets and Other Assets).

We assess our equity method investments for impairment on an annual basis or whenever events or circumstances indicate that the carrying value of the investment may not be recoverable.

We have not recorded any income or (loss) resulting for this investment as of September 30, 2021.

Our non-marketable equity method investments consisted of the following (in thousands):

September 30, 2021 As of

December 31, 2020

Equity method investments $ 3,250 $ —

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prepaid Expenses and Other Current Assets and Other Assets

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Other prepaid expenses and receivables $ 17,175 $ 14,964

7 unchanged sentences

$ 34,718 $ 41,492

Other assets consist of the following (in thousands):

September 30, 2021 December 31, 2020

Pump lease receivables $ 27,043 $ 28,948

Spare parts 26,486 22,725

Equity method investments 3,250 —

Financed lease assets 2,690 2,915

Other 1,330 887

60,799 55,475

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):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Raw materials $ 119,552 $ 126,499

7 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Machinery and equipment $ 310,651 $ 291,331

11 unchanged sentences

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

Depreciation expense was $ 16.3 million and $ 32.7 million for the three and six months ended June 30, 2021, respectively, as compared to $ 15.8 million and $ 31.0 million for the three and six months ended June 30, 2020, respectively.

Depreciation expense was $ 16.4 million and $ 49.1 million for the three and nine months ended September 30, 2021, respectively, as compared to $ 15.6 million and $ 46.7 million for the three and nine months ended September 30, 2020, respectively.

Goodwill and Intangible Assets, Net

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Currency translation ( 241 )

Balance as of June 30, 2021 $ 32,927

Balance as of September 30, 2021 $ 32,760

Intangible Assets, Net

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Average June 30, 2021

Average September 30, 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 six months ended June 30, 2021, respectively, intangible asset amortization expense was $ 5.8 million and $ 11.6 million, respectively, as compared to $ 5.8 million and $ 11.6 million for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021 estimated annual amortization for our intangible assets for each of the next five years is approximately (in thousands):

During the three and nine months ended September 30, 2021, respectively, intangible asset amortization expense was $ 5.8 million and $ 17.4 million, respectively, as compared to $ 5.8 million and $ 17.4 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 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):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Salaries and benefits $ 26,514 $ 25,786

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Operating lease liability-LT $ 35,478 $ 41,019

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$ 40,853 $ 47,835

Income taxes were accrued at an estimated effective tax rate of 18 % and 16 % for the three and six months ended June 30, 2021, respectively, as compared to 9 % and 13 % for the three and six months ended June 30, 2020, respectively.

The effective tax rate for the three and six months ended June 30, 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 and six months ended June 30, 2021 included a discrete tax benefit of $ 0.4 million and $ 2.2 million, respectively, related to excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

Income taxes were accrued at an estimated effective tax rate of 18 % and 17 % for the three and nine months ended September 30, 2021, respectively, as compared to 5 % and 10 % for the three and nine months ended September 30, 2020, respectively.

The effective tax rate for the three and nine months ended September 30, 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 and the following discrete items recognized during the interim period:

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, GILTI, 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 excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

• Excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the three and nine months ended September 30, 2021 of $ 1.1 million and $ 3.3 million, respectively.

federal return-to-provision adjustments for the year ended December 31, 2020 primarily due to changes in estimates for GILTI, FDII, subpart F, and related foreign tax credits along with other prior period adjustments resulted in a tax provision of $1.1 million.

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, GILTI, FDII, tax credits and the following discrete 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.

Long-Term Obligations

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

As of June 30, 2021, we had no borrowings and $ 150.0 million of availability under the Credit Facility.

As of September 30, 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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Interest on borrowings under the Credit Facility, at our option, is based on the Base Rate plus applicable margin or the London Interbank Offered Rate ("LIBOR") plus applicable margin, see further details in Part II, Item 8, of our 2020 Annual Report on Form 10-K.

We expect to refinance our Credit Facility in full in connection with the consummation of the Smiths acquisition which is expected to close in early 2022.

We expect to enter into senior secured credit facilities totaling approximately $ 2.2 billion at or near the closing of the Smiths acquisition which we anticipate will include a new revolving credit facility of $ 500.0 million (see Note 20:

Acquisitions).

Debt Covenants

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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 June 30, 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We were in compliance with all financial covenants as of September 30, 2021.

Stockholders' Equity

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

During the six months ended June 30, 2021, we did not purchase any shares of our common stock under our stock purchase plans.

As of June 30, 2021, all of the $ 100.0 million available for purchase was remaining under the plan.

During the nine months ended September 30, 2021, we did not purchase any shares of our common stock under our stock purchase plans.

As of September 30, 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 six months ended June 30, 2021, we withheld 37,882 shares of our common stock from employee vested restricted stock units in consideration for $ 7.8 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

their minimum statutory income tax withholding obligations.

For the nine months ended September 30, 2021, we withheld 39,371 shares of our common stock from employee vested restricted stock units in consideration for $ 8.1 million in payments made on the employee's behalf for their minimum statutory income tax withholding 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.

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

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Balance as of June 30, 2021 $ ( 10,537 ) $ 1,487 $ 99 $ ( 8,951 )

Other comprehensive income before reclassifications ( 5,360 ) ( 83 ) 12 ( 5,431 )

Amounts reclassified from AOCI — ( 736 ) — ( 736 )

Other comprehensive income ( 5,360 ) ( 819 ) 12 ( 6,167 )

Balance as of September 30, 2021 $ ( 15,897 ) $ 668 $ 111 $ ( 15,118 )

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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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 )

Commitments and Contingencies

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Although we can provide no assurances, we have never incurred, nor do we expect to incur, any material liability for indemnification.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingencies

The terms of the agreement include a contingent earn-out payment.

The contingent earn-out shall not exceed $ 6.0 million, which will be earned based on certain revenue targets over a twelve-month measurement period determined by the highest four consecutive quarters commencing over a two-year period starting on the closing date of the agreement and provided that the distributor is in compliance with its obligations under the agreement.

As of September 30, 2021, the fair value of the contingent earn-out is estimated at $ 3.1 million.

During November 2019, we acquired Pursuit.

Total consideration for the acquisition includes a potential contractual earn-out of up to $ 50.0 million, to be paid to former Pursuit equity holders, calculated based upon the achievement of certain performance targets during the earn-out period.

As of June 30, 2021, the earn-out measurement period has ended and based on the actual sales and gross profit achieved during the measurement period we calculated the actual earn-out to be $26.3 million.

Pursuit's former equity holders are entitled to an earn-out review period, during which they may dispute the final earn-out amount (see Note 8:

Total consideration for the acquisition included a potential contractual earn-out of up to $ 50.0 million, to be paid to former Pursuit equity holders, calculated based upon the achievement of certain performance targets during the earn-out period.

As of June 30, 2021, the earn-out measurement period had ended and based on the actual sales and gross profit achieved during the measurement period we calculated the actual earn-out to be $26.3 million.

In October 2021, the $26.3 million earn-out was finalized and paid to the former Pursuit equity holders (see Note 8:

Fair Value Measurement).

We had a contractual obligation in connection with our 2017 acquisition of HIS, which as of December 31, 2019 we determined did not meet the necessary performance targets that would require payout of any of the HIS earn-out liability.

Pfizer disputed our determination that the performance targets requiring payout of the HIS earn-out liability were not me, therefore the dispute is being resolved by binding arbitration.

As of this filing, we expect the arbitrator to render a decision on this matter in August 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 have to pay between $191.3 million and $225.0 million in additional cash consideration (see Note 8, Fair Value Measurements).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Pfizer disputed our determination that the performance targets requiring payout of the HIS earn-out liability were not met, therefore the dispute entered into binding arbitration.

In August 2021, the arbitrator concluded that the necessary performance targets that would require payout of the HIS earn-out were not met, and as a result Pfizer is not entitled to any payments in connection with the HIS earn-out liability.

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

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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.

Definitive Agreement to Purchase Smiths Medical 2020 Limited

During September 2021, we entered into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths"), the holding company of Smiths Group plc's global medical device business ("Smiths Group").

In accordance with the Share Sale and Purchase Agreement (the "Purchase Agreement") we will purchase the entire issued share capital of Smiths for approximately $ 1.9 billion in cash, the issuance of 2.5 million fully paid and non-assessable shares of our common stock, par value $0.10 per share and a potential contingent earn-out of $ 100.0 million in cash, which is to be based upon our common stock achieving a certain volume weighted average price for certain periods from closing to the third or fourth anniversary of closing.

The transaction is anticipated to close in early 2022, however closing under the Purchase Agreement is conditional upon the approval of the shareholders of Smiths Group plc, certain antitrust conditions and foreign direct investment conditions, and the termination in accordance with its terms of the sale and purchase agreement between Smiths Group plc and Trulli Bidco Limited.

In connection with entering into the Purchase Agreement, in September 2021, we entered into a debt commitment letter with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and Barclays Bank PLC (the “Committed Parties”), pursuant to which, among other things, the Committed Parties will provide to us, at or near closing of the transaction, with senior secured credit facilities of up to $ 2.0 billion consisting of a term loan A facility of $ 850.0 million, a term loan B facility of $ 850 million and a revolving credit facility of $ 300.0 million.

In October 2021, the debt commitment related to the term loan A and revolving credit facility was syndicated to a broader group of Committed Parties.

As part of the syndication process, the size of the revolving credit facility was increased from $ 300.0 million to $ 500.0 million.

In connection with the issuance of the stock consideration to Smiths, we will at closing enter into a Shareholders Agreement (the “Shareholders Agreement”).

The Shareholders Agreement will impose certain restrictions on Smiths including prohibiting certain transfers of the shares of our Stock issued (i) for 6 months following the closing of the transactions contemplated by the Purchase Agreement and (ii) to certain of our competitors and certain other parties, as well as customary standstill limitations.

Under the Shareholders Agreement, Smiths will have the right to designate one individual for election to our board of directors so long as Smiths beneficially owns at least 5% of the total outstanding shares of our common stock.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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