What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-02-26 · 429 added, 333 removed, 1022 unchanged (43% of the section changed)

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Chargeback Reserve— Refer to Note 1 and Note 4 to the financial statements

Revenue Recognition – Chargeback Reserve — Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

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Accounts receivable as of December 31, 2021 of $106 million and total revenues for the year ended December 31, 2021 of $1,316 million are recorded net of estimated chargebacks.

Given the subjectivity and complexity of evaluating management’s assumptions used in the determination of the chargeback reserve, including the chargeback amounts related to monthly sales to distribution customers and the time to settle chargeback obligations, auditing the chargeback reserve requires a high degree of auditor judgment and an increased extent of effort.

Given the subjectivity and complexity of evaluating management’s assumptions used in the determination of the chargeback reserve, including the chargeback amount related to monthly sales to distribution customers and the time to settle chargeback obligations, auditing the chargeback reserve requires a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the chargeback reserve included the following, among others:

• We tested the effectiveness of controls related to:

◦ Management’s assessment of assumptions related to estimating the provision for chargeback reserves.

◦ The provisioning, processing and monitoring of chargeback transactions.

◦ The reconciliation of chargeback reserves.

• We tested the effectiveness of controls related to management’s assessment of assumptions related to estimating the provision for chargeback reserves, the provisioning, processing, and monitoring of chargeback transactions, and the reconciliation of chargeback reserves.

• We tested chargeback estimates for purposes of determining whether revenues recognized at the time of sale were recorded in the proper period.

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STOCKHOLDERS’ EQUITY:

Convertible preferred stock, $ 1.00 par value Authorized— 500 shares;

Convertible preferred stock, $ 1.00 par value;

Authorized— 500 shares;

Issued and outstanding— none

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

Issued and outstanding — 21,058 shares at December 31, 2020 and issued 20,743 at December 31, 2019 and outstanding — 20,742 shares at December 31, 2019

Common stock, $ 0.10 par value;

Authorized— 80,000 shares;

Issued—21,280 and 21,058 shares at December 31, 2021 and 2020, respectively, and outstanding— 21,280 and 21,058 shares at December 31, 2021 and 2020, respectively

Additional paid-in capital 721,412 693,068

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Research and development 47,498 42,948 48,611

Restructuring, strategic transaction and integration expense 28,409 80,574 105,390

Restructuring, strategic transaction and integration 18,037 28,409 80,574

Change in fair value of contingent earn-out — 9,000 ( 47,400 )

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INTEREST EXPENSE ( 858 ) ( 1,753 ) ( 549 )

OTHER INCOME (EXPENSE), NET 1,085 7,896 ( 6,673 )

OTHER INCOME, NET 799 1,085 7,896

INCOME BEFORE INCOME TAXES 123,186 97,494 114,707

(PROVISION) BENEFIT FOR INCOME TAXES ( 10,624 ) ( 13,672 ) 6,419

PROVISION FOR INCOME TAXES ( 20,051 ) ( 10,624 ) ( 13,672 )

NET INCOME $ 103,135 $ 86,870 $ 101,035

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NET INCOME $ 103,135 $ 86,870 $ 101,035

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Cash flow hedge adjustments, net of tax of $( 954 ), $ 285 and $ 392 for the years ended December 31, 2021, 2020 and 2019, respectively

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( 62 ) 47 ( 71 )

Other comprehensive income (loss), net of tax 13,880 1,543 ( 1,986 )

Other comprehensive (loss) income, net of tax ( 17,747 ) 13,880 1,543

COMPREHENSIVE INCOME $ 85,388 $ 100,750 $ 102,578

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(Amounts in thousands)

Common Stock Accumulated

Additional Other

Shares Amount Paid-In

Capital Treasury

Stock Retained

Earnings Comprehensive

(Loss) Income Total

Common Stock Additional Paid-In Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive (Loss) Income Total

Shares Amount

Balance, January 1, 2019 20,491 $ 2,049 $ 657,899 $ ( 95 ) $ 620,747 $ ( 16,945 ) $ 1,263,655

Cumulative effect of accounting change — — — — 6,330 — 6,330

Issuance of restricted stock and exercise of stock options 331 25 ( 10,870 ) 18,577 — — 7,732

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Stock compensation — — 21,918 — — — 21,918

Other comprehensive loss, net of tax — — — — — ( 1,986 ) ( 1,986 )

Other comprehensive income, net of tax — — — — — 1,543 1,543

Net income — — — — 101,035 — 101,035

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Stock compensation — — 27,341 — — — 27,341

Other comprehensive income, net of tax — — — — — 13,880 13,880

Other comprehensive loss, net of tax — — — — — ( 17,747 ) ( 17,747 )

Net income — — — — 103,135 — 103,135

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Depreciation and amortization 89,698 85,631 76,916

Amortization of right-of-use assets 9,216 8,294 —

Noncash lease expense 9,594 9,216 8,294

Provision for doubtful accounts 345 7,137 14,882

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Stock compensation 27,341 23,954 21,918

(Gain) loss on disposal or write-off of property, plant and equipment ( 1,789 ) 12,872 8,867

Contract settlement — — 12,696

Write-off of acquired intangibles — — 5,000

Loss (gain) on disposal or write-off of property, plant and equipment 1,652 ( 1,789 ) 12,872

Bond premium amortization 655 231 135

Debt issuance cost amortization 240 288 288

Impairment of assets held-for-sale — — 269

Change in fair value of contingent earn-out — 9,000 ( 47,400 )

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Inventories 20,815 19,196 ( 24,997 )

Prepaid expenses and other assets ( 4,311 ) 8,588 3,719

Related-party receivables — — 97,443

Prepaid expenses and other current assets ( 7,973 ) ( 4,311 ) 8,588

Other assets ( 21,038 ) ( 16,069 ) ( 29,837 )

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Proceeds from sale of assets 218 6,176 33

Proceeds from the disposal of assets held-for-sale, net — — 13,000

Intangible asset additions ( 12,627 ) ( 8,385 ) ( 8,728 )

Business acquisitions, net of cash acquired ( 14,452 ) — ( 76,133 )

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

Purchases of investment securities ( 10,034 ) ( 32,825 ) ( 26,040 )

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Payments on finance leases ( 607 ) ( 357 ) —

Payment of contingent earn-out ( 17,300 ) — —

Tax withholding payments related to net share settlement of equity awards ( 8,335 ) ( 12,876 ) ( 18,639 )

Net cash (used in) provided by financing activities ( 40 ) ( 10,907 ) 8,023

Net cash used in financing activities ( 16,870 ) ( 40 ) ( 10,907 )

Effect of exchange rate changes on cash ( 3,251 ) 2,854 ( 234 )

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Cash paid during the year for interest $ 858 $ 1,753 $ 549

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

Accounts payable for property, plant and equipment $ 9,338 $ 2,211 $ 13,912

Non-compete agreement with associated contingent earn-out liability $ 2,589 $ — $ —

Detail of assets acquired and liabilities assumed in acquisitions:

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We are one of the world's leading pure-play infusion therapy companies with a wide-ranging product portfolio that includes IV solutions, IV smart pumps with pain management and safety software technology, dedicated and non-dedicated IV sets and needlefree connectors designed to help meet clinical, safety and workflow goals.

We sell the majority of our products through our direct sales force and through independent distributors throughout the U.

We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S.

and internationally.

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The consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the U.S.

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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Cash, Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase as cash equivalents.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase.

Accounts Receivable

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Inventory costs include material, labor and overhead related to the manufacturing of our products.

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Inventories consist of the following at December 31 (in thousands):

Inventories consist of the following (in thousands):

As of December 31,

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Total $ 290,235 $ 314,928

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Property, Plant and Equipment

Property, plant and equipment consist of the following at December 31 (in thousands):

Property, plant and equipment consists of the following (in thousands):

As of December 31,

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The costs and related accumulated depreciation applicable to property, plant and equipment sold or retired are removed from the accounts and any gain or loss is reflected in the statements of operations at the time of disposal.

Depreciation expense was $ 62.4 million, $ 59.3 million and $ 58.1 million in the years ended December 31, 2020, 2019 and 2018, respectively.

We test goodwill for impairment on an annual basis in the month of November.

If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value.

Depreciation expense was $ 65.9 million, $ 62.4 million and $ 59.3 million in 2021, 2020 and 2019, respectively.

We test goodwill for impairment on an annual basis in the month of November, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

Generally, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If, based on an assessment of relevant qualitative factors, we determine that this is not the case, then the quantitative impairment test is not required to be performed.

Conversely, if we determine based on the qualitative assessment that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we will perform the quantitative impairment test.

For the quantitative impairment test, we calculate the estimated fair value of the reporting unit.

If the estimated fair value of the reporting unit is less than its carrying amount, the goodwill of the reporting unit is determined to be impaired.

An impairment charge is recorded in an amount equal to the excess of the carrying amount over its estimated fair value, limited to the total amount of goodwill allocated to the reporting unit.

For our annual impairment test for the year ended December 31, 2021, we performed a qualitative assessment and concluded that it was more likely than not that the fair value of our reporting unit exceeded its carrying amount, and therefore, no further impairment testing was required.

There were no accumulated impairment losses as of December 31, 2021, 2020 and 2019.

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Balance as of December 31, 2019 $ 31,245

Goodwill acquired (3)

Balance as of December 31, 2020 33,001

Currency translation ( 188 )

Balance as of December 31, 2021 $ 43,439

_______________________________

(1) In 2018, we acquired the consulting arm of a small software company, which resulted in $ 1.3 million of goodwill.

(2) In 2018, "Other" relates to a $ 1.9 million measurement period adjustment on our Medical Australia Limited acquisition and foreign currency translation.

(1) In 2019, we acquired Pursuit Vascular, Inc.

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(2) In 2020, "Other" relates to a $ 1.3 million measurement period adjustment to deferred taxes related to the Pursuit acquisition and foreign currency translation.

(3) In 2021, we acquired a small foreign infusion systems supplier, which resulted in $ 10.6 million of goodwill.

Intangible Assets

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

Life in Years December 31, 2020

Weighted-Average Amortization Life

in Years December 31, 2021

Cost Accumulated

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Total amortized intangible assets $ 275,835 $ 112,882 $ 162,953

$ 267,311 $ 89,443 $ 177,868

Internally developed software* $ 25,358 $ 25,358

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Average December 31, 2019

Life in Years Cost Accumulated

Weighted-Average Amortization Life

in Years December 31, 2020

Cost Accumulated

Amortization Net

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Non-compete 3 2,500 972 1,528

Total $ 263,275 $ 65,858 $ 197,417

Total amortized intangible assets $ 267,311 $ 89,443 $ 177,868

Internally developed software* $ 19,363 $ 19,363

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

Amortization expense in 2020, 2019 and 2018 was $ 23.2 million, $ 17.7 million and $ 16.6 million, respectively.

Amortization expense was $ 23.8 million, $ 23.2 million and $ 17.7 million in 2021, 2020 and 2019, respectively.

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

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Long-term investments are marketable securities intended to be sold after one year and may include trading securities, available-for-sale securities, and held-to-maturity securities.

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

Our investments currently consist of corporate bonds.

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 (loss).

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.

For debt securities, management also evaluates whether we have the intent to sell or will likely be required to sell before its anticipated recovery.

Investments in Available-for-sale Securities

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

These securities are considered “investment grade” and are carried at fair value.

We assess our investment in available-for-sale debt securities for impairment each reporting period.

If an unrealized loss exists, we determine whether any portion of the decline in fair value below the carrying value is credit-related by reviewing several factors, including, but not limited to, the extent of the fair value decline and changes in the financial condition of the issuer.

We record an impairment for credit-related losses through an allowance, limited to the amount of the unrealized loss.

If we either intend to sell or it is more likely than not we will be required to sell the debt security before its anticipated recovery, any allowance is written off and the amortized cost basis is written down to fair value through a charge against net earnings.

Unrealized gains and non-credit-related unrealized losses are recorded, net of tax, in other comprehensive income (loss).

We did not have any investments in available-for-sale debt securities in unrealized loss positions as of December 31, 2021 or 2020.

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

Such amortization is included in other income, net in the consolidated statements of operations.

Realized gains and losses are accounted for on the specific identification method.

There have been no realized gains or losses on the disposal of investments.

Our investments mature in 2021 and 2022.

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

Our investment securities consist of the following (in thousands):

There have been no realized gains or losses on the disposal of these investments.

The scheduled maturities of the debt securities are between 2022 and 2024.

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

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

As of December 31, 2021

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

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

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

Investments in Non-Marketable Equity Securities

In the third quarter of 2021, we acquired approximately a 20.0 % 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 seller's 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 intra-entity 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

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proportionate share of the investee's income or (loss) resulting from this investment in other income, net in our consolidated statements of operations.

The carrying value of our equity method investment is reported in other assets on the consolidated balance sheets.

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.

During 2021, there were no indications that our non-marketable equity method investment was impaired.

Our recorded share of the investee's loss was not material for the year ended December 31, 2021.

We did not receive any dividend distributions from this investment during 2021.

Our non-marketable equity method investment consists of the following (in thousands):

As of December 31,

Equity method investment $ 3,238 $ —

Deferred taxes are determined based on the differences between the financial statements and the tax bases using rates as enacted in the laws.

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In those cases, we follow a step by step translation process utilizing the same sequence as the consolidation process.

Translation adjustments are recorded as a component of accumulated other comprehensive (loss) income, a separate component of stockholders' equity on our consolidated balance sheets and the effect of exchange rate changes on cash and cash equivalents are reflected on our consolidated statements of cash flows.

Gains and losses for transactions denominated in a currency other than the functional

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currency of the entity are included in our statements of operations in other income (expense), net.

Foreign currency transaction losses (gains), net were $ 7.2 million in 2020, $( 0.7 ) million in 2019 and $ 7.9 million in 2018.

Translation adjustments are recorded as a component of accumulated other comprehensive loss, a separate component of stockholders' equity on our consolidated balance sheets and the effect of exchange rate changes on cash and cash equivalents are reflected on our consolidated statements of cash flows.

Gains and losses for transactions denominated in a currency other than the functional currency of the entity are included in our consolidated statements of operations in other income, net.

Foreign currency transaction losses (gains), net were $ 1.0 million, $ 7.2 million and $( 0.7 ) million in 2021, 2020 and 2019, respectively.

Revenue Recognition

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

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The vast majority of our sales of Infusion Consumables, Infusion Systems, IV Solutions and Critical Care products are sold on a standalone basis and control of these products transfers to the customer upon shipment.

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Advertising Expenses

Advertising expenses are expensed as incurred and reflected in selling, general and administrative expenses in our consolidated statements of operations and were $ 0.2 million in 2020, $ 0.1 million in 2019 and $ 0.6 million in 2018.

Advertising expenses are expensed as incurred and reflected in selling, general and administrative expenses in our consolidated statements of operations and were $ 0.2 million, $ 0.2 million and $ 0.1 million in 2021, 2020 and 2019, respectively.

Post-retirement and Post-employment Benefits

We sponsor a Section 401(k) retirement plan ("plan") for employees.

Our contributions to our 401(k) plan were approximately $ 10.7 million in 2020, $ 11.4 million in 2019 and $ 11.4 million in 2018.

Our contributions to our 401(k) plan were approximately $ 11.0 million, $ 10.7 million and $ 11.4 million in 2021, 2020 and 2019, respectively.

We also have post-retirement and post-employment obligations related to employees located in certain international countries.

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Research and Development

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The majority of our research and development costs are expensed as incurred.

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There were 12,354 , 12,083 and 10,760 anti-dilutive shares in 2021, 2020 and 2019, respectively.

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

Year ended December 31,

(in thousands, except per share data)

2021 2020 2019

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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 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

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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 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 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)- 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 are effective for fiscal years beginning after December 15, 2019.

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 consolidated financial statements or related disclosures.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No.

2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

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

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

In November 2021, we entered into two forward-starting swaps whereby the variable leg of the swap references LIBOR, these swaps will be amended in early 2022 to transition to an alternative reference rate (see Note 7:

Derivatives and Hedging Activities).

The amendments in this ASU allow for certain expedients that will allow us to assume that our hedged interest payments are probable of occurring regardless of any expected modification in their terms related to reference rate reform and will allow us to continue hedge accounting for a cash flow hedge for which the hedged interest rate risk changes if the hedge is highly effective under ASC 815, Derivatives and Hedging or the optional expedient under this ASU is elected.

The impact of this ASU on our contracts has not been and is not expected to be material.

2019 Acquisitions

On November 2, 2019, we acquired 100 % interest in Pursuit for cash consideration of approximately $ 75.0 million.

Additionally, Pursuit's equity holders are potentially 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 paid will be calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit.

However, the earn-out is not to exceed $ 50.0 million.

Additionally, Pursuit's equity holders were potentially 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 paid 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.

As of June 30, 2021, the earn-out measurement period ended and 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 Pursuit's former equity holders and was paid out in during the fourth quarter of 2021.

The acquisition of Pursuit and their ClearGuard HD is a natural extension of our needlefree IV connector and other infection control technologies, which together provides us the best of breed solutions.

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(1) Identifiable intangible assets included $ 69.0 million of developed technology, $ 10.8 million of trade name and $ 2.5 million of non-compete agreement.

The weighted amortization period for the total identifiable intangible assets is approximately fifteen years for developed technology, and trade name the weighted amortization period is fifteen years , and for the non-compete agreement the weighted amortization period is three years .

The weighted-average amortization periods for the identifiable intangible assets are as follows:

approximately fifteen years for developed technology, fifteen years for trade name and three years for the non-compete agreement.

The identifiable intangible assets acquired have been valued as Level 3 assets at fair market value.

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During 2019, we also acquired a small foreign distributor for approximately $ 4.6 million in cash.

2021 Acquisitions

During November 2021, we acquired a small foreign infusion systems supplier and paid an initial gross cash payment of approximately $ 15.4 million.

The total consideration and purchase price allocation is preliminary pending the finalization of the valuation.

In addition to the initial cash consideration, total consideration for the acquisition includes an additional holdback of $ 0.5 million, to be paid two years from the completion date of the acquisition, and also a potential earn-out payment of up to $ 2.5 million, consisting of (i) a cash payment of $ 1.0 million contingent on the achievement of certain revenue targets for the annual period ending December 31, 2022 and, separately, (ii) a cash payment of $ 1.5 million contingent on certain product-related regulatory certifications obtained by May 26, 2024.

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RESTRUCTURING, STRATEGIC TRANSACTION AND INTEGRATION

Restructuring, strategic transaction and integration expenses were $ 28.4 million, $ 80.6 million and $ 105.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Restructuring, strategic transaction and integration expenses were $ 18.0 million, $ 28.4 million and $ 80.6 million in 2021, 2020 and 2019, respectively.

Restructuring

Restructuring charges were $ 7.9 million, $ 8.4 million and $ 4.5 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in the above restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

Restructuring charges were $( 1.8 ) million, $ 7.9 million and $ 8.4 million in 2021, 2020 and 2019, respectively, and are included in the above restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

In 2021, 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 $( 1.8 ) million.

In 2020, restructuring charges were primarily related to severance and costs related to office and other facility closures.

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

In 2018, we incurred restructuring charges related our 2017 acquisition of Hospira Infusion Systems ("HIS").

The restructuring charges were incurred as a result of integrating the acquired operations into our business and include severance costs related to involuntary employee terminations and facility exit costs related to the closure of the Dominican Republic manufacturing facilities acquired from Pfizer.

In 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, were paid in equal monthly installments until December 2020.

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

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

This has been fully paid as of December 31, 2020.

The following table summarizes the activity for the restructuring-related charges discussed above and related accrual (in thousands):

Accrued Balance January 1, 2019 Charges incurred Payments Accrued Balance December 31, 2019 Charges incurred Payments Currency Translation Accrued Balance December 31, 2020

Severance pay and benefits $ 677 $ 5,634 $ ( 2,433 ) $ 3,878 $ 4,288 $ ( 6,331 ) $ 23 $ 1,858

Employment agreement buyout 739 — ( 279 ) 460 — ( 460 ) — —

Retention and facility closure expenses — 2,741 ( 1,530 ) 1,211 3,641 ( 3,570 ) 281 1,563

The following table summarizes the activity in our restructuring-related accrual by major type of cost (in thousands):

Severance Pay and Benefits Employment Agreement Buyout Retention and Facility Closure Costs Total

Accrued balance, January 1, 2020 $ 3,878 $ 460 $ 1,211 $ 5,549

Charges incurred 4,288 — 3,641 7,929

Payments ( 6,331 ) ( 460 ) ( 3,570 ) ( 10,361 )

Currency translation 23 — 281 304

Accrued balance, December 31, 2020 $ 1,858 $ — $ 1,563 $ 3,421

Charges incurred 140 — — 140

Payments ( 969 ) — — ( 969 )

Currency translation ( 2 ) — 31 29

Other adjustments (1)

( 528 ) — ( 1,429 ) ( 1,957 )

Strategic Transaction and Integration Expenses

During the years ended December 31, 2020, 2019 and 2018, we incurred $ 20.5 million, $ 72.2 million and $ 100.9 million, respectively, in strategic transaction and integration expenses, which are included in restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

The integration expenses during 2020 were related to the integration of HIS and included expenses for the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during 2019 were primarily related to HIS, included a one-time strategic supply chain restructuring charge of $ 22.1 million, which reduced our contracted commitments to our third party manufacturer and charges related to our Pfizer separation costs, which included a $ 12.7 million non-cash write-off of related assets.

In 2018, our integration expenses were also primarily related to HIS.

During 2018, in connection with the sale of the 2.5 million of the shares Pfizer held in our common stock, we incurred a one-time fee payable to Pfizer in the amount of $ 8.0 million.

Accrued balance, December 31, 2021 $ 499 $ — $ 165 $ 664

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(1) The estimated liabilities related to a prior year's facility closure restructuring were adjusted to actual amounts owed.

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Strategic Transaction and Integration Expenses

We incurred $ 19.8 million, $ 20.5 million and $ 72.2 million in strategic transaction and integration expenses in 2021, 2020 and 2019, respectively, which are included in restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

The strategic transaction and integration expenses during 2021 were 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 transaction expenses incurred in connection with entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths Medical") (see Note 17:

Subsequent Events).

The integration expenses during 2020 were related to the integration of HIS and included expenses for the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during 2019 were primarily related to HIS, including a one-time strategic supply chain restructuring charge of $ 22.1 million, which reduced our contracted commitments to our third party manufacturer and charges related to our Pfizer separation costs, which included a $ 12.7 million non-cash write-off of related assets.

Revenue Recognition

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

Our software licenses and renewals are considered to be transferred to a customer at a point in time therefore revenue is recognized at the start of the license term.

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, including our historical experience to estimate the expected value in recording provisions for chargebacks.

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 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.

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Arrangements with Multiple Performance Obligations

We also enter into arrangements which include multiple performance obligations, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies.

We also enter into arrangements which include multiple performance obligations, (see Note 1:

Basis of Presentation and Summary of Significant Accounting Policies).

The most significant judgments related to these arrangements include:

• Identifying the various performance obligations of these arrangements.

• Estimating the relative standalone selling price of each performance obligation, typically using directly observable method or calculated on a cost plus margin basis method.

• Estimating the relative standalone selling price of each performance obligation, typically using a directly observable method or calculated on a cost plus margin basis method.

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Revenue disaggregated

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We report revenue on a "where sold" basis, which reflects the revenue within the country or region in which the ultimate sale is made to our external customer.

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

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Contract balances

Our contract balances (deferred revenue) are recorded in accrued liabilities and other long-term liabilities in our consolidated balance sheet (see Note 10, Accrued Liabilities and Other Long-term liabilities).

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

Our contract balances (deferred revenue) are recorded in accrued liabilities and other long-term liabilities in our consolidated balance sheet (see Note 10:

Accrued Liabilities and Other Long-term Liabilities).

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

Contract Liabilities

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Ending balance, December 31, 2021 $ ( 7,461 )

During 2020, we recognized $ 4.7 million in revenue that was included in the opening contract balances for the year ended December 31, 2019.

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During 2021, we recognized $ 5.1 million in revenue that was included in the opening contract balances as of December 31, 2020.

As of December 31, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $ 5.6 million.

We expect to recognize substantially all of this revenue within the next three to six months.

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 $ 1.9 million.

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We will continue to treat these costs as a fulfillment cost rather than as an additional promised service.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Adoption of ASC Topic 842, "Lease Accounting"

We adopted ASU No.

2016-02, Leases (ASC Topic 842), effective January 1, 2019 on a modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019.

We elected the 'package of practical expedients', which permitted us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs.

We did not elect the use-of-hindsight or the practical expedient pertaining to land easements;

the latter not being applicable to us.

We elected the short-term lease recognition exemption for all leases that qualify.

This means, for those leases that qualify, we did not recognize right-of-use ("ROU") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

Furthermore, we elected the practical expedient to not separate lease and non-lease components for all of our leases, non-lease components are primarily common area maintenance charges that we combine with the lease component when applying this ASU.

The impact of adopting this standard was the recognition of ROU assets and lease liabilities for our operating leases of $ 40.4 million as of January 1, 2019.

The adoption of ASC 842 did not have a material impact on our consolidated earnings or on our cash flows.

We determine if an arrangement is a lease at inception.

Our operating leases with a term greater than one year are included in operating lease ROU assets and our financing lease assets are included in other assets.

Our operating lease assets are separately stated in operating lease right-of-use ("ROU") assets and our financing lease assets are included in other assets on our consolidated balance sheets.

Our lease liabilities are included in accrued liabilities, and other long-term liabilities on our consolidated balance sheets.

We have elected not to recognize an ROU asset and lease liability for leases with terms of twelve months or less.

Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term based on the information available at commencement date.

The lease ROU asset excludes initial direct costs incurred.

Our lease ROU assets exclude lease incentives and initial direct costs incurred.

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

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

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

We have operating leases for corporate, R&D and sales and support offices, a distribution facility, device service centers, and certain equipment.

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

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 .

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Finance lease cost — interest 122 91

Finance lease cost - amortization of ROU asset 383 —

Finance lease cost — reduction of ROU asset 648 383

Short-term lease cost 14 263

Total lease cost $ 12,035 $ 12,021

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

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Operating leases 4.98 % 5.02 %

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31,

Finance leases

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Weighted-Average Remaining Lease Term

Finance leases 6.4 years

Finance leases 5.6 years 6.4 years

Weighted-Average Discount Rate

Finance leases 4.28 % 4.27 %

As of December 31, 2020, the maturities of our lease liabilities for each of the next five years are approximately (in thousands):

As of December 31, 2021, the maturities of our operating and finance lease liabilities for each of the next five years are approximately (in thousands):

Operating Leases Finance Leases

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Total $ 42,980 $ 2,710

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SHARE-BASED AWARDS

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The table below summarizes compensation costs and related tax benefits (in thousands):

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Year ended December 31,

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As of December 31, 2021, we had $ 31.2 million of unamortized stock compensation cost which we will recognize as an expense over a weighted-average period of approximately 0.9 years.

Stock Incentive and Stock Option Plans

Stock Option Plans

Our 2011 Stock Incentive Plan ("2011 Plan") replaced our 2003 Stock Option Plan ("2003 Plan").

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Options granted under the 2011 Plan may be "non-statutory stock options" which expire no more than ten years from date of grant or "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986, as amended.

In 2014, our Compensation Committee of the Board of Directors awarded our then new Chief Executive Officer an employment inducement option to purchase 182,366 shares of our common stock and an employment inducement grant of restricted stock units with respect to 68,039 shares of our common stock.

The inducement grants were made out of our 2014 Inducement Incentive Plan ("2014 Plan").

Our 2001 Directors’ Stock Option Plan (the “Directors’ Plan”), initially had 750,000 shares reserved for issuance to members of our Board of Directors, expired in November 2011.

Although no new grants may be made under the Director's Plan, grants made under the Director's Plan prior to its expiration continue to remain outstanding.

Options not vested terminate if the directorship is terminated.

Time-based Stock Options

To date, all options granted under the 2014 Plan, 2011 Plan, 2003 Plan and Directors' Plan have been non-statutory stock options.

The majority of the time-based outstanding employee option grants vest 25% after one year from the grant date and the balance vests ratably on a monthly basis over 36 months.

To date, all options granted under 2011 Plan and 2003 Plan have been non-statutory stock options.

The majority of the time-based outstanding employee option grants vested 25% after one year from the grant date and the balance vested ratably on a monthly basis over 36 months.

The outstanding employee option grants are all fully vested.

The majority of the outstanding options granted to non-employee directors vest one year from the grant date.

The options generally expire 10 years from the grant date.

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The fair value of time-based option grants is calculated using the Black-Scholes option valuation model.

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Weighted-average grant-date fair value per option $ 66.78 $ 59.09 $ 67.73

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A summary of our stock option activity as of and for the year ended December 31, 2021 is as follows:

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Vested and expected to vest, December 31, 2021 663,098 $ 74.75 2.6 $ 108,003

The intrinsic values for options exercisable, outstanding and vested or expected to vest at December 31, 2020 is based on our closing stock price of $ 214.49 at December 31, 2020 and are before applicable taxes.

The intrinsic values for options exercisable, outstanding and vested or expected to vest at December 31, 2021 are based on our closing stock price of $ 237.34 at December 31, 2021 and are before applicable taxes.

The following table presents information regarding stock option activity:

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In 2021, we granted PRSUs to our executive officers.

For the executive officers other than the Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the Chief Operations Officer ("COO"), the PRSUs will vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that the officers have met their individual performance goals for the applicable years.

For the CEO, CFO and the COO, the performance shares will cliff-vest

For the executive officers other than the Chief Executive Officer ("CEO"), Chief Operations Officer ("COO") and the Chief Financial Officer ("CFO"), the PRSUs will vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that the officers have met their individual performance goals for the applicable years.

For the CEO, COO and the CFO, the performance shares will cliff-vest ending on March 6, 2024 and further be subject to the achievement of minimum three-year cumulative revenue and EPS targets, commencing on January 1, 2021 and ending on December 31, 2023, which when reviewed against a predetermined vesting matrix could result in 0% to 250% of the awarded units that could vest.

In 2020, we granted PRSUs to our executive officers.

For the executive officers other than the CEO, COO and the CFO, the PRSUs will vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that the officers have met their individual performance goals for the applicable years.

For the CEO, COO and the CFO, the performance shares will cliff-vest ending on March 6, 2023 and further be subject to the achievement of minimum three-year cumulative revenue and EPS targets, which when reviewed against a predetermined vesting matrix could result in 0% to 250% of the awarded units that could vest.

On February 15, 2021, the Compensation Committee made the determination that the executive officers other than the CEO, COO and CFO met their individual performance goals for 2021, therefore one-third of their 2020 PRSU shares awarded vested during 2021.

Additionally, during February 2021, the Compensation Committee, modified the potential vesting percentages related to the 2020 PRSU awards for the CEO, COO and CFO, as the original potential percentages were established immediately before the onset of the COVID-19 pandemic.

The Compensation Committee determined to adjust the CEO, COO and CFO's potential to earn from between 0% and 250% of the award granted, to an increased potential to earn between 50% and 300% of the award granted, subject to the same minimum threshold revenue and EPS targets to be achieved by the Company.

The additional compensation expense as a result of modifying the 2020 PRSUs granted to our CEO, COO and CFO totaled $ 2.1 million recognized over the remaining amortization period from the date of modification.

In 2019, we granted PRSUs to our executive officers.

For the executive officers other than the CEO and the COO, the PRSUs will vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ending on March 6, 2023 and further be subject to the achievement of minimum three-year cumulative revenue and EPS targets, which when reviewed against a predetermined vesting matrix could result in 0% to 250% of the awarded units that could vest.

In 2019, we granted PRSUs to our executive officers.

For the executive officers other than the CEO and the COO, the PRSUs will vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that the officers have met their individual performance goals for the applicable years.

the officers have met their individual performance goals for the applicable years.

For the CEO and the COO, the performance shares will cliff-vest ending on March 6, 2022 and further subject to the achievement of a minimum Cumulative Adjusted EBITDA.

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These PRSUs will vest at the end of a three-year period ending on March 31, 2022, if certain minimum performance goals are met.

On February 15, 2021, the Compensation Committee made the determination that the executive officers other than the CEO and COO met their individual performance goals for 2021, therefore one-third of their 2019 PRSU shares awarded vested during 2021.

The performance period related to the 2019 CEO and COO PRSUs ended on December 31, 2021 and based on the Cumulative Adjusted EBITDA achieved during the performance period zero payout is expected, subject to Compensation Committee review and determination.

In 2018, we granted PRSUs to our executive officers.

For the CEO and the COO, the performance shares will cliff-vest ending on February 15, 2021 and further subject to the achievement of a minimum Cumulative Adjusted EBITDA.

For the executive officers other than the CEO and the COO, the PRSUs were to vest subject to a three-year time vesting and further subject to a determination by the Compensation Committee that the officers have met their individual performance goals for the applicable year.

For the CEO and the COO, the performance shares were to cliff-vest ending on February 15, 2021 and further subject to the achievement of a minimum Cumulative Adjusted EBITDA.

If for the three year period ending on December 31, 2020 the Cumulative Adjusted EBITDA has a growth of at least 6% to 8%, 50% of the awarded units will vest.

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If on the vesting date the Cumulative Adjusted EBITDA has a growth of over 10%, 200% of the awarded units will vest.

Also on February 15, 2021, the Compensation Committee determined that the CEO and COO's 2018 PRSUs were earned at 100% of the awards granted.

In 2017, we granted PRSUs to our executive officers.

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(a) PRSU shares earned in 2019 were related to performance awards granted to executives in 2016 and 2018 and PRSU shares earned in 2020 were related to performance awards granted to executives in 2017, 2018, and 2019.

(a) PRSU shares earned in 2019 were related to performance awards granted to executives in 2016 and 2018, PRSU shares earned in 2020 were related to performance awards granted to executives in 2017, 2018 and 2019.

PRSU shares earned in 2021 were related to performance awards granted to executives in 2018, 2019 and 2020.

The table below provides a summary of our PRSU and RSU activity as of and for the year ended December 31, 2021:

Number of Units Grant Date Fair Value Per Share Weighted Average Contractual Life (Years) Aggregate Intrinsic Value

Number of Units Grant-Date Fair Value Per Share Weighted-Average Contractual Life (Years) Aggregate Intrinsic Value (in thousands)

Non-vested at December 31, 2020 220,760 $ 209.77

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(a) Relates to 2018 CEO and COO PRSUs granted and 2019 and 2020 PRSUs granted to a non-executive employee, assumes attainment of an increased payout rate based on performance expectations.

(a) Relates to 2019-2021 PRSUs granted to a non-executive employee and 2021 and 2020 CEO, COO and CFO PRSUs granted, assumes attainment of an increased payout rate based on performance expectations.

We have an ESPP under which U.S.

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Hedge Accounting and Hedging Program

The purpose of our cash flow hedging program is to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit.

The purposes of our cash flow hedging programs are to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit, and to manage floating interest rate risk associated with future interest payments on variable-rate term loans issued in January 2022 subsequent to our fiscal year end.

We do not issue derivatives for trading or speculative purposes.

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To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions.

The par forward contract is designated and qualifies as a cash flow hedge.

Our derivative instrument is recorded at fair value on the Consolidated Balance Sheets and is classified based on the instrument's maturity date.

We record changes in the fair value of the effective portion of the derivative instrument as a component of Other Comprehensive Income (Loss) and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

The par forward contract and forward-starting interest rate swaps are designated and qualify as cash flow hedges.

Our derivative instruments are recorded at fair value on the consolidated balance sheets and are classified based on the instrument's maturity date.

We record changes in the fair value of the effective portion of the gain or loss on the derivative instrument as a component of other comprehensive income (loss) and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

Foreign Currency Exchange Rate Risk

We began hedging a portion of our Mexico forecasted expenses denominated in Pesos ("MXN") in May 2017 by entering into a two-year cross-currency par forward contract.

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The total notional amount of this outstanding derivative as of December 31, 2020 was approximately 436.8 million MXN.

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

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

The derivative instrument matured in equal monthly amounts at a fixed forward rate of 24.26 MXN/USD.

In November 2021, we entered into a one-year cross-currency par forward contract.

The total notional amount of this outstanding derivative as of December 31, 2021 was approximately 413.1 million MXN.

The term of this one-year contract is December 1, 2021 to December 1, 2022.

The derivative instrument matures in equal monthly amounts at a fixed forward rate of 21.60 MXN/USD.

Floating Interest Rate Risk

In November 2021, in anticipation of entering into new senior secured credit facilities in January 2022, which includes a variable-rate term loan A and a variable-rate term loan B (see Note 17:

Subsequent Events for additional information), we entered into two forward-starting interest rate swaps.

Under the interest rate swap agreements we exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

The term loan A swap has an initial notional amount of $ 300.0 million, reducing to $ 150.0 million evenly on a quarterly basis through its final maturity in April 2027.

We will pay a fixed rate of 1.49 % and will receive the greater of 3-month USD LIBOR or 0 %.

The term loan B swap has an initial notional amount of $ 750.0 million, reducing to $ 46.9 million evenly on a quarterly basis through its final maturity in April 2026.

We will pay a fixed rate of 1.31 % and will receive the greater of 3-month USD LIBOR or 0.50 %.

These forward-starting swaps will effectively convert the relevant portion of the floating-rate term loans to fixed rates.

The following table presents the fair values of our derivative instruments included within the consolidated balance sheets (in thousands):

As of December 31,

Consolidated Balance Sheet

Location 2020 2019

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Designated as Cash Flow Hedging Instruments

Foreign exchange forward contract:

Consolidated Balance Sheet Location Foreign Exchange Forward Contracts Forward-Starting Interest Rate Swaps Gross Derivatives

(In thousands)

As of December 31, 2021

Prepaid expenses and other current assets $ 1,061 $ — $ 1,061

Total derivatives designated as cash flow hedging instruments $ 3,555 $ 2,366

Other assets — — —

Total assets $ 1,061 $ — $ 1,061

Accrued liabilities $ — $ — $ —

Other long-term liabilities — 1,480 1,480

Total liabilities $ — $ 1,480 $ 1,480

As of December 31, 2020

Prepaid expenses and other current assets $ 3,555 $ — $ 3,555

Other assets — — —

Total assets $ 3,555 $ — $ 3,555

Accrued liabilities $ — $ — $ —

Other long-term liabilities — — —

Total liabilities $ — $ — $ —

The following table presents the amounts affecting the Consolidated Statements of Operations (in thousands):

Year Ended December 31,

Location of Gain in the

Consolidated Statements of Operations 2020 2019 2018

Location of Gain in the Consolidated Statements of Operations Year Ended December 31,

2021 2020 2019

Derivatives designated as cash flow hedging instruments:

Foreign exchange forward contracts Cost of goods sold $ 3,444 $ 790 $ 916

Forward-starting interest rate swaps Interest expense $ — $ — $ —

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

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

We recognized the following gains (losses) on our derivative instruments designated as cash flow hedges (in thousands):

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

Year Ended December 31, Year Ended December 31,

2021 2020 2019 Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income 2021 2020 2019

Derivatives designated as cash flow hedges:

Foreign exchange forward contract $ 1,980 $ 2,550 $ 2,063 Cost of goods sold $ 790 $ 916 $ 743

Derivatives designated as cash flow hedging instruments:

Foreign exchange forward contracts $ 950 $ 1,980 $ 2,550 Cost of goods sold $ 3,444 $ 790 $ 916

Forward-starting interest rate swaps ( 1,480 ) — — Interest expense — — —

Total derivatives designated as cash flow hedging instruments $ ( 530 ) $ 1,980 $ 2,550 $ 3,444 $ 790 $ 916

As of December 31, 2020, we expect approximately $ 3.6 million of the deferred gain on the outstanding derivatives in accumulated other comprehensive (loss) income to be reclassified to net income during the next 12 months concurrent with the underlying hedged transactions also being reported in net income.

As of December 31, 2021, we expect an estimated $ 1.1 million in deferred gains on the outstanding foreign exchange forward contract and an estimated $ 5.6 million in deferred losses on the forward-starting interest rate swaps will be reclassified from accumulated other comprehensive loss to net income during the next 12 months concurrent with the underlying hedged transactions also being reported in net income.

FAIR VALUE MEASUREMENTS

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Contingent earn-out liabilities

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.

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.

We expect the dispute will be resolved by binding arbitration unless both parties are able to come to an agreement on this issue, that will likely be concluded during 2021.

In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit (see Note 2:

Acquisitions).

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 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

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit (see Note 2, Acquisitions).

Pursuit's equity holders are potentially 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 paid will be 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.

We used a Monte Carlo simulation model to determine the fair value of the earn-out.

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

The historical volatility was 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.

If the probabilities in the model significantly change from what we initially and subsequently anticipate, the change could have a significant impact on our financial statements in the period recognized.

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

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 Pursuit's former equity holders and was paid out in the fourth quarter of 2021.

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 December 31, 2021, the fair value of the contingent earn-out was estimated at $ 2.6 million.

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

During November 2021, we acquired a small foreign infusion systems supplier.

Total consideration for the acquisition includes a potential earn-out payment of up to $ 2.5 million, consisting of (i) a cash payment of $ 1.0 million contingent on the achievement of certain revenue targets for the annual period ending December 31, 2022 and, separately, (ii) a cash payment of $ 1.5 million contingent on certain product-related regulatory certifications obtained by May 26, 2024.

The initial estimated fair value of the contingent consideration related to this acquisition is immaterial.

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

The following table provides a reconciliation of our Level 3 earn-out liabilities measured at estimated fair value based on an initial valuation and updated quarterly for the years ended December 31, 2021, 2020 and 2019 (in thousands):

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Contingent earn-out liability, January 1, 2019 $ 47,400

Change in fair value of contingent earn-out (included in income from operations as a separate line item) (1)

Contingent earn-out liability, December 31, 2018 $ 47,400

Acquisition date fair value estimate of earn-out (1)

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Contingent earn-out liability, December 31, 2020 $ 26,300

Contingent earn-out — non-compete arrangement 2,589

Transfer of Pursuit earn-out liability into Level 2 (4)

Contingent earn-out liability, December 31, 2021 $ 2,589

_______________________________

(1) Changes in the fair value of the HIS earn-out during the performance period are due to a change in the forecast of the underlying target, adjusted EBITDA, and due to changes in other assumptions used in the Monte Carlo simulation.

(2) Relates to our acquisition of Pursuit, (see Note 2, Acquisitions).

(3) The change in the fair value of the HIS earn-out was based on actual results as compared to the earn-out performance targets.

(1) Relates to our acquisition of Pursuit (see Note 2:

Acquisitions).

(2) The change in the fair value of the HIS earn-out related to our 2017 acquisition of HIS from Pfizer which was based on actual results as compared to the earn-out performance targets.

This adjustment reduced the HIS earn-out to zero.

(3) The fair value of the Pursuit earn-out increased during 2020 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 as of the acquisition date to December 31, 2020.

Significant increases or decreases in these inputs in isolation could result in a significant impact on our fair value measurement.

Simulation Input As of

December 31, 2018 At January 1, 2018

Adjusted EBITDA Volatility 30.00 % 26.00 %

WACC 8.25 % 8.75 %

20-year risk free rate 2.87 % 2.58 %

Market price of risk 5.24 % 5.99 %

Cost of debt 5.25 % 4.08 %

(4) The Pursuit earn-out was transferred out of Level 3 and into Level 2 in the third quarter of 2021 when the amount of the actual payment was known, and subsequently settled during the fourth quarter of 2021.

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides quantitative information about Level 3 inputs for fair value measurement of the Pursuit earn-out liability as of the acquisition date to December 31, 2020:

Pursuit Earn-out

As of December 31, At Acquisition

Simulation Input 2020 2019 November 2, 2019

December 31, 2020 At Acquisition

November 2, 2019

Simulation Input

Revenue/Gross Profit Volatility 25.00 % 20.00 %

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Counter Party Risk 3.10 % 6.00 %

Investments and foreign currency contracts

The fair value of our investments, which consists of corporate bonds, is estimated using observable market based inputs such as quoted prices, interest rates and yield curves or Level 2 inputs.

The fair value of our Level 2 forward currency contract is estimated using observable market inputs such as known notional value amounts, spot and forward exchange rates.

Investments, Foreign Currency Contracts and Interest Rate Contracts

The fair value of our investments, which consist of corporate bonds, is estimated using observable market-based inputs such as quoted prices, interest rates and yield curves or Level 2 inputs.

The fair value of our Level 2 forward currency contracts is estimated using observable market inputs such as known notional value amounts, spot and forward exchange rates.

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

There were no transfers between levels in 2020 or 2019.

The fair value of our Level 2 forward-starting interest rate swaps is estimated using a pricing model that reflects the terms of the contracts, including the period to maturity, and relies on observable market inputs such as known notional value amounts and USD interest rate curves.

Other than the Pursuit earn-out liability described above, there were no transfers between levels in 2021 or 2020.

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):

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Total Assets $ 20,101 $ — $ 20,101 $ —

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

Contingent earn-out liability - LT $ 2,589 $ — $ — $ 2,589

Forward-starting interest rate swaps:

Other long-term liabilities 1,480 — 1,480 —

Total Liabilities $ 4,069 $ — $ 1,480 $ 2,589

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Short-term $ 14,687 $ — $ 14,687 $ —

Long-term 12,974 — 12,974 —

Foreign exchange forwards:

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

PREPAID EXPENSES AND OTHER CURRENT ASSETS

PREPAID EXPENSES AND OTHER CURRENT ASSETS AND OTHER ASSETS

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

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$ 46,847 $ 41,492

Other assets consist of the following (in thousands):

As of December 31,

Pump lease receivables $ 25,941 $ 28,948

Spare parts 28,538 22,725

Equity method investments 3,238 —

Deferred debt issuance costs 2,827 —

Finance lease right-of-use assets 2,673 2,915

Other 526 887

$ 63,743 $ 55,475

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

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Incentive compensation 33,107 27,023

Accrued supply chain restructuring costs — 23,119

Operating lease liability-ST 9,009 8,740

Accrued professional fees 773 1,273

Accrued product field action — 2,096

Legal accrual 3,897 900

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Restructuring accrual 664 3,421

Contract liabilities-ST — 1,935

Contract settlement — 1,667

Other 9,107 5,515

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As of December 31,

Operating lease liabilities-LT $ 41,019 $ 28,896

Operating lease liability-LT $ 33,971 $ 41,019

Finance lease liability-LT 2,067 2,388

Contract liabilities (1)

Deferred revenue 864 94

Forward-starting interest rate swaps 1,480 —

Benefits 1,369 1,183

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The Credit Facility has an accordion feature that would enable us to increase the borrowing capacity of the Credit Facility by the greater of (i) $ 100.0 million and (ii) 2.00x Total Leverage.

In connection with the Credit Facility, for the year ended December 31, 2017, we incurred $ 1.4 million in financing costs, which were capitalized and are included in prepaid expenses and other current assets and other assets in our consolidated balance sheets, in accordance with the appropriate short-term or long-term classification.

In connection with the Credit Facility, during the year ended December 31, 2017, we incurred $ 1.4 million in financing costs, which were capitalized and are included in prepaid expenses and other current assets and other assets on our consolidated balance sheets, in accordance with the appropriate short-term or long-term classification.

These fees are being amortized to interest expense over the remaining term of the Credit Facility.

On January 6, 2022, we completed the acquisition of Smiths Medical which was partially financed by entering into Senior Secured Credit Facilities consisting of a term loan A facility of $ 850.0 million, a term loan B facility of $ 850.0 million and a revolving credit facility of $ 500.0 million.

Principal payments

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The Credit Facility has a per annum commitment fee (see table below) that will accrue on the unused amounts of the commitments under the Credit Facility.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The applicable interest margins and the commitment fee with respect to the Credit Facility shall be based on the Total Leverage Ratio pursuant to the following pricing grid:

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Our obligations are secured by:

(i) 100% of the equity interests of our guarantor

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subsidiaries;

(i) 100% of the equity interests of our guarantor subsidiaries;

and (ii) all of the tangible and intangible personal property and assets related to us and our guarantor subsidiaries (including, without limitation, all accounts, equipment, inventory and other goods, all instruments, intellectual property and other general intangibles, deposit accounts, securities accounts and other investment property and cash), and (iii) all products, profits and proceeds of the foregoing.

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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 December 31, 2020.

We entered into Senior Secured Credit Facilities in January 2022, which terminated our existing Credit Facility (see Note 17:

Subsequent Events).

Income from continuing operations before taxes consisted of the following (in thousands):

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$ 123,186 $ 97,494 $ 114,707

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision (benefit) for income taxes consisted of the following (in thousands):

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We have accrued for tax contingencies for potential tax assessments, and in 2021 we recognized a $ 3.0 million net increase, most of which related to various federal, state and foreign tax reserves.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the provision for income taxes at the statutory rate to our effective tax rate is as follows (dollars in thousands):

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Stock-based compensation ( 4,263 ) ( 3.5 ) % ( 4,686 ) ( 4.8 ) % ( 8,446 ) ( 7.4 ) %

Impact of the Tax Act — — % — — % 826 3.7 %

Foreign-derived intangible income ( 3,775 ) ( 3.1 ) % ( 2,718 ) ( 2.8 ) % ( 516 ) ( 0.5 ) %

IP installment sale and repatriation — — % — — % ( 2,118 ) ( 1.8 ) %

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The tax effect of the repatriation is included as IP installment sale and repatriation.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of our deferred income tax assets (liabilities) are as follows (in thousands):

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$ 41,114 $ 29,371

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Tax Holidays and Carryforwards

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in those jurisdictions in which we incur significant additional costs upon repatriation of such amounts.

We are subject to taxation in the United States and various states and foreign jurisdictions.

Our United States federal income tax returns for tax years 2017 and forward are subject to examination by the Internal Revenue Service.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We are subject to taxation in the U.S.

and various states and foreign jurisdictions.

federal income tax returns for tax years 2018 and forward are subject to examination by the Internal Revenue Service.

Our principal state income tax returns for tax years 2012 and forward are subject to examination by the state tax authorities.

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We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

We have not accrued any penalties or interest as of December 31, 2020 or December 31, 2019.

We have not accrued any penalties or interest as of December 31, 2021 or 2020.

The following table summarizes our cumulative gross unrecognized tax benefits (in thousands):

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Decrease related to lapse of statute of limitations ( 31 ) ( 58 ) ( 163 )

Decrease related to settlements with tax authorities ( 348 ) — —

Ending balance $ 21,537 $ 18,443 $ 15,027

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

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Worldwide Total $ 905,104 $ 843,096

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STOCKHOLDERS' EQUITY

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We did not purchase any of our common stock under our common stock purchase plan in 2021, 2020 or 2019.

We are currently limited on share purchases in accordance with the terms and conditions of our Credit Facility, (see Note 11, Long-Term Obligations).

In 2020, we withheld 67,041 shares of our common stock from employee vested restricted stock units in consideration for $ 12.9 million in payments for the employee's share award income tax withholding obligations.

We are limited on share purchases in accordance with the terms and conditions of our Credit Facility (see Note 11:

Long-Term Obligations).

In 2021, we withheld 40,350 shares of our common stock from employee vested restricted stock units in consideration for $ 8.3 million in payments for the employees' share award income tax withholding obligations.

We had 119 shares remaining in treasury at December 31, 2021.

In 2019, we withheld 80,186 shares of our common stock from employee vested restricted stock units in consideration for $ 18.6 million in payments for the employee's share award income tax withholding obligations.

We have 850 shares remaining in treasury at December 31, 2019.

In 2018, we withheld 26,307 shares of our common stock from employee vested restricted stock units in consideration for $ 6.3 million in payments for the employee's share award income tax withholding obligations.

In 2020, we withheld 67,041 shares of our common stock from employee vested restricted stock units in consideration for $ 12.9 million in payments for the employees' share award income tax withholding obligations.

We had 209 shares remaining in treasury at December 31, 2020.

In 2019, we withheld 80,186 shares of our common stock from employee vested restricted stock units in consideration for $ 18.6 million in payments for the employees' share award income tax withholding obligations.

We had 850 shares remaining in treasury at December 31, 2019.

We use treasury stock to issue shares for stock option exercises and restricted stock grants.

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive (Loss) Income ("AOCI")

The components of AOCI, net of tax, were as follows (in thousands):

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

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

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

Other comprehensive (loss) income before reclassifications ( 3,104 ) 1,568 115 ( 1,421 )

Amounts reclassified from AOCI — ( 565 ) — ( 565 )

Other comprehensive (loss) income ( 3,104 ) 1,003 115 ( 1,986 )

Balance as of December 31, 2018 ( 17,682 ) 638 99 ( 16,945 )

Other comprehensive income (loss) before reclassifications 372 1,938 ( 71 ) 2,239

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Balance as of December 31, 2020 $ ( 4,381 ) $ 2,784 $ 75 $ ( 1,522 )

Other comprehensive loss before reclassifications ( 14,664 ) ( 403 ) ( 62 ) ( 15,129 )

Amounts reclassified from AOCI — ( 2,618 ) — ( 2,618 )

Other comprehensive loss ( 14,664 ) ( 3,021 ) ( 62 ) ( 17,747 )

Balance as of December 31, 2021 $ ( 19,045 ) $ ( 237 ) $ 13 $ ( 19,269 )

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES

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Contingencies

We had a contractual earn-out arrangement 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.

In 2017, we recognized an earn-out liability in connection with our 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.

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.

We expect the dispute will be resolved by binding arbitration unless both parties are able to come to an agreement on this issue (see Note 8, Fair Value Measurements).

During November 2019, we acquired Pursuit (see Note 2, Acquisitions).

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

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.

During November 2019, we acquired Pursuit (see Note 2:

Acquisitions).

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 Measurements).

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 December 31, 2021, the fair value of the contingent earn-out was estimated at $ 2.6 million (see Note 8:

Fair Value Measurements).

During November 2021, we acquired a small foreign infusion systems supplier.

The initial estimated fair value of the contingent consideration related to this acquisition is immaterial.

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

ICU MEDICAL, INC.

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COLLABORATIVE AND OTHER ARRANGEMENTS

On February 3, 2017, we entered into two manufacturing and supply agreements ("MSA's"), (i) whereby Pfizer will manufacture and supply us with certain agreed upon products for an initial five-year term with a one-time two-year option to extend and (ii) whereby we will manufacture and supply Pfizer certain agreed upon products for a term of five or ten years depending on the product, also with a one-time two-year option to extend.

The MSA's provide each party with mutually beneficial interests and both of the MSA's are to be jointly managed by both Pfizer and ICU.

On February 3, 2017, we entered into two Manufacturing and Supply Agreements ("MSAs") whereby (i) Pfizer will manufacture and supply us with certain agreed upon products for an initial five-year term with a one-time two-year option to extend and (ii) we will manufacture and supply Pfizer certain agreed upon products for a term of five or ten years depending on the product, also with a one-time two-year option to extend.

The MSAs provide each party with mutually beneficial interests and both of the MSAs are to be jointly managed by both Pfizer and ICU.

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.

Related-party revenue for goods manufactured for Pfizer under our Manufacturing and Supply Agreements with Pfizer was $ 78.2 million during 2018, and the cost of product manufactured by Pfizer for us under those agreements was $ 81.0 million during 2018.

SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED

Quarter Ended

(in thousands except per share data)

Total revenue $ 328,607 $ 303,379 $ 318,567 $ 320,451

Gross profit $ 121,415 $ 106,284 $ 113,924 $ 119,874

Net income $ 16,834 $ 18,908 $ 24,986 $ 26,142

Net income per share:

Basic $ 0.81 $ 0.91 $ 1.19 $ 1.24

Diluted $ 0.78 $ 0.88 $ 1.16 $ 1.21

Total revenue $ 330,932 $ 312,282 $ 307,471 $ 315,523

Gross profit $ 135,303 $ 103,869 $ 118,552 $ 114,140

Net income (loss) $ 30,998 $ 22,833 $ 26,563 $ 20,641

Net income (loss) per share:

Basic $ 1.51 $ 1.11 $ 1.29 $ 1.00

Diluted $ 1.44 $ 1.06 $ 1.24 $ 0.96

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.

On February 1, 2022, effective as of January 1, 2022, upon our request, Pfizer executed a Product Addendum (the "Product Addendum") to our MSA agreement, whereby Pfizer manufactures and supplies to us certain agreed upon products.

The Product Addendum includes the supply of additional product to us subject to certain time and pricing terms and conditions.

The Product Addendum includes a minimum purchase obligation of $ 29.6 million.

The Product Addendum expires on November 30, 2022.

SUBSEQUENT EVENTS

Acquisition of Smiths Medical 2020 Limited

On January 6, 2022, we completed the acquisition of Smiths Medical, the holding company of Smiths Group plc's global medical device business, from Smiths Group International Holdings Limited (the “Seller”).

In accordance with the Share Sale and Purchase Agreement (the "Purchase Agreement"), we purchased 100 % of the equity interests of Smiths Medical for approximately $ 1.9 billion in cash and issued of 2.5 million of fully paid and non-assessable shares of our common stock, par value $ 0.10 per share.

The Purchase Agreement also includes a potential contingent earn-out payment 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 acquisition of Smiths Medical adds to and complements our current product portfolio and the combining of both businesses allows us to be a scaled U.S.-based global competitor that increases the stability of the medical supply chain and allows for future growth.

At closing, in connection with the issuance of the stock consideration to the Seller, we entered into a Shareholders Agreement (the “Shareholders Agreement”).

The Shareholders Agreement imposes certain restrictions on the Seller including prohibiting certain transfers of the shares of our common stock issued (i) for 6 months following the closing of the acquisition transaction and (ii) to certain of our competitors and certain other parties, as well as customary standstill limitations.

Under the Shareholders Agreement, the Seller has the right to designate one individual for election to our board of directors so long as the Seller beneficially owns at least 5.0 % of the total outstanding shares of our common stock.

We expect to account for the Smiths acquisition as a business combination, however the initial accounting for the business combination is incomplete.

We are unable to provide preliminary estimates of asset and liability fair market values as the external valuation of the assets acquired and liabilities assumed is incomplete.

We plan to file the required historical financial statements and the required pro forma financial statements of the combined results of ICU and Smiths Medical in a Form 8-K/A to amend the Current Report on Form 8-K filed on January 7, 2022 by March 22, 2022.

Issuance of Senior Secured Credit Facilities

On January 6, 2022, to partially finance the acquisition of Smiths Medical, we entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Barclays Bank PLC and certain other financial institutions (the “Lenders”), pursuant to which, among other things, the Lenders provided us with credit facilities in the aggregate amount of $ 2.2 billion consisting of (i) a five-year term loan A of $ 850.0 million, (ii) a seven-year Term Loan B of $ 850.0 million and (iii) a five-year Revolving Credit Facility of $ 500.0 million.

Principal Payments

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principal payments on the term loan A and term loan B Facilities are due on the last day of each calendar quarter commencing on June 30, 2022.

The term loan A Facility will amortize in an amount equal to 2.50 % of the original principal amount in the first two years, 5.00 % in the third and fourth years and 7.50 % in the fifth year, with a final payment of the outstanding principal balance due on the respective maturity date.

The term loan B Facility will mature in twenty-seven consecutive quarterly installments in an amount equal to 0.25 % of the aggregate principal amount of the term loan B outstanding on the Closing Date, with a final payment of the outstanding principal balance due on the respective maturity date.

All outstanding revolving loans over the term of the revolver are to be paid by the applicable maturity date.

Interest Rate Terms

In general, U.S.

dollar revolving and term loans under the credit facilities may bear interest, at our option, on either (1) the Base Rate, as defined in the Credit Agreement, plus the applicable margin, as indicated below or (2) Adjusted Term secured overnight financing rate, as defined in the Credit Agreement, plus applicable margin as indicated below.

Revolving Credit Facility Commitment Fee

The revolving credit facility has a per annum commitment fee at an initial rate of 0.25 % which is applied to the available amount of the revolving credit facility.

The commitment fee after the quarter ending June 30, 2022 is calculated based on the leverage ratio as indicated below.

Applicable Interest Margins

The applicable interest margins with respect to revolving loans and the term loan A Facility shall initially be 1.75 % for RFR Loans, as defined in the Credit Agreement.

The following pricing grid for the revolving credit facility and the term loan A Facility will become effective after the quarter ending June 30, 2022 and will be based on changes in the Leverage Ratio as follows:

Leverage Ratio Applicable Margin for RFR Loans Applicable Margin for Base Rate Loans Commitment Fee Rate

>4.00 to 1.0 2.25 % 1.25 % 0.35 %

< 4.00 to 1.0 but >3.00 to 1.0

2.00 % 1.00 % 0.30 %

< 3.00 to 1.0 but >2.50 to 1.0

1.75 % 0.75 % 0.25 %

< 2.50 to 1.0 but >2.00 to 1.0

1.50 % 0.50 % 0.20 %

< 2.00 to 1.0

1.25 % 0.25 % 0.15 %

The applicable interest margins for the term loan B Facility shall initially be set at 2.50 % for Eurocurrency Rate Loans.

The following pricing grid will become effective on the Adjustment Date and will be based on changes in the Leverage Ratio as follows:

Leverage Ratio Applicable Margin for Eurocurrency Rate Loans Applicable Margin for Base Rate Loans

>2.75 to 1.0 2.50 % 1.50 %

< 2.75 to 1.0

2.25 % 1.25 %

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Loan Parties and the restricted subsidiaries of the Company, including, without limitation, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, restricted payments and prepayment of junior indebtedness.

The Credit Agreement contains financial covenants on the revolving credit facility and term loan A Facility that require the Loan Parties and the restricted subsidiaries of the Company to (i) not exceed a maximum secured net leverage ratio initially set at 4.50 to 1.00, with stepdowns to 4.00 to 1.00 on June 30, 2024 and (ii) a minimum interest coverage ratio of 3.00 to 1.00.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Credit Agreement contains customary events of default, including, without limitation, payment defaults, covenant defaults, breaches of certain representations and warranties, cross defaults and cross-acceleration to certain material indebtedness, certain events of bankruptcy and insolvency, impairment of security, certain events under ERISA, material judgments and a change of control.

If an event of default occurs and is not cured within any applicable grace period or is not waived, the administrative agent and the lenders are entitled to take various actions, including, without limitation, the acceleration of amounts due thereunder and termination of commitments under the Facilities.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data