What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-09 compared with 2021-11-05 · 631 added, 380 removed, 492 unchanged (67% of the section changed)

4 unchanged sentences

(In thousands, except par value data)

September 30,

2022 December 31,

3 unchanged sentences

Short-term investment securities 14,864 14,420

TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES 537,494 410,784

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

TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENT SECURITIES 344,292 567,247

Accounts receivable, net of allowance for doubtful accounts of $ 6,921 at March 31, 2022 and $ 7,038 at December 31, 2021

202,897 105,894

Inventories 536,314 290,235

Prepaid income tax 31,381 29,480

Prepaid income taxes 10,219 19,586

Prepaid expenses and other current assets 80,273 46,847

TOTAL CURRENT ASSETS 1,173,995 1,029,809

PROPERTY AND EQUIPMENT, net 458,041 466,628

PROPERTY, PLANT AND EQUIPMENT, net 674,412 468,365

OPERATING LEASE RIGHT-OF-USE ASSETS 92,027 39,847

9 unchanged sentences

Accrued liabilities 261,820 118,195

Income tax liability 2,636 303

Contingent earn-out liability 26,300 26,300

Current portion of long-term debt 13,813 —

Income tax payable 17,491 1,454

TOTAL CURRENT LIABILITIES 494,115 200,777

CONTINGENT EARN-OUT LIABILITY 57,701 2,589

LONG-TERM DEBT 1,642,171 —

OTHER LONG-TERM LIABILITIES 134,208 41,830

3 unchanged sentences

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

Common stock, $ 0.10 par value;

Authorized — 80,000 shares;

Issued — 23,897 shares at March 31, 2022 and 21,280 shares at December 31, 2021;

and outstanding — 23,884 shares at March 31, 2022 and 21,280 shares at December 31, 2021

Additional paid-in capital 1,306,264 721,412

13 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

TOTAL REVENUES $ 543,122 $ 318,046

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Restructuring, strategic transaction and integration 33,905 2,883

Change in fair value of contingent earn-out — 4,300 — 7,000

Contract settlement — 127

TOTAL OPERATING EXPENSES 210,988 86,110

INCOME FROM OPERATIONS 38,380 25,530 99,420 71,143

(LOSS) INCOME FROM OPERATIONS ( 42,161 ) 26,570

INTEREST EXPENSE ( 13,644 ) ( 161 )

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

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

PROVISION FOR INCOME TAXES ( 6,844 ) ( 1,180 ) ( 16,639 ) ( 6,657 )

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

NET INCOME PER SHARE

OTHER INCOME, net 1,004 683

(LOSS) INCOME BEFORE INCOME TAXES ( 54,801 ) 27,092

BENEFIT (PROVISION) FOR INCOME TAXES 16,733 ( 3,361 )

NET (LOSS) INCOME $ ( 38,068 ) $ 23,731

NET (LOSS) INCOME PER SHARE

Basic $ ( 1.61 ) $ 1.12

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In thousands)

Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

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

Other comprehensive (loss) income, net of tax:

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

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

Foreign currency translation adjustment, net of taxes of $ 0 for all periods

NET (LOSS) INCOME $ ( 38,068 ) $ 23,731

Other comprehensive income (loss), net of tax:

Cash flow hedge adjustments, net of tax of ($ 7,312 ) and $ 298 for the three months ended March 31, 2022 and 2021, respectively

23,572 ( 945 )

Other adjustments, net of taxes of $ 0 for all periods

Foreign currency translation adjustment, net of tax of $ 0 for all periods

( 4,946 ) ( 7,458 )

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

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

Other adjustments, net of tax of $ 0 for all periods

Other comprehensive income (loss), net of tax 18,641 ( 8,391 )

COMPREHENSIVE (LOSS) INCOME $ ( 19,427 ) $ 15,340

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

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(Amounts in thousands)

Shares Amount Additional

Common Stock Additional

Capital Treasury

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Comprehensive

(Loss) Income

Shares Amount Total

Balance, January 1, 2022 21,280 $ 2,128 $ 721,412 $ ( 27 ) $ 911,787 $ ( 19,269 ) $ 1,616,031

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Tax withholding payments related to net share settlement of equity awards ( 37 ) — — ( 8,743 ) — — ( 8,743 )

Stock compensation — — 6,022 — — — 6,022

Other comprehensive loss, net of tax — — — — — ( 8,391 ) ( 8,391 )

Net income — — — — 23,731 — 23,731

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

Issuance of restricted stock and exercise of stock options — — ( 2,685 ) 3,237 — — 552

Tax withholding payments related to net share settlement of equity awards — — — ( 96 ) — — ( 96 )

Issuance of common stock for acquisitions 2,500 250 575,725 — — — 575,975

Stock compensation — — 12,092 — — — 12,092

Other comprehensive income, net of tax — — — — — 18,641 18,641

Net income — — — — 28,398 — 28,398

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

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

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

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

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

Net income — — — — 31,081 — 31,081

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

Shares Amount Additional

Net loss — — — — ( 38,068 ) — ( 38,068 )

Balance, March 31, 2022 23,897 $ 2,390 $ 1,306,264 $ ( 2,843 ) $ 873,719 $ ( 628 ) $ 2,178,902

Common Stock Additional

Capital Treasury

2 unchanged sentences

Comprehensive

Shares Amount Total

Balance, January 1, 2021 21,058 $ 2,106 $ 693,068 $ ( 39 ) $ 808,652 $ ( 1,522 ) $ 1,502,265

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

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

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

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

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

Net income — — — — 18,908 — 18,908

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

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

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

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

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

Net income — — — — 24,986 — 24,986

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

ICU MEDICAL, INC.

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(In thousands)

Nine months ended

September 30,

Three months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 83,210 $ 60,728

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

Net (loss) income $ ( 38,068 ) $ 23,731

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

Depreciation and amortization 53,138 22,155

Amortization of inventory step-up 14,370 —

Noncash lease expense 5,286 2,372

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Stock compensation 12,092 6,022

Loss on disposal of property and equipment and other assets 1,083 1,673

Loss on disposal of property, plant and equipment and other assets 596 659

Bond premium amortization 130 168

Debt issuance costs amortization 1,643 72

Change in fair value of contingent earn-out — 7,000

Product-related charges 3,380 2,626

Usage of spare parts 2,223 2,825

Other ( 1,649 ) ( 1,287 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of amounts acquired:

Accounts receivable 22,489 1,506

Inventories ( 36,170 ) 13,208

Prepaid expenses and other assets 3,557 ( 6,535 )

Prepaid expenses and other current assets 2,607 ( 742 )

Other assets ( 14,371 ) ( 3,463 )

2 unchanged sentences

Income taxes, including excess tax benefits and deferred income taxes ( 26,102 ) 1,439

Net cash provided by operating activities 184,917 144,226

Net cash (used in) provided by operating activities ( 1,342 ) 51,320

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment ( 46,464 ) ( 62,362 )

Proceeds from sale of asset 218 154

Purchases of property, plant and equipment ( 23,606 ) ( 14,028 )

Proceeds from sale of assets 900 55

Business acquisitions, net of cash acquired ( 1,844,164 ) —

Intangible asset additions ( 2,387 ) ( 1,874 )

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

Purchases of investment securities ( 1,993 ) ( 10,034 )

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from short-term debt — 150,000

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

Proceeds from issuance of long-term debt, net of lender debt issuance costs 1,672,698 —

Principal repayments of long-term debt ( 16,000 ) —

Payment of third-party debt issuance costs ( 1,852 ) —

Proceeds from exercise of stock options 2,974 4,864

1 unchanged sentence

Tax withholding payments related to net share settlement of equity awards ( 8,743 ) ( 7,723 )

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

Net cash provided by (used in) financing activities 1,648,917 ( 3,000 )

Effect of exchange rate changes on cash ( 3,224 ) ( 1,287 )

NET INCREASE CASH AND CASH EQUIVALENTS 123,388 82,323

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 223,399 ) 28,152

CASH AND CASH EQUIVALENTS, beginning of period 552,827 396,097

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(In thousands)

Nine months ended

September 30,

Three months ended

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

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

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

Accounts payable for property, plant and equipment $ 5,178 $ 1,068

Detail of assets acquired and liabilities assumed in acquisitions*:

Fair value of assets acquired $ 1,594,776

Cash paid for acquisitions, net of cash acquired ( 1,844,164 )

Share consideration ( 575,975 )

Contingent consideration ( 55,158 )

Goodwill, acquired during period 1,485,987

Liabilities assumed/Adjustments to liabilities assumed $ ( 605,466 )

*Includes amounts related to the acquisition of Smiths Medical 2020 Limited and measurement period adjustments related to a 2021 acquisition of a small foreign infusion systems supplier.

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

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The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of ICU Medical, Inc., ("ICU") a Delaware corporation, filed with the SEC for the year ended December 31, 2021.

We are engaged in the development, manufacturing and sale of innovative medical products used in vascular therapy and critical care applications.

We are engaged in the development, manufacturing and sale of innovative medical products used in infusion therapy and critical care applications.

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

and internationally.

Additionally, we sell our products on an original equipment manufacturer basis to other medical device manufacturers.

We also sell certain products on an original equipment manufacturer basis to other medical device manufacturers.

All subsidiaries are wholly owned and are included in the condensed consolidated financial statements.

All intercompany balances and transactions have been eliminated.

On January 6, 2022, we acquired Smiths Medical 2020 Limited ("Smiths Medical"), see Note 3:

Acquisitions.

Our condensed consolidated statement of operations includes the results of operations for Smiths Medical from January 7, 2022 through March 26, 2022, which is the current end of their 4-4-5 accounting period.

New Accounting Pronouncements

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board 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.

Restructuring, Strategic Transaction and Integration

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

Restructuring

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

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

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

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

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

In November 2021, we entered into two forward-starting swaps whereby the variable leg of the swap referenced LIBOR.

These swaps were amended in early 2022 to transition to an alternative reference rate (see Note 8:

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.

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued Balance January 1, 2021 Charges

2022 Acquisition

On January 6, 2022, we acquired 100.0 % of the equity interests in Smiths Medical, the holding company of Smiths Group plc's global medical device business, from Smiths Group International Holdings Limited (“Smiths”).

The acquisition of Smiths Medical aligns with our strategic growth plans, enabling us to broaden our product offerings to include syringe and ambulatory infusion devices, vascular access, and vital care products and to strengthen and expand our global market reach.

Total cash consideration for the acquisition was $ 1.9 billion, which was financed with existing cash balances and proceeds from the credit agreement entered into on January 6, 2022 (see Note 17:

Long-Term Debt).

We also issued share consideration to Smiths of 2.5 million shares of our common stock.

The fair value of the common shares issued to Smiths was determined based on the closing market price of our common stock on the acquisition date.

Smiths may be entitled to an additional $ 100.0 million in cash consideration contingent on our common stock achieving certain price targets for certain periods after closing in accordance with the terms of the Share Sale and Purchase Agreement (the "Purchase Agreement").

In the event that (a) on or prior to the third anniversary of closing the 30-day volume-weighted average price for our common stock, as defined in the Purchase Agreement, equals or exceeds $ 300.00 per share or (b) on or prior to the fourth anniversary of closing the 45-day volume-weighted average price for our common stock, as defined in the Purchase Agreement, equals or exceeds $ 300.00 per share (each a "Price Target"), and provided Smiths beneficially owns at least 50.0 % of the shares of common stock issued at closing at the time the Price Target is achieved, then Smiths will be entitled to receive the additional $ 100.0 million in cash consideration.

The fair value of the contingent consideration was determined using an option pricing model, specifically the Monte Carlo Simulation.

In the analysis, the determinants of payout are simulated in a risk neutral framework over a large number of simulation paths.

The fair value of the contingent consideration is then calculated as the average present value across all simulated paths.

Preliminary Purchase Price Allocation

The following table summarizes the preliminary purchase price and the preliminary allocation of the purchase price related to the assets acquired and liabilities assumed (in thousands):

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated cash consideration for acquired assets $ 1,922,955

Preliminary fair value of contingent consideration payable to Smiths 53,520

Issuance of ICU Medical, Inc.

common shares:

Number of shares issued to Smiths 2,500

Price per share (ICU's opening market price on the acquisition date) $ 230.39

Fair value of ICU shares issued to Smiths $ 575,975

Total estimated consideration to be paid $ 2,552,450

Preliminary Purchase Price Allocation:

Cash and cash equivalents $ 78,791

Accounts receivable 120,497

Inventories 226,996

Prepaid expenses and other current assets 34,554

Property, plant and equipment 210,000

Operating lease right-of-use assets 57,225

Intangible assets (1)

Deferred income taxes 9,303

Other assets 379

Accounts payable ( 105,291 )

Accrued liabilities (2)

Income tax payable ( 24,332 )

Other long-term liabilities ( 85,739 )

Deferred income taxes ( 212,950 )

Total identifiable net assets acquired $ 1,059,335

Goodwill - not tax deductible 1,493,115

Estimated Purchase Consideration $ 2,552,450

_______________________________

(1) Preliminary identifiable intangible assets include $ 500.0 million of customer relationships, $ 420.0 million of developed technology, and $ 5.0 million of trade mark.

The estimated weighted-average amortization period for the total identifiable intangible assets is approximately nine years, and, for each identifiable intangible asset is estimated as follows:

eight years for customer relationships, ten years for developed technology, and six months for the trade mark.

(2) Preliminary accrued liabilities includes, among other things, accrued warranty reserves, accrued restructuring initiatives, accrued salaries and related benefits, deferred revenue and accrued sales and use taxes.

The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations.

The identifiable intangible assets and other long-lived assets acquired have been valued as Level 3 assets at fair value.

The estimated fair value of identifiable intangible assets were developed using the income approach and are based on critical estimates, judgments and assumptions derived from:

analysis of market conditions;

discount rate;

discounted cash flows;

royalty rates;

customer retention rates;

and/or estimated useful lives.

Certain other intangible assets were valued using a cost to replace method, estimating the labor and non-labor costs required to replace the asset under the premise that it was not part of the transaction.

Property, plant and equipment was valued with the consideration of remaining economic lives.

The raw materials inventory was valued at historical cost and adjusted for any obsolescence which we estimate to approximate replacement cost, the work in process was valued at estimated sales proceeds less costs to complete and costs to sell, and finished goods inventory was valued at estimated sales proceeds less costs to sell.

The prepaid expenses and other current assets and assumed liabilities were recorded at their carrying values as of the date of the acquisition, as their carrying values approximated their fair values due to their short-term nature.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited Pro Forma Information

Smiths Medical is included in our consolidated results beginning on January 7, 2022.

Total revenues and net loss attributable to Smiths Medical for the period from January 7, 2022 to March 31, 2022 were $ 214.9 million and $ 40.4 million, respectively.

The following unaudited pro forma financial information presents the combined results of operations of ICU and Smiths Medical as if the acquisition had occurred on January 1, 2021.

The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on the date indicated or of results that may occur in the future.

Three months ended March 31,

(In thousands) 2022 2021

Revenues $ 563,743 $ 594,144

Net Loss $ ( 34,994 ) $ ( 1,994 )

The unaudited pro forma results presented above include the impact of the following adjustments:

incremental amortization expense on intangible assets acquired of $ 3.3 million and $ 26.3 million for the three months ended March 31, 2022 and 2021, respectively, incremental interest expense, including amortization of debt discount and debt issuance costs, on the Credit Facilities of $ 0.8 million and $ 12.6 million for the three months ended March 31, 2022 and 2021, respectively;

and a $ 18.8 million expense related to the increase in fair value of inventory for the three months ended March 31, 2021.

In addition, there were non-recurring adjustments directly attributable to the business combination, including acquisition-related cost of $ 13.5 million for the three months ended March 31, 2021 and adjustments related to the extinguishment of related party loans receivable and payable equal to $ 81.0 million and $ 31.0 million for the three months ended March 31, 2022 and 2021, respectively.

The unaudited pro forma results include IFRS to U.S.

GAAP adjustments for Smiths Medical historical results and adjustments for accounting policy alignment, which were materially similar to the Company.

Any differences in accounting policies were adjusted to reflect the accounting policies of the Company in the unaudited pro forma results presented.

2021 Acquisition

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

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.

As of March 31, 2022, the total consideration which includes the acquisition date fair value of the contingent consideration was $ 17.1 million.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $ 33.9 million and $ 2.9 million for the three months ended March 31, 2022 and 2021, respectively.

Restructuring

During the three months ended March 31, 2022, restructuring charges were $ 3.2 million and were related to severance costs.

Restructuring charges during the three months ended March 31, 2021 were not material.

The following table summarizes the activity in our restructuring-related accrual by major type of cost for the period ended March 31, 2022 (in thousands):

Accrued Balance

January 1, 2022 Acquired Restructuring Liabilities Charges

Incurred Payments Currency

Translation Other Adjustments(1) Accrued Balance

September 30, 2021

Translation Accrued Balance

March 31, 2022

Severance pay and benefits $ 499 5,796 $ 3,222 $ ( 2,030 ) $ ( 147 ) $ 7,340

1 unchanged sentence

$ 664 $ 7,536 $ 3,222 $ ( 2,030 ) $ ( 187 ) $ 9,205

_______________________________

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

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

Strategic Transaction and Integration Expenses

We incurred and expensed $ 4.3 million and $ 10.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2021, as compared to $ 4.1 million and $ 14.8 million during the three and nine months ended September 30, 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations.

The strategic transaction and integration expenses during the three months ended September 30, 2021 were primarily related to transaction expenses incurred related to entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths") (see Note 20:

Acquisitions).

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

The strategic transaction and integration expenses during the three and nine months ended September 30, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

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

We incurred and expensed $ 30.7 million and $ 2.9 million in strategic transaction and integration expenses during the three months ended March 31, 2022 and 2021, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statements of operations.

The strategic transaction and integration expenses during the three months ended March 31, 2022 were primarily related to transaction and integration expenses associated with our acquisition of Smiths Medical on January 6, 2022 (see Note 3:

Acquisitions) which primarily included legal expenses, bank fees, a United Kingdom stamp tax and employee costs.

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

Revenue Recognition

Following our acquisition of Smiths Medical, our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions, Critical Care, Infusion Systems-Smiths Medical, Vascular Access-Smiths Medical and Vital Care-Smiths Medical.

The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors.

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

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

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

Revenue disaggregated

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

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

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three months ended

September 30, Nine months ended

September 30,

Geography 2021 2020 2021 2020

Europe, the Middle East and Africa $ 36,239 $ 32,596 $ 108,800 $ 99,107

Other Foreign 54,523 48,525 169,667 175,618

Total Foreign 90,762 81,121 278,467 274,725

United States 245,298 237,446 697,316 675,828

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

the period the warranty service is provided.

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

Revenue disaggregated

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

Three months ended

September 30, Nine months ended

September 30,

Product line 2022 2021

3 unchanged sentences

Critical Care 12,157 13,166

Infusion Systems-Smiths Medical 66,290 —

Vascular Access-Smiths Medical 79,008 —

Vital Care-Smiths Medical 69,654 —

Total Revenues $ 543,122 $ 318,046

Infusion Systems-Smiths Medical, Vascular Access-Smiths Medical and Vital Care-Smiths Medical represent our newly integrated product lines following our acquisition of Smiths Medical on January 6, 2022.

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

Three months ended

Geography 2022 2021

Europe, the Middle East and Africa $ 86,204 $ 34,800

Other Foreign 109,127 55,895

Total Foreign 195,331 90,695

United States 347,791 227,351

Total Revenues $ 543,122 $ 318,046

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract balances

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

The following table presents the changes in our contract balances for the three months ended March 31, 2022 and 2021 (in thousands):

Contract Liabilities

Beginning balance, January 1, 2022 $ ( 7,461 )

Fair value of acquired deferred revenue ( 51,245 )

Equipment revenue recognized 5,574

2 unchanged sentences

Software revenue deferred due to implementation ( 4,777 )

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

Government grant deferred revenue ( 2,266 )

Government grant recognized 171

Other deferred revenue ( 767 )

Other deferred revenue recognized 1,683

Ending balance, March 31, 2022 $ ( 58,236 )

Beginning balance, January 1, 2021 $ ( 6,430 )

3 unchanged sentences

Software revenue deferred due to implementation ( 1,794 )

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

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

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

Revenue from remaining performance obligations related to annual software licenses is $ 1.3 million.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of March 31, 2022, revenue from remaining performance obligations is as follows:

Recognition Timing

(in millions) < 12 Months > 12 Months

Equipment revenue $ 24.1 $ —

Software revenue 7.7 2.6

Government grant revenue 1.3 12.8

Other revenue* 2.1 7.6

Total $ 35.2 $ 23.0

_________________________________

*Other deferred revenue includes pump development programs, purchased training and extended warranty.

We determine if an arrangement is a lease at inception.

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

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

All of our leases have

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

stated lease payments, which may include fixed rental increases.

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

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

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

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

2 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

Operating lease cost $ 5,178 $ 2,835

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Total lease cost $ 5,380 $ 3,020

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

The reduction of the operating and finance ROU assets is included as noncash lease expense in selling, general and administrative expenses in our condensed consolidated statement of operations.

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

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

Nine months ended

September 30,

Three months ended

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

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Finance leases $ — $ 184

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

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2021 As of

December 31, 2020

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

March 31, 2022 December 31, 2021

Operating leases

8 unchanged sentences

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

September 30, 2021 As of

December 31, 2020

Financing leases

Financing lease right-of-use assets $ 2,690 $ 2,915

March 31, 2022 December 31, 2021

Finance leases

Finance lease right-of-use assets $ 2,545 $ 2,673

Accrued liabilities $ 669 $ 643

Other long-term liabilities 1,923 2,067

Total financing lease liabilities $ 2,746 $ 2,942

Total finance lease liabilities $ 2,592 $ 2,710

Weighted-Average Remaining Lease Term

Financing leases 5.8 years 6.4 years

Finance leases 5.4 years 5.6 years

Weighted-Average Discount Rate

Financing leases 4.27 % 4.27 %

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

Finance leases 4.28 % 4.28 %

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of March 31, 2022, 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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Net Income Per Share

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

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

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

There were 12,132 and 12,182 anti-dilutive securities for the nine months ended September 30, 2021 and 2020, respectively.

Due to the net loss for the three months ended March 31, 2022, any potentially common shares were not included in the computation of diluted earnings per share as they would have had an anti-dilutive effect, therefore basic and diluted net loss per share are equal for the period.

There were nil and 12,080 anti-dilutive securities for the three months ended March 31, 2022 and March 31, 2021, respectively.

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

Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

Net income $ 31,081 $ 24,986 $ 83,210 $ 60,728

Weighted-average number of common shares outstanding (for basic calculation) 21,214 20,948 21,189 20,870

Net (loss) income $ ( 38,068 ) $ 23,731

Weighted-average number of common shares outstanding (basic) 23,646 21,149

Dilutive securities (1)

Weighted-average common and common equivalent shares outstanding (for diluted calculation) 21,730 21,556 21,735 21,561

Weighted-average common and common equivalent shares outstanding (diluted) 23,646 21,695

EPS — basic $ ( 1.61 ) $ 1.12

EPS — diluted $ ( 1.61 ) $ 1.09

_______________________________

(1) No dilutive effect for the three months ended March 31, 2022;

therefore, zero incremental shares included for the period.

Derivatives and Hedging Activities

Hedge Accounting and Hedging Program

The purpose of our 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 revenues and 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 the variable-rate term loans issued in January 2022.

We do not issue derivatives for trading or speculative purposes.

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.

The derivative

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

instruments we utilize, including various foreign exchange contracts and interest rate swaps, are designated and qualify as cash flow hedges.

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

We record changes in the intrinsic value of the effective portion of the gain or loss on the derivative instrument as a component of Other Comprehensive Income 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.

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

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

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

We record gains or losses from changes in the fair values of the derivative instruments as a component of other comprehensive income (loss) and we reclassify those gains or losses into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

If the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related derivative instrument from accumulated other comprehensive loss into earnings immediately.

Foreign Currency Exchange Rate Risk

Foreign Exchange Forward Contracts

We enter into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated revenues and expenses to minimize the effect of foreign exchange rate movements on the related cash flows.

These contracts are agreements to buy or sell a quantity of a currency at a predetermined future date and at a predetermined exchange rate.

Our foreign exchange forward contracts hedge exposures principally denominated in Mexican Pesos, Euros, Czech Koruna and Japanese Yen, and have varying maturities with an average term of approximately twelve months.

The total notional amount of these outstanding derivative contracts as of March 31, 2022 was $ 231.8 million, which included the notional equivalent of $ 58.7 million in Mexican Pesos, $ 42.4 million in Euros, $ 23.5 million in Czech Koruna, $ 22.2 million in Japanese Yen and $ 85.0 million in other foreign currencies, with terms currently through July 2023.

We did not have such derivative contracts as of December 31, 2021.

Cross-currency Par Forward Contracts

We enter into cross-currency par forward contracts to hedge a portion of our Mexico forecasted expenses denominated in Mexican Pesos ("MXN").

These contracts are agreements to exchange cash flows from one currency to another at specified intervals over the contract term with all exchanges occurring at the same predetermined rate.

In November 2021, we entered into a one-year cross-currency par forward contract with a term from December 1, 2021 to December 1, 2022.

The total notional amount of this outstanding derivative as of March 31, 2022 and December 31, 2021 was approximately 311.6 million MXN and 413.1 million MXN, respectively.

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

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

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

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

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

Preceding this contract we had a one-year cross-currency par forward contract with a term from November 3, 2020 to December 1, 2021 that matured in equal monthly amounts at a fixed forward rate of 24.26 MXN/USD.

Floating Interest Rate Risk

In November 2021, in anticipation of entering into the 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:

Long-Term Debt), we entered into two forward-starting interest rate swaps.

In February 2022, certain terms under the agreements were amended to reflect the transition from LIBOR to the Secured Overnight Financing Rate ("SOFR"), an alternative reference rate.

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.

Effective March 30, 2022, the term loan A swap, as amended, has an initial notional amount of $ 300.0 million, reducing to $ 150.0 million evenly on a quarterly basis excluding its final maturity on March 30, 2027.

We will pay a fixed rate of 1.32 % and will receive the greater of 3-month USD SOFR or ( 0.15 )%.

Effective March 30, 2022, the term loan B swap, as amended, has an initial notional amount of $ 750.0 million, reducing to $ 46.9 million evenly on a quarterly basis excluding its final maturity on March 30, 2026.

We will pay a fixed rate of 1.17 % and will receive the greater of 3-month USD SOFR or 0.35 %.

These swaps 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 Condensed Consolidated Balance Sheets (in thousands):

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Balance Sheet

Location September 30, 2021 December 31, 2020

Derivatives Designated as Cash Flow Hedging Instruments

Foreign exchange forward contract:

Condensed Consolidated Balance Sheet Location Foreign Exchange Contracts Interest Rate Swaps Gross Derivatives

As of March 31, 2022

Prepaid expenses and other current assets $ 7,629 $ — $ 7,629

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

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

Line Item in the

Condensed Consolidated Statements of Operations Three months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

Derivatives designated as cash flow hedging instruments

Foreign exchange forward contracts Cost of goods sold $ 968 $ ( 49 ) $ 2,713 $ 423

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

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

Other assets 115 28,570 28,685

Total assets $ 7,744 $ 28,570 $ 36,314

Accrued liabilities $ 895 $ — $ 895

Other long-term liabilities 27 — 27

Total liabilities $ 922 $ — $ 922

As of December 31, 2021

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

Other assets — — —

Total assets $ 1,061 $ — $ 1,061

Accrued liabilities $ — $ — $ —

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

Total liabilities $ — $ 1,480 $ 1,480

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

Gain (Loss) Recognized in Other Comprehensive Income

Three months ended

September 30, Three months ended

September 30,

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

Derivatives designated as cash flow hedges:

Foreign exchange forward contract $ ( 109 ) $ 1,287 Cost of goods sold $ 968 $ ( 49 )

Derivatives designated as cash flow hedging instruments:

Foreign exchange contracts $ 3,112 $ ( 402 )

Interest rate swaps 30,051 —

Total derivatives designated as cash flow hedging instruments $ 33,163 $ ( 402 )

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Nine months ended

September 30, Nine months ended

September 30,

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

Derivatives designated as cash flow hedges:

Foreign exchange forward contract $ ( 70 ) $ ( 642 ) Cost of goods sold $ 2,713 $ 423

The following table presents the effects of our derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations (in thousands):

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

Three months ended

Location of Gain (Loss) Recognized in Income 2022 2021

Derivatives designated as cash flow hedging instruments:

Foreign exchange contracts Total revenues $ 2,543 $ —

Foreign exchange contracts Cost of goods sold ( 513 ) 841

Foreign exchange contracts Interest expense (1)

Total derivatives designated as cash flow hedging instruments $ 2,279 $ 841

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

Fair Value Measurement

_______________________________

(1) Represents location of gain reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring.

As of March 31, 2022, we expect an estimated $ 1.9 million in deferred gains on the outstanding foreign exchange contracts and an estimated $ 3.9 million in deferred losses on the 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

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

Earn-out Liability

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.

Contingent Earn-out Liabilities

On January 6, 2022, we acquired Smiths Medical with a combination of cash consideration and share consideration issued at closing.

Total consideration for the acquisition includes a potential earn-out payment of $ 100.0 million in cash contingent on our common stock achieving certain Price Targets from the closing date to either the third or fourth anniversary of closing (see Note 3:

Acquisitions for additional information) and provided Smiths beneficially owns at least 50.0 % of the shares of common stock issued at closing at the time the Price Target is achieved.

The initial estimated fair value of the earn-out was determined to be $ 53.5 million.

The initial fair value of the earn-out was determined using a Monte Carlo simulation model.

The model utilized several assumptions including volatility and the risk-free interest rate.

The assumed volatility is based on the average of the historical volatility of our common stock price and the implied volatility of certain at-the-money traded options.

The risk-free interest rate is equal to the yield on U.S.

Treasury securities at constant maturity for the period commensurate with the term of the earn-out.

At each reporting date subsequent to the acquisition, we will remeasure the earn-out liability and recognize any changes in its fair value in our consolidated statements of operations.

If the probability of achieving the Price Targets during their respective measurement periods is significantly greater than initially anticipated, the realization of an additional liability and related expense will have a significant impact on our consolidated financial statements in the period recognized.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

As of March 31, 2022, the estimated fair value of the total contingent earn-out is $ 1.6 million.

During August 2021, we entered into an agreement with one of our international distributors whereby that distributor would not compete with us in a specific territory for a three-year period that will end in September 2024.

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

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

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

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

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

As of both March 31, 2022 and December 31, 2021, the estimated fair value of the contingent earn-out is $ 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 the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit Vascular, Inc.

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.

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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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

The $ 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.

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

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

1 unchanged sentence

Accrued balance, January 1, 2022 $ 2,589

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

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

Currency translation ( 46 )

Accrued balance, March 31, 2022 $ 57,701

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

Accrued balance, June 30, 2021 $ 26,300

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

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

Accrued balance, September 30, 2021 $ 3,100

_______________________________

(1) $53.5 million relates to our acquisition of Smiths Medical and $1.6 million relates to our acquisition of a small foreign infusions systems supplier in the fourth quarter of 2021 (see Note 3:

Acquisitions).

Earn-out Liability

2 unchanged sentences

Accrued balance, March 31, 2021 $ 26,300

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

Accrued balance, June 30, 2020 $ 20,000

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

Accrued balance, September 30, 2020 $ 24,300

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

The following tables provide quantitative information about Level 3 inputs for fair value measurement of our earn-out liabilities related to Smiths Medical and Pursuit:

Smiths Medical Earn-out

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Simulation Input At Acquisition

January 6, 2022

Volatility 37.00 %

Risk-Free Rate 1.31 %

Pursuit Earn-out

Simulation Input As of

December 31, 2020 As of

September 30, 2020

March 31, 2021

Revenue/Gross Profit Volatility 25.00 %

2 unchanged sentences

Counter Party Risk 3.10 %

Investments and Foreign Currency Contracts

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

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

Investments, Foreign Exchange 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 foreign exchange contracts, including forward contracts and cross-currency par forward 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.

The fair value of our Level 2 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.

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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair value measurements at September 30, 2021

Fair value measurements as of March 31, 2022

Total carrying

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inputs (level 3)

Available for sale securities:

Available-for-sale debt securities:

Short-term $ 14,864 $ — $ 14,864 $ —

Long-term 2,539 — 2,539 —

Foreign exchange forwards:

Foreign exchange contracts:

Prepaid expenses and other current assets 7,629 — 7,629 —

Other assets 115 — 115 —

Interest rate contracts:

Other assets 28,570 — 28,570 —

Total Assets $ 53,717 $ — $ 53,717 $ —

Earn-out liability $ 29,400 $ — $ 26,300 $ 3,100

Contingent earn-out liability - LT 57,701 — — 57,701

Foreign exchange contracts:

Accrued liabilities 895 — 895 —

Other long-term liabilities 27 — 27 —

Total Liabilities $ 58,623 $ — $ 922 $ 57,701

Fair value measurements at December 31, 2020

Fair value measurements as of December 31, 2021

Total carrying

3 unchanged sentences

inputs (level 3)

Available for sale securities:

Available-for-sale debt securities:

Short-term $ 14,420 $ — $ 14,420 $ —

Long-term 4,620 — 4,620 —

Foreign exchange forwards:

Cross-currency par forward contract:

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

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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investment Securities

Investments in Available-for-sale Securities

Our available-for-sale investment securities currently consist of short-term and long-term corporate bonds and are considered “investment grade” and carried at fair value.

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

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.

Our available-for-sale investment securities currently consist of short-term and long-term corporate bonds and 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 amortized cost basis 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 March 31, 2022 or December 31, 2021.

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

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

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

Such amortization is included in other income, net in our condensed 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 these investments.

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of September 30, 2021

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

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

As of March 31, 2022

Amortized Cost Unrealized Holding

Gains (Losses) Fair Value

Short-term corporate bonds $ 14,864 $ — $ 14,864

2 unchanged sentences

As of December 31, 2021

Amortized Cost Unrealized Holding Gains (Losses) Fair Value

Amortized Cost Unrealized Holding

Gains (Losses) Fair Value

Short-term corporate bonds $ 14,420 $ — $ 14,420

2 unchanged sentences

Investments in Non-Marketable Equity Securities

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

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

During 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 intercompany transactions, among other factors.

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

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

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

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

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

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

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

September 30, 2021 As of

December 31, 2020

Equity method investments $ 3,250 $ —

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

The carrying value of our equity method investment is reported in other assets on our condensed consolidated balance sheets (see Note 11:

Prepaid Expenses and Other Current Assets and Other Assets).

We assess our equity method investments for impairment on an annual basis or whenever events or circumstances indicate that the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

carrying value of the investment may not be recoverable.

Our recorded share of the investee's loss was not material for the period ended March 31, 2022.

We did not receive any dividend distributions from this investment during the period ended March 31, 2022.

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

March 31, 2022 December 31, 2021

Equity method investment $ 3,209 $ 3,238

Prepaid Expenses and Other Current Assets and Other Assets

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Other prepaid expenses and receivables $ 29,647 $ 14,763

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Deferred tax charge 4,241 4,241

Foreign exchange forward contract 772 3,555

Foreign exchange contracts 7,629 1,061

Deposits 1,345 1,343

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Other assets consist of the following (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Pump lease receivables $ 27,336 $ 25,941

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Equity method investments 3,209 3,238

Financed lease assets 2,690 2,915

Deferred debt issuance costs 6,496 2,827

Finance lease right-of-use assets 2,545 2,673

Interest rate contracts 28,570 —

Foreign exchange contracts 115 —

Other 4,315 526

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

Inventory costs consist of those costs directly attributable to products prior to sale including among other things raw material, labor and overhead.

Inventories consisted of the following (in thousands):

September 30, 2021 December 31, 2020

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

Inventories consist of the following (in thousands):

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March 31, 2022 December 31, 2021

Raw materials $ 232,451 $ 135,528

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Total inventories $ 536,314 $ 290,235

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Property and Equipment

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

September 30, 2021 December 31, 2020

During the quarter ended March 31, 2022, inventories increased significantly due to the acquisition of Smiths Medical.

All acquired inventory was recorded at fair value on January 6, 2022 in accordance with ASC 805, Business Combinations (see Note 3:

Acquisitions).

Property, Plant and Equipment

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

March 31, 2022 December 31, 2021

Machinery and equipment $ 432,649 $ 321,078

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Construction in progress 123,448 72,153

Total property and equipment, cost 879,673 843,096

Total property, plant and equipment, cost 1,133,026 905,104

Accumulated depreciation ( 458,614 ) ( 436,739 )

Property and equipment, net $ 458,041 $ 466,628

Property, plant and equipment, net $ 674,412 $ 468,365

______________________________

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

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

Depreciation expense was $ 21.4 million and $ 16.3 million for the three months ended March 31, 2022 and 2021, respectively.

During the quarter ended March 31, 2022, property, plant and equipment and related depreciation expense increased significantly due to the acquisition of Smiths Medical (see Note 3:

Acquisitions).

Goodwill and Intangible Assets, Net

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Balance as of January 1, 2022 $ 43,439

Goodwill acquired (1)

Currency translation ( 2,560 )

Balance as of September 30, 2021 $ 32,760

Intangible Assets, Net

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

Balance as of March 31, 2022 $ 1,526,866

_______________________________

(1) Relates to Smiths Medical acquired on January 6, 2022.

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Average September 30, 2021

Life in Years Cost Accumulated

(2) Other relates to measurement period adjustments related to a 2021 acquisition of a small foreign infusion systems supplier.

Intangible Assets, Net

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

Weighted-Average Amortization Life in Years March 31, 2022

Cost Accumulated

Amortization Net

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

Average December 31, 2020

Life in Years Cost Accumulated

Weighted-Average Amortization Life in Years December 31, 2021

Cost Accumulated

Amortization Net

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

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

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

During the three months ended March 31, 2022 and 2021, intangible asset amortization expense was $ 31.7 million and $ 5.8 million, respectively.

During the quarter ended March 31, 2022, intangible assets and related amortization expense increased significantly due to the acquisition of Smiths Medical (see Note 3:

Acquisitions).

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As of March 31, 2022 estimated annual amortization for our intangible assets for each of the next five years is approximately (in thousands):

Remainder of 2022 $ 104,564

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Accrued liabilities consist of the following (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Salaries and benefits $ 47,604 $ 27,304

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Accrued freight 10,285 9,194

Foreign exchange contracts 895 —

Acquired restructuring liability 6,775 —

Accrued transaction/integration costs 8,982 —

Accrued audit fees 3,187 1,008

Defined benefit plan 2,796 —

Other 15,371 8,099

$ 261,820 $ 118,195

___________________________

(1) Includes $ 31.3 million of estimated remediation costs related to a 2021 Warning Letter received by Smiths Medical from the FDA following an inspection of Smiths Medical’s Oakdale, Minnesota Facility, see Note 19:

Commitments and Contingencies for further detail.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating lease liability-LT $ 73,391 $ 33,971

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Accrued rent 1,231 1,262

Contract liabilities-LT 236 337

Financing lease liability-LT 2,122 2,388

Contract liabilities (1)

Forward-starting interest rate swaps — 1,480

Foreign exchange contracts 27 —

Finance lease liability-LT 1,923 2,067

Deferred revenue 22,828 —

Field service corrective action (2)

Other 9,983 1,479

$ 134,208 $ 41,830

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

The effective tax rate for the three and nine months ended September 30, 2021 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII") and tax credits and the following discrete items recognized during the interim period:

______________________________

(1) Consists of contracts with customers and suppliers that were valued at below market at the time of the Hospira Infusion Systems acquisition.

(2) Long-term portion of the estimated remediation costs related to a 2021 Warning Letter received by Smiths Medical from the FDA following an inspection of Smiths Medical’s Oakdale, Minnesota Facility, see Note 19:

Commitments and Contingencies for further detail.

Income taxes were accrued at an estimated effective tax rate of 31 % and 12 % for the three months ended March 31, 2022 and 2021, respectively.

The effective tax rate for the three months ended March 31, 2022 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, section 162(m) excess compensation, foreign-derived intangible income ("FDII") and tax credits and the following discrete items recognized during the interim period:

• Excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the three months ended March 31, 2022 of $ 2.6 million.

The effective tax rate for the three months ended March 31, 2021 differs from the federal statutory rate of 21 % principally because of the effect of the mix of U.S.

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

The effective tax rate during the three months ended March 31, 2021 included a discrete tax benefit of $ 1.8 million related to excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

Long-Term Debt

2022 Credit Agreement

On January 6, 2022, in connection with 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”) for $ 2.2 billion of senior secured credit facilities.

The senior secured credit facilities include (i) a five-year Tranche A term loan of $ 850.0 million (the "Term Loan A"), (ii) a seven-year Tranche B term loan of $ 850.0 million (the "Term Loan B") and (iii) a five-year revolving credit facility of $ 500.0 million (the "Revolving Credit Facility"), with separate sub-limits of $ 50.0 million for letters of credit and swingline loans (collectively, the "Senior Secured Credit Facilities").

We used the proceeds from borrowings under the Term Loan A and the Term Loan B (collectively, the "Term Loans") to fund a portion of the cash consideration for the purchase of Smiths Medical and the related fees and expenses incurred in connection with the acquisition.

We did not incur borrowings under the Revolving Credit Facility on the

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

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

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

and foreign incomes, state income taxes, GILTI, FDII, tax credits and the following discrete items recognized during the interim periods:

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

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

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

Long-Term Obligations

Five-year Senior Secured Revolving Credit Facility ("Credit Facility")

On November 8, 2017, we entered into a Credit Facility with various lenders for $ 150.0 million, with Wells Fargo Bank, N.A.

as the administrative agent, swingline lender and issuing lender.

During March 2020, as a result of market uncertainty caused by COVID-19, we preemptively borrowed $ 150.0 million on our Credit Facility as a conservative measure to manage any potential short-term liquidity risk.

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

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

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

The Credit Facility matures on November 8, 2022 .

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

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

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

Acquisitions).

closing date of the acquisition.

The proceeds from any future borrowings under the Revolving Credit Facility may be used for working capital and other general corporate purposes.

In connection with entering into the Credit Agreement, during the period ended March 31, 2022, we incurred $ 37.8 million in debt discount and issuance costs, which were allocated to the Term Loan A, the Term Loan B and the Revolving Credit Facility based on lender commitment amounts relative to each type of fees paid.

The lender and third-party discount and issuance costs allocated to the Term Loan A and the Term Loan B were $ 15.8 million and $ 13.4 million, respectively, and are reflected as a direct deduction from the face amount of the corresponding term loans on the condensed consolidated balance sheet.

These costs are being amortized to interest expense over the respective terms of the loans using the effective interest method.

The issuance costs allocated to the Revolving Credit Facility were $ 8.7 million, which are capitalized and included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheets.

These costs are being amortized to interest expense over the term of the Revolving Credit Facility using the straight-line method.

The net funds received from the Term Loan A and the Term Loan B, after deducting debt issuance costs, were $ 834.2 million and $ 836.6 million, respectively.

Maturity Dates

The maturity date for the Term Loan A and the Revolving Credit Facility is January 6, 2027 , and the maturity date for the Term Loan B is January 6, 2029 .

Pursuant to the terms and conditions of the Credit Agreement, the maturity dates of the Term Loans and the Revolving Credit Facility may be extended upon our request, subject to the consent of the Lenders.

Interest Rate Terms

In general, the Term Loans and borrowings under the Revolving Credit Facility denominated in U.S.

dollars bear interest, at our option, on either:

(1) the Base Rate, as defined below, plus the applicable margin, as indicated below ("Base Rate Loans") or (2) the Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), as defined below, plus the applicable margin, as indicated below ("Term SOFR Loans").

The Base Rate is defined as the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50 % and (c) Adjusted Term SOFR (as defined below) for a one-month period plus, in each case, plus 1.00 %.

Adjusted Term SOFR is the rate per annum equal to (a) Term SOFR plus (b) the Term SOFR Adjustment.

Term SOFR is the forward-looking term rate based on SOFR and is calculated separately for Term SOFR Loans and Base Rate Loans, as specified in the Credit Agreement.

The Term SOFR Adjustment is a percentage per annum of 0.10 % for Base Rate Loans and between 0.10 % to 0.25 % for Term SOFR Loans based on the applicable interest period.

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.

Effective on the first Adjustment Date, as defined in the Credit Agreement, occurring subsequent to our quarter ending June 30, 2022, the commitment fee will be determined by reference to the leverage ratio in effect from time to time as set forth in the table below.

Applicable Interest Margins

The Term Loan A and borrowings under the Revolving Credit Facility have an initial applicable margin of 0.75 % per annum for Base Rate Loans and 1.75 % per annum for Term SOFR Loans.

Effective on the first Adjustment Date, as defined in the Credit Agreement, occurring subsequent to our quarter ending June 30, 2022, the applicable margin for the Term Loan A and borrowings under the Revolving Credit Facility will be determined by reference to the leverage ratio in effect from time to time as set forth in the following table:

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Leverage Ratio Applicable Margin for Term SOFR Loans Applicable Margin for Base Rate Loans Commitment Fee Rate

Greater than 4.00 to 1.0 2.25 % 1.25 % 0.35 %

Less than or equal to 4.00 to 1.0 but greater than 3.00 to 1.0 2.00 % 1.00 % 0.30 %

Less than or equal to 3.00 to 1.0 but greater than 2.50 to 1.0 1.75 % 0.75 % 0.25 %

Less than or equal to 2.50 to 1.0 but greater than 2.00 to 1.0 1.50 % 0.50 % 0.20 %

Less than or equal to 2.00 to 1.0 1.25 % 0.25 % 0.15 %

The Term Loan B has an initial applicable margin of 1.5 % per annum for Base Rate Loans and 2.5 % per annum for Term SOFR Loans.

Effective on the first Adjustment Date, as defined in the Credit Agreement, occurring subsequent to our quarter ending June 30, 2022, the applicable margin for the Term Loan B will be determined by reference to the leverage ratio in effect from time to time as set forth in the following table:

Leverage Ratio Applicable Margin for Term SOFR Loans Applicable Margin for Base Rate Loans

Greater than 2.75 to 1.0 2.50 % 1.50 %

Less than 2.75 to 1.0 2.25 % 1.25 %

Principal Payments

Principal payments on the Term Loans are due on the last day of each calendar quarter commencing on June 30, 2022.

The Term Loan A will amortize in nineteen consecutive quarterly installments in an amount equal to 2.50 % of the original principal amount in each of the first two years, 5.00 % in each of the third and fourth years and 7.50 % in the fifth year, with a final payment of the remaining outstanding principal balance due on the maturity date.

The Term Loan B matures in twenty-seven consecutive quarterly installments in an amount equal to 0.25 % of the original principal amount, with a final payment of the remaining outstanding principal balance due on the maturity date.

We may borrow, prepay and re-borrow amounts under the Revolving Credit Facility, in accordance with the terms and conditions of the Credit Agreement, with all outstanding amounts due at maturity.

During March 2022, we prepaid $ 16.0 million in principal payments on the Term Loan A principal balance.

Interest Payments

Interest payments on Base Rate Loans are payable quarterly in arrears on the last business day of each calendar quarter and the applicable maturity date.

Interest periods on Term SOFR Loans will be determined, at our option, as either one, three or six months and will be payable on the last day of each interest period and the applicable maturity date.

In the case of any interest periods of more than three months' duration, the interest payment will be payable on each day prior to the last day of such interest period that occurs at three-month intervals.

The commitment fee on the Revolving Credit Facility is payable quarterly in arrears on the third business day following the last day of each calendar quarter and at the maturity date.

The commitment fee is included in interest expense in our condensed consolidated statements of operations.

Guarantors and Collateral

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Our obligations under the Credit Agreement are unconditionally guaranteed, on a joint and several basis, by ICU Medical, Inc.

and certain of our existing subsidiaries.

Debt Covenants

The Credit Facility contains certain financial covenants pertaining to Consolidated Fixed Charge Coverage and Consolidated Total Leverage Ratios.

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

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

The maximum Consolidated Leverage Ratio is not more than 3.00 to 1.00.

The Consolidated Fixed Charge Coverage Ratio is defined as the ratio of:

(a) Consolidated Adjusted EBITDA less the sum of (i) capital expenditures, (ii) federal, state, local and foreign income taxes paid in cash and (iii) cash restricted payments made after the closing date, to (b) Consolidated Fixed Charges for the most recently completed four fiscal quarters, calculated on a pro forma basis.

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

The Credit Agreement contains affirmative and negative covenants, including certain financial covenants.

The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger and acquisition transactions, asset sales and other dispositions, other investments, dividends, share purchases and payments affecting subsidiaries, changes in nature of business, fiscal year or organizational documents, prepayments and redemptions of subordinated and other junior debt, transactions with affiliates, and other matters.

The financial covenants include the Senior Secured Leverage Ratio and the Interest Coverage Ratio, both defined below, and pertain to the Term Loan A and the Revolving Credit Facility.

The Senior Secured Leverage Ratio is defined, at any such date, as the ratio of:

(a) all Funded Debt, as defined in the Credit Agreement, that is secured by a lien on any asset or property minus the lesser of (i) all unrestricted cash and cash equivalents and (ii) $ 500.0 million, to (b) Consolidated EBITDA, as defined in the Credit Agreement, for the most recently completed four fiscal quarters, calculated on a pro forma basis.

The maximum Senior Secured Leverage Ratio is 4.50 to 1.00 until June 30, 2024.

Thereafter, the maximum Senior Secured Leverage Ratio is 4.00 to 1.00, with limited permitted exception.

The Interest Coverage ratio is defined, at any such date, as the ratio of Consolidated EBITDA, as defined in the Credit Agreement, to Consolidated Interest Expense, as defined in the Credit Agreement, paid or payable in cash, for the most recently completed four fiscal quarters.

The minimum Interest Coverage ratio is 3.00 to 1.00.

We were in compliance with all financial covenants as of March 31, 2022.

The Credit Agreement contains customary events of default, including, among others:

non-payments of principal and interest;

breach of representations and warranties;

covenant defaults;

cross-defaults and cross-acceleration to certain other material indebtedness;

the existence of bankruptcy or insolvency proceedings;

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 all amounts due and the termination of commitments under the Senior Secured Credit Facilities.

2017 Credit Facility

On November 8, 2017, we entered into a five-year senior secured revolving credit facility with various lenders for $ 150.0 million, with Wells Fargo Bank, National Association as the administrative agent, swingline lender and issuing lender (the "Prior Credit Facility").

The Prior Credit Facility, which was set to mature on November 8, 2022 , was terminated in connection with entering into the Credit Agreement on January 6, 2022.

There were no borrowings outstanding under the Prior Credit Facility at that date or at December 31, 2021.

The remaining unamortized deferred debt issuance costs related to the Prior Credit Facility were not material and were expensed in connection with its termination.

See further details of the terms of the Prior Credit Facility in Note 11 in Part II, Item 8, of our 2021 Annual Report on Form 10-K.

The carrying values of our long-term debt consist of the following (in thousands):

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

Effective Interest Rate As of

March 31, 2022

Senior Secured Credit Facilities:

Term Loan A — principal 4.44 % $ 834,000

Term Loan B — principal 5.11 % 850,000

Revolving Credit Facility — principal — % —

Less unamortized debt issuance costs (1)

Total carrying value of long-term debt 1,655,984

Less current portion of long-term debt 13,813

Long-term debt, net $ 1,642,171

_______________________________

(1) Comprised of $ 15.0 million and $ 13.0 million relating to the Term Loan A and the Term Loan B, respectively.

As of March 31, 2022, the aggregate amount of principal repayments of our long-term debt (including any current portion) for each of the next five years is approximately (in thousands):

Remainder of 2022 $ 6,375

Thereafter 801,125

Total $ 1,684,000

The following table presents the total interest expense related to our long-term debt (in thousands):

Three months ended

Contractual interest $ 10,017 $ —

Amortization of debt issuance costs 1,643 72

Commitment fee — Revolving Credit Facility 351 56

Total interest expense $ 12,011 $ 128

Stockholders' Equity

Shareholders Agreement

At the completion of the Smiths Medical acquisition on January 6, 2022, Smiths owns approximately 10.5 % of the total outstanding shares of our common stock (see Note 3:

Acquisitions).

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

The Shareholders Agreement imposes certain restrictions on Smiths 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.

The Shareholders Agreement also permits Smiths to designate one individual for election to our Board of Directors (the "Board") so long as Smiths beneficially owns at least 5.0 % of the total outstanding shares of our common stock.

On February 1, 2022, our Board appointed a new director designated by Smiths

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pursuant to the Shareholders Agreement who will stand for election to the Board at the 2022 Annual Meeting of Stockholders to be held in May 2022.

This appointment expands the size of our Board from eight to nine members.

See our Current Report on Form 8-K filed on February 1, 2022 for additional information.

Treasury Stock

In August 2019, our Board of Directors approved a new share purchase plan to purchase up to $ 100.0 million of our common stock.

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

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

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

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

Long-Term Obligations).

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

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

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

Accumulated Other Comprehensive (Loss) Income

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

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

In August 2019, our Board approved a share purchase plan to purchase up to $ 100.0 million of our common stock.

This plan has no expiration date.

During the three months ended March 31, 2022, we did not purchase any shares of our common stock under our share purchase plan.

As of March 31, 2022, all of the $ 100.0 million available for purchase was remaining under the plan.

We are currently limited on share purchases in accordance with the terms and conditions of our Credit Agreement (see Note 17:

Long-Term Debt).

For the three months ended March 31, 2022, we withheld 37,279 shares of our common stock from employee vested restricted stock units in consideration for $ 8.7 million in payments made on the employees' behalf for their minimum statutory income tax withholding obligations.

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

Treasury stock is used to issue shares for stock option exercises and restricted stock grants.

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

Balance as of January 1, 2022 $ ( 19,045 ) $ ( 237 ) $ 13 $ ( 19,269 )

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Balance as of March 31, 2022 $ ( 23,991 ) $ 23,335 $ 28 $ ( 628 )

Other comprehensive income before reclassifications 1,302 335 12 1,649

Amounts reclassified from AOCI — ( 687 ) — ( 687 )

Other comprehensive income 1,302 ( 352 ) 12 962

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

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

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

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

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

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Translation Adjustments Unrealized 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, 2021 $ ( 4,381 ) $ 2,784 $ 75 $ ( 1,522 )

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

Other comprehensive (loss) income before

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

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

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

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

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

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

Amounts reclassified from AOCI — 166 — 166

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

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

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

Amounts reclassified from AOCI — 38 — 38

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

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

Commitments and Contingencies

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Off-Balance Sheet Arrangements

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the normal course of business, we have agreed to indemnify our officers and directors to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters or other matters related to sales of our products.

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Contingencies

On January 6, 2022, we acquired Smiths Medical.

Total consideration for the acquisition includes a potential earn-out payment of $ 100.0 million in cash contingent on our common stock achieving a certain volume-weighted average price from the closing date to either the third or fourth anniversary of closing.

As of March 31, 2022, the estimated fair value of the contingent earn-out is $ 53.5 million (see Note 9:

Fair Value Measurements).

Prior to being acquired, during 2021, Smiths Medical received a Warning Letter from the FDA following an inspection of Smiths Medical’s Oakdale, Minnesota Facility.

The Warning Letter cited, among other things, failures to comply with FDA's medical device reporting requirements and failures to comply with applicable portions of the Quality System Regulation.

A provision for the estimated costs related to the field service corrective action was recorded on the opening acquired balance sheet of Smiths Medical in the amount of $ 55.1 million.

The initial estimate recorded was based on a probability-weighted estimate of the costs required to settle the obligation.

The actual costs to be incurred are dependent upon the scope of the work necessary to achieve regulatory clearance and could differ from the original estimate.

The estimated field service corrective action recorded at March 31, 2022 is $ 54.7 million.

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

As of March 31, 2022, the estimated fair value of the contingent earn-out is $ 1.6 million (see Note 9:

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

During November 2019, we acquired Pursuit.

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

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

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

Fair Value Measurement).

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

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

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

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

As of March 31, 2022, the estimated fair value of the contingent earn-out is $ 2.6 million (see Note 9:

Fair Value Measurements).

We have non-cancelable operating lease agreements where we are contractually obligated to pay certain lease payment amounts (see Note 6:

Collaborative and Other Arrangements

On February 3, 2017, we entered into two Manufacturing and Supply Agreements ("MSAs"), (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.

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.

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

Definitive Agreement to Purchase Smiths Medical 2020 Limited

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

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

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

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

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

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

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

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

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

On February 1, 2022, effective as of January 1, 2022, upon our request, Pfizer executed a Product Addendum (the "Product Addendum") to our MSA, 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

ICU MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

minimum purchase obligation of $ 29.6 million and expires on November 30, 2022.

As of March 31, 2022, we had satisfied the minimum purchase obligations under the Product Addendum.

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

What changed 10-Q

Item 1. Financial Statements