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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-25 · 640 added, 378 removed, 1073 unchanged (49% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Registered Public Accounting Firm

Report s of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Operations for the Years Ended December 31, 202 2 , 20 2 1 and 20 2 0

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 202 2 , 20 21 and 20 2 0

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 202 2 , 20 21 and 20 2 0

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We have audited the accompanying consolidated balance sheets of ICU Medical, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

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

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

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

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

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

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– Analyzing trends in the chargeback provision as a percent of revenues and the chargeback reserve as a percent of revenues.

– Testing the underlying data, including historical sales to distribution customers and chargeback settlements with distribution customers, that are utilized as the basis for the chargeback reserve, to test whether the inputs to the estimate were reasonable.

– Testing the underlying data, including historical sales to distribution customers, chargeback settlements with distribution customers, and inventory days on hand reported from distributors, that are utilized as the basis for the chargeback reserve, to test whether the inputs to the estimate were reasonable.

– Developing an expectation of the chargeback reserve based on monthly sales to distribution customers, historical experience, and the time to settle chargeback obligations, and comparing our expectation to the amount recorded by management.

– Performing retrospective reviews comparing management's estimates of expected chargeback reserves to actual amounts incurred subsequent to the dates of estimation, to assess management's ability to reasonably estimate these obligations and to identify potential bias in management's assessment of the reserve.

Business Combination— Refer to Note 2 of the financial statements

Critical Audit Matter Description

The Company completed the acquisition of Smiths Medical for $2.552 billion on January 6, 2022.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identifiable intangible assets totaling $945 million.

Of the identifiable intangible assets acquired, the most significant included Customer Relationships of $510 million and Developed Technology of $400 million.

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;

and/or estimated useful lives.

We identified the purchase price accounting allocation as a critical audit matter because of the significant estimates and assumptions management makes to determine the fair value of the identifiable intangible assets acquired.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows and the selection of the discount rates for the identifiable intangible assets.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the business combination included the following, among others:

• We tested the effectiveness of controls over the valuation of the identifiable intangible assets, including management’s controls over forecasts of future cash flows and selection of the discount rates.

• We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results and growth rates observed for similar businesses and/or peer companies, and evidence obtained in other areas of the audit.

• With the assistance of our fair value specialists, we also performed the following:

– We evaluated the reasonableness of the valuation methodologies selected.

– We tested the source information underlying the determination of the discount rates and tested the mathematical accuracy of the calculations.

/s/ DELOITTE & TOUCHE LLP

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We have served as the Company's auditor since 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of ICU Medical, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of ICU Medical, Inc.

and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 27, 2023, expressed an unqualified opinion on those financial statements.

As described in ‘Management’s Annual Report on Internal Control over Financial Reporting’, management excluded from its assessment the internal control over financial reporting at Smiths Medical, which was acquired on January 6, 2022, and whose financial statements constitute 40% of total assets and 42% of total revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2022.

Accordingly, our audit did not include the internal control over financial reporting at Smiths Medical.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ‘Management’s Annual Report on Internal Control over Financial Reporting’.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California

February 27, 2023

ICU MEDICAL, INC.

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CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value data)

(Amounts in thousands, except par value data and treasury shares)

CURRENT ASSETS:

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Accrued liabilities 242,769 118,195

Current portion of long-term debt 29,688 —

Income tax payable 6,200 1,454

Contingent earn-out liability — 26,300

TOTAL CURRENT LIABILITIES 494,559 200,777

CONTINGENT EARN-OUT LIABILITY 25,572 2,589

LONG-TERM DEBT 1,623,675 —

OTHER LONG-TERM LIABILITIES 114,104 41,830

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TOTAL OPERATING EXPENSES 740,659 368,245 363,335

INCOME FROM OPERATIONS 123,245 98,162 107,360

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

OTHER INCOME, NET 799 1,085 7,896

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

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

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

NET INCOME PER SHARE

(LOSS) INCOME FROM OPERATIONS ( 42,898 ) 123,245 98,162

INTEREST (EXPENSE) INCOME, NET ( 66,375 ) 1,982 1,924

OTHER EXPENSE, NET ( 5,136 ) ( 2,041 ) ( 2,592 )

(LOSS) INCOME BEFORE INCOME TAXES ( 114,409 ) 123,186 97,494

BENEFIT (PROVISION) FOR INCOME TAXES 40,123 ( 20,051 ) ( 10,624 )

NET (LOSS) INCOME $ ( 74,286 ) $ 103,135 $ 86,870

NET (LOSS) INCOME PER SHARE

Basic $ ( 3.11 ) $ 4.86 $ 4.16

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Amounts in thousands)

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2022 2021 2020

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

NET (LOSS) INCOME $ ( 74,286 ) $ 103,135 $ 86,870

Other comprehensive (loss) income, net of tax:

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Other comprehensive (loss) income, net of tax ( 61,709 ) ( 17,747 ) 13,880

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

COMPREHENSIVE (LOSS) INCOME $ ( 135,995 ) $ 85,388 $ 100,750

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

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

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

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

Net income — — — — 103,135 — 103,135

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Tax withholding payments related to net share settlement of equity awards ( 48 ) — — ( 10,883 ) — — ( 10,883 )

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

Stock compensation — — 36,025 — — — 36,025

Other comprehensive loss, net of tax — — ( 10 ) — — ( 61,709 ) ( 61,719 )

Net income — — — — 103,135 — 103,135

Net loss — — — — ( 74,286 ) — ( 74,286 )

Balance, December 31, 2022 23,995 $ 2,399 $ 1,331,249 $ ( 243 ) $ 837,501 $ ( 80,978 ) $ 2,089,928

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 103,135 $ 86,870 $ 101,035

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

Net (loss) income $ ( 74,286 ) $ 103,135 $ 86,870

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

Depreciation and amortization 235,151 89,698 85,631

Noncash expense for inventory step-up 26,519 — —

Noncash lease expense 23,651 9,594 9,216

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Loss (gain) on disposal or write-off of property, plant and equipment 2,010 1,652 ( 1,789 )

Gain on disposition of assets ( 374 ) — —

Bond premium amortization 264 655 231

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Income taxes, including excess tax benefits and deferred income taxes ( 66,734 ) 874 ( 18,037 )

Net cash provided by operating activities 267,538 222,752 101,918

Net cash (used in) provided by operating activities ( 62,129 ) 267,538 222,752

CASH FLOWS FROM INVESTING ACTIVITIES:

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt, net of lender debt issuance costs 1,664,362 — —

Principal repayments of long-term debt ( 22,375 ) — —

Payment of third-party debt issuance costs ( 2,177 ) — —

Proceeds from short-term debt — — 150,000

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Tax withholding payments related to net share settlement of equity awards ( 10,883 ) ( 8,335 ) ( 12,876 )

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

Net cash provided by (used in) financing activities 1,637,032 ( 16,870 ) ( 40 )

Effect of exchange rate changes on cash ( 9,478 ) ( 3,251 ) 2,854

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 156,730 127,427 ( 76,111 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 344,043 ) 156,730 127,427

CASH AND CASH EQUIVALENTS, beginning of period 552,827 396,097 268,670

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Cash paid for acquisitions, net of cash acquired ( 1,844,164 ) ( 14,452 )

Issuance of common stock for acquisitions ( 575,975 ) —

Contingent consideration ( 55,158 ) —

Goodwill, acquired during period 10,626 20,026

Goodwill, acquired/adjusted during period 1,462,752 10,626

Liabilities assumed/Adjustments to liabilities assumed $ 593,755 $ 766

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation

Nature of Operations

ICU Medical, Inc.

("ICU" or "we"), a Delaware corporation, operates in one business segment engaged in the development, manufacturing and sale of innovative medical devices used in infusion therapy and critical care applications.

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

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

and internationally.

("ICU" or "we"), a Delaware corporation, develops, manufactures and sells infusion systems, infusion consumables and high-value critical care products used in hospital, alternate site and home care settings.

Our wide-ranging product portfolio includes IV solutions, IV smart pumps with pain management and safety software technology, dedicated and non-dedicated IV sets and needlefree connectors designed to help meet clinical, safety and workflow goals.

We also manufacture automated pharmacy IV compounding systems with workflow technology, closed systems transfer devices for preparing and administering hazardous IV drugs, and cardiac monitoring systems for critically ill patients.

Our recent acquisition of Smiths Medical broadened our product portfolio to include, among other products, syringe and ambulatory pumps, peripheral IV catheters, fluid warming and respiratory devices, silicone and PVC tracheotomy tubes.

ICU's business activities are interrelated and leverage shared manufacturing, supply chain, IT and other supporting infrastructure.

All significant operating decisions are based on analysis of ICU as a single global business, accordingly we operate in one business segment.

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

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

The manufacturing for all product groups occurs in Salt Lake City, Utah, Austin, Texas, Mexico and Costa Rica.

Basis of Presentation

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

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

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

In the statements of operations we reclassified interest income to interest (expense) income, net from other income (expense), net and in Note 4:

Revenues, certain reclassifications were made to revenues disaggregated by geography.

These reclassifications had no impact on net (loss) income, shareholder's equity or cash flows as previously reported.

On January 6, 2022, we acquired Smiths Medical 2020 Limited ("Smiths Medical"), see Note 2:

Acquisitions.

Our consolidated statement of operations includes the results of operations for Smiths Medical from January 7, 2022 through December 31, 2022.

Use of Estimates

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

Actual results could differ from those estimates.

Cash, Cash Equivalents

Cash and Cash Equivalents

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

Accounts Receivable

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts receivable are stated at net realizable value.

An allowance is provided for estimated collection losses based on an assessment of various factors.

We consider prior payment trends, the age of the accounts receivable balances, financial status and other factors to estimate the cash which ultimately will be received.

We consider prior payment trends, the age of the accounts receivable balances, the financial status of our customers and other factors to estimate the cash which ultimately will be received.

Such amounts cannot be known with certainty at the financial statement date.

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Total $ 696,009 $ 290,235

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, Plant and Equipment

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Building improvements 15 - 30 years

Machinery, equipment and molds 2 - 15 years

Machinery and equipment and molds 2 - 15 years

Furniture, fixtures and office equipment 2 - 5 years

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maintenance and repairs are expensed as incurred.

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

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

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

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

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

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

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

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

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

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

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

The costs and related accumulated depreciation applicable to property, plant and equipment sold or retired are

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

removed from the accounts and any gain or loss is reflected in the statements of operations at the time of disposal.

Depreciation expense was $ 95.8 million, $ 65.9 million and $ 62.4 million in 2022, 2021 and 2020, respectively.

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

In 2022, we bypassed a qualitative assessment and performed a quantitative assessment to determine whether an impairment exists.

We determine the fair value of our reporting unit using the income approach and market approach to valuation, as well as other generally accepted valuation methodologies.

The income approach utilizes a discounted cash flow analysis using management's assumptions.

The market approach compares our reporting unit to similar companies with the assumption that companies operating in the same industry will share similar characteristics and that company values will correlate to those characteristics.

If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, we recognize an impairment loss equal to the difference between the carrying amount and the estimated fair value of the reporting unit.

We concluded that there was no impairment of goodwill during fiscal 2022, 2021, or 2020.

The following table presents the changes in the carrying amount of our goodwill for 2022, 2021 and 2020 (in thousands):

Balance as of January 1, 2020 $ 31,245

Goodwill acquired (1)

Balance as of December 31, 2020 $ 33,001

Goodwill acquired (2)

Other ( 188 )

Balance as of December 31, 2021 43,439

Disposition (5)

Currency translation ( 56,283 )

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_______________________________

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

("Pursuit"), which resulted in $ 19.1 million of goodwill.

We also acquired a small foreign distributor, which resulted in $ 0.9 million of goodwill.

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

(1) In 2020, "Other" primarily relates to a $ 1.3 million measurement period adjustment to deferred taxes related to the 2019 acquisition of Pursuit Vascular, Inc.

and foreign currency translation.

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

(3) Relates to Smiths Medical acquired on January 6, 2022 (see Note 2:

Acquisitions).

(4) Reflects a measurement period adjustment related to the 2021 acquisition of a small foreign infusion systems supplier.

(5) Relates to the sale of a certain line of infusion products in China.

Intangible Assets

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Weighted-Average Amortization Life

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

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Weighted-Average Amortization Life

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

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2023 $ 130,972

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Investment Securities

Short-term investments, exclusive of cash equivalents, are marketable securities intended to be sold within one year and may include trading securities, available-for-sale securities, and held-to-maturity securities (if maturing within one year at

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the time of acquisition).

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

Investments in Available-for-sale Securities

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

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

treasury securities and long-term government bonds.

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

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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).

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

We did not have any investments in available-for-sale debt securities in unrealized loss positions as of December 31, 2022 or 2021.

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

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

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

Such amortization is included in interest (expense) income, net in the consolidated statements of operations.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Short-term corporate bonds $ 2,314 $ — $ 2,314

Short-term U.S.

treasury securities 1,412 — 1,412

Short-term government bonds 498 — 498

Total short-term investment securities 4,224 — 4,224

Long-term corporate bonds 516 — 516

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Investments in Non-Marketable Equity Securities

In the third quarter of 2021, we acquired approximately a 20.0 % non-marketable equity interest in a nonpublic company and entered into a three-year distribution agreement where we have the exclusive rights to market, sell and distribute the company's products in exchange for a cash payment of $ 3.3 million.

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.

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

We report our

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

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

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

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

During 2022 and 2021, there were no indications that our non-marketable equity method investment was impaired.

Our recorded share of the investee's loss was not material for the year ended December 31, 2022 and 2021.

We did not receive any dividend distributions from this investment during 2022 and 2021.

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

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Equity method investment $ 3,178 $ 3,238

Investments in non-marketable debt securities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the second quarter 2022, we received $ 19.0 million in proceeds from a promissory note related to an acquired investment as part of the Smiths Medical acquisition.

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

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

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

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

Foreign currency transaction losses (gains), net were $ 5.8 million, $ 1.0 million and $ 7.2 million in 2022, 2021 and 2020, respectively.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Our software license renewals are considered to be transferred to a customer at a point in time at the start of each renewal period, therefore revenue is recognized at that time.

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In certain circumstances, we enter into arrangements in which we provide multiple deliverables to our customers.

These bundled arrangements typically consist of the sale of infusion systems equipment, along with annual software licenses and related software implementation services, as well as infusion consumables, IV solutions and extended warranties.

These bundled arrangements typically consist of the sale of infusion systems equipment, along with annual software licenses

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and related software implementation services, as well as infusion consumables, IV solutions and extended warranties.

Our most significant judgments related to these arrangements are (i) identifying the various performance obligations and (ii) estimating the relative standalone selling price of each performance obligation, typically using a directly observable method or calculated on a cost plus margin basis method.

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Costs to ship finished goods to our customers are included in cost of goods sold on the consolidated statements of operations.

Advertising Expenses

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

Post-retirement and Post-employment Benefits

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Research and development costs include salaries and related benefits, consulting fees, production supplies, samples, travel costs, utilities and other miscellaneous administrative costs.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted-average number of common shares outstanding.

Diluted net income per share is computed by dividing net income by the weighted-average number of common shares outstanding plus dilutive securities.

Dilutive securities include outstanding common stock options and unvested restricted stock units, less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method.

Options that are anti-dilutive, where their exercise price exceeds the average market price of the common stock, are not included in the treasury stock method calculation.

Restricted stock units that are anti-dilutive are not included in the treasury stock method.

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

Interest (expense) income, net

The following table presents interest (expense) income, net (in thousands):

As of December 31,

2022 2021 2020

Interest expense $ ( 70,805 ) $ ( 858 ) $ ( 1,753 )

Interest income 4,430 2,840 3,677

Interest (expense) income, net $ ( 66,375 ) $ 1,982 $ 1,924

Other expense, net

The following table presents other income (expense), net (in thousands):

As of December 31,

2022 2021 2020

Foreign exchange losses, net $ ( 5,780 ) $ ( 1,017 ) $ ( 7,177 )

(Loss) gain on disposition of assets ( 2,554 ) ( 1,651 ) 1,773

Other miscellaneous income, net 3,198 627 2,812

Other expense, net $ ( 5,136 ) $ ( 2,041 ) $ ( 2,592 )

Net (Loss) Income Per Share

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

Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding plus any dilutive potential securities.

Dilutive potential securities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

include outstanding common stock options and unvested restricted stock units, less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method.

Options that are anti-dilutive, where their exercise price exceeds the average market price of the common stock, are not included in the treasury stock method calculation.

Restricted stock units that are anti-dilutive are not included in the treasury stock method.

Due to the net loss for the year ended December 31, 2022 the inclusion of any potential securities is antidilutive, accordingly, basic and diluted net loss per share is the same for this period.

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

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

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2022 2021 2020

Net income $ 103,135 $ 86,870 $ 101,035

Net (loss) income $ ( 74,286 ) $ 103,135 $ 86,870

Weighted-average number of common shares outstanding (basic) 23,868 21,206 20,907

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Exceptions to Topic 815, Derivatives and Hedging, results in not having a dedesignation of a hedging relationship if certain criteria are met.

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

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

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

2022-06, Reference Rate Reform:

Deferral of the Sunset Date of Topic 848 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

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

Derivatives and Hedging Activities).

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

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

The amendments in this ASU allow for certain expedients that allowed 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 allowed 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 these ASU's on our contracts has not been and is not expected to be material.

2022 Acquisitions

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

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

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

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

The $ 26.3 million earn-out calculation was finalized and accepted by Pursuit's former equity holders and was paid out in during the fourth quarter of 2021.

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

On January 6, 2022, we acquired 100 % 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Final Purchase Price

The following table summarizes the final purchase price and the final allocation of the purchase price related to the assets and liabilities purchased (in thousands):

Cash consideration for acquired assets, net $ 71,533

Fair value of contingent consideration 17,300

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 11:

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 opening 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.

Smiths became a related party to us when we issued 2.5 million shares of our common stock as partial consideration for the acquisition of Smiths Medical.

Additionally, we entered in to a transition services agreement ("TSA") with certain members of Smiths Group, plc.

The TSA includes certain information technology, human resource and tax support services for an initial term of twelve months with the option to extend up to 24 months.

During 2022, we expensed $ 37.6 million for services provided under the TSA.

As of December 31, 2022, we have $ 5.1 million in open payables related to the services received under the TSA.

Final Price Allocation

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

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Cash consideration for acquired assets $ 1,922,955

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 Consideration $ 2,552,450

Final Purchase Price Allocation:

Trade receivables $ 973

Purchase Price Allocation

Cash and cash equivalents $ 78,791

Accounts receivables 106,132

Inventories 228,919

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Property, plant and equipment 206,333

Operating lease right-of-use assets 55,161

Intangible assets (1)

Other assets 379

Accounts payable ( 105,291 )

Accrued liabilities (2)

Income tax payable ( 40,312 )

Other long-term liabilities ( 85,490 )

Deferred income taxes ( 187,455 )

Total identifiable net assets acquired $ 1,082,570

Goodwill - not tax deductible 1,469,880

Deferred tax liability ( 15,769 )

Purchase Consideration $ 2,552,450

_______________________________________________

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

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

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

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

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:

(1) Identifiable intangible assets included $ 510.0 million of customer relationships, $ 400.0 million of developed technology, $ 30.0 million of internally developed software, 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, five years for internally developed software, and six months for the trade mark.

(2) 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 identifiable intangible assets and other long-lived assets acquired have been valued utilizing Level 3 inputs as defined in Note 8:

Fair Value Measurements.

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

analysis of market conditions;

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royalty rates;

and estimated useful lives.

Fixed assets were valued with the consideration of remaining economic lives.

The raw materials inventory was valued at historical cost and adjusted for any obsolescence and finished goods inventory was valued at estimated sales proceeds less a nominal profit and costs to sell.

The trade receivables, 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.

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

2021 Acquisitions

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

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

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

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 inventory 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.

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NOTES TO 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 December 31, 2022 were $ 950.7 million and $( 74.3 ) million, respectively.

The net loss figure is an estimate as the results by company are less identifiable due to integration.

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.

Twelve months ended December 31,

(In thousands) 2022 2021

Revenues $ 2,300,371 $ 2,509,830

Net (Loss) Income $ ( 70,286 ) $ 37,454

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

incremental amortization expense on intangible assets acquired of $ 1.9 million and $ 24.7 million for the twelve months ended December 31, 2022, and 2021, respectively, incremental interest expense, including amortization of debt discount and debt issuance costs, on the Credit Facilities of $ 1.2 million and $ 73.5 million for the twelve months ended December 31, 2022, and 2021, respectively and a $ 27.4 million expense related to the increase in fair value of inventory for the twelve months ended December 31, 2021.

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 Acquisitions

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

The contingent earn-out based on the achievement of certain revenue targets obtained for the annual period ending December 31, 2022 was forfeited at December 31, 2022 as the minimum threshold for earning the earn-out was not met.

RESTRUCTURING, STRATEGIC TRANSACTION AND INTEGRATION

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Restructuring charges were $ 9.7 million, $( 1.8 ) million and $ 7.9 million in 2022, 2021 and 2020, respectively, and are included in the above restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

In 2022, we incurred restructuring charges primarily related to severance in connection with the January 6, 2022 acquisition of Smiths Medical, see Note 2:

Acquisitions.

In 2021, we adjusted certain facility restructuring liabilities by $ 2.0 million, shown in the table below under "Other adjustments," to reflect actual amounts owed which resulted in net restructuring credits of $( 1.8 ) million.

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

In 2019, restructuring charges were primarily related to severance and facility closure costs.

These charges were primarily related to a one-time charge to move our U.S.

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

In 2015, we incurred restructuring charges related to an agreement with Dr.

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

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

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

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

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

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

Severance Pay and Benefits Retention and Facility Closure Costs Total

Accrued balance, January 1, 2021 $ 1,858 $ 1,563 $ 3,421

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Currency translation ( 2 ) 31 29

Other adjustments (1)

( 528 ) ( 1,429 ) ( 1,957 )

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

Acquired restructuring charges 5,796 1,740 7,536

Charges incurred 9,667 58 9,725

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Other adjustments ( 38 ) — ( 38 )

( 528 ) — ( 1,429 ) ( 1,957 )

Accrued balance, December 31, 2022 $ 4,416 $ 1,507 $ 5,923

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Strategic Transaction and Integration Expenses

We incurred $ 61.7 million, $ 19.8 million and $ 20.5 million in strategic transaction and integration expenses in 2022, 2021 and 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our consolidated statement of operations.

The strategic transaction and integration expenses during 2021 were related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer, one-time costs incurred to comply with regulatory initiatives and transaction expenses incurred in connection with entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths Medical") (see Note 17:

Subsequent Events).

The strategic transaction and integration expenses during 2022 were primarily related to transaction and integration expenses associated with our acquisition of Smiths Medical on January 6, 2022 (see Note 2:

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

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

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

Revenue Recognition

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

Following the 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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Revenue is recorded in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price.

We offer certain volume-based rebates to both our distribution and end customers, which we record as variable consideration when calculating the transaction price.

Rebates are offered on both a fixed and tiered/variable basis.

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

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

In estimating the expected value of chargeback

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

amounts in order to determine the transaction price, we use information available at the time, including our historical experience.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue disaggregated

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Critical Care 47,330 2 % 49,321 4 % 48,602 4 %

Infusion Systems-Smiths Medical 340,124 15 % — nm — nm

Vascular Access-Smiths Medical 326,765 14 % — nm — nm

Vital Care-Smiths Medical 284,609 13 % — nm — nm

Total Revenues $ 2,279,997 100 % $ 1,316,308 100 % $ 1,271,004 100 %

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year ended December 31,

Geography 2022 2021 2020

United States $ 1,460,069 $ 941,809 $ 910,627

Europe, the Middle East and Africa 367,411 147,488 132,763

APAC 257,208 85,692 79,610

Other Foreign 195,309 141,319 148,004

Total Foreign 374,499 360,377 342,866

United States 941,809 910,627 923,342

Total Revenues $ 2,279,997 $ 1,316,308 $ 1,271,004

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

Fair value of acquired deferred revenue ( 51,245 )

Equipment revenue recognized 32,252

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Software revenue deferred due to implementation ( 17,557 )

Government grant deferred revenue ( 3,729 )

Government grant recognized 1,514

Other deferred revenue ( 1,500 )

Other deferred revenue recognized 5,915

Ending balance, December 31, 2022 $ ( 45,866 )

During 2022, we recognized $ 7.5 million in revenue that was included in the opening contract balances as of December 31, 2021.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

Revenue from remaining performance obligations related to annual software licenses is $ 1.9 million.

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

Recognition Timing

(in thousands) <12 Months > 12 Months

Equipment revenue $ ( 15,144 ) $ ( 982 )

Software revenue ( 8,277 ) ( 1,026 )

Government grant revenue ( 1,422 ) ( 12,797 )

Other deferred revenue* ( 4,784 ) ( 1,434 )

Total $ ( 29,627 ) $ ( 16,239 )

____________________________

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

Costs to Obtain a Contract with a Customer

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

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

Our leases 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 .

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Year ended December 31,

2022 2021 2020

Operating lease cost $ 22,038 $ 11,251 $ 11,284

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Total lease cost $ 22,869 $ 12,035 $ 12,021

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Interest expense on our finance leases is included in interest expense, net in our consolidated statements of operations.

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

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

Year ended December 31,

2022 2021 2020

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

Operating cash flows from operating leases (1)

$ 25,225 $ 11,256 $ 10,185

Operating cash flows from finance leases $ 112 $ 122 $ 91

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Finance leases $ 715 $ 558 $ 3,062

_____________________________

(1) We acquired $ 55.2 million of operating right-of-use assets as part of the Smiths Medical acquisition, see Note 2:

Acquisitions.

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

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Tax benefit from stock option exercises $ 3,637 $ 5,092 $ 5,179

In 2022, we granted our annual PRSUs to our executive officers and certain other non-executive employees.

These PRSUs will cliff-vest on March 7, 2024 subject to the achievement of net synergy savings targets related to the Smiths Medical acquisition achieved during the performance period commencing on January 1, 2022 and ending on December 31, 2023, which when reviewed against predetermined targets could result in 0% to 200% of the awarded units that could vest.

We also granted certain other one-off PRSU awards to non-executive employees with various performance requirements, whereby the performance shares will be earned if the minimum requirements are met within a specified time period.

In 2021, we granted PRSUs to our executive officers.

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

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

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

In 2019, we granted PRSUs to our executive officers.

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

The Compensation Committee determined to adjust the CEO, COO and CFO's potential to earn from between 0% and 250% of the award granted,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

If for the three year period ending on December 31, 2021 the Cumulative Adjusted EBITDA has a growth of at least 6% to 8%, 50% of the awarded units will vest.

If on the vesting date the Cumulative Adjusted EBITDA has a growth of between 8% to 10%, 100% of the awarded units will vest.

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

to an increased potential to earn between 50% and 300% of the award granted, subject to the same minimum threshold revenue and EPS targets to be achieved by the Company.

In February 2023, the Compensation Committee made the determination that the executive officers other than the CEO, CFO and COO met their individual performance goals for 2022, therefore a third of their 2020 PRSU shares awarded vested during 2023.

The performance period related to the 2020 CEO and COO PRSUs ended on December 31, 2022 and is subject to the Compensation Committee review and determination of shares earned based on the Cumulative revenue and EPS results achieved during the performance period.

In 2019, we granted PRSUs to our executive officers.

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

For the CEO and the COO, the performance shares were to cliff-vest on March 6, 2022, subject to the achievement of a minimum Cumulative Adjusted EBITDA and continuous service through that date.

If for the three year period ending on December 31, 2021 the Cumulative Adjusted EBITDA had a growth of at least 6% to 8%, 50% of the awarded units would have vested.

If on the vesting date the Cumulative Adjusted EBITDA had a growth of between 8% to 10%, 100% of the awarded units would have vested.

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

In 2019, we also granted PRSUs to one of our non-executive employees.

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

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

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

These PRSUs vested at the end of a three-year period ending on March 31, 2022, based on meeting certain minimum performance goals.

In February 2022, the Compensation Committee made the determination that the executive officers other than the CEO and COO met their individual performance goals for 2022, therefore, the final third of their 2019 PRSU shares awarded vested during 2022.

The performance period related to the 2019 CEO and COO PRSUs ended on December 31, 2021 and in February 2022 the Compensation Committee determined that zero PRSUs were earned based on the actual Cumulative Adjusted EBITDA achieved during the performance period.

In 2018, we granted PRSUs to our executive officers.

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

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

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

If on the vesting date the Cumulative Adjusted EBITDA has a growth of between 8% to 10%, 100% of the awarded units will vest.

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

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

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

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

If on the vesting date the Cumulative Adjusted EBITDA had a growth of between 8% to 10%, 100% of the awarded units would vest.

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

On February 15, 2021, the Compensation Committee made the determination that the executive officers other than the CEO and COO met their individual performance goals for 2021, therefore, one-third of their 2018 PRSU shares awarded vested during 2021.

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

Also on February 15, 2021, the Compensation Committee determined that based on the actual Cumulative Adjusted EBITDA achieved during the performance period the CEO and COO's 2018 PRSUs were earned at 100% of the awards granted.

In 2017, we granted PRSUs to our executive officers.

The PRSUs were scheduled to vest, if at all, upon the achievement of a minimum Cumulative Adjusted EBITDA, subject to a three-year cliff vesting ending on December 31, 2019.

If at that date, our Cumulative Adjusted EBITDA is at least $600 million but less than $650 million, 100% of the awarded units will vest.

If our Cumulative Adjusted EBITDA is at least $650 million but less than $700 million, 200% of the awarded units will vest.

If our Cumulative Adjusted EBITDA is at least $700 million, 300% of the awarded units will vest.

On January 17, 2020, the Compensation Committee made the determination that the 2017 PRSU shares were earned by our executive officers at the 300% achievement level.

In 2016, we granted PRSUs to our executive officers, which vested on December 31, 2018.

During the first quarter of 2019, the Compensation Committee determined the award granted vested at 300%, as a minimum specified compound annual growth rate ("CAGR") in adjusted EBITDA per share of greater than 12% was reached for the 3-year performance period January 1, 2016 through December 31, 2018.

Restricted stock units are granted annually to our Board of Directors and vest on the first anniversary of the grant date, or the date of our annual meeting, whichever occurs first.

If at that date, our Cumulative Adjusted EBITDA was at least $600 million but less than $650 million, 100% of the awarded units would vest.

If our Cumulative Adjusted EBITDA was at least $650 million but less than $700 million, 200% of the awarded units would vest.

If our Cumulative Adjusted EBITDA is at least $700 million, 300% of the awarded units would vest.

On January 17, 2020, the Compensation Committee determined that based on the actual Cumulative Adjusted EBITDA achieved during the performance period that the 2017 PRSU shares were earned by our executive officers at the 300% achievement level.

Restricted stock units are granted annually to our non-employee directors and vest on the first anniversary of the grant date, or the date of our annual meeting, whichever occurs first.

In 2022, 2021 and 2020, we granted RSUs to certain employees that vest ratably on the anniversary of the grant over three years.

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

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

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

PRSU shares earned in 2022 were related to performance awards granted to executives in 2019, 2020 and 2021 and performance awards granted to a non-executive employee in 2019, 2020 and 2021.

The table below provides a summary of our PRSU and RSU activity as of and for the year ended December 31, 2022:

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_______________________________

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

(a) Relates to net adjustments to 2019, 2020, 2021 and 2022 PRSUs granted to executives and certain non-executive employees.

PRSUs granted assumes attainment of an increased payout rate based on performance expectations.

We have an ESPP under which U.S.

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To date, there have been no increases.

As of December 31, 2021, there were 133,487 shares available for future issuance.

As of December 31, 2022, there were no shares available for future issuance, all shares unissued under the plan expired during 2022.

The ESPP is intended to constitute an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code.

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Hedge Accounting and Hedging Program

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

We do not issue derivatives for trading or speculative purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

risk associated with future interest payments on 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.

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

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

We record changes in the fair value of the effective portion of the gain or loss on the derivative instrument as a component of other comprehensive (loss) 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.

Foreign Currency Exchange Rate Risk

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

The term of this currency forward contract was May 1, 2017 to May 1, 2019.

The derivative instrument had a fixed forward rate of 20.01 MXN/USD over the term of the two-year contract.

In January 2018, we entered into a six-month cross-currency par forward contract.

The term of this six-month contract was May 1, 2019 to November 1, 2019.

The derivative instrument had a fixed forward rate of 20.43 MXN/USD over the term of the six-month contract.

In November 2018, we entered into a one-year cross-currency par forward contract.

Forward 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 ("MXN"), Euros, Czech Koruna ("CZK"), Japanese Yen ("JPY"), U.S.

Dollar ("USD"), Chinese Renminbi ("CNH"), Canadian Dollar ("CAD") and Australian Dollar ("AUD") and have varying maturities with an average term of approximately twelve months.

The total notional amount of these outstanding derivative contracts as of December 31, 2022 was $ 206.0 million, which included the notional equivalent of $ 61.3 million in MXN, $ 31.7 million in Euros, $ 13.9 million in CZK, $ 15.3 million in JPY, $ 11.5 million in CNH, $ 43.2 million in USD, $ 11.6 million in CAD, $ 11.9 million in AUD and $ 5.6 million in other foreign currencies, with terms currently through February 2024.

Certain contracts were acquired as part of the Smiths Medical acquisition.

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

Cross-currency Par Forward Contracts

We entered into cross-currency par forward contracts to hedge a portion of our Mexico forecasted expenses denominated in 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 2018, we hedged a portion of our Mexico forecasted expenses denominated in Pesos ("MXN") by entering into a one-year cross-currency par forward contract.

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

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

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

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

Floating Interest Rate Risk

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

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

In November 2021, in anticipation of entering into the new senior secured credit facilities in January 2022, which included a variable-rate term loan A and a variable-rate term loan B (see Note 11:

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.

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

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

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

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

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

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

The term loan A swap, as amended, has an initial notional amount of

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 300.0 million, reducing to $ 150.0 million evenly on a quarterly basis through 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 )%.

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

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

Derivatives Designated as Cash Flow Hedging Instruments

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

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

(In thousands)

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Total liabilities $ 2,014 $ — $ 2,014

As of December 31, 2020

Derivatives Designated as Cash Flow Hedging Instruments

As of December 31, 2021 Foreign Exchange Forward Contracts Forward-Starting Interest Rate Swaps Gross Derivatives

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

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Total liabilities $ — $ 1,480 $ 1,480

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

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

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

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

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Derivatives designated as cash flow hedging instruments:

Foreign exchange forward contracts Total revenues $ 3,829 $ — $ —

Foreign exchange forward contracts Cost of goods sold 7,751 3,444 790

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

Foreign exchange forward contracts Interest expense (1)

Interest rate swaps Interest expense $ 6,122 $ — $ —

Total derivatives designated as cash flow hedging instruments $ 18,419 $ 3,444 $ 790

_______________________________

(1) Represents location of gain reclassified from accumulated other comprehensive (loss) income to net (loss) income as a result of a forecasted transaction being no longer probable of occurring.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Year Ended December 31, Year Ended December 31,

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

We recognized the following gains (losses) on our derivative instruments designated as cash flow hedges in other comprehensive (loss) income before reclassifications to net (loss) income (in thousands):

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

Year Ended December 31,

2022 2021 2020

Derivatives designated as cash flow hedging instruments:

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

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

Foreign exchange forward contracts $ 9,588 $ 950 $ 1,980

Interest rate swaps 62,786 ( 1,480 ) —

Total derivatives designated as cash flow hedging instruments $ 72,374 $ ( 530 ) $ 1,980

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

As of December 31, 2022, we expect an estimated $ 3.0 million in deferred gains on the outstanding foreign exchange forward contract and an estimated $ 29.3 million in deferred gains on the forward-starting interest rate swaps will be reclassified from accumulated other comprehensive loss to net income during the next 12 months concurrent with the underlying hedged transactions also being reported in net income.

FAIR VALUE MEASUREMENTS

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

As of June 30, 2021, the

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

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

The $ 26.3 million earn-out calculation was finalized and accepted by Pursuit's former equity holders and was paid out in the fourth quarter of 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

earn-out measurement period ended.

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

The $ 26.3 million earn-out calculation was finalized and accepted by Pursuit's former equity holders and was paid out in the fourth quarter of 2021.

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

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

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

As of December 31, 2022, the estimated fair value for the contingent consideration related to certain product-related regulatory certifications was estimated to be $1.5 million.

As of December 31, 2022, the measurement period related to the contingent earn-out based on certain revenue targets ended and based on the actual revenue achieved during the measurement period we determined the fair value of the contingent earn-out was zero as the minimum threshold for earning the earn-out was not met.

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 2:

Acquisitions) 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 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 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.

As of December 31, 2022, the estimated fair value of the contingent earn-out is $ 21.0 million.

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

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Contingent earn-out liability, January 1, 2020 $ 17,300

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

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

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

Change in fair value of contingent earn-out (included in income from operations as a separate line item) (3)

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

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

Contingent earn-out con-compete arrangement 2,589

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

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

_______________________________

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

Acquisitions).

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

This adjustment reduced the HIS earn-out to zero.

(3) The fair value of the Pursuit earn-out increased during 2020 primarily due to changes in the probabilities within the valuation model.

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

Acquisition date fair value estimate of earn-out (3)

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

Currency translation ( 84 )

Contingent earn-out liability, December 31, 2022 $ 25,572

ICU MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

_______________________________

(1) The fair value of the Pursuit earn-out increased during 2020 primarily due to changes in the probabilities within the valuation model.

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

(3) $ 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 2:

Acquisitions).

(4) Includes an adjustment to reduce to zero a contingent earn-out issued as part of the 2021 acquisition of a small foreign infusion systems supplier.

The contingent earn-out was not earned based on our determination that the threshold target was not met.

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

December 31, 2022 At Acquisition

January 6, 2022

Simulation Input

Volatility 38.00 % 37.00 %

Risk-Free Rate 4.17 % 1.31 %

Pursuit Earn-out

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Investments, Foreign Currency Contracts and Interest Rate Contracts

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

Our investments consist of corporate and government bonds and U.S treasury securities.

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

The fair value of our U.S.

treasury securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy.

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

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

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

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.

Other than the Pursuit earn-out liability described above, there were no transfers between levels in 2022 or 2021.

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

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair value measurements as of December 31, 2022

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Available-for-sale debt securities:

Short-term $ 14,420 $ — $ 14,420 $ —

Long-term 4,620 — 4,620 —

Short-term corporate bonds $ 2,314 $ — $ 2,314 $ —

Short-term U.S.

treasury securities 1,412 1,412 — —

Short-term government bonds 498 — 498 —

Long-term corporate bonds 516 — 516 —

Foreign exchange forwards:

Prepaid expenses and other current assets 4,860 — — 4,860

Other assets 94 — — 94

Interest rate contracts:

Prepaid expenses and other current assets 28,431 — — 28,431

Other assets 26,753 — — 26,753

Total Assets $ 64,878 $ 1,412 $ 3,328 $ 60,138

Contingent earn-out liability - LT $ 25,572 $ — $ — $ 25,572

Forward-starting interest rate swaps:

Foreign exchange contracts:

Accrued liabilities 1,847 — — 1,847

Other long-term liabilities 167 — — 167

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

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

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

Forward-starting interest rate swaps

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

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

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Other prepaid expenses and receivables $ 21,635 $ 14,763

Prepaid vendor expenses 3,052 —

Deferred costs 2,395 12,746

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Foreign exchange forward contract 4,860 1,061

Interest rate contracts 28,431 —

Deposits 1,329 1,343

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Other assets consist of the following (in thousands):

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31,

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Equity method investments 3,178 3,238

Interest rate contracts 26,753 —

Deferred debt issuance costs 5,156 2,827

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$ 105,462 $ 63,743

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

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Accrued professional fees 5,317 773

Field service corrective action (1)

Legal accrual 3,137 3,897

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Restructuring accrual 5,923 664

Foreign exchange contracts 1,847 —

Accrued audit fees 6,279 1,008

Defined benefit plan 2,928 —

Accrued interest 1,033 —

Accrued research and development 3,538 —

Other 14,899 8,099

$ 242,769 $ 118,195

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(1) Includes field corrective actions associated with certain products in connection with a 2021 Warning Letter received by Smiths Medical from the FDA following an inspection of Smiths Medical's Oakdale, Minnesota Facility, see Note 15:

Commitments and Contingencies for further detail.

ICU MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Finance lease liability-LT 1,855 2,067

Contract liabilities (1)

Deferred revenue 16,239 —

Forward-starting interest rate swaps — 1,480

Benefits 5,314 1,369

Field service corrective action (1)

Accrued rent 997 1,262

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

Commitments and Contingencies for further detail.

LONG-TERM OBLIGATIONS

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 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 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 $ 8.6 million, which are capitalized and included in prepaid expenses and other current assets and other assets on our 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.

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LONG-TERM OBLIGATIONS

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

On November 8, 2017, we entered into a five-year Revolving Credit Facility ("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 the COVID-19 pandemic, we preemptively borrowed $ 150.0 million on our Credit Facility as a conservative measure to manage any potential short-term liquidity risk.

As of December 31, 2020, we had fully repaid all amounts borrowed.

As of December 31, 2021 and 2020, we had no borrowings and $ 150.0 million of availability under the Credit Facility.

The Credit Facility matures on November 8, 2022 .

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

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

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

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

Principal payments

Principal payments, when drawn on the Credit Facility, are made at our discretion with the entire unpaid amount due at maturity.

Interest rate

In general, borrowing under the Credit Facility (other than Swingline loans) bears interest, at our option, based on the Base Rate plus applicable margin or the London Interbank Offered Rate ("LIBOR") rate plus applicable margin, as defined below:

(A) Base Rate is defined as the highest of:

(a) the Prime Rate;

(b) the Federal Funds Rate plus 0.50%;

and (c) the daily LIBOR (as defined below) for a one month Interest Period plus 1%.

(B) LIBOR Rate, as determined by the Administrative Agent, is defined as the rate per annum obtained by dividing (1) LIBOR by (2) 1.00 - Eurodollar Reserve Percentage.

Swingline loans will bear interest at the Base Rate plus the applicable Interest Margin.

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

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, 1.00 %.

Adjusted Term SOFR is the rate per annum equal to (a) the 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 ended 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 ended 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:

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 ended 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:

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

Level Consolidated Total

Leverage Ratio Commitment

I Less than 1.00 to 1.00 0.15 % 1.25 % 0.25 %

II Greater than or equal to 1.00 to 1.00 but less than 2.00 to 1.00 0.20 % 1.50 % 0.50 %

III Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 0.25 % 1.75 % 0.75 %

IV Greater than or equal to 2.50 to 1.00 0.30 % 2.00 % 1.00 %

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.

For the year ended December 31, 2022, including the prepayment, we paid a total of $ 22.4 million in principal payments on both Term Loans.

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 consolidated statements of operations.

Guarantors and Collateral

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

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.

Our obligations are secured by:

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

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

Notwithstanding the foregoing, the collateral shall not include certain excluded property.

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.

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

Subsequent Events).

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 measurement 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

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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 measurement 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 December 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 "Credit Facility").

The 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 Credit Facility at that date or at December 31, 2021.

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

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

Effective Interest Rate As of

December 31, 2022

Senior Secured Credit Facilities:

Term Loan A — principal 3.99 % $ 834,000

Term Loan B — principal 4.61 % 843,625

Revolving Credit Facility — principal — % —

Less unamortized debt issuance costs (1)

Total carrying value of long-term debt 1,653,363

Less current portion of long-term debt 29,688

Long-term debt, net $ 1,623,675

_______________________________

(1) Comprised of $ 12.6 million and $ 11.7 million relating to the Term Loan A and the Term Loan B, respectively.

As of December 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):

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2023 $ 29,688

Thereafter 801,187

Total $ 1,677,625

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

Year Ended December 31,

2022 2021 2020

Contractual interest $ 66,770 $ — $ 1,251

Amortization of debt issuance costs 6,972 240 288

Commitment fee — Revolving Credit Facility 1,290 221 110

Total long-term debt-related interest expense $ 75,032 $ 461 $ 1,649

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

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$ ( 114,409 ) $ 123,186 $ 97,494

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

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

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Year Ended December 31,

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Foreign-derived intangible income ( 2,269 ) 2.0 % ( 3,775 ) ( 3.1 ) % ( 2,718 ) ( 2.8 ) %

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

Transaction cost 2,299 ( 2.0 ) % — — % — — %

Contingent consideration ( 6,830 ) 6.0 % ( 29 ) — % 1,566 1.6 %

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Tax credits in 2022, 2021 and 2020 consist principally of research and developmental tax credits.

Certain intellectual property and assets were repatriated in 2019 from a liquidation of foreign subsidiaries to the U.S.

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

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

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Inventory reserves 25,100 8,199

Allowance for doubtful accounts 926 4,460

Accrued restructuring 131 1,293

Warranty reserve 13,241 127

Section 163(j) 9,166 —

Chargebacks, discounts, customer concessions 39,508 27,970

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State income taxes $ 1,816 $ 2,724

Foreign — 776

Depreciation and amortization 209,687 20,483

Section 481(a) adjustment - change in accounting method — 4,873

$ 28,080 $ 38,033

Deferred tax asset, net

Foreign currency translation adjustments 9,581 —

$ 221,084 $ 28,080

Deferred tax (liability) asset, net $ ( 94,552 ) $ 41,114

Tax Holidays and Carryforwards

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(a) federal NOL carryforwards of $ 1.9 million which will expire at various dates from 2023 to indefinite carryforward periods, (b) state NOL carryforwards of $ 4.3 million which will expire at various dates from 2026 to indefinite carryforward periods and (c) foreign NOL carryforwards of $ 46.3 million which will expire at various dates from 2023 to indefinite carryforward periods.

We believe that it is more likely than not that the benefit

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from certain foreign NOL carryforwards will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 11.5 million on the $ 12.7 million DTAs related to these foreign NOL carryforwards.

Under Section 382 of the Internal Revenue Code, certain ownership changes limit the utilization of the NOL carryforwards, and the amount of federal NOL carryforwards recorded is the net federal benefit available.

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

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We are subject to taxation in the U.S.

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However, the outcome of tax examinations cannot be predicted with certainty.

As of December 31, 2021, it is not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months.

As of December 31, 2022, it is reasonably possible that the expiration of the U.S.

federal statute of limitations will cause the gross amount of unrecognized tax benefits to decrease by $7.8 million.

It is not possible to estimate any other amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months.

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

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

We have accrued for penalties and interest of $ 2.3 million and $ 2.2 million, respectively as of December 31, 2022.

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

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Increases to prior year tax positions 148 231 502

Increases due to acquisitions 29,606 — —

Increases to current year tax positions 4,706 3,242 2,987

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Significant Customers

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We sell products worldwide, on credit terms on an unsecured basis, as an OEM supplier, to independent medical supply distributors and directly to the end customer.

The manufacturers and distributors, in turn, sell our products to healthcare providers.

We do not currently derive a significant portion of our revenues from any one customer.

In 2022, we had worldwide net sales to Medline of 15 % of consolidated net sales.

Geographic Information

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Spain 18,948 13,295

Czech Republic 10,732 —

Other Europe 11,375 4,171

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Worldwide Total $ 1,162,557 $ 905,104

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STOCKHOLDERS' EQUITY

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We did not purchase any of our common stock under our common stock purchase plan in 2022, 2021 or 2020.

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

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

Long-Term Obligations).

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

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

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

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

Amounts reclassified from AOCI — ( 696 ) — ( 696 )

Other comprehensive income (loss) 372 1,242 ( 71 ) 1,543

Balance as of December 31, 2019 $ ( 17,310 ) $ 1,880 $ 28 $ ( 15,402 )

Other comprehensive income before reclassifications 12,929 1,505 47 14,481

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

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Other comprehensive loss before reclassifications ( 103,928 ) 54,962 1,203 ( 47,763 )

Amounts reclassified from AOCI — ( 13,946 ) — ( 13,946 )

Other comprehensive loss ( 103,928 ) 41,016 1,203 ( 61,709 )

Balance as of December 31, 2022 $ ( 122,973 ) $ 40,779 $ 1,216 $ ( 80,978 )

COMMITMENTS AND CONTINGENCIES

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Contingencies

In 2017, we recognized an earn-out liability in connection with our acquisition of HIS from Pfizer.

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

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

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

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

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

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Fair Value Measurements).

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

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

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

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

As of December 31, 2022, the estimated fair value for the contingent consideration related to certain product-related regulatory certifications was estimated to be $ 1.5 million.

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 December 31, 2022, the estimated fair value of the contingent earn-out is $ 21.0 million (see Note 8:

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.

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 December 31, 2022 is $ 49.8 million.

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

COLLABORATIVE AND OTHER ARRANGEMENTS

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

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

The Product Addendum expires on November 30, 2022.

SUBSEQUENT EVENTS

Acquisition of Smiths Medical 2020 Limited

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

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

The Purchase Agreement also includes a potential contingent earn-out payment of $ 100.0 million in cash, which is to be based upon our common stock achieving a certain volume-weighted average price for certain periods from closing to the third or fourth anniversary of closing.

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

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

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

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

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

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

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

Issuance of Senior Secured Credit Facilities

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

Principal Payments

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

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

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

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

Interest Rate Terms

In general, U.S.

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

Revolving Credit Facility Commitment Fee

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

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

Applicable Interest Margins

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

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

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

>4.00 to 1.0 2.25 % 1.25 % 0.35 %

< 4.00 to 1.0 but >3.00 to 1.0

2.00 % 1.00 % 0.30 %

< 3.00 to 1.0 but >2.50 to 1.0

1.75 % 0.75 % 0.25 %

< 2.50 to 1.0 but >2.00 to 1.0

1.50 % 0.50 % 0.20 %

< 2.00 to 1.0

1.25 % 0.25 % 0.15 %

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

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

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

>2.75 to 1.0 2.50 % 1.50 %

< 2.75 to 1.0

2.25 % 1.25 %

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

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

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

The minimum purchase obligation under the addendum was satisfied during 2022.

The Product Addendum expired on November 30, 2022.

ICU MEDICAL, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

SUBSEQUENT EVENTS

On January 19, 2023, we entered into a revolving $ 150 million uncommitted receivables purchase agreement with Bank of The West ("BOW") which provides for a less expensive form of capital.

The discount rate applied to the sold receivables equals, a rate per annum equal to the sum of (i) an applicable margin of 1.75%, plus (ii) Term SOFR for a period equal to the discount period which is calculated with respect to the payment terms of the specific receivable.

The accounts receivable to be sold have payment terms ranging between 30 and 60 days, and are related to customer accounts with good credit history.

The transfer of the purchased accounts receivable under the agreement is intended to be an absolute and irrevocable transfer constituting a true sale as the transferred receivables have been isolated beyond the reach of the Company and our creditors, even in bankruptcy or other receivership.

We will not retain effective control over the sold receivables and BOW will have the right upon purchase to pledge and/or exchange the transferred assets without restrictions.

The Company will act as collection agent for BOW, collection services will be undertaken by our accounts receivable personnel in their normal course of business and collected funds will be remitted to BOW.

The discount rate has been negotiated net of consideration for the collection services, the cost of collection is expected to be immaterial to the Company.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data