What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-03-01 · 159 added, 213 removed, 1039 unchanged (26% of the section changed)

6 unchanged sentences

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.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting 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 and our report dated February 24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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

Other Long-term Obligations - Contingent Consideration Liability – Refer to Notes 1, 7, and 15 to the financial statements

Inventories - Provision for estimated excess, slow moving and obsolete inventories – Refer to Note 1 to the financial statements

Critical Audit Matter Description

Certain of the Company’s past business combinations involve the potential for payment of future contingent consideration, generally based on a percentage of future product revenues or upon attaining specified future revenue milestones.

As of December 31, 2021, the Company has recorded $48.2 million of contingent consideration liabilities of which $41.7 million are based on revenue milestones.

Contingent consideration liabilities are re-measured at the estimated fair value at each reporting period with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income (loss).

During the year ended December 31, 2021, the Company recorded an expense of $3.2 million for the estimated change in fair value of contingent consideration liabilities.

Included within contingent consideration liabilities is a liability for the estimated earn-out payment based on a revenue growth multiplier specified in the agreement from the November 2018 acquisition of Cianna Medical, Inc.

The fair value of this revenue milestone contingent consideration liability was estimated using a Monte Carlo simulation model, which is a complex valuation methodology with inputs that include revenue projections and a discount rate.

We identified the Cianna Medical, Inc.

revenue milestone contingent consideration liability as a critical audit matter because of management’s estimates of revenue projections and the complex valuation methodology and discount rate used to determine the fair value of the contingent consideration liability.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates of revenue projections and to evaluate the appropriateness of the valuation methodology and discount rate.

Inventories are valued at the lower of cost, at approximate costs determined on a first-in, first-out method, or net realizable value.

The Company reviews inventories on hand and records provisions based on estimated excess, slow moving and obsolete inventories.

The inventories valuation reviews include an assessment of future product demand based on historical sales and raw material usage and product expiration.

As of December 31, 2022, the Company’s inventories were $266.0 million.

During the year ended December 31, 2022, the Company recorded obsolescence expense of approximately $9.8 million.

We identified the provision for estimated excess, slow moving and obsolete inventories as a critical audit matter because of management’s significant judgment and estimates in determining the provision for estimated excess, slow moving and obsolete inventories primarily around future product demand based on historical sales.

This required a high degree of auditor judgment and an increased extent of effort .

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of revenue projections and the valuation methodology and discount rate used to determine the fair value of the Cianna Medical, Inc.

revenue milestone contingent consideration liability included the following, among others:

● We tested the effectiveness of controls over management’s valuation of contingent consideration liabilities, including those related to estimates of revenue projections and the valuation methodology and discount rate.

● We evaluated management’s ability to accurately estimate revenue projections and the reasonableness of revenue projections by comparing management’s historical revenue estimates to subsequent results, taking into account changes in market conditions.

● With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the discount rate by:

- Evaluating whether the valuation methodology is appropriate in accordance with generally accepted valuation principles in the circumstances and whether the methodology used for determining fair value is applied consistently with the preceding periods.

- Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the calculation

- Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by management.

● We evaluated whether the estimates of revenue projections were consistent with evidence obtained in other areas of the audit.

Our audit procedures related to management’s estimates of the valuation of excess and obsolete inventories included the following, among others:

● We tested the effectiveness of controls over the provision for estimated excess, slow moving and obsolete inventories.

● We evaluated management’s ability to accurately estimate the provision for estimated excess, slow moving and obsolete inventories by comparing actual write-downs of inventories to management’s historical estimates.

● We evaluated the reasonableness of the Company's provision for estimated excess, slow moving and obsolete inventories, considering future product demand based on historical sales and raw material usage and product expiration and the underlying assumptions.

● We tested the accuracy and completeness of the underlying data used in the Company’s calculations of the valuation of excess and obsolete inventories, including historical usage, quantities on hand, expiration dates, and pricing.

● We assessed the reasonableness of the assumptions used in the calculations of the provision for estimated excess, slow moving and obsolete inventories by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculations.

● We tested the mathematical accuracy of the Company’s calculations of excess, slow moving and obsolete inventories.

/s/ DELOITTE & TOUCHE LLP

Salt Lake City, Utah

March 1, 2022

February 24, 2023

We have served as the Company’s auditor since 1988.

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See notes to consolidated financial statements.

MERIT MEDICAL SYSTEMS, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Common stock, no par value;

shares authorized — 2021 and 2020 - 100,000;

100,000 shares authorized;

issued and outstanding as of December 31, 2022 - 57,306 and December 31, 2021 - 56,570

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Interest expense

Other expense — net

Other income (expense) — net

Total other expense — net

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BALANCE — January 1, 2020

Reclassify deferred gain on sale-leaseback upon adoption of ASC 842

Reclassify stranded tax effects upon adoption of ASU 2018-02

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Other comprehensive loss

2 unchanged sentences

Issuance of common stock under Employee Stock Purchase Plans

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

BALANCE — December 31, 2020

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Other comprehensive loss

2 unchanged sentences

Issuance of common stock under Employee Stock Purchase Plans

Shares issued from time-vested restricted stock units

Shares surrendered in exchange for payment of payroll tax liabilities

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Depreciation and amortization

Gain on sale of business

Loss on sales and/or abandonment of property and equipment

Loss (gain) on disposition of business

Loss on sale or abandonment of property and equipment

Write-off of certain intangible assets and other long-term assets

1 unchanged sentence

Amortization of right-of-use operating lease assets

Fair value adjustments to contingent consideration

Adjustments related to contingent consideration liabilities

Amortization of deferred credits

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Income taxes payable

Long-term income taxes payable

Liabilities related to unrecognized tax benefits

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Total adjustments

Net cash provided by operating activities

Net cash, cash equivalents, and restricted cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

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Proceeds from the sale of property and equipment

Proceeds from sale of business

Proceeds (payments) from disposition of business

Cash received for settlement of note receivable

1 unchanged sentence

Cash paid in acquisitions, net of cash acquired

Net cash used in investing activities

Net cash, cash equivalents, and restricted cash used in investing activities

See notes to consolidated financial statements.

MERIT MEDICAL SYSTEMS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

CASH FLOWS FROM FINANCING ACTIVITIES:

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Payments on long-term debt

Long-term debt issuance costs

Contingent payments related to acquisitions

Payment of taxes related to an exchange of common stock

Net cash provided by (used in) financing activities

Effect of exchange rates on cash

Net increase (decrease) in cash and cash equivalents

CASH AND CASH EQUIVALENTS:

Net cash, cash equivalents, and restricted cash used in financing activities

Effect of exchange rates on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period

End of period

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:

Cash and cash equivalents

Restricted cash reported in prepaid expenses and other current assets

Total cash, cash equivalents and restricted cash

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

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We manufacture our products in plants located in the U.S., Mexico, The Netherlands, Ireland, France, Brazil and Singapore.

We export sales to dealers and have direct or modified direct sales forces in the U.S., Canada, Western Europe, Australia, Brazil, Russia, Japan, China, Malaysia, South Korea, UAE, India, New Zealand and South Africa (see Note 13).

We export sales to dealers and have direct or modified direct sales forces in the U.S., Canada, Western Europe, Australia, Brazil, Japan, China, Malaysia, South Korea, UAE, India, New Zealand and South Africa (see Note 13).

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

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We consider interest-bearing deposits with an original maturity date of three months or less to be cash equivalents.

As of December 31, 2021, approximately $ 1.9 million of our cash and cash equivalents represents restricted cash for the payment of certain import and other taxes for our subsidiary in China.

There was no restricted cash for the year ended December 31, 2020.

As of December 31, 2021 , approximately $ 1.9 million, respectively, of our cash and cash equivalents represents restricted cash for the payment of certain import and other taxes for our subsidiary in China.

Receivables .

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Inventory costs include material, labor and manufacturing overhead.

We review inventories on hand at least quarterly and record provisions for estimated excess, slow moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value.

The regular and systematic inventory valuation reviews include a current assessment of future product demand, historical experience and product expiration.

We review inventories on hand and record provisions based on estimated excess, slow moving and obsolete inventory, as well as inventories with a carrying value in excess of net realizable value.

The regular and systematic review of the valuation of inventories includes an assessment of future product demand based on historical sales and raw material usage and product expiration.

Goodwill and Intangible Assets .

We test goodwill balances for impairment on an annual basis as of July 1 or whenever impairment indicators arise.

When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their

carrying value.

During our annual impairment test, we utilize four reporting units in evaluating goodwill for impairment using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach.

During our annual impairment test, we utilize four reporting units in evaluating goodwill for impairment

using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach.

The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value.

10 unchanged sentences

We periodically review the carrying amount of our depreciable long-lived assets for impairment.

An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset.

An asset is considered impaired when undiscounted estimated future cash flows are less than the carrying amount of the asset.

In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value.

21 unchanged sentences

Other assets as of December 31, 2022 and 2021 consisted of the following (in thousands):

Deferred compensation plan assets

Investments in privately held companies

Long-term notes receivable

Deferred compensation plan assets

Long-term notes receivable, net

We analyze our investments in privately held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the investment.

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Although we believe our provisions for unrecognized tax positions are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our income tax provisions and accruals.

The tax law is subject to varied interpretations, and we have taken positions related to certain matters where the law is subject to interpretation.

Such differences could have a material impact on our income tax provisions and operating results in the period(s) in which we make such determination.

Such differences could have a material impact on our income tax provisions and operating results in the periods in which we make such determination.

Earnings per Common Share .

21 unchanged sentences

Cash-settled share-based awards, or liability awards, are remeasured at fair value each reporting period until the awards are settled.

Stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019 was $ 16.1 million, $ 14.3 million and $ 9.4 million, respectively (see Note 12).

Total stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 was $ 18.0 million, $ 16.1 million, and $ 14.3 million, respectively (see Note 12).

Concentration of Credit Risk .

20 unchanged sentences

Scope , which amends the scope of ASU 2020-04.

ASU 2020-04 and ASU 2021-01 were effective as of March 12, 2020, and the provisions of these updates may be applied prospectively to transactions through December 31, 2022, when reference rate reform activity is expected to be completed.

In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 , which defers the sunset date of the guidance in ASC 848 to December 31, 2024.

ASU 2020-04 and ASU 2021-01 were effective as of March 12, 2020;

ASU 2022-06 was effective upon its issuance in December 2022.

The provisions of these updates may be applied prospectively to transactions through December 31, 2024, when reference rate reform activity is expected to be completed.

As of December 31, 2022, we had not modified any contracts as a result of reference rate reform.

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2022 Acquisitions

During September 2021, we paid $ 2.7 million to acquire series A preferred shares of Fluidx Medical Technology, Inc.

("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages.

On October 3, 2022, we entered into an asset purchase agreement with BioTrace Medical, Inc., developer of the Tempo® Temporary Pacing Lead device, for a purchase price of $ 2.5 million.

W e are also required to pay a total of six annual royalty payments between 5 % and 10 % of net sales, dependent on net sales goal achievement, u pon achievement of the first device sold in the United States .

We accounted for this transaction as an asset purchase.

We recorded the amount paid upon closing as a developed technology intangible asset, which we are amortizing over 10 years .

On April 30, 2022, we acquired the Restore Endosystems Bifurcated Stent System pursuant to the terms of a unit purchase agreement we executed with all of the members of Restore Endosystems.

Subject to the terms and conditions of the unit purchase agreement, we paid $ 3 million in cash at closing.

We also accrued $ 3.5 million of other long-term obligations, which represents the fair value of two separate $ 2 million payments which are payable no later than two and four years following the closing of the acquisition, respectively, or earlier upon the achievement of specified milestones.

We will impute interest on these liabilities with the passage of time.

We have accounted for this transaction as an asset purchase and recorded $ 6.5 million of acquired in-process research and development expense because the technological feasibility of the underlying research and development project has not yet been reached and such technology has no identified future alternative use as of the date of acquisition.

During April 2022, we paid $ 1.4 million to acquire shares of series A preferred stock of Fluidx Medical Technology, Inc.("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages.

We had previously purchased, and continue to hold, $ 4.7 million of participating preferred shares of Fluidx.

Our investments have been recorded as equity investments accounted for at cost and reflected within other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx.

Our total current investment in Fluidx represents an ownership of approximately 17 % of its outstanding capital stock.

2021 Acquisitions

During September 2021, we paid $ 2.7 million to acquire series A preferred shares of Fluidx.

We had previously purchased $ 2 million of participating preferred shares during 2019.

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The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material for the years ended December 31, 2022, 2021 and 2020.

Acquisition-related costs associated with the KA Medical acquisition, which were included in selling, general and administrative expenses, were not material.

Acquisition-related costs associated with the KA Medical acquisition, which were included in selling, general and

administrative expenses, were not material.

During the fourth quarter of 2021, certain immaterial measurement period adjustments were recorded to our purchase price allocation.

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We do not deem the pro forma effects to our consolidated results of operations of the KA Medical acquisition to be material.

2019 Acquisitions

On October 11, 2019, we entered into a subscription and shareholders’ agreement to acquire 3,900 ordinary shares and 1,365 C ordinary shares of Selio Medical Limited ("Selio"), an option to purchase all ordinary shares in Selio throughout a 45-day period commencing from the date Selio receives FDA Section 510(k) approval of a medical device it is currently developing, and an option to purchase all remaining shares on the third anniversary date of the agreement if we elect to purchase all ordinary shares.

The shares of stock we acquired, which represent an ownership interest of 19.5 %, have been recorded as an equity investment accounted for at cost because we are not able to exercise significant influence over the operations of Selio.

The investment and purchase option of $ 2.6 million are reflected within other assets in the accompanying consolidated balance sheets.

In addition, we have loans to Selio of $ 2.5 million, reflected within other assets, including funding of an additional loan commitment of € 2 million during the year ended December 31, 2021.

Amounts outstanding under the loans accrue interest at a rate of 5 % per annum.

All amounts outstanding under the loans become due and payable at the first anniversary of the expiration of our option to purchase all ordinary shares.

On August 1, 2019, we entered into a share purchase agreement to acquire Fibrovein Holdings Limited, which is the owner of 100 % of the capital stock of STD Pharmaceutical Products Limited, a UK private company engaged in the manufacture, distribution and sale of pharmaceutical sclerotherapy products (“STD Pharmaceutical”).

The purchase consideration consisted of an upfront payment of $ 13.7 million, net of cash acquired.

We also recorded a contingent consideration

liability of $ 934,000 related to royalties potentially payable pursuant to the terms of the share purchase agreement.

We accounted for this acquisition as a business combination.

On June 14, 2019, we consummated an acquisition transaction contemplated by a merger agreement to acquire Brightwater Medical, Inc.

("Brightwater").

The purchase consideration consisted of an upfront payment of $ 35 million plus an immaterial working capital adjustment, net of cash acquired, with potential earn-out payments of up to an additional $ 5 million for achievement of CE certification with respect to the ConvertX®, a single-use device used to replace a series of devices and procedures used to treat severe obstructions of the ureter, and up to an additional $ 10 million for the achievement of sales milestones specified in the merger agreement.

The ConvertX device is designed to be implanted once and converted from a nephroureteral catheter to a nephroureteral stent without requiring sedation or local anesthesia.

Brightwater recently received FDA clearance for the ConvertX biliary stent device.

We accounted for this acquisition as a business combination.

The following table summarizes the purchase price allocation and other disclosures for acquisitions accounted for as business combinations during the year ended December 31, 2019 (in thousands).

During the year ended December 31, 2020, certain non-significant measurement period adjustments were recorded to our purchase price allocation for the assets acquired from Brightwater, including reassessment of tax assets and liabilities.

STD Pharmaceutical

Assets Acquired

Trade receivables

Prepaid expenses and other current assets

Property and equipment

Other long-term assets

Intangible assets

Developed technology

Customer lists

Total assets acquired

Liabilities Assumed

Trade payables

Accrued expenses

Other long-term obligations

Deferred income tax liabilities

Total liabilities assumed

Total net assets acquired

Amortization Period of Intangible Assets

Developed technology

Customer lists (on an accelerated basis)

Weighted Average

The sales and results of operations related to the STD Pharmaceutical and Brightwater acquisitions have been included in our cardiovascular segment and were not material for the years ended December 31, 2021, 2020 and 2019.

It is not practical to separately report earnings related to these acquisitions, as we cannot split out sales costs related solely to the products acquired, principally because our sales representatives sell multiple products within our cardiovascular business segment.

Acquisition costs related to the STD Pharmaceutical and Brightwater acquisitions, which were included in selling, general and administrative expenses, were not material.

Goodwill related to these acquisitions arises principally from synergies and economies of scale anticipated upon consolidation of operations and is not expected to be deductible for income tax

We do not deem the pro forma effects to our consolidated results of operations of the STD Pharmaceutical and Brightwater acquisitions to be material.

Inventories at December 31, 2022 and 2021, consisted of the following (in thousands):

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The primary indicators of impairment were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies, due in part to the economic impacts of the COVID-19 pandemic in 2021 and 2020.

During the year ended December 31, 2022 , we recorded total impairment charges related to our intangible assets of $ 1.7 million for our divestiture on April 30, 2022 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited.

During the year ended December 31, 2021 , we recorded total impairment charges related to our intangible assets of $ 1.6 million for the remaining carrying value of ArraVasc license agreements.

During the year ended December 31, 2020, we recorded total impairment charges related to our intangible assets of $ 28.7 million which included a partial impairment charge of $ 8.2 million of intangible assets from our acquisition of STD Pharmaceutical, a partial impairment charge of $ 8.0 million of intangible assets from our acquisition of certain assets from Laurane Medical S.A.S, a partial impairment charge of $ 4.8 million related to our license agreements with ArraVasc Limited, and other intangible asset impairments charges of $ 7.7 million related to intangible assets from our acquisition of certain assets from DirectACCESS Medical, LLC, in-process technology intangible assets of Sontina Medical LLC acquired in connection with our acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset from our acquisition of ITL Healthcare Pty Ltd (“ITL”).

During the year ended December 31, 2019, we recorded impairment charges related to our amortizing intangible assets from our acquisitions of certain assets from Distal Access, LLC, Lazarus Medical Technologies, LLC, and Pleuratech ApS for a total of $ 3.3 million.

The impairment charges recorded in 2021, 2020, and 2019 all pertained to our cardiovascular segment and are reflected within impairment charges in our consolidated statements of income (loss).

During the year ended December 31, 2020 , we recorded total impairment charges related to our intangible assets of $ 28.7 million which included a partial impairment charge of $ 8.2 million of intangible assets from our acquisition of STD Pharmaceutical , a partial impairment charge of $ 8.0 million of intangible assets from our acquisition of certain assets from Laurane Medical S.A.S , a partial impairment charge of $ 4.8 million related to our license agreements with ArraVasc Limited , and other intangible asset impairments charges of $ 7.7 million related to intangible assets from our acquisition of certain assets from DirectACCESS Medical, LLC, in-process technology intangible assets of Sontina Medical LLC

acquired in connection with our acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset from our acquisition of ITL Healthcare Pty Ltd (“ITL”).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.

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As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax payments and made a payment equal to one half of the deferred amount during the year ended December 31, 2021.

The remaining half was paid during the year ended December 31, 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law.

We currently do not anticipate the recently enacted law, including the corporate alternative minimum tax, one percent excise tax on stock repurchases, or tax incentives to promote clean energy, to have a material impact on our consolidated financial statements.

For the years ended December 31, 2022, 2021 and 2020, income (loss) before income taxes is broken out between U.S.

2 unchanged sentences

Current expense (benefit):

Total current expense (benefit)

Total current expense

Deferred expense (benefit):

Total deferred expense (benefit)

Total deferred benefit

Total income tax expense (benefit)

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Total income tax expense (benefit)

(1) Amounts for the years ended December 31, 2020 and 2019 in the table above have been updated for presentation and comparative purposes

Deferred income tax assets and liabilities at December 31, 2022 and 2021, consisted of the following temporary differences and carry-forward items (in thousands):

8 unchanged sentences

UT R&D Credit

IRC section 174 capitalized R&D

Total deferred income tax assets

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Net deferred income tax liabilities

(1) Amounts for the year ended December 31, 2020 in the table above have been updated for presentation and comparative purposes

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions.

1 unchanged sentence

The valuation allowance is primarily related to state credit carryforwards, non-US net operating loss carryforwards, and capital loss carryforwards for which we believe it is more likely than not that the deferred tax assets will not be realized.

The valuation allowance increased by $ 573,000 during the year ended December 31, 2021, increased by $ 5.6 million during the year ended December 31, 2020, and decreased by $ 345,000 during the year ended December 31, 2019.

As of December 31, 2021, we had U.S federal net operating loss carryforwards of $ 45.6 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., Biosphere Medical, Inc., and Brightwater prior to our acquisition of these companies.

The valuation allowance increased by $ 2.7 million during the year ended December 31, 2022, increased by $ 573,000 during the year ended December 31, 2021, and increased by $ 5.6 million during the year ended December 31, 2020.

As of December 31, 2022, we had U.S federal net operating loss carryforwards of $ 29.7 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., and Biosphere Medical, Inc., prior to our acquisition of these companies.

These net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382.

If unused $ 29.6 million of the NOLs will expire between 2025 and 2037.

Of the NOLs incurred post-2017, $ 11.1 million can be carried forward indefinitely.

Of the NOLs incurred post-2017, $ 97,000 can be carried forward indefinitely.

We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 13 years .

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As of December 31, 2022, we had $ 22.2 million of non-U.S.

net operating loss carryforwards, of which $ 21.9 million have no expiration date and $ 879,000 expire at various dates through 2030.

net operating loss carryforwards, of which $ 21.1 million have no expiration date and $ 1.1 million expire at various dates through 2034.

net operating loss carryforwards utilized during the year ended December 31, 2022 were not material.

1 unchanged sentence

Consequently, we have recorded tax expense of $ 320,000 , $ 288,000 and $ 228,000 for foreign withholding taxes on unremitted foreign earnings during the years ended December 31, 2022, 2021 and 2020, respectively.

Additionally, for the year ended December 31, 2022, a tax benefit of $ 4.3 million was recorded with respect to the restructuring of our foreign entities and the associated change in foreign withholding taxes on the unremitted foreign earnings.

We are subject to income taxes in the U.S.

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The total liability for unrecognized tax benefits at December 31, 2022, including interest and penalties, was $ 1.9 million, of which $ 1.9 million would favorably impact our effective tax rate if recognized.

At December 31, 2021, $ 1.0 million of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

At December 31, 2022, none of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

The total liability for unrecognized tax benefits at December 31, 2021, including interest and penalties, was $ 2.0 million, of which $ 2.0 million would favorably impact our effective tax rate if recognized.

At December 31,2020, $ 627,000 of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

At December 31, 2021, $ 1.0 million of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

As of December 31, 2022 and 2021, we had accrued $ 336,000 and $ 322,000 respectively, in total interest and penalties related to unrecognized tax benefits.

1 unchanged sentence

During the years ended December 31, 2022, 2021 and 2020, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $ 14,000 , $ 46,000 , and $( 90,000 ), respectively.

It is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may change, net of potential decreases due to the expiration of statutes of limitation, up to $ 86,000 .

We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may decrease, including expirations related to statutes of limitation, up to $ 109,000 .

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands):

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The Third Amended Credit Agreement is collateralized by substantially all of our assets.

The Third Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms

customary for loans of this nature.

The Third Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature.

In particular, the Third Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

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At December 31, 2022 and 2021, our interest rate swaps qualified as cash flow hedges.

The fair value of our interest rate swap at December 31, 2021 was a liability of $ 1.4 million, partially offset by $ 0.4 million in deferred taxes.

The fair value of our interest rate swap at December 31, 2022 was an asset of $ 3.4 million, partially offset by $ 0.8 million in deferred taxes.

The fair value of our interest rate swaps at December 31, 2021 was a liability of $ 1.4 million, partially offset by $ 0.4 million in deferred taxes.

3 unchanged sentences

Our policy is to enter into foreign currency derivative contracts with maturities of up to two years .

We are exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in Chinese Renminbi, Euros, British Pounds, Mexican Pesos, Brazilian Reals, Australian Dollars, Hong Kong Dollars, Swiss Francs, Swedish Krona, Canadian Dollars, Danish Krone, Japanese Yen, and South Korean Won, among others.

We are exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in various currencies, with our most significant exposure related to transactions and balances denominated in Chinese Renminbi and Euros, among others.

We do not use derivative financial instruments for trading or speculative purposes.

18 unchanged sentences

December 31, 2021

Interest rate swaps

Other assets (long-term)

Foreign currency forward contracts

4 unchanged sentences

Interest rate swaps

Accrued expenses

Interest rate swaps

Other long-term obligations

24 unchanged sentences

Amount of Gain/(Loss)

of Income (Loss)

reclassified from AOCI

4 unchanged sentences

Cost of sales

All other amounts included in earnings related to designated cash flow hedges are immaterial.

As of December 31, 2022, $ 2.7 million or $ 2.1 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.

4 unchanged sentences

Derivative Instrument

Location in statements of income (loss)

Location in statements of income

Foreign currency forward contracts

Other income (expense)

Other income (expense) — net

See Note 15 for additional information about our derivatives.

3 unchanged sentences

As of December 31, 2022, we had entered into a number of agreements to license or acquire rights to certain intellectual property which require us to make royalty payments during the term of the agreements generally based on a percentage of sales.

During the years ended December 31, 2021, 2020 and 2019, total royalty expense approximated $ 7.6 million, $ 7.1 million and $ 6.7 million, respectively.

During the years ended December 31, 2022, 2021 and 2020, total royalty expense approximated $ 7.3 million, $ 7.6 million and $ 7.1 million, respectively, and is recorded in cost of sales on the consolidated statement of income (loss).

Minimum contractual commitments under royalty agreements to be paid within twelve months of December 31, 2022 were not significant.

1 unchanged sentence

In the ordinary course of business, we are involved in various claims and litigation matters.

T hese proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental inquiries or other matters, including those more fully described below.

T hese proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental

inquiries or other matters, including those more fully described below.

The outcomes of these matters will generally not be known for prolonged periods of time.

3 unchanged sentences

If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect our financial position, results of operations and cash flows.

The ultimate cost to us with respect to actions and claims

could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

Securities Litigation

On December 5, 2019, the Bucks County Employees Retirement Fund filed a complaint against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California (the “California Central District Court”), individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

On February 24, 2020, the court appointed the City of Atlanta Police Pension Fund, the Atlanta Firefighters’ Pension Fund, and the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge as Lead Plaintiffs.

This action is now captioned In re Merit Medical Systems, Inc.

Securities Litigation (Master File No.

8:19-cv-02326-DOC-ADS).

On June 30, 2020, Lead Plaintiffs filed a consolidated class action complaint for violations of federal securities laws against Merit, our Chief Executive Officer and our Chief Financial Officer in the California Central District Court, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

The consolidated class action complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks unspecified damages, costs and attorneys’ fees, and equitable relief.

In November 2021 we entered into an agreement in principle to settle the consolidated securities class action lawsuit.

The proposed settlement calls for a payment of $ 18.25 million in resolution of all claims asserted against Merit and all other defendants.

Approximately $ 8.2 million of the settlement payment is expected to be satisfied with proceeds of available insurance.

The terms of the proposed settlement provide for a full release of all claims against all defendants, including Merit and its officers, and contain no admission of liability, wrongdoing or responsibility by any of the defendants.

On January 3, 2022, the California Central District Court entered an Order Preliminarily Approving Settlement and Providing for Notice of the Settlement.

The California Central District Court has scheduled a further settlement hearing for April 13, 2022, for the purpose of addressing objections raised to the settlement, if any.

The settlement remains subject to final approval by the California Central District Court and is subject to the satisfaction of customary conditions.

There can be no assurance that the final settlement agreement will be approved by the California Central District Court.

A final, non-appealable closure of the litigation could take several months.

It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

The ultimate cost to us with respect to actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

Shareholder Derivative Action

On June 3, 2021, Steffen Maute filed a complaint, derivatively on behalf of Merit, against Merit (as a nominal defendant), our Chief Executive Officer, our Chief Financial Officer, our former President of Europe, Middle East and Africa (“EMEA,”) and certain of our directors in the United States District Court for the District of Utah (Case No.

On June 3, 2021, Steffen Maute filed a complaint, derivatively on behalf of Merit, against Merit (as a nominal defendant), our Chief Executive Officer, our Chief Financial Officer, our former President of EMEA and certain of our directors in the United States District Court for the District of Utah (Case No.

2:21-cv-00346-DBP).

The derivative complaint alleges that the individual defendants violated their fiduciary duties owed to Merit and were unjustly enriched at the expense of and to the detriment of Merit between February 2019 and October 2019, and seeks unspecified damages, costs, and professional fees.

We intend to vigorously defend against the lawsuit.

The proceeding was stayed until February 19, 2022, subject to the right of either party to seek to lift or extend the stay.

We have not received an indication of plaintiff’s intentions subsequent to the expiration of the stay, although the parties have engaged in mediation in an attempt to resolve the dispute.

We have not recorded an expense related to this matter because any potential loss is not reasonably estimable.

Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter.

DOJ Settlement

In addition to the foregoing matters, on October 13, 2020, we entered into a Settlement Agreement with the United States Department of Justice (“DOJ”) to resolve the DOJ’s investigation into past marketing and promotional practices of the Company.

Under the Settlement Agreement, we agreed to pay settlement payments in the aggregate of $ 18 million plus interest and enter into a Corporate Integrity Agreement with the U.S.

Office of Inspector General.

In total, we paid $ 18.7

million in settlement payments, interest and additional expenses associated with the Settlement Agreement, including fees paid to settle claims of the relator’s counsel.

Our failure to comply with the obligations of the Settlement Agreement or Corporate Integrity Agreement could result in monetary penalties and our exclusion from federal health care programs.

In the event of unexpected further developments, it is possible that the ultimate outcome of any of the foregoing matters, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

The derivative complaint alleged that the individual defendants violated their fiduciary duties owed to Merit and were unjustly enriched at the expense of and to the detriment of Merit between February 2019 and October 2019, and sought unspecified damages, costs, and professional fees.

Following mediation, the parties negotiated an agreement to settle the dispute, which, among other provisions, provides for the release of all claims against Merit and the other defendants in exchange for Merit’s undertaking to implement certain corporate governance revisions and pay attorneys fees and expenses in the amount of $ 1.0 million.

On February 16, 2023, the court held a hearing and announced approval of the settlement, which has the effect of resolving all claims arising from the litigation.

The expense associated with the settlement has been reflected in our financial results reported for the year ended December 31, 2022.

We have received requests from the Division of Enforcement of the U.S.

Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China.

We are cooperating with the requests and investigating the matter and, at this time, are unable to predict the scope, timing, significance or outcome of this matter.

It is possible that the ultimate resolution of the foregoing matter, or similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

Legal costs for these matters, such as outside counsel fees and expenses, are charged to expense in the period incurred.

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Options typically vest on an annual basis over a three to five-year life with a contractual life of seven years .

At our annual meeting, held June 17, 2021, our shareholders approved the addition of 3,000,000 shares to the 2018 Incentive Plan.

As of December 31, 2022, a total of 2,817,861 shares remained available to be issued under the 2018 Incentive Plan.

5 unchanged sentences

We have a non-qualified Employee Stock Purchase Plan (“ESPP”), which has an expiration date of June 30, 2026.

At our annual meeting, held June 17, 2021, our shareholders approved the addition of 100,000 shares to our ESPP.

As of December 31, 2021, the total number of shares of common stock that remained available

to be issued under our non-qualified plan was 121,959 shares.

As of December 31, 2022, the total number of shares of common stock that remained available to be issued under our non-qualified plan was 102,739 shares.

ESPP participants purchase shares on a quarterly basis at a price equal to 95 % of the market price of the common stock at the end of the applicable offering period.

16 unchanged sentences

As of December 31, 2022, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was $ 20.4 million and is expected to be recognized over a weighted average period of 2.1 years.

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted were estimated using the following assumptions for the years ended December 31, 2021, 2020 and 2019:

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the years ended December 31, 2022, 2021 and 2020:

Risk-free interest rate

4 unchanged sentences

4.0 - 5.0 years

3.0 - 5.0 years

Expected dividend yield

8 unchanged sentences

We recognize compensation expense for options on a straight-line basis over the service period, which corresponds to the vesting period.

During the years ended December 31, 2021, 2020 and 2019, approximately 716,000 , 329,000 and 1.2 million nonqualified stock option grants were made, respectively, for a total fair value of $ 17.5 million, $ 4.5 million and $ 20.9 million.

During the years ended December 31, 2022, 2021 and 2020, approximately 251,000 , 716,000 and 329,000 nonqualified stock option grants were made, respectively, for a total fair value of $ 6.3 million, $ 17.5 million and $ 4.5 million.

The table below presents information related to stock option activity for the years ended December 31, 2022, 2021 and 2020 (in thousands):

47 unchanged sentences

(3) Includes the impact of the 2020 amendment which reduced the maximum FCF multiplier for one-year awards from 200 % to 100 % .

During the year ended December 31, 2021, there were approximately 26,000 shares that vested under PSUs, prior to the reduction of shares withheld to satisfy tax withholding obligations.

Vested shares were calculated based upon achievement of the maximum performance multiplier, as amended, of 100 % and an rTSR multiplier of 125 %.

There were no shares that vested under PSUs during the years ended December 31, 2020 and 2019.

During the year ended December 31, 2021 there were approximately 34,000 shares that vested under RSUs.

There were no shares that vested under RSUs during the years ended December 31, 2020 and 2019.

During the years ended December 31, 2022 and 2021, there were approximately 44,000 and 26,000 shares, respectively, that vested under PSUs, prior to the reduction of shares withheld to satisfy tax withholding obligations.

Vested shares were calculated based upon achievement of the maximum performance multiplier, as amended, of 200 % and 100 % for 2022 and 2021, respectively, and an rTSR multiplier of 125 %.

There were no shares that vested under PSUs during the year ended December 31, 2020.

During the years ended December 31, 2022 and 2021, there were approximately 26,000 and 34,000 shares, respectively, that vested under RSUs.

There were no shares that vested under RSUs during the year ended December 31, 2020.

The fair value of each PSU was estimated as of the grant date using the following assumptions for awards granted in the years ended December 31, 2022 and 2021:

16 unchanged sentences

Cash-Settled Performance-Based Share-Based Awards (“Liability Awards”)

During the years ended December 31, 2021 and 2020, we granted liability awards to our Chief Executive Officer.

These awards entitle him to cash payments equal to a total target cash incentive of $ 1.0 million and $ 1.0 million, respectively, multiplied by rTSR and FCF multipliers, as defined in the award agreements.

During the years ended December 31, 2022, 2021 and 2020, we granted liability awards to certain executive officers.

These awards entitle them to cash payments equal to a total target cash incentive of $ 1.0 million, $ 1.0 million, and $ 1.0 million, respectively, multiplied by rTSR and FCF multipliers, as defined in the award agreements.

In 2020, our Board of Directors amended the liability awards with a one-year performance period.

4 unchanged sentences

As of December 31, 2022, our recorded liabilities associated with these awards was $ 3.2 million, and we had remaining unrecognized compensation cost related to cash-settled performance-based share-based awards of $ 1.9 million, which is expected to be recognized over a weighted average period of 1.7 years.

During 2021, we paid $ 417,000 in connection with liability awards, and no awards were forfeited.

There were no liability awards vested or forfeited in the years ended December 31, 2020 or 2019.

During 2022 and 2021, we paid $ 833,000 and $ 417,000 , respectively, in connection with liability awards, and no awards were forfeited.

There were no liability awards vested or forfeited in the year ended December 31, 2020.

SEGMENT REPORTING AND FOREIGN OPERATIONS

6 unchanged sentences

We evaluate the performance of our operating segments based on net sales and operating income (loss).

See Note 2 for a detailed breakout of our sales by operating segment and product category, disaggregated between domestic and international sales.

See Note 2 to our consolidated financial statements set forth in Item 8 of this report for a detailed breakout of our sales by operating segment and product category, disaggregated between domestic and international sales.

During the years ended December 31, 2022, 2021 and 2020, we had international sales of $ 500.4 million, $ 465.9 million and $ 413.8 million, respectively, or 43 %, 43 % and 43 %, respectively, of net sales.

7 unchanged sentences

Total net sales

Operating Income (Loss)

Income (loss) from operations

Cardiovascular

Total operating income (loss)

Total income (loss) from operations

Total other expense — net

23 unchanged sentences

December 31, 2022

Interest rate contract liabilities, long-term (1)

Marketable securities (1)

Interest rate contract asset, long-term (2)

Foreign currency contract assets, current and long-term (3)

8 unchanged sentences

December 31, 2021

Interest rate contract liabilities, current and long-term (1)

Interest rate contract liability, long-term (2)

Foreign currency contract assets, current and long-term (3)

1 unchanged sentence

Contingent consideration liabilities

(1) Our marketable securities, which consist entirely of available-for-sale equity securities, are valued using market prices in active markets.

Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

(2) The fair value of the interest rate contracts is determined using Level 2 fair value inputs and is recorded as accrued expenses or other long-term obligations in the consolidated balance sheets.

2 unchanged sentences

Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other milestones.

Contingent consideration liabilities are re-measured to fair value at each reporting period, with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income (loss).

We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value

measurements.

Contingent consideration liabilities are re-measured to fair value at each reporting period, with the change in fair value recognized

within operating expenses in the accompanying consolidated statements of income (loss).

We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.

Changes in the fair value of our contingent consideration liabilities during the years ended December 31, 2022 and 2021, consisted of the following (in thousands):

Beginning balance

Contingent consideration expense (benefit)

Contingent consideration expense

Contingent payments made

1 unchanged sentence

Ending balance

As of December 31, 2021, $ 13.5 million was included in other long-term obligations and approximately $ 34.7 million was included in accrued expenses in our consolidated balance sheet related to contingent liabilities.

As of December 31, 2020, $ 36.9 million was included in other long-term obligations and $ 18.8 was included in accrued expenses in our consolidated balance sheet related to contingent liabilities.

Cash paid to settle contingent consideration liabilities recognized at fair value as of the acquisition date has been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

As of December 31, 2022, $ 2.3 million in contingent consideration liability was included in other long-term obligations and $ 15.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet related to contingent liabilities.

As of December 31, 2021, $ 13.5 million in contingent consideration liability was included in other long-term obligations and $ 34.7 in contingent consideration liability was included in accrued expenses in our consolidated balance sheet related to contingent liabilities.

Cash payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 1.8 million for the year ended December 31, 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities includes the following significant unobservable inputs at December 31, 2022 and 2021 (amounts in thousands):

28 unchanged sentences

Discount rate

7.5 % - 12.5 %

Projected year of payments

14 unchanged sentences

Contingent Payments to Related Parties.

During the years ended December 31, 2020 and 2019, we made contingent payments of approximately $ 800,000 and $ 1.0 million to a current director of Merit and former shareholder of Cianna Medical which we acquired in 2018.

During the years ended December 31, 2022 and 2020, we made contingent payments of approximately $ 1.6 million and $ 800,000 to a former director of Merit and former shareholder of Cianna Medical which we acquired in 2018.

We made no such payments in 2021.

1 unchanged sentence

The terms of the acquisition, including contingent consideration payments, were determined prior to the appointment of the former Cianna Medical shareholder as a director of Merit.

As a former shareholder of Cianna Medical, the Merit director may be eligible for additional payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical.

As a former shareholder of Cianna Medical, the former Merit director may be eligible for additional payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical.

Fair Value of Other Financial Instruments

8 unchanged sentences

Right of Use Operating Lease Assets.

During the years ended December 31, 2021 and 2020, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets.

W e identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets.

We compared the anticipated undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying values were not recoverable.

Consequently, we recorded impairment losses during the years ended December 31, 2021 and 2020 of $ 1.4 million and $ 1.5 million, respectively, which is equal to the excess of the carrying value of the assets over their estimated fair value.

The impairment losses in both periods were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease asset and related long-lived assets, due to changes in the real estate market as a result of the COVID-19 pandemic.

The impairment losses were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease asset and related long-lived assets, due to changes in the real estate market as a result of the COVID-19 pandemic.

These changes include an increase in the anticipated time to identify a lessee, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the property.

The ROU operating lease asset impairment losses in both 2021 and 2020 pertained to our cardiovascular segment.

The ROU operating lease asset impairment losses pertained to our cardiovascular segment.

We had no such losses during the year ended December 31, 2022.

Property and Equipment.

1 unchanged sentence

During the year ended December 31, 2020 , we had losses of $ 359,000 related to the measurement of certain property and equipment measured at fair value based on restructuring activities associated with the suspension of our distribution agreement with NinePoint, which pertained to our endoscopy segment.

We had no such losses during the year ended December 31, 2022.

Equity Investments, Purchase Options and Notes Receivable.

During the year ended December 31, 2022, we recognized $ 0.5 million of impairment expense related to our equity method investment in XableCath, as business ceased operations.

During the year ended December 31, 2020, we recognized $ 2.5 million of impairment expense related to our equity method investment in the 19.5 percent ownership in preferred shares of Fusion Medical, Inc.

(“Fusion”) due to uncertainty about future product development and commercialization associated with the technologies and a charge of $ 3.5 million related to Bluegrass Vascular due to our decision not to exercise our option to purchase the company.

Our equity investments in privately held companies, including options to acquire these companies, were $ 14.7 million and $ 12.0 million at December 31, 2021 and 2020, respectively, which are included within other long-term assets in our consolidated balance sheets.

We had no such losses during the year ended December 31, 2021.

Our equity investments in privately held companies were $ 15.6 million and $ 14.7 million at December 21, 2022 and 2021, respectively, which are included within other long-term assets in our consolidated balance sheets.

Investments not accounted for under the equity method of accounting are accounted for at cost minus impairment, if applicable, plus or minus changes in valuation resulting from observable transactions for identical or similar investments.

Prior to the adoption of ASU 2016-13 on January 1, 2020, we assessed the credit support available for notes receivable and the value of any underlying collateral to determine if there were any other-than temporary impairments.

Credit losses represent the difference between the present value of cash flows expected to be collected on these notes receivable and the amortized cost basis.

For the year ended December 31, 2019, we recorded impairment charges of $ 20.5 million due to our write-off of our NinePoint note receivable and purchase option due to our assessment of the collectability of the note receivable and management’s decision not to exercise our option to purchase this business.

We also wrote off $ 1.6 million of accrued interest related to the note receivable reported in interest income in the consolidated statements of income (loss) for the year ended December 31, 2019.

We recorded interest income of $ 0.4 million and $ 0.3 million during the years ended December 31, 2021 and 2020, respectively, for partial recoveries of this interest.

Current Expected Credit Losses

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were $ 2.4 million and $ 2.3 million, as of December 31, 2022 and 2021, respectively.

As of December 31, 2021 and 2020, we had an allowance for current expected credit losses of $ 199,000 and $ 730,000 , respectively, associated with these notes receivable and in 2020 our contractual obligation to extend credit to Selio, which they exercised during the year ended December 31, 2021.

As of December 31, 2022 and 2021, we had an allowance for current expected credit losses of $ 281,000 and $ 199,000 , respectively, associated with these notes receivable.

We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of securities.

During the year ended December 31, 2021, we collected $ 2.8 million from Bluegrass Vascular which represents the entire principal balance and all accrued interest.

During the year ended December 31, 2021, we collected $ 2.8 million from Bluegrass Vascular Technologies, Inc.

pursuant to the terms of a note receivable, which represents the entire principal balance and all accrued interest payable pursuant to that note.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the years ended December 31, 2022 and 2021 (in thousands):

Beginning balance

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Provision for credit loss - expense (benefit)

Provision for credit loss expense

Ending balance

9 unchanged sentences

Net other comprehensive income (loss)

Reclassification of stranded tax effects 1

December 31, 2020

11 unchanged sentences

December 31, 2022

(1) Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02.

We have operating leases for facilities used for manufacturing, research and development, sales and distribution, and office space, as well as leases for manufacturing and office equipment, vehicles, and land.

15 unchanged sentences

Total operating lease liabilities

During the year ended December 31, 2015, we entered into sale and leaseback transactions to finance certain production equipment for $ 2.0 million.

At that time, we deferred the gain from the sale and leaseback transaction, of which $ 93,000 remained as of December 31, 2018.

As part of the adoption of ASC 842, we wrote-off the deferred gain as an adjustment to equity through retained earnings as of January 1, 2019.

We recognize lease expense for operating leases on a straight-line basis over the term of the lease.

13 unchanged sentences

Generally, our lease agreements do not specify an implicit rate.

Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates.

Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length

of lease term and the risks of the economic environment in which the leased asset operates.

As of December 31, 2022, 2021 and 2020, our lease agreements had the following remaining lease term and discount rates:

10 unchanged sentences

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