10-Q 1 icui-20210930.htm 10-Q icui-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 30, 2021
 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from:              to
 
Commission File No.: 001-34634
 ICU MEDICAL, INC.
(Exact name of registrant as specified in its charter)
 
Delaware 33-0022692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
951 Calle Amanecer,San Clemente,California92673
(Address of principal executive offices)(Zip Code)
 (949) 366-2183
(Registrant’s telephone number including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerx 
Accelerated filer o
Non-accelerated filer o
 Smaller reporting company
 Emerging growth company
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes  No x

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.10 per shareICUIThe Nasdaq Stock Market LLC
(Global Select Market)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class Outstanding at October 31, 2021
Common 21,239,119




ICU MEDICAL, INC. AND SUBSIDIARIES
Form 10-Q
September 30, 2021

Table of Contents
PART I.Financial Information Page Number
   
Item 1.Financial Statements (Unaudited)  
   
Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 
   
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 
   
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 
   
 
   
Item 2. 
   
Item 3. 
   
Item 4. 
   
PART II.  
Item 1. 
   
Item1A. 
   
Item 2. 
   
Item 6. 
   
 
2


PART I - FINANCIAL INFORMATION
Item1.Financial Statements (Unaudited)

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data) 
 September 30,
2021
December 31,
2020
 (Unaudited)(1)
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$519,485 $396,097 
Short-term investment securities18,009 14,687 
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES537,494 410,784 
Accounts receivable, net of allowance for doubtful accounts of $7,126 at September 30, 2021 and $21,490 at December 31, 2020
116,043 124,093 
Inventories291,601 314,928 
Prepaid income tax31,381 29,480 
Prepaid expenses and other current assets34,718 41,492 
TOTAL CURRENT ASSETS1,011,237 920,777 
PROPERTY AND EQUIPMENT, net458,041 466,628 
OPERATING LEASE RIGHT-OF-USE ASSETS40,979 46,571 
LONG-TERM INVESTMENT SECURITIES7,172 12,974 
GOODWILL32,760 33,001 
INTANGIBLE ASSETS, net192,778 197,231 
DEFERRED INCOME TAXES35,585 31,034 
OTHER ASSETS60,799 55,475 
TOTAL ASSETS$1,839,351 $1,763,691 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$62,008 $71,864 
Accrued liabilities94,133 97,021 
Income tax liability2,636 303 
Contingent earn-out liability26,300 26,300 
TOTAL CURRENT LIABILITIES185,077 195,488 
CONTINGENT EARN-OUT LIABILITY3,100  
OTHER LONG-TERM LIABILITIES40,853 47,835 
DEFERRED INCOME TAXES1,663 1,663 
INCOME TAX LIABILITY18,686 16,440 
COMMITMENTS AND CONTINGENCIES (Note 18)  
STOCKHOLDERS’ EQUITY:  
Convertible preferred stock, $1.00 par value Authorized—500 shares; Issued and outstanding none
  
Common stock, $0.10 par value — Authorized, 80,000 shares; Issued — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020
2,124 2,106 
Additional paid-in capital711,152 693,068 
Treasury stock, at cost (237 and 209 shares, respectively)
(48)(39)
Retained earnings891,862 808,652 
Accumulated other comprehensive loss(15,118)(1,522)
TOTAL STOCKHOLDERS' EQUITY1,589,972 1,502,265 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,839,351 $1,763,691 
______________________________________________________
(1) December 31, 2020 balances were derived from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 
 Three months ended
September 30,
Nine months ended
September 30,
 2021202020212020
TOTAL REVENUES$336,060 $318,567 $975,783 $950,553 
COST OF GOODS SOLD208,269 204,643 611,783 608,930 
GROSS PROFIT127,791 113,924 364,000 341,623 
OPERATING EXPENSES:  
Selling, general and administrative74,815 70,854 221,127 210,401 
Research and development12,238 10,126 34,332 31,151 
Restructuring, strategic transaction and integration2,358 4,114 8,994 22,903 
Change in fair value of contingent earn-out 4,300  7,000 
Contract settlement (1,000)127 (975)
TOTAL OPERATING EXPENSES89,411 88,394 264,580 270,480 
INCOME FROM OPERATIONS38,380 25,530 99,420 71,143 
INTEREST EXPENSE(168)(616)(492)(1,583)
OTHER (EXPENSE) INCOME, net(287)1,252 921 (2,175)
INCOME BEFORE INCOME TAXES37,925 26,166 99,849 67,385 
PROVISION FOR INCOME TAXES(6,844)(1,180)(16,639)(6,657)
NET INCOME$31,081 $24,986 $83,210 $60,728 
NET INCOME PER SHARE  
Basic$1.47 $1.19 $3.93 $2.91 
Diluted$1.43 $1.16 $3.83 $2.82 
WEIGHTED AVERAGE NUMBER OF SHARES  
Basic21,214 20,948 21,189 20,870 
Diluted21,730 21,556 21,735 21,561 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
 
 Three months ended
September 30,
Nine months ended
September 30,
 2021202020212020
NET INCOME$31,081 $24,986 $83,210 $60,728 
Other comprehensive (loss) income, net of tax:
Cash flow hedge adjustments, net of taxes of $259 and $(321) for the three months ended September 30, 2021 and 2020, respectively, and $668 and $256 for the nine months ended September 30, 2021 and 2020, respectively
(819)1,016 (2,116)(810)
Foreign currency translation adjustment, net of taxes of $0 for all periods
(5,360)6,626 (11,516)754 
Other adjustments, net of taxes of $0 for all periods
12 3 36 (75)
Other comprehensive (loss) income, net of taxes(6,167)7,645 (13,596)(131)
TOTAL COMPREHENSIVE INCOME$24,914 $32,631 $69,614 $60,597 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands)


 Common Stock   
SharesAmountAdditional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance, January 1, 202121,058 $2,106 $693,068 $(39)$808,652 $(1,522)$1,502,265 
Issuance of restricted stock and exercise of stock options198 16 2,496 2,352 — — 4,864 
Tax withholding payments related to net share settlement of equity awards(37)— — (7,723)— — (7,723)
Stock compensation— — 6,022 — — — 6,022 
Other comprehensive loss, net of tax— — — — — (8,391)(8,391)
Net income— — — — 23,731 — 23,731 
Balance, March 31, 202121,219 $2,122 $701,586 $(5,410)$832,383 $(9,913)$1,520,768 
Issuance of restricted stock and exercise of stock options  (2,685)3,237 — — 552 
Tax withholding payments related to net share settlement of equity awards — — (96)— — (96)
Stock compensation— — 6,681 — — — 6,681 
Other comprehensive income, net of tax— — — — — 962 962 
Net income— — — — 28,398 — 28,398 
Balance, June 30, 202121,219 $2,122 $705,582 $(2,269)$860,781 $(8,951)$1,557,265 
Issuance of restricted stock and exercise of stock options20 2 (963)2,511 — — 1,550 
Tax withholding payments related to net share settlement of equity awards(1)— — (290)— — (290)
Stock compensation— — 6,533 — — — 6,533 
Other comprehensive loss, net of tax— — — — — (6,167)(6,167)
Net income— — — — 31,081 — 31,081 
Balance, September 30, 202121,238 $2,124 $711,152 $(48)$891,862 $(15,118)$1,589,972 
6

 Common Stock
SharesAmountAdditional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance, January 1, 202020,742 $2,074 $668,947 $(157)$721,782 $(15,402)$1,377,244 
Issuance of restricted stock and exercise of stock options155 9 (10,207)10,758 — — 560 
Tax withholding payments related to net share settlement of equity awards(64)— — (12,174)— — (12,174)
Stock compensation— — 6,939 — — — 6,939 
Other comprehensive loss, net of tax— — — — — (13,510)(13,510)
Net income— — — — 16,834 — 16,834 
Balance, March 31, 202020,833 $2,083 $665,679 $(1,573)$738,616 $(28,912)$1,375,893 
Issuance of restricted stock and exercise of stock options106 11 4,408 1,820 — — 6,239 
Tax withholding payments related to net share settlement of equity awards(2)— — (387)— — (387)
Stock compensation— — 5,410 — — — 5,410 
Other comprehensive income, net of tax— — — — — 5,734 5,734 
Net income— — — — 18,908 — 18,908 
Balance, June 30, 202020,937 $2,094 $675,497 $(140)$757,524 $(23,178)$1,411,797 
Issuance of restricted stock and exercise of stock options33 3 1,564 220 — — 1,787 
Tax withholding payments related to net share settlement of equity awards(1)— — (260)— — (260)
Stock compensation— — 6,265 — — — 6,265 
Other comprehensive income, net of tax— — — — — 7,645 7,645 
Net income— — — — 24,986 — 24,986 
Balance, September 30, 202020,969 $2,097 $683,326 $(180)$782,510 $(15,533)$1,452,220 
7

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) 
 Nine months ended
September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$83,210 $60,728 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization66,564 64,037 
Noncash lease expense7,165 6,859 
Provision for doubtful accounts342 2,785 
Provision for warranty and returns752 (1,296)
Stock compensation19,236 18,614 
Loss on disposal of property and equipment and other assets1,083 1,673 
Bond premium amortization514 126 
Debt issuance costs amortization216 216 
Change in fair value of contingent earn-out 7,000 
Product-related charges3,380 2,626 
Usage of spare parts9,831 8,391 
Other2,908 2,523 
Changes in operating assets and liabilities: 
Accounts receivable3,807 38,933 
Inventories16,510 8,859 
Prepaid expenses and other assets3,557 (6,535)
Other assets(13,593)(12,121)
Accounts payable(10,374)(38,032)
Accrued liabilities(8,317)(20,417)
Income taxes, including excess tax benefits and deferred income taxes(1,874)(743)
Net cash provided by operating activities184,917 144,226 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchases of property and equipment(46,464)(62,362)
Proceeds from sale of asset218 154 
Intangible asset additions(10,216)(6,325)
Investments in non-marketable equity investments(3,250) 
Purchases of investment securities(10,034)(9,603)
Proceeds from sale of investment securities12,000 20,900 
Net cash used in investing activities(57,746)(57,236)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from short-term debt 150,000 
Repayment of short-term debt (150,000)
Proceeds from exercise of stock options6,966 8,586 
Payments on finance leases(448)(231)
Tax withholding payments related to net share settlement of equity awards(8,109)(12,821)
Net cash used in financing activities(1,591)(4,466)
Effect of exchange rate changes on cash(2,192)(201)
NET INCREASE CASH AND CASH EQUIVALENTS123,388 82,323 
CASH AND CASH EQUIVALENTS, beginning of period396,097 268,670 
CASH AND CASH EQUIVALENTS, end of period$519,485 $350,993 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


8

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED
(In thousands)
Nine months ended
September 30,
20212020
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
  Accounts payable for property and equipment$2,897 $3,633 
  Non-compete agreement with associated contingent earn-out liability$3,100 $ 

The accompanying notes are an integral part of these condensed consolidated financial statements.
9

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1:Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.") and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the consolidated results for the interim periods presented. Results for the interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of ICU Medical, Inc., ("ICU") a Delaware corporation, filed with the SEC for the year ended December 31, 2020.
 
We are engaged in the development, manufacturing and sale of innovative medical products used in vascular therapy and critical care applications.  We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S. and internationally.  Additionally, we sell our products on an original equipment manufacturer basis to other medical device manufacturers. All subsidiaries are wholly owned and are included in the condensed consolidated financial statements.  All intercompany balances and transactions have been eliminated.

Note 2:    New Accounting Pronouncements

Recently Issued Accounting Standards

    In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden for reference rate reform on financial reporting. Due to concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. Optional expedients may be applied to contracts that are modified as a result of the reference rate reform. Modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of ASC 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (incremental borrowing rate). 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. The impact of this ASU on our contracts has not been material.        

Note 3: Restructuring, Strategic Transaction and Integration

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

Restructuring

    During the third quarter we adjusted certain facility restructuring liabilities by $2.0 million, shown in the table below under "other adjustments", to reflect actual amounts owed which resulted in net restructuring credits of $(1.9) million and $(1.8) million, for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020 restructuring charges were $0.0 million and $8.1 million, respectively. Restructuring charges for the three and nine months ended September 30, 2020 were primarily related to severance charges and costs related to office and other facility closures. Restructuring charges are included in the above restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations.
    
    The following table summarizes the details of changes in our restructuring-related accrual for the period ended September 30, 2021 (in thousands):
10

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accrued Balance January 1, 2021Charges
Incurred
PaymentsCurrency
Translation
Other Adjustments(1)Accrued Balance
September 30, 2021
Severance pay and benefits$1,858 $143 $(872)$(3)$(528)$598 
Facility closure expenses1,563   31 (1,429)165 
$3,421 $143 $(872)$28 $(1,957)$763 
_______________________________
(1) The estimated liabilities related to a prior year's facility closure restructuring were adjusted to actual amounts owed during the third quarter ended September 30, 2021.

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

Strategic transaction and integration expenses

    We incurred and expensed $4.3 million and $10.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2021, as compared to $4.1 million and $14.8 million during the three and nine months ended September 30, 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations. The strategic transaction and integration expenses during the three months ended September 30, 2021 were primarily related to transaction expenses incurred related to entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths") (see Note 20: Acquisitions). The strategic transaction and integration expenses for the nine months ended September 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer, one-time costs incurred to comply with regulatory initiatives and the transaction costs related to the Smiths transaction. The strategic transaction and integration expenses during the three and nine months ended September 30, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

Note 4: Revenue

    Our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions and Critical Care. The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors. Revenue is typically recognized upon transfer of control of the products, which we deem to be at point of shipment. However, for purposes of revenue recognition for our software licenses and renewals, we consider the control of these products to be transferred to a customer at a certain point in time; therefore, we recognize revenue at the start of the applicable license term.

    Payment is typically due in full within 30 days of delivery or the start of the contract term. 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. Rebates are offered on both a fixed and tiered/variable basis. In both cases, we use information available at the time and our historical experience with each customer to estimate the most likely rebate amount. We also provide chargebacks to distributors that sell to end-customers at prices determined under a contract between us and the end-customer. Chargebacks are the difference between the prices we charge our distribution customers and the contracted prices we have with the end customer which are processed as credits to our distribution customers. In estimating the expected value of chargeback amounts in order to determine the transaction price, we use information available at the time, including our historical experience.

    We also warranty 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. We also provide for extended service-type warranties, which we consider to be separate performance obligations. We allocate a portion of the transaction price to the extended service-type warranty based on its estimated relative selling price, and recognize revenue over the period the warranty service is provided. Our revenues are recorded at the net sales price, which includes an estimate for variable consideration related to rebates, chargebacks and product returns.

Revenue disaggregated
    
    The following table represents our revenues disaggregated by geography (in thousands):
11

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended
September 30,
Nine months ended
September 30,
Geography2021202020212020
Europe, the Middle East and Africa$36,239 $32,596 $108,800 $99,107 
Other Foreign54,523 48,525 169,667 175,618 
Total Foreign90,762 81,121 278,467 274,725 
United States245,298 237,446 697,316 675,828 
Total Revenues$336,060 $318,567 $975,783 $950,553 
    
    
    The following table represents our revenues disaggregated by product line (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
Product line2021202020212020
Infusion Consumables$144,850 $116,054 $407,419 $350,554 
Infusion Systems90,688 88,388 259,683 267,856 
IV Solutions89,237 101,900 271,834 295,369 
Critical Care11,285 12,225 36,847 36,774 
Total Revenues$336,060 $318,567 $975,783 $950,553 

Contract balances

    The following table presents our changes in the contract balances for the nine months ended September 30, 2021 and 2020 (in thousands):
Contract Liabilities
Beginning balance, January 1, 2021$(6,430)
Equipment revenue recognized7,193 
Equipment revenue deferred due to implementation(8,652)
Software revenue recognized6,194 
Software revenue deferred due to implementation(2,967)
Ending balance, September 30, 2021$(4,662)
Beginning balance, January 1, 2020$(4,855)
Equipment revenue recognized9,920 
Equipment revenue deferred due to implementation(13,679)
Software revenue recognized4,715 
Software revenue deferred due to implementation(5,033)
Ending balance, September 30, 2020$(8,932)
    
    As of September 30, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $3.3 million. We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to the novel coronavirus and its variants ("COVID-19"). Revenue from remaining performance obligations related to annual software licenses is $1.3 million. We expect to recognize substantially all of this revenue over the next twelve months.

Note 5: Leases
    
Leases

12

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    We determine if an arrangement is a lease at inception. Our operating lease assets are separately stated in operating lease right-of-use ("ROU") assets and our financing lease assets are included in other assets on our condensed consolidated balance sheets. Our lease liabilities are included in accrued liabilities, and other long-term liabilities on our condensed consolidated balance sheets. We have elected not to recognize an ROU asset and lease liability for leases with terms of twelve months or less.

    Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term based on the information available at commencement date. Our lease ROU assets exclude lease incentives and initial direct costs incurred. Our lease terms include options to extend when it is reasonably certain that we will exercise that option. All of our leases have stated lease payments, which may include fixed rental increases. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
    
    Our leases are for corporate, research and development and sales and support offices, a distribution facility, device service centers and certain equipment. Our leases have original lease terms of one year to fifteen years, some of which include options to extend the leases for up to an additional five years. For all of our leases, we do not include optional periods of extension in our current lease terms for the exercise of options to extend is not reasonably certain.

    The following table presents the components of our lease cost (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2021202020212020
Operating lease cost$2,798 $2,861 $8,455 $8,428 
Finance lease cost - interest29 29 92 62 
Finance lease cost - reduction of ROU asset166 125 478 252 
Short-term lease cost4 74 14 200 
Total lease cost $2,997 $3,089 $9,039 $8,942 
    
Interest expense on our finance leases is included in other income (expense), net in our condensed consolidated statement of operations. The reduction of the operating and finance ROU assets is included as noncash lease expense in selling, general and administrative expenses in our condensed consolidated statement of operations.    

The following table presents the supplemental cash flow information related to our leases (in thousands):
Nine months ended
September 30,
20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$8,461 $7,303 
Operating cash flows from finance leases$29 $62 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$1,394 $20,264 
Finance leases$373 $2,870 
    
    
    The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):
13

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of
September 30, 2021
As of
December 31, 2020
Operating leases
Operating lease right-of-use assets$40,979 $46,571 
Accrued liabilities$8,669 $8,740 
Other long-term liabilities35,478 41,019 
Total operating lease liabilities$44,147 $49,759 
Weighted Average Remaining Lease Term
Operating leases6.2 years6.7 years
Weighted Average Discount Rate
Operating leases4.98 %5.02 %
    
The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):
As of
September 30, 2021
As of
December 31, 2020
Financing leases
Financing lease right-of-use assets$2,690 $2,915 
Accrued liabilities$624 $554 
Other long-term liabilities2,122 2,388 
Total financing lease liabilities$2,746 $2,942 
Weighted Average Remaining Lease Term
Financing leases5.8 years6.4 years
Weighted Average Discount Rate
Financing leases4.27 %4.27 %
        
    As of September 30, 2021, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):
Operating LeasesFinance Leases
Remainder of 2021$2,783 $182 
202210,370 726 
20239,194 726 
20248,347 421 
20254,999 225 
20264,725 189 
Thereafter10,574 615 
Total Lease Payments50,992 3,084 
Less imputed interest(6,845)(338)
Total$44,147 $2,746 

Note 6:     Net Income Per Share
14

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period 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 and restricted stock units that are anti-dilutive are not included in the treasury stock method calculation. There were 12,235 and 14,017 anti-dilutive securities for the three months ended September 30, 2021 and 2020, respectively. There were 12,132 and 12,182 anti-dilutive securities for the nine months ended September 30, 2021 and 2020, respectively.

    The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in thousands, except per share data): 
 Three months ended
September 30,
Nine months ended
September 30,
 2021202020212020
Net income$31,081 $24,986 $83,210 $60,728