ICU MEDICAL INC/DE [ICUI] Filings

10-Q 1 icui-20220630.htm 10-Q icui-20220630

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: June 30, 2022


☐			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

California

92673

(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 filer

Accelerated filer

☐

Non-accelerated filer

☐

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 class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.10 per share	ICUI	The 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 July 31, 2022
Common						23,899,381

ICU MEDICAL, INC. AND SUBSIDIARIES

Form 10-Q

June 30, 2022

Table of Contents


		Page Number
PART I.	Financial Information
Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at June 30 , 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Operations for the Three and S ix Months Ended June 30 , 2022 and 2021	4

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Si x Months Ended June 30 , 2022 and 2021	5

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30 , 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4.	Controls and Procedures	55

PART II.	Other Information
Item 1.	Legal Proceedings	56

Item1A.	Risk Factors	56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 6.	Exhibits	58

	Signature	59

PART I - FINANCIAL INFORMATION

Item1.Financial Statements (Unaudited)

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)


	June 30, 2022		December 31, 2021
	(Unaudited)		(1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	255,698	$	552,827
Short-term investment securities	13,191		14,420
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENT SECURITIES	268,889		567,247
Accounts receivable, net of allowance for doubtful accounts of $7,557 at June 30, 2022 and $7,038 at December 31, 2021	216,124		105,894
Inventories	583,050		290,235
Prepaid income taxes	27,111		19,586
Prepaid expenses and other current assets	94,663		46,847


TOTAL CURRENT ASSETS	1,189,837		1,029,809

PROPERTY, PLANT AND EQUIPMENT, net	667,783		468,365
OPERATING LEASE RIGHT-OF-USE ASSETS	83,323		39,847

LONG-TERM INVESTMENT SECURITIES	1,837		4,620
GOODWILL	1,421,216		43,439
INTANGIBLE ASSETS, net	1,080,329		188,311
DEFERRED INCOME TAXES	43,942		42,604
OTHER ASSETS	101,728		63,743
TOTAL ASSETS	$	4,589,995	$	1,880,738

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	201,874	$	81,128
Accrued liabilities	247,656		118,195
Current portion of long-term debt	19,063		—
Income tax payable	17,102		1,454
Contingent earn-out liability	290		—
TOTAL CURRENT LIABILITIES	485,985		200,777

CONTINGENT EARN-OUT LIABILITY	30,119		2,589
LONG-TERM DEBT	1,636,029		—
OTHER LONG-TERM LIABILITIES	128,200		41,830
DEFERRED INCOME TAXES	204,992		1,490
INCOME TAX LIABILITY	18,804		18,021
COMMITMENTS AND CONTINGENCIES (Note 19)	—		—
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 — 23,899 shares at June 30, 2022 and 21,280 shares at December 31, 2021; and outstanding — 23,898 shares at June 30, 2022 and 21,280 shares at December 31, 2021	2,390		2,128
Additional paid-in capital	1,309,598		721,412
Treasury stock, at cost (406 and 119 shares, respectively)	(92)		(27)
Retained earnings	866,245		911,787
Accumulated other comprehensive loss	(92,275)		(19,269)
TOTAL STOCKHOLDERS' EQUITY	2,085,866		1,616,031
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,589,995	$	1,880,738

______________________________________________________

(1) December 31, 2021 balances were derived from audited consolidated financial statements.

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

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
TOTAL REVENUES	$	561,004	$	321,677	$	1,104,126	$	639,723
COST OF GOODS SOLD	393,411		198,148		767,706		403,514
GROSS PROFIT	167,593		123,529		336,420		236,209
OPERATING EXPENSES:
Selling, general and administrative	158,748		73,921		311,960		146,312
Research and development	22,562		11,385		46,433		22,094
Restructuring, strategic transaction and integration	13,525		3,753		47,430		6,636
Change in fair value of contingent earn-out	(27,194)		—		(27,194)		—
Contract settlement	—		—		—		127
TOTAL OPERATING EXPENSES	167,641		89,059		378,629		175,169
(LOSS) INCOME FROM OPERATIONS	(48)		34,470		(42,209)		61,040

INTEREST EXPENSE	(16,273)		(163)		(29,917)		(324)
OTHER (EXPENSE) INCOME, net	(533)		525		471		1,208
(LOSS) INCOME BEFORE INCOME TAXES	(16,854)		34,832		(71,655)		61,924
BENEFIT (PROVISION) FOR INCOME TAXES	9,380		(6,434)		26,113		(9,795)
NET (LOSS) INCOME	$	(7,474)	$	28,398	$	(45,542)	$	52,129
NET (LOSS) INCOME PER SHARE
Basic	$	(0.31)	$	1.34	$	(1.91)	$	2.46
Diluted	$	(0.31)	$	1.31	$	(1.91)	$	2.40
WEIGHTED AVERAGE NUMBER OF SHARES
Basic	23,897		21,200		23,787		21,176
Diluted	23,897		21,703		23,787		21,718

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

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ICU MEDICAL, INC. AND SUBSIDIARIES

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

(In thousands)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
NET (LOSS) INCOME	$	(7,474)	$	28,398	$	(45,542)	$	52,129
Other comprehensive income (loss), net of tax:
Cash flow hedge adjustments, net of tax of $4,370 and $(111) for the three months ended June 30, 2022 and 2021, respectively, and $11,681 and $(409) for the six months ended June 30, 2022 and 2021, respectively.	8,144		(352)		31,716		(1,296)
Foreign currency translation adjustment, net of tax of $0 for all periods	(99,805)		1,302		(104,751)		(6,156)
Other adjustments, net of tax of $0 for all periods	14		12		29		23
Other comprehensive (loss) income, net of tax	(91,647)		962		(73,006)		(7,429)
COMPREHENSIVE (LOSS) INCOME	$	(99,121)	$	29,360	$	(118,548)	$	44,700

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

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Amounts in thousands)


	Common Stock			Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount										Total
Balance, January 1, 2022	21,280	$	2,128	$	721,412	$	(27)	$	911,787	$	(19,269)	$	1,616,031
Issuance of restricted stock and exercise of stock options	154	12		(2,965)		5,927		—		—		2,974
Tax withholding payments related to net share settlement of equity awards	(37)	—		—		(8,743)		—		—		(8,743)
Issuance of common stock for acquisitions	2,500	250		575,725		—		—		—		575,975
Stock compensation	—	—		12,092		—		—		—		12,092
Other comprehensive income, net of tax	—	—		—		—		—		18,641		18,641
Net loss	—	—		—		—		(38,068)		—		(38,068)
Balance, March 31, 2022	23,897	$	2,390	$	1,306,264	$	(2,843)	$	873,719	$	(628)	$	2,178,902
Issuance of restricted stock and exercise of stock options	10	—		(4,428)		4,446		—		—		18
Tax withholding payments related to net share settlement of equity awards	(8)	—		—		(1,695)		—		—		(1,695)
Stock compensation	—	—		7,762		—		—		—		7,762
Other comprehensive loss, net of tax	—	—		—		—		—		(91,647)		(91,647)
Net loss	—	—		—		—		(7,474)		—		(7,474)
Balance, June 30, 2022	23,899	$	2,390	$	1,309,598	$	(92)	$	866,245	$	(92,275)	$	2,085,866


	Common Stock			Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount										Total
Balance, January 1, 2021	21,058	$	2,106	$	693,068	$	(39)	$	808,652	$	(1,522)	$	1,502,265
Issuance of restricted stock and exercise of stock options	198	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, 2021	21,219	$	2,122	$	701,586	$	(5,410)	$	832,383	$	(9,913)	$	1,520,768
Issuance of restricted stock and exercise of stock options	—	—		(2,685)		3,237		—		—		552
Tax withholding payments related to net share settlement of equity awards	—	—		—		(96)		—		—		(96)
Stock compensation	—	—		6,681		—		—		—		6,681
Other comprehensive income, net of tax	—	—		—		—		—		962		962
Net income	—	—		—		—		28,398		—		28,398
Balance, June 30, 2021	21,219	$	2,122	$	705,582	$	(2,269)	$	860,781	$	(8,951)	$	1,557,265

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ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Six months ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(45,542)	$	52,129
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	119,697		44,319
Amortization of inventory step-up	22,676		—
Noncash lease expense	10,888		4,780
Provision for doubtful accounts	(99)		342
Provision for warranty and returns	1,483		(345)
Stock compensation	19,854		12,703
Loss on disposal of property, plant and equipment and other assets	267		829
Bond premium amortization	211		364
Debt issuance costs amortization	3,495		144
Change in fair value of contingent earn-out	(27,194)		—

Usage of spare parts	5,229		5,356
Other	(2,807)		1,574
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable	(1,090)		2,078
Inventories	(100,024)		13,368
Prepaid expenses and other current assets	4,710		759
Other assets	(17,323)		(7,632)
Accounts payable	22,149		(1,648)
Accrued liabilities	(33,509)		(17,068)
Income taxes, including excess tax benefits and deferred income taxes	(45,798)		(5,970)
Net cash (used in) provided by operating activities	(62,727)		106,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(48,039)		(29,693)
Proceeds from sale of assets	900		203
Business acquisitions, net of cash acquired	(1,844,164)		—
Intangible asset additions	(4,440)		(4,136)

Purchases of investment securities	(3,397)		(10,034)
Proceeds from sale and maturities of investment securities	26,198		7,000
Net cash used in investing activities	(1,872,942)		(36,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of lender debt issuance costs	1,672,631		—
Principal repayments of long-term debt	(18,125)		—
Payment of third-party debt issuance costs	(1,852)		—
Proceeds from exercise of stock options	2,992		5,416
Payments on finance leases	(321)		(296)
Tax withholding payments related to net share settlement of equity awards	(10,438)		(7,819)
Net cash provided by (used in) financing activities	1,644,887		(2,699)
Effect of exchange rate changes on cash	(6,347)		(783)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(297,129)		65,940
CASH AND CASH EQUIVALENTS, beginning of period	552,827		396,097
CASH AND CASH EQUIVALENTS, end of period	$	255,698	$	462,037

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

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED

(In thousands)


	Six months ended June 30,
	2022		2021




SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Accounts payable for property, plant and equipment	$	5,539	$	1,857


Detail of assets acquired and liabilities assumed in acquisitions*:
Fair value of assets acquired	$	1,658,692
Cash paid for acquisitions, net of cash acquired	(1,844,164)
Share consideration	(575,975)
Contingent consideration	(55,158)
Goodwill, acquired during period	1,437,811
Liabilities assumed/Adjustments to liabilities assumed	$	(621,206)

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

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

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, 2021.

We are engaged in the development, manufacturing and sale of innovative medical products used in infusion therapy and critical care applications. We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S. and internationally. We also sell certain products on an original equipment manufacturer basis to other medical device manufacturers. All subsidiaries are wholly owned and are included in the condensed consolidated financial statements. All intercompany balances and transactions have been eliminated.

On January 6, 2022, we acquired Smiths Medical 2020 Limited ("Smiths Medical"), see Note 3: Acquisitions. Our condensed consolidated statement of operations includes the results of operations for Smiths Medical from January 7, 2022 through June 25, 2022, which is the current end of their 4-4-5 accounting period.

Note 2: New Accounting Pronouncements

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. 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. In November 2021, we entered into two forward-starting swaps whereby the variable leg of the swap referenced LIBOR. These swaps were amended in early 2022 to transition to an alternative reference rate (see Note 8: Derivatives and Hedging Activities). The amendments in this ASU allow for certain expedients that will allow us to assume that our hedged interest payments are probable of occurring regardless of any expected modification in their terms related to reference rate reform and will allow us to continue hedge accounting for a cash flow hedge for which the hedged interest rate risk changes if the hedge is highly effective under ASC 815, Derivatives and Hedging, or the optional expedient under this ASU is elected. The impact of this ASU on our contracts has not been and is not expected to be material.

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3: Acquisitions

2022 Acquisition

On January 6, 2022, we acquired 100.0% of the equity interests in Smiths Medical, the holding company of Smiths Group plc's global medical device business, from Smiths Group International Holdings Limited (“Smiths”). The acquisition of Smiths Medical aligns with our strategic growth plans, enabling us to broaden our product offerings to include syringe and ambulatory infusion devices, vascular access, and vital care products and to strengthen and expand our global market reach.

Total cash consideration for the acquisition was $1.9 billion, which was financed with existing cash balances and proceeds from the credit agreement entered into on January 6, 2022 (see Note 17: Long-Term Debt). We also issued share consideration to Smiths of 2.5 million shares of our common stock. The fair value of the common shares issued to Smiths was determined based on the opening market price of our common stock on the acquisition date. Smiths may be entitled to an additional $100.0 million in cash consideration contingent on our common stock achieving certain price targets for certain periods after closing in accordance with the terms of the Share Sale and Purchase Agreement (the "Purchase Agreement"). In the event that (a) on or prior to the third anniversary of closing the 30-day volume-weighted average price for our common stock, as defined in the Purchase Agreement, equals or exceeds $300.00 per share or (b) on or prior to the fourth anniversary of closing the 45-day volume-weighted average price for our common stock, as defined in the Purchase Agreement, equals or exceeds $300.00 per share (each a "Price Target"), and provided Smiths beneficially owns at least 50.0% of the shares of common stock issued at closing at the time the Price Target is achieved, then Smiths will be entitled to receive the additional $100.0 million in cash consideration. The fair value of the contingent consideration was determined using an option pricing model, specifically the Monte Carlo Simulation. In the analysis, the determinants of payout are simulated in a risk neutral framework over a large number of simulation paths. The fair value of the contingent consideration is then calculated as the average present value across all simulated paths.

Preliminary Purchase Price Allocation

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

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Estimated cash consideration for acquired assets	$	1,922,955
Preliminary fair value of contingent consideration payable to Smiths	53,520

Issuance of ICU Medical, Inc. common shares:
Number of shares issued to Smiths	2,500
Price per share (ICU's opening market price on the acquisition date)	$	230.39
Fair value of ICU shares issued to Smiths	$	575,975
Total estimated consideration to be paid	$	2,552,450

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	78,791
Accounts receivable	118,277
Inventories	226,196
Prepaid expenses and other current assets	53,554
Property, plant and equipment	210,000
Operating lease right-of-use assets	55,161
Intangible assets(1)	975,000
Deferred income taxes	9,303
Other assets	379
Accounts payable	(105,291)
Accrued liabilities(2)	(175,099)
Income tax payable	(24,332)
Other long-term liabilities	(85,739)
Deferred income taxes	(228,689)
Total identifiable net assets acquired	$	1,107,511
Goodwill - not tax deductible	1,444,939
Estimated Purchase Consideration	$	2,552,450

_______________________________

(1) Estimated identifiable intangible assets include $540.0 million of customer relationships, $400.0 million of developed technology, $30.0 million of internally developed software, and $5.0 million of trade mark. The estimated weighted-average amortization period for the total identifiable intangible assets is approximately nine years, and, for each identifiable intangible asset is estimated as follows: eight years for customer relationships, ten years for developed technology, five years for internally developed software, and six months for the trade mark.

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

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

The identifiable intangible assets and other long-lived assets acquired have been valued as Level 3 assets at fair value. The estimated fair value of identifiable intangible assets were developed using the income approach and are based on critical estimates, judgments and assumptions derived from: analysis of market conditions; discount rate; discounted cash flows; royalty rates; customer retention rates; and/or estimated useful lives. Certain other intangible assets were valued using a cost to replace method, estimating the labor and non-labor costs required to replace the asset under the premise that it was not part of the transaction. Property, plant and equipment was valued with the consideration of remaining economic lives. The raw materials inventory was valued at historical cost and adjusted for any obsolescence which we estimate to approximate replacement cost, the work in process was valued at estimated sales proceeds less costs to complete and costs to sell, and finished goods inventory was valued at estimated sales proceeds less costs to sell. The prepaid expenses and other current assets and assumed liabilities were recorded at their carrying values as of the date of the acquisition, as their carrying values approximated their fair values due to their short-term nature.

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited Pro Forma Information

Smiths Medical is included in our consolidated results beginning on January 7, 2022. Total revenues and net loss attributable to Smiths Medical for the period from January 7, 2022 to June 30, 2022 were $437.8 million and $65.5 million, respectively, and for the three months ended June 30, 2022 were $222.9 million and $26.0 million. The following unaudited pro forma financial information presents the combined results of operations of ICU and Smiths Medical as if the acquisition had occurred on January 1, 2021. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on the date indicated or of results that may occur in the future.


	Three months ended June 30,				Six months ended June 30,
(In thousands)	2022		2021		2022		2021
Revenues	$	561,004	$	625,942	$	1,124,823	$	1,227,502
Net Loss	$	(7,474)	$	34,244	$	(59,425)	$	31,447

The unaudited pro forma results presented above include the impact of the following adjustments: incremental amortization expense on intangible assets acquired of $1.3 million and $55.5 million for the six months ended June 30, 2022 and 2021, respectively, incremental interest expense, including amortization of debt discount and debt issuance costs, on the Credit Facilities of $0.8 million and $25.4 million for the six months ended June 30, 2022 and 2021, respectively; and a $27.4 million expense related to the increase in fair value of inventory for the six months ended June 30, 2021. In addition, there were non-recurring adjustments directly attributable to the business combination, including acquisition-related cost of $13.5 million for the six months ended June 30, 2021 and adjustments related to the extinguishment of related party loans receivable and payable equal to $80.7 million and $45.0 million for the six months ended June 30, 2022 and 2021, respectively. The unaudited pro forma results include IFRS to U.S. GAAP adjustments for Smiths Medical historical results and adjustments for accounting policy alignment, which were materially similar to the Company. Any differences in accounting policies were adjusted to reflect the accounting policies of the Company in the unaudited pro forma results presented.

2021 Acquisition

During November 2021, we acquired a small foreign infusion systems supplier and paid an initial gross cash payment of approximately $15.4 million. In addition to the initial cash consideration, total consideration for the acquisition includes an additional holdback of $0.5 million, to be paid two years from the completion date of the acquisition, and also a potential earn-out payment of up to $2.5 million, consisting of (i) a cash payment of $1.0 million contingent on the achievement of certain revenue targets for the annual period ending December 31, 2022 and, separately, (ii) a cash payment of $1.5 million contingent on certain product-related regulatory certifications obtained by May 26, 2024. As of June 30, 2022, the total consideration which includes the acquisition date fair value of the contingent consideration was $17.1 million.

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4: Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $13.5 million and $3.8 million for the three months ended June 30, 2022 and 2021, respectively, and $47.4 million and $6.6 million for six months ended June 30, 2022 and 2021, respectively.

Restructuring

During the three and six months ended June 30, 2022, restructuring charges were $1.7 million and $4.9 million, respectively, and were related to severance costs. Restructuring charges during the three and six months ended June 30, 2021 were not material.

The following table summarizes the activity in our restructuring-related accrual by major type of cost for the period ended June 30, 2022 (in thousands):


	Severance Pay and Benefits		Retention and Facility Closure Costs		Total
Accrued balance, January 1, 2022	$	499	$	165	$	664
Acquired restructuring liabilities	5,796		1,740		7,536
Charges incurred	3,222		—		3,222
Payments	(2,030)		—		(2,030)
Currency translation	(147)		(40)		(187)
Accrued balance, March 31, 2022	$	7,340	$	1,865	$	9,205
Charges incurred	1,710		—		1,710
Payments	(3,352)		(212)		(3,564)
Currency translation	(256)		(94)		(350)
Other adjustments	(38)		—		(38)
Accrued balance, June 30, 2022	$	5,404	$	1,559	$	6,963

Strategic Transaction and Integration Expenses

We incurred and expensed $11.8 million and $3.7 million in strategic transaction and integration expenses during the three months ended June 30, 2022 and 2021, respectively, and we incurred and expensed $42.5 million and $6.5 million in strategic transaction and integration expenses during the six months ended June 30, 2022 and 2021, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statements of operations. The strategic transaction and integration expenses during the three and six months ended June 30, 2022 were primarily related to transaction and integration expenses associated with our acquisition of Smiths Medical on January 6, 2022 (see Note 3: Acquisitions) which primarily included legal expenses, bank fees and employee costs. The six months ended June 30, 2022 also included a United Kingdom stamp tax. The strategic transaction and integration expenses for the three and six months ended June 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives.

Note 5: Revenue

Revenue Recognition

Following our acquisition of Smiths Medical, our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions, Critical Care, Infusion Systems-Smiths Medical, Vascular Access-Smiths Medical and Vital Care-Smiths Medical. The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors. 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.

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 product line (in thousands):


	Three months ended June 30,				Six months ended June 30,
Product line	2022		2021		2022		2021
Infusion Consumables	$	144,456	$	136,200	$	284,977	$	262,569
Infusion Systems	87,253		84,661		174,265		168,995
IV Solutions	94,113		88,421		182,593		182,597
Critical Care	12,373		12,395		24,530		25,562
Infusion Systems-Smiths Medical	77,812		—		144,102		—
Vascular Access-Smiths Medical	77,058		—		156,066		—
Vital Care-Smiths Medical	67,939		—		137,593		—
Total Revenues	$	561,004	$	321,677	$	1,104,126	$	639,723

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

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


	Three months ended June 30,				Six months ended June 30,
Geography	2022		2021		2022		2021
Europe, the Middle East and Africa	$	87,415	$	37,761	$	173,619	$	72,560



Other Foreign	109,723		59,249		218,850		115,145
Total Foreign	197,138		97,010		392,469		187,705
United States	363,866		224,667		711,657		452,018
Total Revenues	$	561,004	$	321,677	$	1,104,126	$	639,723

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract balances

The following table presents the changes in our contract balances for the six months ended June 30, 2022 and 2021 (in thousands):


	Contract Liabilities
Beginning balance, January 1, 2022	$	(7,461)
Fair value of acquired deferred revenue	(51,245)
Equipment revenue recognized	14,606
Equipment revenue deferred due to implementation	(7,349)
Software revenue recognized	8,737
Software revenue deferred due to implementation	(9,067)
Government grant deferred revenue	(2,972)
Government grant recognized