Company Quick10K Filing
ICU Medical
Price156.25 EPS3
Shares22 P/E46
MCap3,368 P/FCF63
Net Debt-337 EBIT87
TEV3,031 TEV/EBIT35
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-02-20
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-21
10-Q 2013-09-30 Filed 2013-10-22
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-04-22
10-K 2012-12-31 Filed 2013-02-26
10-Q 2012-09-30 Filed 2012-10-19
10-Q 2012-06-30 Filed 2012-07-20
10-Q 2012-03-31 Filed 2012-04-20
10-K 2011-12-31 Filed 2012-03-23
10-Q 2011-09-30 Filed 2011-10-21
10-Q 2011-06-30 Filed 2011-07-22
10-Q 2011-03-31 Filed 2011-04-22
10-K 2010-12-31 Filed 2011-02-18
10-Q 2010-09-30 Filed 2010-10-22
10-Q 2010-06-30 Filed 2010-07-23
10-Q 2010-03-31 Filed 2010-04-23
10-K 2009-12-31 Filed 2010-02-19
8-K 2020-05-07 Earnings, Exhibits
8-K 2020-02-28 Officers, Exhibits
8-K 2020-02-27 Earnings, Exhibits
8-K 2019-12-31 Officers, Exhibits
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-07-08 Officers, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-04-05 Officers
8-K 2019-03-04 Officers
8-K 2019-02-28 Earnings, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-03-01 Earnings, Exhibits
8-K 2018-01-05 Officers

ICUI 10Q Quarterly Report

Part I - Financial Information
Note 1: Basis of Presentation
Note 2: New Accounting Pronouncements
Note 3: Restructuring, Strategic Transaction and Integration
Note 4: Revenue
Note 5: Leases
Note 6: Net Income per Share
Note 7: Derivatives and Hedging Activities
Note 8: Fair Value Measurement
Note 9: Investment Securities
Note 10: Prepaid Expenses, Other Current Assets
Note 11: Inventories
Note 12: Property and Equipment
Note 13: Goodwill and Intangible Assets, Net
Note 14: Accrued Liabilities and Other Long - Term Liabilities
Note 15: Income Taxes
Note 16: Long - Term Obligations
Note 17: Stockholders' Equity
Note 18: Commitments and Contingencies
Note 19: Collaborative and Other Arrangements
Note 20: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 icui-ex31133120.htm
EX-31.2 icui-ex31233120.htm
EX-32.1 icui-ex32133120.htm

ICU Medical Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.71.41.00.70.30.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

Document
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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: March 31, 2020
 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
,
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
x
 
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 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 April 30, 2020
Common
 
20,832,404



ICU MEDICAL, INC. AND SUBSIDIARIES
Form 10-Q
March 31, 2020

Table of Contents
PART I.
Financial Information
 
Page Number
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets, at March 31, 2020 and December 31, 2019
 
 
 
 
 
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
 
 
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
 
 
 
 
 
 
 
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) 
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
(1)
ASSETS
 
 
 
CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
419,557

 
$
268,670

Short-term investment securities
20,115

 
23,967

TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
439,672

 
292,637

Accounts receivable, net of allowance for doubtful accounts of $19,856 at March 31, 2020 and $20,219 at December 31, 2019
198,158

 
202,219

Inventories
311,604

 
337,640

Prepaid income tax
18,140

 
15,720

Prepaid expenses and other current assets
34,601

 
33,981

TOTAL CURRENT ASSETS
1,002,175

 
882,197

 
 
 
 
PROPERTY AND EQUIPMENT, net
455,624

 
456,085

OPERATING LEASE RIGHT-OF-USE ASSETS
50,430

 
34,465

GOODWILL
30,767

 
31,245

INTANGIBLE ASSETS, net
206,837

 
211,408

DEFERRED INCOME TAXES
21,904

 
27,998

OTHER ASSETS
49,242

 
48,984

TOTAL ASSETS
$
1,816,979

 
$
1,692,382

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
86,348

 
$
128,629

Accrued liabilities
120,009

 
117,776

Short-term debt
150,000

 

Income tax liability
944

 
2,063

TOTAL CURRENT LIABILITIES
357,301

 
248,468

 
 
 
 
CONTINGENT EARN-OUT LIABILITY
17,300

 
17,300

OTHER LONG-TERM LIABILITIES
50,041

 
32,820

DEFERRED INCOME TAXES
1,985

 
2,091

INCOME TAX LIABILITY
14,459

 
14,459

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 — 20,833 shares at March 31, 2020 and 20,743 shares at December 31, 2019 and outstanding — 20,825 shares at March 31, 2020 and 20,742 shares at December 31, 2019
2,083

 
2,074

Additional paid-in capital
665,679

 
668,947

Treasury stock, at cost
(1,573
)
 
(157
)
Retained earnings
738,616

 
721,782

Accumulated other comprehensive loss
(28,912
)
 
(15,402
)
TOTAL STOCKHOLDERS' EQUITY
1,375,893

 
1,377,244

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,816,979

 
$
1,692,382

______________________________________________________
(1) December 31, 2019 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
March 31,
 
2020
 
2019
TOTAL REVENUES
$
328,607

 
$
330,932

COST OF GOODS SOLD
207,192

 
195,629

GROSS PROFIT
121,415

 
135,303

OPERATING EXPENSES:
 

 
 

Selling, general and administrative
72,305

 
72,633

Research and development
10,746

 
12,823

Restructuring, strategic transaction and integration
12,307

 
24,392

Change in fair value of contingent earn-out

 
(7,700
)
Contract settlement

 
2,783

TOTAL OPERATING EXPENSES
95,358

 
104,931

INCOME FROM OPERATIONS
26,057

 
30,372

INTEREST EXPENSE
(196
)
 
(133
)
OTHER (EXPENSE) INCOME, net
(5,480
)
 
3,191

INCOME BEFORE INCOME TAXES
20,381

 
33,430

PROVISION FOR INCOME TAXES
(3,547
)
 
(2,432
)
NET INCOME
$
16,834

 
$
30,998

NET INCOME PER SHARE
 

 
 

Basic
$
0.81

 
$
1.51

Diluted
$
0.78

 
$
1.44

WEIGHTED AVERAGE NUMBER OF SHARES
 

 
 

Basic
20,780

 
20,527

Diluted
21,507

 
21,551

 
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
March 31,
 
2020

2019
NET INCOME
$
16,834

 
$
30,998

Other comprehensive income (loss), net of tax:
 
 
 
Cash flow hedge adjustments, net of taxes of $932 and $205 for the three months ended March 31, 2020 and 2019, respectively
(2,952
)
 
650

Foreign currency translation adjustment, net of taxes of $0 for all periods
(10,477
)
 
(1,592
)
Other adjustments, net of taxes of $0 for all periods
(81
)
 
6

Other comprehensive loss, net of taxes
(13,510
)
 
(936
)
TOTAL COMPREHENSIVE INCOME
$
3,324

 
$
30,062

 
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
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
Shares
 
Amount
 
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Comprehensive
Loss
 
Total
Balance, January 1, 2020
 
20,742

 
$
2,074

 
$
668,947

 
$
(157
)
 
$
721,782

 
$
(15,402
)
 
$
1,377,244

Issuance of restricted stock and exercise of stock options
 
155

 
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, 2020
 
20,833

 
$
2,083

 
$
665,679

 
$
(1,573
)
 
$
738,616

 
$
(28,912
)
 
$
1,375,893



 
 
Common Stock
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
Shares
 
Amount
 
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Comprehensive
Loss
 
Total
Balance, January 1, 2019
 
20,492

 
$
2,049

 
$
657,899

 
$
(95
)
 
$
620,747

 
$
(16,945
)
 
$
1,263,655

Issuance of restricted stock and exercise of stock options
 
254

 
18

 
(4,289
)
 
5,196

 

 

 
925

Tax withholding payments related to net share settlement of equity awards
 
(78
)
 

 

 
(18,157
)
 

 

 
(18,157
)
Stock compensation
 

 

 
6,209

 

 

 

 
6,209

Other comprehensive loss, net of tax
 

 

 

 

 

 
(936
)
 
(936
)
Net income
 

 

 

 

 
30,998

 

 
30,998

Balance, March 31, 2019
 
20,668

 
$
2,067

 
$
659,819

 
$
(13,056
)
 
$
651,745

 
$
(17,881
)
 
$
1,282,694



6


ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) 
 
Three months ended
March 31,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
16,834

 
$
30,998

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

 
 
Depreciation and amortization
20,957

 
19,074

Amortization of right-of-use assets
2,305

 

Provision for doubtful accounts
5

 
2,096

Provision for warranty and returns
(821
)
 
2,692

Stock compensation
6,939

 
6,209

Loss on disposal of property and equipment and other assets
562

 
12,682

Bond premium amortization
34

 
28

Debt issuance costs amortization
72

 
72

Change in fair value of contingent earn-out

 
(7,700
)
Product-related charges
2,626

 

Usage of spare parts
4,900

 
6,362

Other
876

 
(1,991
)
Changes in operating assets and liabilities:
 

 
 
Accounts receivable
899

 
(49,534
)
Inventories
19,372

 
(11,968
)
Prepaid expenses and other assets
2,634

 
10,319

Other assets
(6,402
)
 
(7,542
)
Accounts payable
(35,063
)
 
3,075

Accrued liabilities
465

 
(34,814
)
Income taxes, including excess tax benefits and deferred income taxes
2,325

 
(1,068
)
Net cash provided by (used in) operating activities
39,519

 
(21,010
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(25,463
)
 
(28,671
)
Proceeds from sale of asset
131

 
16

Intangible asset additions
(1,958
)
 
(1,949
)
Purchases of investment securities
(7,082
)
 
(4,409
)
Proceeds from sale of investment securities
10,900

 
24,500

Net cash used in investing activities
(23,472
)
 
(10,513
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from short term debt
150,000

 

Proceeds from exercise of stock options
560

 
925

Tax withholding payments related to net share settlement of equity awards
(12,174
)
 
(18,157
)
Net cash provided by (used in) financing activities
138,386

 
(17,232
)
Effect of exchange rate changes on cash
(3,546
)
 
18

NET INCREASE (DECREASE) CASH AND CASH EQUIVALENTS
150,887

 
(48,737
)
CASH AND CASH EQUIVALENTS, beginning of period
268,670

 
344,781

CASH AND CASH EQUIVALENTS, end of period
$
419,557

 
$
296,044

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


7


ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED
(In thousands)

 
Three months ended
March 31,
 
2020
 
2019
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
 
 
 
  Accounts payable for property and equipment
$
7,112

 
$
13,131


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

8

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, 2019.
 
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.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholders' equity or cash flows as previously reported. We reclassified the usage of spare parts to separately state the amounts as an adjustment to reconcile net income to net cash provided by (used in) operating activities. The usage of spare parts was reported in the "Other" line item in the previously reported operating cash flows.

Note 2:    New Accounting Pronouncements

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal use software license. Costs to develop or obtain internal-use software that cannot be capitalized under subtopic 350-40, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity in a hosting arrangement that is a service contract determines which project stage (that is, preliminary project stage, application development stage, or post-implementation stage) an implementation activity relates to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The amendments in this update require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted this ASU effective January 1, 2020. This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements in Topic 820. The amendments remove from disclosure: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The amendments also made the following disclosure modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The amendments also added the following disclosure requirements: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant

9

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

unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We adopted this ASU effective January 1, 2020. This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update amends the FASB's guidance on the impairment of financial instruments by requiring timelier recording of credit losses on loans and other financial instruments. The ASU adds an impairment model that is based on expected losses rather than incurred losses. The ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In April 2019, the FASB issued ASU No. 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses and in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses to Topic 326, Financial Instruments - Targeted Transition Relief. ASU 2019-04 clarifies and corrects certain areas of the Codification and ASU 2019-05 provides entities with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The amendments in these updates will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018. The updated guidance requires a modified retrospective adoption. We adopted this ASU effective January 1, 2020. This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

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. We are currently reviewing the impact of this ASU on our contracts.
        

Note 3: Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $12.3 million and $24.4 million for the three months ended March 31, 2020 and 2019, respectively.

Restructuring

During the three months ended March 31, 2020 and 2019, restructuring charges were $7.2 million and $0.8 million, respectively. Restructuring charges for the three months ended March 31, 2020, were primarily related to severance and costs related to office and other facility closures.

During the year ended December 31, 2015, we incurred restructuring charges related to an agreement with Dr. Lopez, a member of our Board of Directors and a former employee in our research and development department, pursuant to which we bought out Dr. Lopez's right to employment under his then-existing employment agreement. The buy-out, including payroll taxes, is paid in equal monthly installments until December 2020.
    
The following table summarizes the details of changes in our restructuring-related accrual for the period ended March 31, 2020 (in thousands):


10

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

 
Accrued Balance January 1, 2020
 
Charges
Incurred
 
Payments
 
Accrued Balance
March 31, 2020
Severance pay and benefits
$
3,878

 
$
3,111

 
$
(2,620
)
 
$
4,369

Employment agreement buyout
460

 

 
(186
)
 
274

Facility closure expenses
1,211

 
4,062

 
(3,501
)
 
1,772

 
$
5,549

 
$
7,173

 
$
(6,307
)
 
$
6,415



Strategic transaction and integration expenses

We incurred and expensed $5.1 million and $23.6 million in strategic transaction and integration expenses during the three months ended March 31, 2020 and 2019, respectively. The strategic transaction and integration expenses during the three months ended March 31, 2020 and 2019, were primarily related to the integration of the Hospira Infusion Systems ("HIS") business acquired in 2017 from Pfizer. For the three months ended March 31, 2020, the expenses included the migration of IT systems at our Austin facility. The strategic transaction and integration expenses during the three months ended March 31, 2019, were primarily related to our final Pfizer separation costs and clean-up, which included a $12.7 million non-cash write-off of related assets.

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.

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. We use information available at the time and our historical experience to estimate and record provisions for chargebacks.

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

Revenue disaggregated
    
The following table represents our revenues disaggregated by geography (in thousands):
 
For the three months
ended March 31,
Geography
2020
 
2019
Europe, the Middle East and Africa
$
37,928

 
$
32,378

Other Foreign
60,521

 
51,361

Total Foreign
98,449

 
83,739

United States
230,158

 
247,193

Total Revenues
$
328,607

 
$
330,932

    
    

11

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

The following table represents our revenues disaggregated by product (in thousands):
 
For the three months ended
March 31,
Product line
2020
 
2019
Infusion Consumables
$
123,507

 
$
120,580

Infusion Systems
88,380

 
84,282

IV Solutions
104,291

 
113,182

Critical Care
12,429

 
12,888

Total Revenues
$
328,607

 
$
330,932



Contract balances

The following table presents our changes in the contract balances for the three months ended March 31, 2020 and 2019 (in thousands):
 
Contract Liabilities
Beginning balance, January 1, 2020
$
(4,855
)
Equipment revenue recognized
1,802

Equipment revenue deferred due to implementation
(3,990
)
Software revenue recognized
1,235

Software revenue deferred due to implementation
(2,664
)
Ending balance, March 31, 2020
$
(8,472
)
 
 
Beginning balance, January 1, 2019
$
(4,282
)
Equipment revenue recognized
448

Equipment revenue deferred due to implementation
(1,343
)
Software revenue recognized
345

Software revenue deferred due to implementation
(1,593
)
Ending balance, March 31, 2019
$
(6,425
)

    
As of March 31, 2020, revenue from remaining performance obligations related to implementation of software and equipment is $6.8 million. We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restriction due to COVID-19. Revenue from remaining performance obligations related to annual software licenses is $1.6 million. We expect to recognize substantially all of this revenue over the next twelve months.



12

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

Note 5: Leases
    
Leases

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 operating 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 offices, 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):
 
For the three months ended March 31,
 
2020
 
2019
Operating lease cost
$
2,791

 
$
2,430

 
 
 
 
Finance lease cost
29

 

 
 
 
 
Short-term lease cost
54

 
96

 
 
 
 
Total lease cost
$
2,874

 
$
2,526


    
The following table presents the supplemental cash flow information related to our leases (in thousands):
 
For the three months ended March 31,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
2,457

 
$
2,219

Operating cash flows from finance leases
$
29

 
$

 
 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
19,094

 
$
98

Finance leases
$
800

 
$


    
    

13

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

The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):
 
As of
March 31, 2020
 
As of
December 31, 2019
Operating leases
 
 
 
Operating lease right-of-use assets
$
50,430

 
$
34,465

 
 
 
 
Accrued liabilities
$
7,544

 
$
7,362

Other long-term liabilities
45,166

 
28,896

Total operating lease liabilities
$
52,710

 
$
36,258

 
 
 
 
Weighted Average Remaining Lease Term
 
 
 
Operating leases
7.3 years

 
6.0 years

 
 
 
 
Weighted Average Discount Rate
 
 
 
Operating leases
5.06
%
 
5.57
%


The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):
 
As of
March 31, 2020
Financing leases
 
Financing lease right-of-use assets
$
789

 
 
Accrued liabilities
$
188

Other long-term liabilities
601

Total financing lease liabilities
$
789

 
 
Weighted Average Remaining Lease Term
 
Financing leases
4.0 years

 
 
Weighted Average Discount Rate
 
Financing leases
4.32
%
        
As of March 31, 2020, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):
 
Operating Leases
 
Finance Leases
Remainder of 2020
$
7,195

 
$
174

2021
10,021

 
218

2022
9,309

 
218

2023
8,494

 
218

2024
8,094

 
25

2025
4,816

 

Thereafter
14,906

 

Total Lease Payments
62,835

 
853

Less imputed interest
(10,125
)
 
(64
)
Total
$
52,710

 
$
789


    

14

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

    
    
Note 6:     Net Income Per Share
 
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 15,333 and 9,998 anti-dilutive securities for the three months ended March 31, 2020 and 2019, 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
March 31,
 
2020
 
2019
Net income
$
16,834

 
$
30,998

Weighted-average number of common shares outstanding (for basic calculation)
20,780

 
20,527

Dilutive securities
727

 
1,024

Weighted-average common and common equivalent shares outstanding (for diluted calculation)
21,507

 
21,551

EPS — basic
$
0.81

 
$
1.51

EPS — diluted
$
0.78

 
$
1.44



Note 7:    Derivatives and Hedging Activities

Hedge Accounting and Hedging Program

The purpose of our hedging program is to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit. We do not issue derivatives for trading or speculative purposes.

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The par forward contract is designated and qualifies as a cash flow hedge. Our derivative instruments are recorded at fair value on the condensed consolidated balance sheets and are classified based on the instrument's maturity date. We record changes in the intrinsic value of the effective portion of the gain or loss on the derivative instrument as a component of Other Comprehensive Income and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

In March 2020, we entered into a one-year cross-currency par forward contract that extends our current hedge of a portion of our Mexico forecasted expenses denominated in Pesos ("MXN"). The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 473.2 million MXN. The term of the one-year contract is November 3, 2020 to December 1, 2021. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 24.26 MXN/USD.

In November 2018, we entered into a one-year cross-currency par forward contract that hedges of a portion of our Mexico forecasted expenses denominated in MXN. The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 265.3 million MXN. The term of the one-year hedge is November 1, 2019 to November 3, 2020. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 22.109 MXN/USD.

The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (in thousands):


15

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

 
Derivatives
 
Condensed Consolidated Balance Sheet
Location
 
March 31, 2020
 
December 31,
2019
Derivatives designated as cash flow hedging instruments
 
 
 
 
 
Foreign exchange forward contract:
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$
2,366

 
Accrued liabilities
 
(1,006
)
 

 
Other long-term liabilities
 
(512
)
 

Total derivatives designated as cash flow hedging instruments
 
 
$
(1,518
)
 
$
2,366

    
The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (in thousands):
 
 
Line Item in the
Condensed Consolidated Statements of Operations
 
Three months ended
March 31,
 
 
 
2020
 
2019
Derivatives designated as cash flow hedging instruments
 
 
 
 
 
 
Foreign exchange forward contracts
 
Cost of goods sold
 
$
692

 
$
155


    
We recognized the following (losses) gains on our foreign exchange contracts designated as a cash flow hedge (in thousands):
 
 
Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives
 
Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income
 
 
Three months ended
March 31,
 
 
 
Three months ended
March 31,
 
 
 
 
 
 
 
2020
 
2019
 
Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income
 
2020
 
2019
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contract
 
$
(3,192
)
 
$
1,010

 
Cost of goods sold
 
$
692

 
$
155

Total derivatives designated as cash flow hedging instruments
 
$
(3,192
)
 
$
1,010

 
 
 
$
692

 
$
155


As of March 31, 2020, we expect approximately $1.0 million of the deferred losses on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next twelve months concurrent with the underlying hedged transactions also being reported in net income.    

Note 8:    Fair Value Measurement
 
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

16

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

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

Earn-out Liability

In 2017, we recognized an earn-out liability upon the acquisition of HIS from Pfizer. Pfizer was entitled up to $225 million in cash if certain performance targets for the combined company for the three years ending December 31, 2019 were achieved. The initial fair value of the earn-out was determined by employing a Monte Carlo simulation in a risk neutral framework. The underlying simulated variable was adjusted EBITDA. The adjusted EBITDA volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model included other assumptions including the market price of risk, which was calculated as the weighted average cost of capital ("WACC") less the long term risk free rate. The initial value assigned to the contingent consideration was a result of forecasted product demand of our HIS business. At each reporting date subsequent to the acquisition we remeasured the earn-out using the same methodology above and recognized any changes in value. As of December 31, 2019, it was determined that we did not meet the necessary performance targets that would require payout of any of the HIS earn-out liability.

In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit Vascular, Inc. ("Pursuit"). Pursuit's former equity holders are potentially entitled up to $50.0 million in additional cash consideration contingent upon the achievement of certain sales and gross profit targets for specific customers. The earn-out paid will be calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit, not to exceed $50.0 million. We used a Monte Carlo simulation model to determine the fair value of the earn-out liability. The Monte Carlo simulation model utilizes multiple input variables to determine the value of the earn-out liability including historical volatility, a risk free interest rate, counter party credit risk and projected future gross profit, see below simulation input table related to Pursuit. The historical volatility was based on the median of ICU and a certain peer group. The risk-free interest rate is equal to the yield, as of the valuation date, of the zero-coupon U.S. Treasury bill that is commensurate with the term of the earn-out. The counter party credit risk is based on a synthetic credit rating of B1. If the probabilities in the model significantly change from what we initially and subsequently anticipate, the change could have a significant impact on our financial statements in the period recognized. Our contingent earn-out liability is separately stated in our condensed consolidated balance sheets.

The following tables provide a reconciliation of the Level 3 earn-out liabilities measured at estimated fair value (in thousands):
 
 
Pursuit
 
 
Earn-out Liability
Accrued balance, January 1, 2020
 
$
17,300

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

Accrued balance, March 31, 2020
 
$
17,300



 
 
HIS
 
 
Earn-out Liability
Accrued balance, January 1, 2019
 
$
47,400

Change in fair value of earn-out (included in income from operations as a separate line item)
 
(7,700
)
Accrued balance, March 31, 2019
 
$
39,700


The fair value of the earn-out was the same at March 31, 2020 as the fair value calculated at December 31, 2019 as the underlying target forecast did not change.

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


17

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

Pursuit Earn-out
Simulation Input
 
As of
March 31, 2020
 
At Acquisition November 2, 2019
Revenue/Gross Profit Volatility
 
20.00
%
 
20.00
%
Discount Rate
 
15.00
%
 
15.00
%
Risk Free Rate
 
1.55
%
 
1.55
%
Counter Party Risk
 
6.00
%
 
6.00
%


HIS Earn-out
Simulation Input
 
As of
March 31, 2019
 
As of
December 31, 2018
Adjusted EBITDA Volatility
 
30.00
%
 
30.00
%
WACC
 
8.25
%
 
8.25
%
20-year risk free rate
 
2.63
%
 
2.87
%
Market price of risk
 
5.47
%
 
5.24
%
Cost of debt
 
4.35
%
 
5.25
%

Investments and Foreign Currency Contracts    

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

The fair value of our Level 2 forward currency contracts are estimated using observable market inputs such as known notional value amounts, spot and forward exchange rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative.

Our assets and liabilities measured at fair value on a recurring basis consisted of the following (Level 1, 2 and 3 inputs as defined above) (in thousands):
 
Fair value measurements at March 31, 2020
 
Total carrying
value
 
Quoted prices
in active
markets for
identical
assets (level 1)
 
Significant
other
observable
inputs (level 2)
 
Significant
unobservable
inputs (level 3)
Assets:
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
Short-term
$
20,115

 
$

 
$
20,115

 
$

Total Assets
$
20,115

 
$

 
$
20,115

 
$