Company Quick10K Filing
ICU Medical
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 22 $5,345
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-01 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-16 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-11-09 Quarter: 2016-09-30
10-Q 2016-08-09 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-10 Quarter: 2015-06-30
10-Q 2015-05-06 Quarter: 2015-03-31
10-K 2015-02-20 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-11 Quarter: 2014-06-30
10-Q 2014-05-07 Quarter: 2014-03-31
10-K 2014-02-21 Annual: 2013-12-31
10-Q 2013-10-22 Quarter: 2013-09-30
10-Q 2013-07-25 Quarter: 2013-06-30
10-Q 2013-04-22 Quarter: 2013-03-31
10-K 2013-02-26 Annual: 2012-12-31
10-Q 2012-10-19 Quarter: 2012-09-30
10-Q 2012-07-20 Quarter: 2012-06-30
10-Q 2012-04-20 Quarter: 2012-03-31
10-K 2012-03-23 Annual: 2011-12-31
10-Q 2011-10-21 Quarter: 2011-09-30
10-Q 2011-07-22 Quarter: 2011-06-30
10-Q 2011-04-22 Quarter: 2011-03-31
10-K 2011-02-18 Annual: 2010-12-31
10-Q 2010-10-22 Quarter: 2010-09-30
10-Q 2010-07-23 Quarter: 2010-06-30
10-Q 2010-04-23 Quarter: 2010-03-31
10-K 2010-02-19 Annual: 2009-12-31
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 2019-09-30
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-ex31193019.htm
EX-31.2 icui-ex31293019.htm
EX-32.1 icui-ex32193019.htm

ICU Medical Earnings 2019-09-30

ICUI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
PODD 7,136 978 728 661 435 17 47 7,624 66% 163.9 2%
HRC 7,067 4,575 2,951 2,884 1,415 215 335 8,663 49% 25.9 5%
HAE 6,085 1,260 669 977 450 49 176 6,331 46% 35.9 4%
PEN 6,047 585 131 495 332 15 23 5,969 67% 257.6 3%
NVCR 5,679 406 247 294 212 -41 -16 5,646 72% -357.0 -10%
ICUI 5,345 1,623 305 1,311 508 47 127 5,031 39% 39.5 3%
IART 4,669 3,290 1,869 1,493 930 101 262 5,393 62% 20.6 3%
GMED 4,300 1,391 103 743 573 143 221 4,182 77% 18.9 10%
CMD 3,630 1,070 409 918 427 55 126 3,816 47% 30.3 5%
TNDM 3,601 255 110 282 147 -55 -49 3,470 52% -70.5 -22%

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: September 30, 2019
 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 October 31, 2019
Common
 
20,673,333



ICU MEDICAL, INC. AND SUBSIDIARIES
Form 10-Q
September 30, 2019

Table of Contents
PART I.
Financial Information
 
Page Number
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets, at September 30, 2019 and December 31, 2018
 
 
 
 
 
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
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,
2019
 
December 31,
2018
 
(Unaudited)
 
(1)
ASSETS
 
 
 
CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
315,949

 
$
344,781

Short-term investment securities
20,845

 
37,329

TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
336,794

 
382,110

Accounts receivable, net of allowance for doubtful accounts of $13,439 at September 30, 2019 and $5,768 at December 31, 2018
210,449

 
176,298

Inventories
343,715

 
311,163

Prepaid income tax
19,724

 
11,348

Prepaid expenses and other current assets
33,807

 
46,117

TOTAL CURRENT ASSETS
944,489

 
927,036

 
 
 
 
PROPERTY AND EQUIPMENT, net
444,087

 
432,641

OPERATING LEASE RIGHT-OF-USE ASSETS
35,787

 

LONG-TERM INVESTMENT SECURITIES

 
2,025

GOODWILL
11,019

 
11,195

INTANGIBLE ASSETS, net
131,644

 
133,421

DEFERRED INCOME TAXES
23,242

 
38,654

OTHER ASSETS
47,516

 
40,419

TOTAL ASSETS
$
1,637,784

 
$
1,585,391

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
125,355

 
$
120,469

Accrued liabilities
130,056

 
128,820

TOTAL CURRENT LIABILITIES
255,411

 
249,289

 
 
 
 
CONTINGENT EARN-OUT LIABILITY

 
47,400

OTHER LONG-TERM LIABILITIES
37,614

 
20,592

DEFERRED INCOME TAXES
690

 
721

INCOME TAX LIABILITY
3,734

 
3,734

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 and outstanding 20,671 shares at September 30, 2019, Issued 20,492 shares at December 31, 2018 and outstanding 20,491 shares at December 31, 2018
2,067

 
2,049

Additional paid-in capital
659,709

 
657,899

Treasury stock, at cost

 
(95
)
Retained earnings
701,141

 
620,747

Accumulated other comprehensive loss
(22,582
)
 
(16,945
)
TOTAL STOCKHOLDERS' EQUITY
1,340,335

 
1,263,655

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,637,784

 
$
1,585,391

______________________________________________________
(1) December 31, 2018 balances were derived from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

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,
 
2019
 
2018
 
2019
 
2018
TOTAL REVENUES
$
307,471

 
$
327,169

 
$
950,685

 
$
1,059,662

COST OF GOODS SOLD
188,919

 
192,582

 
592,961

 
624,274

GROSS PROFIT
118,552

 
134,587

 
357,724

 
435,388

OPERATING EXPENSES:
 

 
 

 
 
 
 
Selling, general and administrative
65,876

 
76,640

 
206,333

 
243,471

Research and development
12,002

 
13,181

 
36,024

 
39,342

Restructuring, strategic transaction and integration
7,975

 
24,012

 
69,408

 
64,271

Change in fair value of contingent earn-out
(200
)
 
18,500

 
(47,400
)
 
20,500

Contract settlement

 

 
3,822

 
28,917

TOTAL OPERATING EXPENSES
85,653

 
132,333

 
268,187

 
396,501

INCOME FROM OPERATIONS
32,899

 
2,254

 
89,537

 
38,887

INTEREST EXPENSE
(139
)
 
(283
)
 
(411
)
 
(548
)
OTHER (EXPENSE) INCOME, net
(10
)
 
(534
)
 
4,660

 
(3,482
)
INCOME BEFORE INCOME TAXES
32,750

 
1,437

 
93,786

 
34,857

(PROVISION) BENEFIT FOR INCOME TAXES
(6,187
)
 
(1,218
)
 
(13,392
)
 
1,291

NET INCOME
$
26,563

 
$
219

 
$
80,394

 
$
36,148

NET INCOME PER SHARE
 

 
 

 
 
 
 
Basic
$
1.29

 
$
0.01

 
$
3.90

 
$
1.78

Diluted
$
1.24

 
$
0.01

 
$
3.73

 
$
1.67

WEIGHTED AVERAGE NUMBER OF SHARES
 

 
 

 
 
 
 
Basic
20,666

 
20,474

 
20,607

 
20,362

Diluted
21,487

 
21,633

 
21,556

 
21,588

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

4

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2019

2018
 
2019
 
2018
NET INCOME
$
26,563

 
$
219

 
$
80,394

 
$
36,148

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Cash flow hedge adjustments, net of taxes of $118 and ($372) for the three months ended September 30, 2019 and 2018, respectively, and ($204) and ($376) for the nine months ended September 30, 2019 and 2018, respectively
(375
)
 
1,178

 
644

 
1,192

Foreign currency translation adjustment, net of taxes of $0 for all periods
(7,533
)
 
(5,415
)
 
(6,287
)
 
(7,705
)
Other adjustments, net of taxes of $0 for all periods

 
6

 
6

 
11

Other comprehensive loss, net of taxes
(7,908
)
 
(4,231
)
 
(5,637
)
 
(6,502
)
TOTAL COMPREHENSIVE INCOME (LOSS)
$
18,655

 
$
(4,012
)
 
$
74,757

 
$
29,646

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


5

Table of Contents

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, 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

Issuance of restricted stock and exercise of stock options
 

 

 
(8,505
)
 
11,514

 

 

 
3,009

Tax withholding payments related to net share settlement of equity awards
 

 

 

 
(108
)
 

 

 
(108
)
Stock compensation
 

 

 
6,229

 

 

 

 
6,229

Other comprehensive income, net of tax
 

 

 

 

 

 
3,207

 
3,207

Net income
 

 

 

 

 
22,833

 

 
22,833

Balance, June 30, 2019
 
20,668

 
$
2,067

 
$
657,543

 
$
(1,650
)
 
$
674,578

 
$
(14,674
)
 
$
1,317,864

Issuance of restricted stock and exercise of stock options
 
4

 

 
(1,556
)
 
1,863

 

 

 
307

Tax withholding payments related to net share settlement of equity awards
 
(1
)
 

 

 
(213
)
 

 

 
(213
)
Stock compensation
 

 

 
3,722

 

 

 

 
3,722

Other comprehensive loss, net of tax
 

 

 

 

 

 
(7,908
)
 
(7,908
)
Net income
 

 

 

 

 
26,563

 

 
26,563

Balance, September 30, 2019
 
20,671

 
$
2,067

 
$
659,709

 
$

 
$
701,141

 
$
(22,582
)
 
$
1,340,335



6

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) - CONTINUED
(Amounts in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
Shares
 
Amount
 
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Comprehensive
(Loss) Income
 
Total
Balance, January 1, 2018
 
20,210

 
$
2,021

 
$
625,568

 
$

 
$
585,624

 
$
(14,959
)
 
$
1,198,254

Cumulative effect of accounting change
 

 

 

 

 
6,330

 

 
6,330

Issuance of restricted stock and exercise of stock options
 
130

 
11

 
982

 
2,162

 

 

 
3,155

Tax withholding payments related to net share settlement of equity awards
 
(23
)
 

 

 
(5,338
)
 

 

 
(5,338
)
Stock compensation
 

 

 
5,462

 

 

 

 
5,462

Other comprehensive income, net of tax
 

 

 

 

 

 
17,213

 
17,213

Net income
 

 

 

 

 
4,875

 

 
4,875

Balance, March 31, 2018
 
20,317

 
$
2,032

 
$
632,012

 
$
(3,176
)
 
$
596,829

 
$
2,254

 
$
1,229,951

Issuance of restricted stock and exercise of stock options
 
143

 
14

 
6,080

 
3,288

 

 

 
9,382

Tax withholding payments related to net share settlement of equity awards
 

 

 

 
(132
)
 

 

 
(132
)
Stock compensation
 

 

 
6,297

 

 

 

 
6,297

Other comprehensive loss, net of tax
 

 

 

 

 

 
(19,484
)
 
(19,484
)
Net income
 

 

 

 

 
31,054

 

 
31,054

Balance, June 30, 2018
 
20,460

 
$
2,046

 
$
644,389

 
$
(20
)
 
$
627,883

 
$
(17,230
)
 
$
1,257,068

Issuance of restricted stock and exercise of stock options
 
31

 
3

 
1,130

 
541

 

 

 
1,674

Tax withholding payments related to net share settlement of equity awards
 
(2
)
 

 

 
(649
)
 

 

 
(649
)
Stock compensation
 

 

 
6,233

 

 

 

 
6,233

Other comprehensive loss, net of tax
 

 

 

 

 

 
(4,231
)
 
(4,231
)
Net income
 
 
 
 
 
 
 
 
 
219

 
 
 
219

Balance, September 30, 2018
 
20,489

 
$
2,049

 
$
651,752

 
$
(128
)
 
$
628,102

 
$
(21,461
)
 
$
1,260,314



7

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) 
 
Nine months ended
September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
80,394

 
$
36,148

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

 
 
Depreciation and amortization
57,025

 
55,069

Amortization of right-of-use assets
6,149

 

Provision for doubtful accounts
7,839

 
638

Provision for warranty and returns
1,277

 
1,817

Stock compensation
16,161

 
17,992

Loss on disposal of property and equipment and other assets
13,350

 
760

Bond premium amortization
103

 
313

Debt issuance costs amortization
216

 
216

Change in fair value of contingent earn-out
(47,400
)
 
20,500

Impairment of assets held for sale

 
269

Write-off of acquired intangible

 
5,000

Usage of spare parts
20,044

 
6,999

Other
1,757

 
2,100

Changes in operating assets and liabilities:
 

 
 
Accounts receivable
(32,484
)
 
(38,957
)
Inventories
(30,924
)
 
12,201

Prepaid expenses and other assets
8,815

 
(506
)
Related-party receivables

 
31,004

Other assets
(29,494
)
 
(8,319
)
Accounts payable
(3,038
)
 
(2,094
)
Accrued liabilities
(23,214
)
 
(18,509
)
Income taxes, including excess tax benefits and deferred income taxes
6,478

 
(12,359
)
Net cash provided by operating activities
53,054

 
110,282

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(73,253
)
 
(75,057
)
Proceeds from sale of assets held-for-sale, net

 
13,000

Proceeds from sale of asset
19

 

Business acquisitions, net of cash acquired
(4,600
)
 
(1,300
)
Intangible asset additions
(6,461
)
 
(5,375
)
Purchases of investment securities
(17,994
)
 
(30,495
)
Proceeds from sale of investment securities
36,400

 
14,940

Net cash used in investing activities
(65,889
)
 
(84,287
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from exercise of stock options
4,240

 
14,211

Tax withholding payments related to net share settlement of equity awards
(18,478
)
 
(6,119
)
Net cash (used in) provided by financing activities
(14,238
)
 
8,092

Effect of exchange rate changes on cash
(1,759
)
 
(5,343
)
NET (DECREASE) INCREASE CASH AND CASH EQUIVALENTS
(28,832
)
 
28,744

CASH AND CASH EQUIVALENTS, beginning of period
344,781

 
290,072

CASH AND CASH EQUIVALENTS, end of period
$
315,949

 
$
318,816

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

8

Table of Contents


ICU MEDICAL, INC. AND SUBSIDIARIES

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

 
Nine months ended
September 30,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
 
 
 
  Accounts payable for property and equipment
$
11,365

 
$
1,184


The accompanying notes are an integral part of these 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, 2018.
 
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. The reclassifications included reporting foreign exchange gains and losses in other income (expense), net, and removing them from selling, general and administrative expenses. We reclassified related-party receivables to prepaid expenses and other current assets for the current year's presentation, as Pfizer, Inc. ("Pfizer") had sold all of its shares of our ICU common stock as of December 31, 2018, thereby ending its related-party relationship with us. We reclassified operating cash flows due to the purchase and usage of spare parts. The operating cash flows due to the usage of spare parts are included as an adjustment to reconcile net income to net cash provided by operating activities and the purchase of spare parts are presented as cash outflows in operating assets and liabilities-other assets.

Note 2:    New Accounting Pronouncements

Recently Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842). The amendments in this update require an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The updated guidance required a modified retrospective adoption. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements. The amendments in this update provide entities with an additional (and optional) transition method to adopt the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this update also provided lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease contract. This expedient is limited to circumstances in which the nonlease components otherwise would be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the nonlease components and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease. If the lessor uses this practical expedient they would account for the lease contract in accordance with Topic 606 if the nonlease component is the predominant component otherwise, the lessor should account for the combined component as an operating lease in accordance with Topic 842. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. This ASU clarifies certain language in ASU 2016-02 and corrects certain references and inconsistencies. We adopted these standards effective January 1, 2019 (see Note 5: Leases for a discussion of the impact and required disclosures).

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update remove the second step of the impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The amendments in ASU 2017-04 are effective for the annual or interim impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or

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

annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this ASU effective April 1, 2019, which had no impact on our consolidated financial statements or related footnote disclosures. We adopted this ASU early ahead of our annual impairment test to reduce the complexity of the quantitative test if necessary.

Recently Issued 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 are currently evaluating the impact of this ASU on the consolidated financial statements and 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 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 are currently evaluating the impact of this ASU on the consolidated financial statements and 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 are currently evaluating the impact of this ASU on the consolidated financial statements and related disclosures.     
    



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

Note 3: Restructuring, Strategic Transaction and Integration

Restructuring and strategic transaction and integration expenses were $8.0 million and $69.4 million for the three and nine months ended September 30, 2019, respectively, as compared to $24.0 million and $64.3 million for the three and nine months ended September 30, 2018, respectively.

Restructuring

During the three and nine months ended September 30, 2019, restructuring charges were $0.8 million and $8.4 million, respectively, primarily related to severance and facility closure costs. These charges are primarily related to a one-time charge to move our U.S. pump service depot to our existing Salt Lake City facility and other plant restructuring. Restructuring charges are included in the restructuring, strategic transaction and integration line item in our condensed consolidated statement of operations.

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 September 30, 2019 (in thousands):

 
Accrued Balance January 1, 2019
 
Charges
Incurred
 
Payments
 
Accrued Balance
September 30, 2019
Severance pay and benefits
$
677

 
$
5,349

 
$
(1,900
)
 
$
4,126

Employment agreement buyout
739

 

 
(279
)
 
460

Facility closure expenses

 
3,095

 
(595
)
 
2,500

 
$
1,416

 
$
8,444

 
$
(2,774
)
 
$
7,086



Strategic transaction and integration expenses

We incurred and expensed $7.2 million and $61.0 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2019, respectively, as compared to $23.5 million and $61.3 million during the three and nine months ended September 30, 2018, respectively. The strategic transaction and integration expenses during the three months ended September 30, 2019 and the three and nine months ended September 30, 2018 were primarily related to the integration of the Hospira Infusion Systems ("HIS") business acquired in 2017 from Pfizer. The nine months ended September 30, 2019 also included a one-time strategic supply chain restructuring charge of $22.1 million, which reduces our contracted commitments to our third party manufacturer and charges related to our 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, IV Solutions, Infusion Systems 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 September 30,
 
For the nine months
ended September 30,
Geography
2019
 
2018
 
2019
 
2018
Europe, the Middle East and Africa
$
31,474

 
$
30,759

 
$
96,830

 
$
104,150

Other Foreign
53,398

 
51,569

 
156,353

 
154,278

Total Foreign
84,872

 
82,328

 
253,183

 
258,428

United States
222,599

 
244,841

 
697,502

 
801,234

Total Revenues
$
307,471

 
$
327,169

 
$
950,685

 
$
1,059,662

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

 
For the three months ended
September 30,
 
For the nine months ended
September 30,
Product line
2019
 
2018
 
2019
 
2018
Infusion Consumables
$
119,745

 
$
117,797

 
$
357,994

 
$
361,490

IV Solutions
98,159

 
114,433

 
313,976

 
394,198

Infusion Systems
78,932

 
81,456

 
244,523

 
263,271

Critical Care
10,635

 
13,483

 
34,192

 
40,703

Total Revenues
$
307,471

 
$
327,169

 
$
950,685

 
$
1,059,662



Contract balances

The following table presents our changes in the contract balances for the nine months ended September 30, 2019 and 2018 (in thousands):
 
Contract Liabilities
Beginning balance, January 1, 2019
$
(4,282
)
Equipment revenue recognized
3,619

Equipment revenue deferred due to implementation
(6,869
)
Software revenue recognized
2,955

Software revenue deferred due to implementation
(3,115
)
Ending balance, September 30, 2019
$
(7,692
)
 
 
Beginning balance, January 1, 2018
$
(7,066
)
Equipment revenue recognized
3,136

Equipment revenue deferred due to implementation
(4,086
)
Software revenue recognized
5,649

Software revenue deferred due to implementation
(5,507
)
Ending balance, September 30, 2018
$
(7,874
)

    
As of September 30, 2019, revenue from remaining performance obligations related to implementation of software and equipment is $6.3 million. We expect to recognize substantially all of this revenue within the next three months. Revenue from

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

remaining performance obligations related to annual software licenses is $1.4 million. We expect to recognize substantially all of this revenue over the next twelve months.


Note 5: Leases

Adoption of ASC Topic 842, "Lease Accounting"

We adopted ASU No. 2016-02, Leases (ASC Topic 842), effective January 1, 2019 on a modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019. We elected the 'package of practical expedients', which permitted us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we did not recognize right-of-use ("ROU") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Furthermore, we elected the practical expedient to not separate lease and non-lease components for all of our leases, non-lease components are primarily common area maintenance charges that we combine with the lease component when applying this ASU.

The impact of adopting this standard was the recognition of ROU assets and lease liabilities for our operating leases of $40.4 million as of January 1, 2019. The adoption of ASC 842 did not have a material impact on our consolidated earnings and had no impact on our cash flows.
    
Leases

We determine if an arrangement is a lease at inception. Most operating leases with a term greater than one year are included in operating lease ROU assets, accrued liabilities, and other long-term liabilities on our condensed consolidated balance sheets.

Operating lease ROU assets and operating 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. The operating lease ROU asset excludes 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.
    
We have operating leases for corporate offices, sales and support offices, 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 September 30, 2019
 
For the nine months
ended September 30, 2019
Operating lease cost
$
2,996

 
$
7,528

 
 
 
 
Short-term lease cost
49

 
229

 
 
 
 
Total lease cost
$
3,045

 
$
7,757


    
    

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

The following table presents the supplemental cash flow information related to our leases (in thousands):
 
For the nine months
ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
7,161

 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
2,495


    
The following table presents the supplemental balance sheet information related to our leases (in thousands, except lease term and discount rate):
 
 
As of September 30, 2019
Operating leases
 
 
Operating lease right-of-use assets
 
$
35,787

 
 
 
Accrued liabilities
 
$
7,150

Other long-term liabilities
 
29,791

Total operating lease liabilities
 
$