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ICUI 03.31.13 10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended: March 31, 2013
 Or
o
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.: 0-19974
 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
Large accelerated filer o
 
Accelerated filer x
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
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 10, 2013
Common
 
14,579,436
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes o No x
 


ICU Medical, Inc.

Index

Part I - Financial Information
 
Page Number
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the three months ended March 31, 2013 and 2012
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the  three months ended March 31, 2013 and 2012
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

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

ICU Medical, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
 
 
March 31,
2013
 
December 31,
2012
 
(unaudited)
 
(1)
ASSETS
 
 
 
CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
154,631

 
$
146,900

Investment securities
78,929

 
79,259

Cash, cash equivalents and investment securities
233,560

 
226,159

Accounts receivable, net of allowance for doubtful accounts of $824 at March 31, 2013 and $998 at December 31, 2012
52,943

 
49,127

Inventories
36,540

 
36,333

Prepaid income taxes
289

 
2,320

Prepaid expenses and other current assets
6,007

 
7,271

Deferred income taxes
4,788

 
4,293

Total current assets
334,127

 
325,503

 
 
 
 
PROPERTY AND EQUIPMENT, net
86,994

 
85,937

GOODWILL
1,478

 
1,478

INTANGIBLE ASSETS, net
9,647

 
9,952

DEFERRED INCOME TAXES
5,636

 
5,642

 
$
437,882

 
$
428,512

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
11,040

 
$
11,308

Accrued liabilities
14,527

 
17,810

Total current liabilities
25,567

 
29,118

 
 
 
 
DEFERRED INCOME TAXES
5,539

 
5,247

INCOME TAX LIABILITY
3,290

 
3,290

COMMITMENTS AND CONTINGENCIES


 


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 14,855 shares at March 31, 2013 and December 31, 2012, outstanding 14,579 shares March 31, 2013 and 14,458 shares at December 31, 2012
1,486

 
1,486

Additional paid-in capital
65,736

 
63,770

Treasury stock, at cost — 276 shares at March 31, 2013 and 397 shares at December 31, 2012
(10,780
)
 
(15,128
)
Retained earnings
350,843

 
342,158

Accumulated other comprehensive loss
(3,799
)
 
(1,429
)
Total stockholders’ equity
403,486

 
390,857

 
$
437,882

 
$
428,512

______________________________________________________
(1) December 31, 2012 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 Income
(Amounts in thousands, except per share data)
(unaudited)
 
 
Three months ended March 31,
 
2013
 
2012
REVENUES:
 

 
 

Net sales
$
74,173

 
$
75,383

Other
126

 
128

TOTAL REVENUE
74,299

 
75,511

COST OF GOODS SOLD
37,505

 
40,546

Gross profit
36,794

 
34,965

OPERATING EXPENSES:
 

 
 

Selling, general and administrative
22,866

 
20,890

Research and development
1,903

 
2,693

Total operating expenses
24,769

 
23,583

Income from operations
12,025

 
11,382

OTHER INCOME
168

 
135

Income before income taxes
12,193

 
11,517

PROVISION FOR INCOME TAXES
(3,508
)
 
(3,916
)
NET INCOME
$
8,685

 
$
7,601

NET INCOME PER SHARE
 

 
 

Basic
$
0.60

 
$
0.54

Diluted
$
0.58

 
$
0.53

WEIGHTED AVERAGE NUMBER OF SHARES
 

 
 

Basic
14,507

 
13,956

Diluted
15,053

 
14,318

 
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 Income
(Amounts in thousands)
(unaudited)
 
 
Three months ended March 31,
 
2013

2012
Net income
$
8,685

 
$
7,601

Other comprehensive income (loss), net of tax of ($493) and $295 for the three months ended March 31, 2013 and 2012, respectively:
 

 
 

Foreign currency translation adjustment
(2,370
)
 
2,087

Comprehensive income
$
6,315

 
$
9,688

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


5
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ICU Medical, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(unaudited)
 
 
Three months ended March 31,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
8,685

 
$
7,601

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

 
 
Depreciation and amortization
4,712

 
4,777

Provision for doubtful accounts
(191
)
 
(263
)
Provision for warranty and returns
(6
)
 
312

Stock compensation
1,390

 
1,231

Loss on disposal of property and equipment
—

 
27

Bond premium amortization
675

 
357

Cash provided (used) by changes in operating assets and liabilities
 

 
 
Accounts receivable
(3,981
)
 
1,931

Inventories
(578
)
 
3,768

Prepaid expenses and other assets
1,234

 
898

Accounts payable
(244
)
 
(1,610
)
Accrued liabilities
(2,949
)
 
(2,608
)
Prepaid and deferred income taxes
2,017

 
1,915

Net cash provided by operating activities
10,764

 
18,336

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(5,831
)
 
(3,632
)
Proceeds from sale of asset
—

 
10

Intangible asset additions
(355
)
 
(287
)
Purchases of investment securities
(19,131
)
 
(22,424
)
Proceeds from sale of investment securities
18,317

 
21,442

Net cash used by investing activities
(7,000
)
 
(4,891
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from exercise of stock options
2,904

 
5,684

Proceeds from employee stock purchase plan
1,267

 
1,081

Tax benefits from exercise of stock options
1,034

 
1,626

Net cash provided by financing activities
5,205

 
8,391

Effect of exchange rate changes on cash
(1,238
)
 
677

NET INCREASE IN CASH AND CASH EQUIVALENTS
7,731

 
22,513

CASH AND CASH EQUIVALENTS, beginning of period
146,900

 
99,590

CASH AND CASH EQUIVALENTS, end of period
$
154,631

 
$
122,103

 
 
 
 
NON-CASH INVESTING ACTIVITIES
 
 
 
  Accrued liabilities for property and equipment
$
196

 
$
588

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

6
Table of Contents

ICU Medical, Inc.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2013 and 2012
(Amounts in tables in thousands, except per share data)
(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 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., a Delaware corporation, filed with the SEC for the year ended December 31, 2012.
 
We operate in one business segment engaged in the development, manufacturing and sale of innovative medical devices used in infusion therapy, oncology and critical care applications.  Our devices are sold directly or to distributors and medical product manufacturers throughout the United States and internationally.  All subsidiaries are wholly owned and are included in the consolidated financial statements.  All intercompany balances and transactions have been eliminated.

Note 2:
New Accounting Pronouncements:
 
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") number 2013-02, Other Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income to improve the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. It is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this ASU does not affect our consolidated financial statements, but could require additional disclosure if applicable in future periods.

Note 3:
Fair Value Measurement:
 
Our investment securities consist of certificates of deposit, corporate bonds, sovereign bonds and federal tax-exempt state and municipal government debt. All investment securities are considered available-for-sale and are “investment grade”, carried at fair value, and there have been no gains or losses on their disposal. As of March 31, 2013, we had $8.2 million of our investment securities as Level 1 assets, which are certificates of deposit with quoted prices in active markets, and $70.7 million of our investment securities as Level 2 assets, which are pre-refunded municipal securities, non-pre-refunded municipal securities, corporate bonds and sovereign bonds and have observable market based inputs such as quoted prices, interest rates and yield curves. We had no Level 3 investments for the three months ended March 31, 2013 and March 31, 2012. The following table provides the assets and liabilities carried at fair value measured on a recurring basis.
 
 
Fair value measurements at March 31, 2013 using
 
Total carrying
value
 
Quoted prices
in active
markets for
identical
assets (level 1)
 
Significant
other
observable
inputs (level 2)
 
Significant
unobservable
inputs (level 3)
Available for sale securities
$
78,929

 
$
8,260

 
$
70,669

 
$
—

 
$
78,929

 
$
8,260

 
$
70,669

 
$
—

 

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Fair value measurements at December 31, 2012 using
 
Total carrying
value
 
Quoted prices
in active
markets for
identical
assets (level 1)
 
Significant
other
observable
inputs (level 2)
 
Significant
unobservable
inputs (level 3)
Available for sale securities
$
79,259

 
$
8,490

 
$
70,769

 
$
—

 
$
79,259

 
$
8,490

 
$
70,769

 
$
—

 

Note 4: Investment Securities:

Our investment securities consist of certificates of deposit, corporate bonds, sovereign bonds and federal tax-exempt state and municipal government debt. All investment securities are considered available-for-sale and are “investment grade”, carried at fair value, and there have been no gains or losses on their disposal. Unrealized gains and losses on available-for-sale securities, net of tax, are included in accumulated other comprehensive income in the shareholders' equity section of our consolidated balance sheets. We had no gross unrealized gains or losses on available-for-sale securities at March 31, 2013 or December 31, 2012. The scheduled maturities of the debt securities are between 2013 and 2042 and are all callable within one year. The investment securities consist of the following at March 31, 2013 and December 31, 2012:

 
March 31, 2013
 
December 31, 2012
Federal tax-exempt debt securities
$
23,577

 
$
23,732

Corporate bonds
46,445

 
47,037

Sovereign bonds
647

 
—

Certificates of deposit
8,260

 
8,490

 
$
78,929

 
$
79,259

    
Note 5: Inventories:
 
Inventories consisted of the following:
 
 
March 31, 2013
 
December 31, 2012
Raw material
$
19,616

 
$
20,808

Work in process
4,453

 
3,013

Finished goods
12,471

 
12,512

Total
$
36,540

 
$
36,333

 

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Note 6:
Property and Equipment:

Property and equipment consisted of the following:
 
 
March 31, 2013
 
December 31, 2012
Machinery and equipment
$
79,535

 
$
78,332

Land, building and building improvements
61,947

 
61,521

Molds
29,582

 
27,704

Computer equipment and software
20,296

 
19,611

Furniture and fixtures
3,382

 
3,339

Construction in progress
8,461

 
8,266

Total property and equipment, cost
203,203

 
198,773

Accumulated depreciation
(116,209
)
 
(112,836
)
Net property and equipment
$
86,994

 
$
85,937


Note 7:
Net Income Per Share:
 
Net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive securities. Dilutive securities are outstanding common stock options and restricted stock units(excluding stock options with an exercise price in excess of the average market value for the period), 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 that are anti-dilutive because their exercise price exceeded the average market price of the common stock for the period approximated 142,000 for the three months ended March 31, 2013 and 141,000 for the three months ended March 31, 2012, respectively.
 
The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted.
 
 
Three months ended March 31,
 
2013
 
2012
Net income
$
8,685

 
$
7,601

Weighted average number of common shares outstanding (for basic calculation)
14,507

 
13,956

Dilutive securities
546

 
362

Weighted average common and common equivalent shares outstanding (for diluted calculation)
15,053

 
14,318

EPS — basic
$
0.60

 
$
0.54

EPS — diluted
$
0.58

 
$
0.53

 
Note 8:
Major Customer:
 
We had revenues equal to 10% or more of total revenues from one customer, Hospira, Inc. Such revenues were 38% and 42% of total revenue for the three months ended March 31, 2013 and 2012, respectively.  As of March 31, 2013 and December 31, 2012, we had accounts receivable from Hospira of 38% and 35% of consolidated accounts receivable, respectively.
 
Note 9:
Income Taxes:
 
Income taxes were accrued at an estimated effective tax rate of 29% and 34% in the first quarter of 2013 and 2012, respectively. The effective tax rate differs from that computed at the federal statutory rate of 35% principally because of the effect of foreign and state income taxes, tax credits, deductions for domestic production activities and discrete tax items, including the extension of the federal research and development credit for the 2012 tax year.


9
Table of Contents

Note 10:
Commitments and Contingencies:

From time to time, we are involved in various legal proceedings, most of which are routine litigation, in the normal course of business.  Our management does not believe that the resolution of the other legal proceedings that we are involved with will have a material adverse impact on our financial position or results of operations.
 
In the normal course of business, we have agreed to indemnify our officers and directors to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters related to sales of our products.  There is no maximum limit on the indemnification that may be required under these agreements.  Although we can provide no assurances, we have never incurred, nor do we expect to incur, any material liability for indemnification.


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
We are a leader in the development, manufacture and sale of innovative medical devices used in infusion therapy, oncology and critical care applications.  Our products improve patient outcomes by helping to prevent bloodstream infections and protect healthcare workers and patients from exposure to infectious diseases or hazardous drugs and monitoring continuous cardiac output of critical care patients. Our complete product line includes custom infusion systems, closed delivery systems for hazardous drugs, needlefree infusion connectors, catheters and cardiac monitoring systems. 

Business Overview

In the early 1990's, we launched the Clave, an innovative one-piece, needlefree infusion connection device. The Clave is a worldwide leader in connector products. The Clave's unique design ensures compliance with needlefree policies because of its passive technology which cannot accept a needle. Our Clave products accounted for 37% of our revenues in 2012.

In the late 1990s, we commenced a transition from a product-centered company to an innovative, fast, efficient, low-cost manufacturer of custom infusion sets, using processes that we believe can be readily applied to a variety of disposable medical devices. This strategy has enabled us to capture revenue on the entire infusion delivery system, and not just a component of the system.  We have furthered this effort to include all of our proprietary devices beyond the Clave.
 
One of our strategies has been to acquire new product lines.  For example, in August 2009, we purchased the commercial rights and physical assets of Hospira’s critical care product line, which resulted in our control over all aspects of the critical care product line, including production, sales, marketing, customer contracting and distribution. We had previously manufactured for sale, exclusively to Hospira, the critical care products.  Pursuant to the prior arrangements, Hospira retained commercial responsibility for the products that we manufactured, including sales to end customers, marketing, pricing, distribution, customer contracts, customer service and billing, and we had little ability to directly influence Hospira’s sales and marketing efforts, and our sales under this arrangement were subject to fluctuations over which we had little control. The purchase of Hospira’s critical care line has resulted in an increase in direct sales and sales to independent distributors but a decrease in sales to Hospira.  There is no assurance that we will be successful in finding future acquisition opportunities or integrating new product lines into our existing business.
 
Another strategy for reducing our dependence on our current proprietary products has been to introduce new products. We recently introduced the Neutron, a catheter patency device using Clave technology, the NanoClave, a smaller Clave product
designed for neonatal and pediatric patients, CardioFlo Hemodynamic Monitoring Sensor System, a minimally invasive
monitoring sensor for use on critical care patients and the Diana Hazardous Drug Compounding System, an automated sterile
compounding system for preparing hazardous drugs. We can provide no assurance that we will be able to successfully
manufacture, market and sell these new products.
 
We are also expanding our business through increased sales to medical product manufacturers, independent distributors and through direct sales to the end users of our product.  These expansions include our 2008 agreement with Premier, the extension of the term of our agreement with MedAssets, our 2011 agreement with Novation covering all of our critical care products and the growth of our internal sales and marketing group.  Each of these organizations is a U.S. healthcare purchasing network.  We also potentially face substantial increases in competition in our Clave business.  Therefore, we are focusing on increasing product development, acquisition, sales and marketing efforts to custom infusion systems, oncology products, critical care products and other products that lend themselves to customization and new products in the U.S. and international markets.


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Our products are used in hospitals and alternate medical sites in more than 50 countries throughout the world. We categorize our products into three main product lines: Infusion Therapy, Critical Care and Oncology. Products outside of our main product lines are grouped under the heading titled "Other" below. Our primary products include:

Infusion Therapy
•Needlefree connector products
◦MicroClave/ MicroClave Clear
◦Anti-Microbial MicroClave
◦Neutron
◦Clave
◦NanoClave
◦Y-Clave
◦Anti-Microbial Clave
•Custom infusion sets

Critical Care
•Hemodynamic monitoring systems
◦Transpac disposable pressure transducers
◦SAFESET closed needlefree blood conservation systems
◦CardioFlo hemodynamic monitoring sensor system
◦Custom monitoring systems
•Catheters
◦Advanced sensor catheters
◦Pulmonary artery thermodilution catheters
◦Central venous oximetry catheters
◦Multi-lumen central venous catheters
•Custom angiography and interventional radiology kits
Oncology
•ChemoClave closed system transfer device including:
◦Genie closed vial access device
◦Spiros closed male luer
◦Vial and bag access devices
•Custom preparation and administration sets and accessories
•Diana hazardous drug compounding system
Other
•TEGO needlefree hemodialysis connector
•Lopez enteral valve

Our largest customer is Hospira.  Hospira accounted for 38%, 42% and 42% of our worldwide revenues in the first quarter of 2013 and the years ended 2012 and 2011, respectively. Our relationship with Hospira has been and will continue to be important for our growth.  We currently manufacture custom I.V. sets for sale by Hospira and jointly promote the products under the name SetSource. We expect revenues from sales of Clave products, custom infusion sets and new products to Hospira to remain a significant percentage of our revenues.  Hospira has a significant share of the I.V. set market in the U.S. and provides us access to that market, and we expect that Hospira will continue to be important to our growth for Clave, custom infusion sets and our other products worldwide.

Revenues for the first quarter of 2013 and the years ended 2012 and 2011 were $74.3 million, $316.9 and $302.2 million, respectively. We currently sell substantially all of our products to medical product manufacturers, independent distributors and through direct sales to the end user. Most of our independent distributors handle the full line of our infusion administration products.  We sell our I.V. administration and oncology products under two agreements with Hospira.  Under a 1995 agreement, Hospira purchases Clave products, principally sterile, bulk, non-sterile connectors and oncology products.  Pursuant to a 2001 agreement, we sell custom infusion sets to Hospira under a program referred to as SetSource.  Our 1995 and 2001 agreements with Hospira provide Hospira with conditional exclusive and nonexclusive rights to distribute all existing ICU Medical products worldwide with terms that extend through 2018.  We sell invasive monitoring and angiography products to independent distributors and through direct sales.  We also sell certain other products to a number of other medical product manufacturers.

We believe that as healthcare providers continue to either consolidate or join major buying organizations, the success of our products will depend, in part, on our ability, either independently or through strategic relationships such as our Hospira

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relationship, to secure long-term contracts with large healthcare providers and major buying organizations.  As a result of this marketing and distribution strategy, we derive most of our revenues from a relatively small number of distributors and manufacturers.  The loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer’s products could have a material adverse effect on our operating results.
 
We believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product development; however, there is no assurance that we will be successful in implementing our growth strategy. The custom products market is small, when compared to the larger market of standard products, and we could encounter customer resistance to custom products.  Further, we could encounter increased competition as other companies see opportunity in this market.  Product development or acquisition efforts may not succeed, and, even if we do develop or acquire additional products, there is no assurance that we will achieve profitable sales of such products.  An adverse change in our relationship with Hospira, or a deterioration of Hospira’s position in the market, could have an adverse effect on us.  Increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected, or at all.  While we have taken steps to control these risks, there are certain risks that may be outside of our control, and there is no assurance that steps we have taken will succeed.

The following table sets forth, for the periods indicated, total revenues by market segment and its major product groups as a percentage of total revenues:
 
        
 
 
Quarter ended March 31,
 
Fiscal year ended
Product line
 
2013
 
2012
 
2012
 
2011
  Clave products
 
35
%
 
37
%
 
37
%
 
36
%
  Custom infusion therapy
 
29
%
 
26
%
 
27
%
 
25
%
  Other infusion therapy
 
4
%
 
5
%
 
4
%
 
5
%
Infusion therapy
 
68
%
 
68
%
 
68
%
 
66
%
Critical care
 
17
%
 
18
%
 
17
%
 
20
%
Oncology
 
11
%
 
9
%
 
10
%
 
8
%
  TEGO
 
3
%
 
3
%
 
3
%
 
3
%
  Other products/other revenue
 
1
%
 
2
%
 
2
%
 
3
%
Other
 
4
%
 
5
%
 
5
%
 
6
%
 
 
100
%
 
100
%
 
100
%
 
100
%
  
We have ongoing efforts to increase systems capabilities, improve manufacturing efficiency, reduce labor costs, reduce time needed to produce an order, and minimize investment in inventory.  These efforts include the use of automated assembly equipment for new and existing products and use of larger molds and molding machines.  In 2006, we centralized our proprietary molding in Salt Lake City and expanded our production facility in Mexico, which took over the majority of our manual assembly previously done in Salt Lake City.  In 2010 and early 2011, we expanded our production facility in Mexico. In late 2010, we completed construction of an assembly plant in Slovakia that serves our European product distribution.  In 2013, we plan to convert existing warehouse space into manufacturing space and a new clean room in our Salt Lake City plant. We may establish additional production facilities outside the U.S.; however, there is no assurance that we will achieve success in establishing manufacturing facilities outside the U.S.
 

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We distribute products through three distribution channels.  Product revenues for each distribution channel as a percentage of total channel product revenue were as follows:

        
 
 
Quarter ended March 31,
 
Fiscal year ended
Channel
 
2013
 
2012
 
2012
 
2011
Medical product manufacturers
 
35
%
 
39
%
 
40
%
 
39
%
Domestic distributors/direct sales
 
35
%
 
35
%
 
35
%
 
35
%
International customers
 
30
%
 
26
%
 
25
%
 
26
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
Sales to international customers do not include bulk Clave products sold to Hospira in the U.S. but used in I.V. products manufactured by Hospira and exported. Those sales are included in sales to medical product manufacturers. Other sales to Hospira for destinations outside the U.S. are included in sales to international customers.
 
Seasonality/Quarterly Results
 
The healthcare business in the United States is subject to quarterly fluctuations due to frequency of illness during the seasons, elective procedures, and, over the last few years, the economy. In Europe, the healthcare business generally slows down in the summer months due to vacations resulting in fewer elective surgeries.  Also in Europe, hospitals’ budgets tend to finish at the end of the year, which may cause fewer purchases in the last three months of the year as hospitals await their new budgets in January.  In addition, we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers, which may be driven more by production scheduling and their inventory levels, and less by seasonality.  Our expenses often do not fluctuate in the same manner as net sales, which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue.
 
Quarter-to-Quarter Comparisons
 
We present income statement data in Part I, Item 1 - Financial Statements. The following table shows, for the three months ended March 31, 2013 and 2012 and the year ended December 31, 2012, the percentages of each income statement caption in relation to total revenues.
 
        
 
 
Percentage of revenues
 
 
Quarter ended March 31,
 
Fiscal year
 
 
2013
 
2012
 
2012
Total revenues
 
100
%
 
100
%
 
100
%
Gross margin
 
50
%
 
46
%
 
49
%
Selling, general and administrative expenses
 
31
%
 
28
%
 
27
%
Research and development expenses
 
2
%
 
3
%
 
3
%
Total operating expenses
 
33
%
 
31
%
 
30
%
Income from operations
 
17
%
 
15
%
 
19
%
Other income
 
—
%
 
—
%
 
—
%
Income before income taxes
 
17
%
 
15
%
 
19
%
Income taxes
 
5
%
 
5
%
 
6
%
Net income
 
12
%
 
10
%
 
13
%

Quarter Ended March 31, 2013 Compared to the Quarter Ended March 31, 2012
 
Revenues were $74.3 million in the first quarter of 2013, compared to $75.5 million in the first quarter of 2012.
 
Domestic sales:  Net domestic sales in the first quarter of 2013 were $52.0 million, compared to net domestic sales of $55.6 million in the first quarter of 2012, a decrease of 7%.


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Net domestic sales to Hospira were $25.0 million in the first quarter of 2013, compared to $28.8 million in the first quarter of 2012, a decrease of 13%. Infusion therapy sales decreased $4.0 million in the first quarter of 2013 from the first quarter of 2012. Oncology sales increased $0.2 million in the first quarter of 2013 from the first quarter of 2012. The decrease in infusion therapy was primarily from Hospira's planned reduction in Clave shipments in the first quarter of 2013. Hospira's planned reduction in the first quarter of 2013 was to achieve carrying lower levels of inventory. The increase in oncology sales was from higher unit sales.
 
Net other domestic sales (excluding Hospira) in the first quarter of 2013 were $27.0 million, compared to $26.8 million in the first quarter of 2012. Infusion therapy sales increased $1.4 million, or 11%, from the first quarter of 2012, which was primarily from a $0.5 million increase in Clave product sales and a $0.8 million increase in custom infusion set sales. The increased Clave and custom infusion set sales were primarily due to increased unit sales. Oncology sales increased $0.4 million, or 26%, from the first quarter of 2012. The increased oncology sales were due to increased unit sales from increased market share and demographic growth. Critical care sales decreased $0.9 million, or 9%, from the first quarter of 2012. The critical care decrease was due to lower unit sales, primarily from increased competition in this market. Other product sales decreased $0.7 million, or 26%, from the first quarter of 2012. The decrease is primarily due to $0.3 million in lower TEGO sales from lower unit sales and $0.3 million of sales in the first quarter of 2012 from our former diabetes product line, Orbit. The Orbit product line was sold in November 2011 and Orbit sales concluded in the first quarter of 2012. We expect modest increases in other domestic sales (excluding Hospira) in 2013 compared to 2012, primarily from higher infusion therapy and oncology sales, although there is no assurance that these expectations will be realized.

International sales: Net sales to international customers were $22.3 million in the first quarter of 2013, an increase of $2.5 million, or 13%, from the first quarter of 2012. Infusion therapy sales increased $2.1 million, or 18%, from the first quarter of 2012. Oncology sales increased $1.2 million, or 34% from the first quarter of 2012. Critical care sales were comparable in both quarters. Other product sales decreased $0.7 million or 46%, from the first quarter of 2012. The increase in infusion therapy sales was from increased unit sales inside and outside of Europe. The increase in oncology sales was primarily from increased unit sales in Europe. The decrease in other product sales is primarily due to our sale of our former diabetes product line, Orbit.

Geographically, our international sales were primarily in Europe and the Pacific Rim. The increase in international sales was primarily attributable to increased sales in Europe, Pacific Rim and Latin America. We expect moderate increases in international sales from higher infusion therapy and oncology sales, partially offset by lower critical care sales, although there is no assurance that these expectations will be realized.
 
Sales by market segment and other revenue:  Net infusion therapy sales were $50.4 million in the first quarter of 2013, a decrease of $0.6 million, or 1%, from the first quarter of 2012. The decrease in infusion therapy was primarily from $2.5 million in lower Clave product sales, partially offset by $2.1 million in increased custom infusion set sales. The decrease in Clave product sales was from lower sales to Hospira, partially offset by higher sales to domestic distributors and direct customers and to international customers. The increase in custom infusion set sales was from higher sales to domestic distributors and direct customers and international customers. We expect modest increases in infusion therapy sales in 2013 compared to 2012, primarily from higher sales in Clave products and custom infusion set sales. There is no assurance, however, that these expectations will be realized.
 
Net critical care sales were $12.7 million in the first quarter of 2013, a decrease of $1.0 million, or 7%, from the first quarter of 2012. The decrease was primarily from lower domestic unit sales from increased competition. We expect critical care sales to decrease in 2013 compared to 2012 from increased competition, although there is no assurance that these expectations will be realized.
 
Net oncology sales were $8.2 million in the first quarter of 2013, an increase of $1.8 million, or 27%, from the first quarter of 2012. The increase was from higher sales in all channels. We expect growth in oncology sales in 2013 compared to 2012, although there is no assurance that these expectations will be realized.

Net other product sales were $2.9 million in the first quarter of 2013, a decrease of $1.4 million, or 33%, from the first quarter of 2012. The decrease is primarily due to sales of $1.0 million in the first quarter of 2012 from our former diabetes product line, Orbit.
 
Other revenue consists of license, royalty and revenue share income and was approximately $0.1 million in the first quarters of 2013 and 2012.
 

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Gross margins for the first quarters of 2013 and 2012 were 50% and 46%, respectively. The gross margin improvement is primarily a result of continued manufacturing efficiencies at our three plants that began during the second half of 2012.

Selling, general and administrative expenses (“SG&A”) were $22.9 million, or 31% of revenues, in the first quarter of 2013, compared with $20.9 million, or 28% of revenues in the first quarter of 2012.  The new medical device excise tax, which became effective in 2013, contributed $0.5 million of the increase from the first quarter of 2012. The remaining increase was primarily due to $0.5 million of increased information technology costs, $0.4 million in higher sales and marketing travel and $0.4 million in higher SG&A compensation and benefits, primarily from salary increases and higher stock compensation expense. We expect SG&A expenses in 2013 to be approximately 27% of revenue, although there is no assurance that these expectations will be realized.
 
Research and development expenses (“R&D”) were $1.9 million, or 2% of revenue, in the first quarter of 2013 compared to $2.7 million, or 3% of revenue in the first quarter of 2012.  The decrease in R&D expenses was primarily from lower project related R&D expenses. We expect R&D expenses in 2013 to be approximately 3% of revenue, although there is no assurance that these expectations will be realized.

Other income was $0.2 million in the first quarter of 2013 and $0.1 million in the first quarter of 2012. 

Income taxes were accrued at an estimated effective tax rate of 29% in the first quarter of 2013 and 34% in the first quarter of 2012.  The rate differed from the statutory corporate rate of 35% principally because of the effect of foreign and state income taxes, tax credits, deductions for domestic production activities and discrete tax items, including the extension of the federal research and development credit for the 2012 tax year.  While we can provide no assurances, we expect our effective tax rate to be approximately 33% in 2013, including discrete tax items.

Liquidity and Capital Resources
 
During the first quarter of 2013, our cash, cash equivalents and investment securities increased by $7.4 million from $226.2 million at December 31, 2012 to $233.6 million at March 31, 2013.
 
Operating Activities: Our cash provided by operating activities tends to increase over time because of our positive operating results.  However, it is subject to fluctuations, principally from changes in net income, accounts receivable, inventories and the timing of tax payments.
 
Our cash provided by operations was $10.8 million in the first quarter of 2013. Net income plus adjustments for non-cash net expenses contributed $15.3 million to cash provided by operations. This was partially offset by the net decrease in changes in operating assets and liabilities of $4.5 million to cash provided by operations.  The $4.0 million increase in accounts receivable was the largest contributor to the change in operating assets and liabilities. The increase in accounts receivable is primarily due to a temporary increase in days' sales outstanding ("DSO") in Hospira accounts receivable. We expect the DSO's in Hospira accounts receivable to return to normal levels in 2013.
 
Investing Activities:  Our cash used by investing activities was $7.0 million in the first quarter of 2013, which was primarily comprised of net investment purchases of $0.8 million and $5.8 million in capital purchases. Our property, plant and equipment purchases were primarily comprised of machinery, equipment and mold additions in our United States plant.
 
While we can provide no assurances, we estimate that our capital expenditures in 2013 will approximate $30.0 million
to $35.0 million. The large increase in expected capital expenditures is due to planned building improvements to prepare for
anticipated capacity requirements beyond 2013. At our Salt Lake City, Utah plant, we plan to convert existing warehouse space
into manufacturing space and a new clean room. We also anticipate making investments in molds, machinery and equipment in
our manufacturing operations in the United States and Mexico to support new and existing products and investments in information technology that benefit world-wide operations. We expect to use our cash and investments to fund our capital purchases. Amounts of spending are estimates and actual spending may substantially differ from those amounts.
 
Financing Activities:  Our cash provided by financing activities was $5.2 million in the first quarter of 2013. This was from cash provided by the exercise of stock options and shares purchased by our employees under the employee stock purchase plan, resulting in 112,187 shares issued to our employees and directors.  The tax benefits from the exercise of stock options was $1.0 million in the first quarter of 2013, which fluctuates based principally on when employees choose to exercise their vested stock options.


15
Table of Contents

In July 2010, our Board of Directors approved a share purchase plan to purchase up to $40.0 million of our common stock.  We have purchased $11.9 million of our stock pursuant to this plan, leaving a balance of $28.1 million available for future purchases. There were no purchases under this plan in the first quarter of 2013. This plan has no expiration date. We may purchase additional shares in future quarters and expect we would use our cash and investments to fund the share purchases.
 
We have a substantial cash and investment security position generated from profitable operations and stock sales, principally from the exercise of employee stock options.  We maintain this position to fund our growth, meet increasing working capital requirements, fund capital expenditures, and to take advantage of acquisition opportunities that may arise.  Our primary investment goal is capital preservation, as further described in Part 1, Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As of March 31, 2013, we have $16.7 million of cash and cash equivalents held outside of the United States, the majority of which is available to fund foreign operations and obligations.
 
We believe that our existing cash, cash equivalents and investment securities along with funds expected to be generated from future operations will provide us with sufficient funds to finance our current operations for the next twelve months.  In the event that we experience illiquidity in our investment securities, downturns or cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to achieve anticipated revenue and expense levels, we may need to obtain or seek alternative sources of capital or financing, and we can provide no assurances that the terms of such capital or financing will be available to us on favorable terms, if at all.

Off Balance Sheet Arrangements
 
In the normal course of business, we have agreed to indemnify our officers and directors to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters related to sales of our products.  There is no maximum limit on the indemnification that may be required under these agreements.  Although we can provide no assurances, we have never incurred, nor do we expect to incur, any material liability for indemnification.
 

Contractual Obligations
 
We have contractual obligations, at March 31, 2013, of approximately the amount set forth in the table below. This amount excludes inventory related purchase orders for goods and services for current delivery. The majority of our inventory purchase orders are blanket purchase orders that represent an estimated forecast of goods and services. We do not have a commitment liability on the blanket purchase orders. Since we do not have the ability to separate out blanket purchase orders from non-blanket purchase orders for inventory related goods and services for current delivery, amounts related to such purchase orders are excluded from the table below.  We have excluded from the table below pursuant to ASC 740-10-25 (formerly FIN 48), an interpretation of ASC 740-10 (formerly SFAS 109), a non-current income tax liability of $3.3 million due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities.
 
 
 
(in thousands)
 
 
Contractual Obligations
 
Total
 
2013
 
2014
 
2015
 
2016
Operating leases
 
$
622

 
$
238

 
$
170

 
$
151

 
$
63

Warehouse service agreements
 
536

 
254

 
282

 
—

 
—

Purchase obligations
 
15,277

 
15,277

 
—

 
—

 
—

 
 
$
16,435

 
$
15,769

 
$
452

 
$
151

 
$
63

 
Critical Accounting Policies
 
In our Annual Report on Form 10-K for the year ended December 31, 2012, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not changed these policies from those previously disclosed in our Annual Report.
 
New Accounting Pronouncements
 
See Note 2 to Part I, Item 1.  Financial Statements.


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Forward Looking Statements
 
Various portions of this Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, describe trends in our business and finances that we perceive and state some of our expectations and beliefs about our future. These statements about the future are “forward looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we identify them by using words such as “believe,” “expect,”  “estimate,” “plan,” “will,” “continue,” “could,” “may,” and by similar expressions and statements about aims, goals and plans. The forward looking statements are based on the best information currently available to us and assumptions that we believe are reasonable, but we do not intend the statements to be representations as to future results. They include, without limitation, statements about:

•
future growth; future operating results and various elements of operating results, including future expenditures on sales and marketing and product development; future sales and unit volumes of products; expected increases or decreases in sales; deferred revenue; production costs; gross margins; litigation expense; SG&A and R&D expenses; future costs of expanding our business; income; losses; cash flow; capital expenditures; source and sufficiency of funds for capital purchases and operations; tax rates; changes in working capital items such as receivables and inventory; selling prices; and income taxes;
•
factors affecting operating results, such as shipments to specific customers; reduced dependence on current proprietary products; expansion in international markets and use of foreign currency, selling prices; foreign exchange rate fluctuations, economic conditions in European and other international markets; future increases or decreases in sales of certain products and in certain markets and distribution channels; increases in systems capabilities; introduction and sales of new products; planned increases in marketing efforts; inventory requirements; manufacturing efficiencies and cost savings; unit manufacturing costs; establishment of production facilities outside the U.S.; plans to convert existing warehouse space into manufacturing space and a new clean room; planned capital purchases for molds, machinery and equipment in our manufacturing operations and investments in information technology; adequacy of production capacity; results of R&D; planned building improvements to prepare for anticipated capacity requirements; planned growth of our sales and marketing group; business seasonality and fluctuations in quarterly results; customer ordering patterns, production scheduling and inventory levels and the effects of new accounting pronouncements; and
•
expansion of our custom products business; expectations regarding revenues from our custom infusion sets, custom critical care and custom oncology products and the importance of these products in the future; potential customer resistance to custom products; our focus on increasing product development, acquisition, sales and marketing efforts to custom products and similar products; new or extended contracts with manufacturers and buying organizations; dependence on a small number of customers; future sales to and revenues from Hospira and the importance of Hospira to our growth and our positioning with respect to new product introductions and market share; expectations regarding days' sales outstanding in Hospira accounts receivable; the outcome of our strategic initiatives; outcome of litigation; competitive and market factors, including continuing development of competing products by other manufacturers; consolidation of the healthcare provider market; our dependence on securing long-term contracts with large healthcare providers and major buying organizations; working capital requirements; liquidity and realizable value of our investment securities; future investment alternatives; our expectations regarding liquidity and capital resources over the next twelve months; future share repurchases; acquisitions of other businesses or product lines, indemnification liabilities and contractual liabilities.

 Forward-looking statements involve certain risks and uncertainties, which may cause actual results to differ materially from those discussed in each such statement.  First, one should consider the factors and risks described in the statements themselves or otherwise discussed herein. Those factors are uncertain, and if one or more of them turn out differently than we currently expect, our operating results may differ materially from our current expectations.
 
Second, investors should read the forward looking statements in conjunction with the Risk Factors discussed in Part I, Item 1A of our Annual Report on Form 10-K with the SEC for the year ended December 31, 2012 and our other reports and registration statements filed with the SEC.  Also, actual future operating results are subject to other important factors and risks that we cannot predict or control, including without limitation, the following:

•
general economic and business conditions, in the U.S., Europe and other international locations;

•
unexpected changes in our arrangements with Hospira or our other large customers;

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•outcome of litigation;

•fluctuations in foreign exchange rates and other risks of doing business internationally;

•increases in labor costs or competition for skilled workers;

•increases in costs or availability of the raw materials need to manufacture our products;

•the effect of price and safety considerations on the healthcare industry;

•competitive factors, such as product innovation, new technologies, marketing and distribution strength and price erosion;

•the successful development and marketing of new products;

•unanticipated market shifts and trends;

•the impact of legislation affecting government reimbursement of healthcare costs;

•
changes by our major customers and independent distributors in their strategies that might affect their efforts to market our products;

•the effects of additional governmental regulations;

•unanticipated production problems; and

•the availability of patent protection and the cost of enforcing and of defending patent claims.

The forward-looking statements in this report are subject to additional risks and uncertainties, including those detailed from time to time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof and, except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Financial Market Risk

We had a portfolio of federal tax-exempt state and municipal government bonds, corporate bonds, sovereign bonds and certificates of deposit of $78.9 million as of March 31, 2013.  The securities are all “investment grade”, comprised of $22.0 million of pre-refunded municipal securities, $1.6 million of non-pre-refunded municipal securities, $46.4 million in corporate bonds, $0.7 million in sovereign bonds and $8.2 million of certificates of deposit.  The pre-refunded municipal securities are fully escrowed by U.S. government Treasury bills with low market risk.
 
Our future earnings are subject to potential increase or decrease because of changes in short-term interest rates. Generally, each one-percentage point change in the discount rate will cause our overall yield to change by two-thirds to three-quarters of a percentage point, depending upon the relative mix of federal-tax-exempt securities in our portfolio and market conditions specific to the securities in which we invest.  Two-thirds to three-quarters of a percentage point change in our earnings on investment securities would create a change of approximately $0.6 million to investment income based on the investment securities balance at March 31, 2013.
 
Foreign Exchange Risk    

We have foreign currency exchange risk related to foreign-denominated cash, short-term investments, accounts
receivable and accounts payable. In our European operations, our net Euro asset position at March 31, 2013 was
approximately €17.3 million. We also have approximately €32.6 million in Euro denominated cash and investment accounts
held by our corporate entity. A 10% change in the conversion of the Euro to the U.S. dollar for our cash and investments,
accounts receivable, accounts payable and accrued liabilities from the March 31, 2013 spot rate would impact our

18
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consolidated amounts on these balance sheet items by approximately $6.4 million, or 2.5% of these net assets. We expect that in the future, with the growth of our European distribution operation, net Euro denominated instruments will continue to
increase. We currently do not hedge our foreign currency exposures.

Sales from the U.S. to foreign distributors are denominated in U.S. dollars. We have manufacturing, sales and distribution facilities in several countries and we conduct business transactions denominated in various foreign currencies, although principally the Euro and Mexican Peso. A 10% change in the conversion of the Mexican Peso to the U.S. dollar from the average exchange rate we experienced in 2012 and our manufacturing spending from 2012 would have impacted our cost of
goods sold by approximately $2.2 million.

Commodity Risk

Our exposure to commodity price changes relates primarily to certain manufacturing operations that use resin. We manage our exposure to changes in those prices through our procurement and supply chain management practices and the effect of price changes has not been material to date.  Based on our average price for resin in fiscal year 2012, a 10% increase to the price of resin would have resulted in approximately a $1.0 million change in material cost.
 
Item 4.
Controls and Procedures
 
Disclosure Controls and Procedures
 
Our principal executive officer and principal financial officer have concluded, based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Report, that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
 
There was no change in our internal control over financial reporting during the quarter ended March 31, 2013 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.
Legal Proceedings
 
We have not been required to pay any penalty to the IRS for failing to make disclosures required with respect to certain transactions that have been identified by the IRS as abusive or that have a significant tax avoidance purpose.

In an action filed July 27, 2007 entitled ICU Medical, Inc. v. RyMed Technologies, Inc. in the United States District
Court for the District of Delaware (the "District Court"), ICU Medical, Inc. (“ICU”) alleged that RyMed Technologies, Inc.
(“RyMed”) infringes certain ICU patents through the manufacture and sale of its original and current InVision-Plus valves. ICU
seeks monetary damages and injunctive relief and continues to vigorously pursue this matter.

A jury trial commenced on December 13, 2010. On December 17, 2010, the jury returned a verdict that: (1) RyMed's
original device literally infringed ICU's U.S. Patent No. 5,685,866 ('866 Patent) and ICU's U.S. Patent No. 5,873,862 ('862
Patent); (2) RyMed's current device infringes the '862 Patent both literally and under the doctrine of equivalents; (3) RyMed's
current device infringes the '866 Patent under the doctrine of equivalents; (4) RyMed has engaged in contributory infringement
and induced infringement of ICU's '862 Patent; and (5) ICU's '866 and '862 Patents are valid.

On May 11, 2012, a bench trial was held on RyMed's prosecution history estoppel defense. The parties have
completed a post-trial briefing. Once the court rules on this defense, a further trial will be scheduled to determine the damages,
if any, owed by RyMed to ICU Medical.

We are from time to time involved in various other legal proceedings, either as a defendant or plaintiff, most of which are routine litigation in the normal course of business. We believe that the resolution of the legal proceedings in which we are involved will not have a material adverse effect on our financial position or results of operations.

Item 1A.
Risk Factors

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Table of Contents

 
In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2012, as well as the information contained in this Quarterly Report and our other reports and registration statements filed with the SEC.  There have been no material changes in the risk factors as previously disclosed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K with the SEC for the year ended December 31, 2012.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
In July 2010, our Board of Directors approved a common stock purchase plan to purchase $40.0 million of our common stock.  This plan has no expiration date. We are not obligated to make any purchases under our stock purchase program. Subject to applicable state and federal corporate and securities laws, purchases under a stock purchase program may be made at such times and in such amounts as we deem appropriate. Purchases made under our stock purchase program can be discontinued at any time we feel additional purchases are not warranted.

The following is a summary of our stock repurchasing activity during the first quarter of 2013:

Period
 
Shares
purchased
 
Average
price paid
per share
 
Shares
purchased as
part of a
publicly
announced
program
 
Approximate
dollar value that
may yet be
purchased under
the program
01/01/2013 — 01/31/2013
 
—

 
$
—

 
—

 
$
28,089,000

02/01/2013 — 02/28/2013
 
—

 
—

 
—

 
28,089,000

03/01/2013 — 03/31/2013
 
—

 
—

 
—

 
28,089,000

First quarter of 2013 total
 
—

 
$
—

 
—

 
$
28,089,000


Item 6.
Exhibits

Exhibit 31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 32.1
 
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 101.INS
 
XBRL Instance Document
 
 
 
Exhibit 101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
Exhibit 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
Exhibit 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
Exhibit 101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 ______________________________________________________

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Signature
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ICU Medical, Inc.
 
(Registrant)
 
 
 
 
 
/s/ Scott E. Lamb
Date:
April 22, 2013
Scott E. Lamb
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
 
 


21

Exhibit Index
 
Exhibit 31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 32.1
 
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 101.INS
 
XBRL Instance Document
 
 
 
Exhibit 101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
Exhibit 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
Exhibit 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
Exhibit 101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


22
ICUI-EX 31.1 _2013.03.31-10Q


Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, George A. Lopez, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of ICU Medical, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
April 22, 2013
/s/ George A. Lopez, M.D.
 
 
Chief Executive Officer

 



ICUI-EX 31.2_2013.03.31-10-Q


Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Scott E. Lamb, certify that:
 
1.
 I have reviewed this quarterly report on Form 10-Q of ICU Medical, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
April 22, 2013
/s/ Scott E. Lamb
 
 
Chief Financial Officer
 
 



ICUI-EX 32.1_2013.03.31-10-Q


Exhibit 32.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of ICU Medical, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George A. Lopez, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

April 22, 2013
/s/ George A. Lopez, M.D.
 
George A. Lopez, M.D.
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of ICU Medical, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott E. Lamb, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
April 22, 2013
/s/ Scott E. Lamb
 
Scott E. Lamb