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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, 2020
 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from:              to
 
Commission File No.: 001-34634
 ICU MEDICAL, INC.
(Exact name of registrant as specified in its charter)
 
Delaware 33-0022692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
951 Calle Amanecer,San Clemente,California92673
(Address of principal executive offices)(Zip Code)
 (949) 366-2183
(Registrant’s telephone number including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerx 
Accelerated filer o
Non-accelerated filer o
 Smaller reporting company
 Emerging growth company
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.10 per shareICUIThe Nasdaq Stock Market LLC
(Global Select Market)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class Outstanding at October 31, 2020
Common 20,981,128




ICU MEDICAL, INC. AND SUBSIDIARIES
Form 10-Q
September 30, 2020

Table of Contents
PART I.Financial Information Page Number
   
Item 1.Financial Statements (Unaudited)  
   
Condensed Consolidated Balance Sheets, at September 30, 2020 and December 31, 2019 
   
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 
   
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019 
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 
   
 
   
Item 2. 
   
Item 3. 
   
Item 4. 
   
PART II.  
Item 1. 
   
Item1A. 
   
Item 2. 
   
Item 6. 
   
 
2


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

ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data) 
 September 30,
2020
December 31,
2019
 (Unaudited)(1)
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$350,993 $268,670 
Short-term investment securities12,544 23,967 
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES363,537 292,637 
Accounts receivable, net of allowance for doubtful accounts of $22,299 at September 30, 2020 and $20,219 at December 31, 2019
164,538 202,219 
Inventories321,961 337,640 
Prepaid income tax8,032 15,720 
Prepaid expenses and other current assets42,071 33,981 
TOTAL CURRENT ASSETS900,139 882,197 
PROPERTY AND EQUIPMENT, net456,348 456,085 
OPERATING LEASE RIGHT-OF-USE ASSETS47,802 34,465 
GOODWILL32,651 31,245 
INTANGIBLE ASSETS, net200,428 211,408 
DEFERRED INCOME TAXES36,373 27,998 
OTHER ASSETS55,795 48,984 
TOTAL ASSETS$1,729,536 $1,692,382 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$81,027 $128,629 
Accrued liabilities103,397 117,776 
Income tax liability935 2,063 
TOTAL CURRENT LIABILITIES185,359 248,468 
CONTINGENT EARN-OUT LIABILITY24,300 17,300 
OTHER LONG-TERM LIABILITIES48,750 32,820 
DEFERRED INCOME TAXES2,091 2,091 
INCOME TAX LIABILITY16,816 14,459 
COMMITMENTS AND CONTINGENCIES (Note 18)  
STOCKHOLDERS’ EQUITY:  
Convertible preferred stock, $1.00 par value Authorized—500 shares; Issued and outstanding none
  
Common stock, $0.10 par value — Authorized, 80,000 shares; Issued — 20,969 shares at September 30, 2020 and 20,743 shares at December 31, 2019 and outstanding — 20,968 shares at September 30, 2020 and 20,742 shares at December 31, 2019
2,097 2,074 
Additional paid-in capital683,326 668,947 
Treasury stock, at cost(180)(157)
Retained earnings782,510 721,782 
Accumulated other comprehensive loss(15,533)(15,402)
TOTAL STOCKHOLDERS' EQUITY1,452,220 1,377,244 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,729,536 $1,692,382 
______________________________________________________
(1) December 31, 2019 balances were derived from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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,
 2020201920202019
TOTAL REVENUES$318,567 $307,471 $950,553 $950,685 
COST OF GOODS SOLD204,643 188,919 608,930 592,961 
GROSS PROFIT113,924 118,552 341,623 357,724 
OPERATING EXPENSES:  
Selling, general and administrative70,854 65,876 210,401 206,333 
Research and development10,126 12,002 31,151 36,024 
Restructuring, strategic transaction and integration4,114 7,975 22,903 69,408 
Change in fair value of contingent earn-out4,300 (200)7,000 (47,400)
Contract settlement(1,000) (975)3,822 
TOTAL OPERATING EXPENSES88,394 85,653 270,480 268,187 
INCOME FROM OPERATIONS25,530 32,899 71,143 89,537 
INTEREST EXPENSE(616)(139)(1,583)(411)
OTHER INCOME (EXPENSE), net1,252 (10)(2,175)4,660 
INCOME BEFORE INCOME TAXES26,166 32,750 67,385 93,786 
PROVISION FOR INCOME TAXES(1,180)(6,187)(6,657)(13,392)
NET INCOME$24,986 $26,563 $60,728 $80,394 
NET INCOME PER SHARE  
Basic$1.19 $1.29 $2.91 $3.90 
Diluted$1.16 $1.24 $2.82 $3.73 
WEIGHTED AVERAGE NUMBER OF SHARES  
Basic20,948 20,666 20,870 20,607 
Diluted21,556 21,487 21,561 21,556 
 
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 (Unaudited)
(In thousands)
 
 Three months ended
September 30,
Nine months ended
September 30,
 2020201920202019
NET INCOME$24,986 $26,563 $60,728 $80,394 
Other comprehensive income (loss), net of tax:
Cash flow hedge adjustments, net of taxes of ($321) and $118 for the three months ended September 30, 2020 and 2019, respectively, and $256 and ($204) for the nine months ended September 30, 2020 and 2019, respectively1,016 (375)(810)644 
Foreign currency translation adjustment, net of taxes of $0 for all periods6,626 (7,533)754 (6,287)
Other adjustments, net of taxes of $0 for all periods3  (75)6 
Other comprehensive income (loss), net of taxes7,645 (7,908)(131)(5,637)
TOTAL COMPREHENSIVE INCOME$32,631 $18,655 $60,597 $74,757 
 
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 STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands)


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













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ICU MEDICAL, INC. AND SUBSIDIARIES

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

 Common Stock   Accumulated 
  Additional  Other 
SharesAmountPaid-In
Capital
Treasury
Stock
Retained
Earnings
Comprehensive
Loss
Total
Balance, January 1, 201920,492 $2,049 $657,899 $(95)$620,747 $(16,945)$1,263,655 
Issuance of restricted stock and exercise of stock options254 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, 201920,668 $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, 201920,668 $2,067 $657,543 $(1,650)$674,578 $(14,674)$1,317,864 
Issuance of restricted stock and exercise of stock options4  (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, 201920,671 $2,067 $659,709 $ $701,141 $(22,582)$1,340,335 
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ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) 
 Nine months ended
September 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$60,728 $80,394 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization64,037 57,025 
Amortization of right-of-use assets6,859 6,149 
Provision for doubtful accounts2,785 7,839 
Provision for warranty and returns(1,296)1,277 
Stock compensation18,614 16,161 
Loss on disposal of property and equipment and other assets1,673 13,350 
Bond premium amortization126 103 
Debt issuance costs amortization216 216 
Change in fair value of contingent earn-out7,000 (47,400)
Product-related charges2,626  
Usage of spare parts8,391 20,044 
Other2,523 1,757 
Changes in operating assets and liabilities: 
Accounts receivable38,933 (32,484)
Inventories8,859 (30,924)
Prepaid expenses and other assets(6,535)8,815 
Other assets(12,121)(29,494)
Accounts payable(38,032)(3,038)
Accrued liabilities(20,417)(23,214)
Income taxes, including excess tax benefits and deferred income taxes(743)6,478 
Net cash provided by operating activities144,226 53,054 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchases of property and equipment(62,362)(73,253)
Proceeds from sale of asset154 19 
Business acquisitions, net of cash acquired (4,600)
Intangible asset additions(6,325)(6,461)
Purchases of investment securities(9,603)(17,994)
Proceeds from sale of investment securities20,900 36,400 
Net cash used in investing activities(57,236)(65,889)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from short-term debt150,000  
Repayment of short-term debt(150,000) 
Proceeds from exercise of stock options8,586 4,240 
Payments on finance leases(231) 
Tax withholding payments related to net share settlement of equity awards(12,821)(18,478)
Net cash used in financing activities(4,466)(14,238)
Effect of exchange rate changes on cash(201)(1,759)
NET INCREASE (DECREASE) CASH AND CASH EQUIVALENTS82,323 (28,832)
CASH AND CASH EQUIVALENTS, beginning of period268,670 344,781 
CASH AND CASH EQUIVALENTS, end of period$350,993 $315,949 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Table of Contents
ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED
(In thousands)
Nine months ended
September 30,
20202019
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
  Accounts payable for property and equipment$3,633 $11,365 

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

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


Note 1:Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.") and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the consolidated results for the interim periods presented. Results for the interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of ICU Medical, Inc., ("ICU") a Delaware corporation, filed with the SEC for the year ended December 31, 2019.
 
We are engaged in the development, manufacturing and sale of innovative medical products used in vascular therapy and critical care applications.  We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S. and internationally.  Additionally, we sell our products on an original equipment manufacturer basis to other medical device manufacturers. All subsidiaries are wholly owned and are included in the condensed consolidated financial statements.  All intercompany balances and transactions have been eliminated.

Note 2:    New Accounting Pronouncements

Recently Adopted Accounting Standards

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

    In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements in Topic 820. The amendments remove from disclosure: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The amendments also made the following disclosure modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The amendments also added the following disclosure requirements: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant 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
10

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
beginning after December 15, 2019. Early adoption is permitted. We adopted this ASU effective January 1, 2020. This ASU did not have a material impact on our condensed consolidated financial statements or related disclosures.

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

Recently Issued Accounting Standards

    In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden for reference rate reform on financial reporting. Due to concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. Optional expedients may be applied to contracts that are modified as a result of the reference rate reform. Modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of ASC 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (incremental borrowing rate). Exceptions to Topic 815, Derivatives and Hedging, results in not having a dedesignation of a hedging relationship if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently reviewing the impact of this ASU on our contracts.        

Note 3: Restructuring, Strategic Transaction and Integration

    Restructuring, strategic transaction and integration expenses were $4.1 million and $22.9 million for the three and nine months ended September 30, 2020, respectively, as compared to $8.0 million and $69.4 million for the three and nine months ended September 30, 2019, respectively.

Restructuring

    During the three and nine months ended September 30, 2020, restructuring charges were $0.0 million and $8.1 million, respectively. During the three and nine months ended September 30, 2019, restructuring charges were $0.8 million and $8.4 million, respectively. Restructuring charges for the nine months ended September 30, 2020 were primarily related to severance and costs related to office and other facility closures. Restructuring charges for the three and nine months ended September 30, 2019 were 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, 2020 (in thousands):
11

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accrued Balance January 1, 2020Charges
Incurred
PaymentsCurrency
Translation
Accrued Balance
September 30, 2020
Severance pay and benefits$3,878 $3,706 $(5,215)$(43)$2,326 
Employment agreement buyout460  (370) 90 
Facility closure expenses1,211 4,402 (4,299)230 1,544 
$5,549 $8,108 $(9,884)$187 $3,960 

Strategic transaction and integration expenses

    We incurred and expensed $4.1 million and $14.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2020, respectively, as compared to $7.2 million and $61.0 million during the three and nine months ended September 30, 2019, respectively. The strategic transaction and integration expenses during the three and nine months ended September 30, 2020 and 2019, were primarily related to the integration of the Hospira Infusion Systems ("HIS") business acquired in 2017 from Pfizer, which for the nine months ended September 30, 2020, included expenses for the migration of IT systems at our Austin facility. The strategic transaction and integration expenses during the nine months ended September 30, 2019, included a one-time strategic supply chain restructuring charge of $22.1 million, which reduced our contracted commitments to our third party manufacturer. The nine months ended September 30, 2019 also included a $12.7 million non-cash write-off of assets related to our final Pfizer separation costs.

Note 4: Revenue

    Our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions and Critical Care. The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors. Revenue is typically recognized upon transfer of control of the products, which we deem to be at point of shipment.

    Payment is typically due in full within 30 days of delivery or the start of the contract term. Revenue is recorded in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price. Rebates are offered on both a fixed and tiered/variable basis. In both cases, we use information available at the time and our historical experience with each customer to estimate the most likely rebate amount. We also provide chargebacks to distributors that sell to end-customers at prices determined under a contract between us and the end-customer. We use information available at the time and our historical experience to estimate and record provisions for chargebacks.

    We also warrant products against defects and have a policy permitting the return of defective products, for which we accrue and expense at the time of sale using information available at that time and our historical experience. We also provide for extended service-type warranties, which we consider to be separate performance obligations. We allocate a portion of the transaction price to the extended service-type warranty based on its estimated relative selling price, and recognize revenue over the period the warranty service is provided.

Revenue disaggregated
    
    The following table represents our revenues disaggregated by geography (in thousands):
For the three months
ended September 30,
For the nine months
ended September 30,
Geography2020201920202019
Europe, the Middle East and Africa$32,596 $31,474 $99,107 $96,830 
Other Foreign48,525 53,398 175,618 156,353 
Total Foreign81,121 84,872 274,725 253,183 
United States237,446 222,599 675,828 697,502 
Total Revenues$318,567 $307,471 $950,553 $950,685 
    
    
    The following table represents our revenues disaggregated by product (in thousands):
12

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three months ended
September 30,
For the nine months ended
September 30,
Product line2020201920202019
Infusion Consumables$116,054 $119,745 $350,554 $357,994 
Infusion Systems88,388 78,932 267,856 244,523 
IV Solutions101,900 98,159 295,369 313,976 
Critical Care12,225 10,635 36,774 34,192 
Total Revenues$318,567 $307,471 $950,553 $950,685 

Contract balances

    The following table presents our changes in the contract balances for the nine months ended September 30, 2020 and 2019 (in thousands):
Contract Liabilities
Beginning balance, January 1, 2020$(4,855)
Equipment revenue recognized9,920 
Equipment revenue deferred due to implementation(13,679)
Software revenue recognized4,715 
Software revenue deferred due to implementation(5,033)
Ending balance, September 30, 2020$(8,932)
Beginning balance, January 1, 2019$(4,282)
Equipment revenue recognized3,619 
Equipment revenue deferred due to implementation(6,869)
Software revenue recognized2,955 
Software revenue deferred due to implementation(3,115)
Ending balance, September 30, 2019$(7,692)
    
    As of September 30, 2020, revenue from remaining performance obligations related to implementation of software and equipment is $7.6 million. We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to the novel coronavirus ("COVID-19"). Revenue from remaining performance obligations related to annual software licenses is $1.3 million. We expect to recognize substantially all of this revenue over the next twelve months.

Note 5: Leases
    
Leases

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

    Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term based on the information available at commencement date. Our lease ROU assets exclude lease incentives and initial direct costs incurred. Our lease terms include options to extend when it is reasonably certain that we will exercise that option. All of our leases have stated lease payments, which may include fixed rental increases. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
13

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    
    Our leases are for corporate offices, sales and support offices, a distribution facility, device service centers and certain equipment. Our leases have original lease terms of one year to fifteen years, some of which include options to extend the leases for up to an additional five years. For all of our leases, we do not include optional periods of extension in our current lease terms for the exercise of options to extend is not reasonably certain.

    The following table presents the components of our lease cost (in thousands):
For the three months
ended September 30,
For the nine months
ended September 30,
2020201920202019
Operating lease cost$2,861 $2,996 $8,428 $7,528 
Finance lease cost - interest29  62  
Finance lease cost - amortization of ROU asset125  252  
Short-term lease cost74 49 200 229 
Total lease cost $3,089 $3,045 $8,942 $7,757 
    
Interest expense on our finance leases is included in other income (expense), net in our condensed consolidated statement of operations. The amortization of the operating and finance ROU asset is included in selling, general and administrative expenses in our condensed consolidated statement of operations.    

The following table presents the supplemental cash flow information related to our leases (in thousands):
For the nine months ended September 30,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7,303 $7,161 
Operating cash flows from finance leases$62 $ 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$20,264 $2,495 
Finance leases$2,870 $ 
    
    
14

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):
As of
September 30, 2020
As of
December 31, 2019
Operating leases
Operating lease right-of-use assets$47,802 $34,465 
Accrued liabilities$8,456 $7,362 
Other long-term liabilities42,512 28,896 
Total operating lease liabilities$50,968 $36,258 
Weighted Average Remaining Lease Term
Operating leases6.8 years6.0 years
Weighted Average Discount Rate
Operating leases5.03 %5.57 %
    
The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):
As of
September 30, 2020
Financing leases
Financing lease right-of-use assets$2,729 
Accrued liabilities$473 
Other long-term liabilities2,274 
Total financing lease liabilities$2,747 
Weighted Average Remaining Lease Term
Financing leases7.0 years
Weighted Average Discount Rate
Financing leases4.27 %
        
    As of September 30, 2020, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):
Operating LeasesFinance Leases
Remainder of 2020$2,789 $145 
202110,571 578 
20229,639 578 
20238,685 578 
20248,235 283 
20254,958 189 
Thereafter15,113 804 
Total Lease Payments59,990 3,155 
Less imputed interest(9,022)(408)
Total$50,968 $2,747 
15

ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6:     Net Income Per Share
 
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period plus dilutive securities. Dilutive securities include outstanding common stock options and unvested restricted stock units, less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method. Options and restricted stock units that are anti-dilutive are not included in the treasury stock method calculation. There were 14,017 and 20,116 anti-dilutive securities for the three months ended September 30, 2020 and 2019, respectively. There were 12,182 and 9,375 anti-dilutive securities for the nine months ended September 30, 2020 and 2019, respectively.

    The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in thousands, except per share data): 
 Three months ended
September 30,
Nine months ended
September 30,
 2020201920202019
Net income$