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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

,

California

92673

(Address of principal executive offices)

(Zip Code)

 (949) 366-2183

(Registrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company

☐

Emerging growth company

☐

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Common stock, par value $0.10 per share			ICUI			The Nasdaq Stock Market LLC
						(Global Select Market)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class						Outstanding at October 31, 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						3
			Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019						4
			Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019						5
			Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019						6
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019						8
			Notes to Condensed Consolidated Financial Statements						10
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations						28
Item 3.			Quantitative and Qualitative Disclosures About Market Risk						42
Item 4.			Controls and Procedures						43
PART II.			Other Information
Item 1.			Legal Proceedings						43
Item1A.			Risk Factors						43
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds						45
Item 6.			Exhibits						46
			Signature						47

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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 securities			12,544						23,967
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES			363,537						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
Inventories			321,961						337,640
Prepaid income tax			8,032						15,720
Prepaid expenses and other current assets			42,071						33,981
TOTAL CURRENT ASSETS			900,139						882,197
PROPERTY AND EQUIPMENT, net			456,348						456,085
OPERATING LEASE RIGHT-OF-USE ASSETS			47,802						34,465
GOODWILL			32,651						31,245
INTANGIBLE ASSETS, net			200,428						211,408
DEFERRED INCOME TAXES			36,373						27,998
OTHER ASSETS			55,795						48,984
TOTAL ASSETS			$	1,729,536					$	1,692,382
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable			$	81,027					$	128,629
Accrued liabilities			103,397						117,776
Income tax liability			935						2,063
TOTAL CURRENT LIABILITIES			185,359						248,468
CONTINGENT EARN-OUT LIABILITY			24,300						17,300
OTHER LONG-TERM LIABILITIES			48,750						32,820
DEFERRED INCOME TAXES			2,091						2,091
INCOME TAX LIABILITY			16,816						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 capital			683,326						668,947
Treasury stock, at cost			(180)						(157)
Retained earnings			782,510						721,782
Accumulated other comprehensive loss			(15,533)						(15,402)
TOTAL STOCKHOLDERS' EQUITY			1,452,220						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,
			2020						2019						2020						2019
TOTAL REVENUES			$	318,567					$	307,471					$	950,553					$	950,685
COST OF GOODS SOLD			204,643						188,919						608,930						592,961
GROSS PROFIT			113,924						118,552						341,623						357,724
OPERATING EXPENSES:
Selling, general and administrative			70,854						65,876						210,401						206,333
Research and development			10,126						12,002						31,151						36,024
Restructuring, strategic transaction and integration			4,114						7,975						22,903						69,408
Change in fair value of contingent earn-out			4,300						(200)						7,000						(47,400)
Contract settlement			(1,000)						—						(975)						3,822
TOTAL OPERATING EXPENSES			88,394						85,653						270,480						268,187
INCOME FROM OPERATIONS			25,530						32,899						71,143						89,537
INTEREST EXPENSE			(616)						(139)						(1,583)						(411)
OTHER INCOME (EXPENSE), net			1,252						(10)						(2,175)						4,660
INCOME BEFORE INCOME TAXES			26,166						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
Basic			20,948						20,666						20,870						20,607
Diluted			21,556						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,
			2020						2019						2020						2019
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, respectively			1,016						(375)						(810)						644
Foreign currency translation adjustment, net of taxes of $0 for all periods			6,626						(7,533)						754						(6,287)
Other adjustments, net of taxes of $0 for all periods			3						—						(75)						6
Other comprehensive income (loss), net of taxes			7,645						(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
						Shares						Amount						Paid-In Capital						Treasury Stock						Retained Earnings						Comprehensive Loss						Total
Balance, January 1, 2020						20,742						$	2,074					$	668,947					$	(157)					$	721,782					$	(15,402)					$	1,377,244
Issuance of restricted stock and exercise of stock options						155						9						(10,207)						10,758						—						—						560
Tax withholding payments related to net share settlement of equity awards						(64)						—						—						(12,174)						—						—						(12,174)
Stock compensation						—						—						6,939						—						—						—						6,939
Other comprehensive loss, net of tax						—						—						—						—						—						(13,510)						(13,510)
Net income						—						—						—						—						16,834						—						16,834
Balance, March 31, 2020						20,833						$	2,083					$	665,679					$	(1,573)					$	738,616					$	(28,912)					$	1,375,893
Issuance of restricted stock and exercise of stock options						106						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, 2020						20,937						$	2,094					$	675,497					$	(140)					$	757,524					$	(23,178)					$	1,411,797
Issuance of restricted stock and exercise of stock options						33						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, 2020						20,969						$	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
						Shares						Amount						Paid-In Capital						Treasury Stock						Retained Earnings						Comprehensive Loss						Total
Balance, January 1, 2019						20,492						$	2,049					$	657,899					$	(95)					$	620,747					$	(16,945)					$	1,263,655
Issuance of restricted stock and exercise of stock options						254						18						(4,289)						5,196						—						—						925
Tax withholding payments related to net share settlement of equity awards						(78)						—						—						(18,157)						—						—						(18,157)
Stock compensation						—						—						6,209						—						—						—						6,209
Other comprehensive loss, net of tax						—						—						—						—						—						(936)						(936)
Net income						—						—						—						—						30,998						—						30,998
Balance, March 31, 2019						20,668						$	2,067					$	659,819					$	(13,056)					$	651,745					$	(17,881)					$	1,282,694
Issuance of restricted stock and exercise of stock options						—						—						(8,505)						11,514						—						—						3,009
Tax withholding payments related to net share settlement of equity awards						—						—						—						(108)						—						—						(108)
Stock compensation						—						—						6,229						—						—						—						6,229
Other comprehensive income, net of tax						—						—						—						—						—						3,207						3,207
Net income						—						—						—						—						22,833						—						22,833
Balance, June 30, 2019						20,668						$	2,067					$	657,543					$	(1,650)					$	674,578					$	(14,674)					$	1,317,864
Issuance of restricted stock and exercise of stock options						4						—						(1,556)						1,863						—						—						307
Tax withholding payments related to net share settlement of equity awards						(1)						—						—						(213)						—						—						(213)
Stock compensation						—						—						3,722						—						—						—						3,722
Other comprehensive loss, net of tax						—						—						—						—						—						(7,908)						(7,908)
Net income						—						—						—						—						26,563						—						26,563
Balance, September 30, 2019						20,671						$	2,067					$	659,709					$	—					$	701,141					$	(22,582)					$	1,340,335

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ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands) 

			Nine months ended September 30,
			2020						2019
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 amortization			64,037						57,025
Amortization of right-of-use assets			6,859						6,149
Provision for doubtful accounts			2,785						7,839
Provision for warranty and returns			(1,296)						1,277
Stock compensation			18,614						16,161
Loss on disposal of property and equipment and other assets			1,673						13,350
Bond premium amortization			126						103
Debt issuance costs amortization			216						216
Change in fair value of contingent earn-out			7,000						(47,400)
Product-related charges			2,626						—
Usage of spare parts			8,391						20,044
Other			2,523						1,757
Changes in operating assets and liabilities:
Accounts receivable			38,933						(32,484)
Inventories			8,859						(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 activities			144,226						53,054
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(62,362)						(73,253)
Proceeds from sale of asset			154						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 securities			20,900						36,400
Net cash used in investing activities			(57,236)						(65,889)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt			150,000						—
Repayment of short-term debt			(150,000)						—
Proceeds from exercise of stock options			8,586						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 EQUIVALENTS			82,323						(28,832)
CASH AND CASH EQUIVALENTS, beginning of period			268,670						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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ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED

(In thousands)

			Nine months ended September 30,
			2020						2019
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.

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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

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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):

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ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			Accrued Balance January 1, 2020						Charges Incurred						Payments						Currency Translation									Accrued Balance September 30, 2020
Severance pay and benefits			$	3,878					$	3,706					$	(5,215)					$	(43)								$	2,326
Employment agreement buyout			460						—						(370)						—									90
Facility closure expenses			1,211						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,
Geography			2020						2019						2020						2019
Europe, the Middle East and Africa			$	32,596					$	31,474					$	99,107					$	96,830
Other Foreign			48,525						53,398						175,618						156,353
Total Foreign			81,121						84,872						274,725						253,183
United States			237,446						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):

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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 line			2020						2019						2020						2019
Infusion Consumables			$	116,054					$	119,745					$	350,554					$	357,994
Infusion Systems			88,388						78,932						267,856						244,523
IV Solutions			101,900						98,159						295,369						313,976
Critical Care			12,225						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 recognized			9,920
Equipment revenue deferred due to implementation			(13,679)
Software revenue recognized			4,715
Software revenue deferred due to implementation			(5,033)
Ending balance, September 30, 2020			$	(8,932)
Beginning balance, January 1, 2019			$	(4,282)
Equipment revenue recognized			3,619
Equipment revenue deferred due to implementation			(6,869)
Software revenue recognized			2,955
Software revenue deferred due to implementation			(3,115)
Ending balance, September 30, 2019			$	(7,692)

    

    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.

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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,
			2020						2019						2020						2019
Operating lease cost			$	2,861					$	2,996					$	8,428					$	7,528
Finance lease cost - interest			29						—						62						—
Finance lease cost - amortization of ROU asset			125						—						252						—
Short-term lease cost			74						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,
			2020						2019
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					$	—

    

    

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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 liabilities			42,512						28,896
Total operating lease liabilities			$	50,968					$	36,258
Weighted Average Remaining Lease Term
Operating leases			6.8 years						6.0 years
Weighted Average Discount Rate
Operating leases			5.03		%				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 liabilities			2,274
Total financing lease liabilities			$	2,747
Weighted Average Remaining Lease Term
Financing leases			7.0 years
Weighted Average Discount Rate
Financing leases			4.27		%

        

    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 Leases						Finance Leases
Remainder of 2020			$	2,789					$	145
2021			10,571						578
2022			9,639						578
2023			8,685						578
2024			8,235						283
2025			4,958						189
Thereafter			15,113						804
Total Lease Payments			59,990						3,155
Less imputed interest			(9,022)						(408)
Total			$	50,968					$	2,747

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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,
			2020						2019						2020						2019
Net income			$