View:
November 26,
2007
United
States Securities and Exchange Commission
Division
of
Corporation Finance
450
Fifth
Street NW
Washington,
DC 20549
Re: ICU
Medical, Inc.
Form
10-K for the Fiscal Year Ended
December 31, 2006, Filed March 1, 2007
Form
10-Q for the Fiscal Quarter ended
September 30, 2007
File
No. 000-19974
This
letter
is in response to the Staff’s comment letter dated November 7,
2007.
Form
10-K
for the Fiscal Year Ended December 31, 2006
Item
6.
Selected Financial Data, page 26
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1.
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We
note the use of a non-GAAP financial measure for cash flows from
operations, excluding tax benefits from exercise of stock options.
In
future filings when you present this measure, please include the
following
information consistent with Item 10(e)(1)(i) of Regulation
S-K:
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A
presentation, with equal or greater prominence, of the most directly
comparable financial measure or measures calculated and presented
in
accordance with Generally Accepted Accounting Principles
(GAAP);
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A
quantitative reconciliation (by schedule or other clearly understandable
method) of the differences between the non-GAAP financial measure
disclosed with the most directly comparable financial measure calculated
and presented in accordance with
GAAP;
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·
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A
statement disclosing the reasons why the registrant's management
believes
that presentation of the non-GAAP financial measure provides useful
information to investors regarding the registrant's financial condition
and results of operation; and
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To
the
extent material, a statement disclosing the additional purposes,
if any,
for which the registrant's management uses the non-GAAP financial
measure.
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Response:
The
Company
plans to present only the GAAP measure of cash flows from operations in the
future.
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2.
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While
there is no per se prohibition against removing a recurring item,
you must meet the burden of demonstrating the usefulness of any measure
that excludes recurring items, especially if the non-GAAP financial
measure is used to evaluate performance. Whether a non-GAAP financial
measure that eliminates a recurring item or items from the most directly
comparable GAAP financial measure is acceptable depends on all of
the
facts and circumstances. However, if there is a past pattern of the
charges, no articulated demonstration that such charges will not
continue
and no other unusual reason that a company can substantiate to identify
the special nature of the charge, it would b difficult for a company
to
meet the burden of disclosing why such a non-GAAP financial measure
is
useful to investors. In such circumstances, Item 10(e) of Regulation
S-K
would not permit the use of the non-GAAP financial measure. In addition,
inclusion of such a measure may be misleading absent the following
disclosure, which should be specific to each measure and not a broad
overall, vague disclosure;
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·
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the
manner in which management uses the non-GAAP measure to conduct or
evaluate its business;
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the
economic substance behind management's decision to use such a measure;
the
material limitations associated with use of the non-GAAP financial
measure
as compared to the use of the most directly comparable GAAP financial
measure;
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the
manner in which management compensates for these limitations when
using
the non-GAAP financial measure; and
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the
substantive reasons why management believes the non-GAAP financial
measure
provides useful information to
investors.
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Refer
to Question 8 of the FAQ Regarding the Use of Non-GAAP financial
measures
dated June 13, 2003. Please revise future filings as necessary to
comply.
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Response:
Please
refer
to the response to Comment No. 1
Consolidated
Balance Sheets, page 41
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3.
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We
see
that you present a line item for ‘liquid investments’ on the face of your
balance sheet. It is unclear from this term what the account is
meant to represent. For example, the use of the word liquid investments
may infer that the amounts should be classified as cash equivalents
under
SFAS 95. This may be further complicated by your inclusion of a subtotal
for cash and liquid investments. Please revise the term in future
filings
so that the nature of the items is clear from its title. Please tell
us
whether your ‘liquid investments’ meet the requirements of paragraph 8 of
SFAS 95 to be considered cash and cash
equivalents.
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Response:
The
content
of the “liquid investments” amount is explained in a note to the consolidated
financial statements “Note 7: Liquid Investments”.
None
of the
$103.8 million of liquid investments are cash equivalents and are not presented
as cash equivalents as they have an original maturity of more than three months;
however, they are highly liquid, as further explained in Note 7.
We
will
amend the caption in future filings to: “Highly liquid
investments.”
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4.
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We
note that you present a line item for ‘cash and liquid investments’ on the
face of the balance sheet. Under Item 10(e)(1)(ii)(C) of Regulation
S-K,
you should not present a non-GAAP financial measure on the face of
your
financial statements or in the accompanying notes. Please remove
this line
item in future filings or tell us in detail why you believe the current
presentation is appropriate.
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Response:
This
same
basic presentation of “cash and liquid investments” has been used by the Company
since 1996. The purpose of the line item is to facilitate users’
understanding of the Company’s liquidity and to be consistent with the Company’s
discussion of liquidity and capital resources under Regulation S-K, Item
303.
The
Company
respectfully points out that GAAP is neither prescriptive nor proscriptive
on
the use of sub-totals, which generally allows preparers of financial statements
to adapt presentations for their particular circumstances. The
Company does not believe it is using a non-GAAP financial measure.
Consolidated
Statements of Income, page 42
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5.
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In
future filings please provide the information required by Exhibit
11 of
Item 60l of Regulation S-K regarding the computation of your earnings
per
share.
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Response:
Exhibit
11
is required “unless the computation can be clearly determined from the material
contained in the registration statement or report”. Note 1h. “Net
Income Per Share” states that the only dilutive securities in the calculation of
diluted earnings per share are common stock options, so the difference between
the Weighted Average Number of Shares Basic versus Diluted is the dilutive
options. The Company, in the circumstances, believes the computation
can be clearly determined from the information contained in its financial
statements. However, in view of the Staff’s comments, the Company
will include the number of dilutive shares in a note to its consolidated
financial statements in a manner similar to that in its Quarterly Report on
Form
10-Q for the quarter ended September 30, 2007, Notes to Condensed Consolidated
Financial Statements, Note 7: Net income per share.
Note
1:
Summary of Significant Accounting Policies, page 45
b.
Cash
and Cash Equivalents, page 45
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6.
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We
note your policy for cash and cash equivalents as “liquid investments with
an original maturity of three months or less”. Please confirm
that your policy complies with paragraph 8 of SFAS 95 which states
that
cash equivalents are “short-term, highly liquid
investments...with original maturities of three months or
less”.
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Response:
We
confirm
that our policy complies with paragraph 8 of FAS95. The highly liquid
investments are generally money market accounts.
Exhibits
31.1 and 31.2
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7.
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We
note that paragraph four of the certifications required by Exchange
Act
Rule 13a-14(a) continues to omit the introductory language referring
to
internal control over financial reporting even though you are required
to
comply with Items 308(a) and (b) of Regulation S-K. Please file an
amendment to the Form 10-K to include new, corrected certifications.
You
may file an abbreviated amendment that consists of a cover page and
paragraphs 1, 2, 4 and 5 of the
certification.
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Response:
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The
Staff’s comment is noted and the requested amendment will be
filed.
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8.
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Further,
we note that paragraph 4(d) deletes the language “(the registrant’s fourth
fiscal quarter in the case of an annual report)” and paragraph 5 deletes
the language “(or persons performing the equivalent functions)”. In future
filings, including the abbreviated amendment referenced above, you
should
revise the certification to include the language required by Item
601(b)(31) of Regulation S-K.
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Response:
The
Staff’s
comment is noted and the Company will make the requested revision.
Form
10-Q
for the Fiscal-Quarter ended September 30, 2007
Note
3:
Litigation Matters, page 7
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9.
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We
see
that you have recorded the Alaris Medical Systems, Inc. patent litigation
judgment as part of non-operating expenses. We note that the
judgment was from patent infringement litigation which appears to
relate
to your operations. As such, please reclassify this amount within
operating activities, or tell us in detail why you believe the amount
is
properly classified as a non-operating
activity.
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Response:
The
aspect
of the patent infringement litigation to which the judgment against the Company
in the Alaris case applies has nothing to do with the Company’s
operations. As discussed under Part II, Item 1, Legal Proceedings,
the judgment was that the Company should reimburse a portion of fees and
expenses incurred by Alaris. The judgment against the Company did not
relate to any patent infringement or use of intellectual property by the
Company. The Company’s operations consist of designing, manufacturing
and selling medical devices. As part of that, we litigate to defend
our intellectual property. The Company’s costs of that litigation,
and gains from that litigation related to other parties’ use or infringement of
that intellectual property, are included in operations. Similarly,
payments for use of other parties’ intellectual property are included in
operations. Payment of costs incurred by the other side, Alaris in
this instance, is very unusual, and is over and above the Company’s own costs of
defending its intellectual property, and outside the scope of its
operations.
The
Company
respectfully points out that neither GAAP nor SEC rules draw a clear distinction
between operating items and non-operating items (other than certain financial
income and losses.) Regulation S-X, rules 5-03(b) 7 and 9 do refer to
“miscellaneous” items and require clear disclosure of the nature of the
transaction out of which the item arose. The Company believes its
classification of both items and disclosures satisfy GAAP and the SEC
rules.
The
Company
acknowledges that:
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it
is
responsible for the adequacy and accuracy of the disclosure in the
filing;
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Staff
comments or changes to disclosure in response to staff comments do
not
foreclose the Commission from taking any action with respect to the
filing; and
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Very
truly
yours,
/s/Francis
J. O’Brien
Francis
J.
O’Brien
Chief
Financial Officer