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: September 30, 2014 
 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 x	 	Accelerated filer o	
 	 	 	
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 October 21, 2014	
Common	 	15,365,170	
 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 Balance Sheets, at September 30, 2014 and December 31, 2013	 	3	
 	 	 	
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013	 	4	
 	 	 	
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013	 	5	
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	 	6	
 	 	 	
Notes to Condensed Consolidated Financial Statements	 	7	
 	 	 	
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	11	
 	 	 	
Item 3.
Quantitative and Qualitative Disclosures About Market Risk	 	18	
 	 	 	
Item 4.
Controls and Procedures	 	19	
 	 	 	
Part II - Other Information	 	 	
Item 1. Legal Proceedings	 	19	
 	 	 	
Item 1A. Risk Factors	 	19	
 	 	 	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	 	20	
 	 	 	
Item 6. Exhibits	 	20	
 	 	 	
Signature	 	21	

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)

 	 	 	 	 	 	 	 	
 	September 30,
2014	 	December 31,
2013	
 	(unaudited)	 	(1)	
ASSETS	 	 	 	
CURRENT ASSETS:	 	

Cash and cash equivalents	$	252,241	
 	 	$	226,022	
 	
Investment securities	77,503	
 	 	70,869	
 	
Cash, cash equivalents and investment securities	329,744	
 	 	296,891	
 	
Accounts receivable, net of allowance for doubtful accounts of $1,141 at September 30, 2014 and $1,208 at December 31, 2013	35,354	
 	 	45,318	
 	
Inventories	38,248	
 	 	34,451	
 	
Prepaid income taxes	9,381	
 	 	5,966	
 	
Prepaid expenses and other current assets	5,372	
 	 	7,319	
 	
Deferred income taxes	6,404	
 	 	4,351	
 	
Total current assets	424,503	
 	 	394,296	

PROPERTY AND EQUIPMENT, net	88,532	
 	 	87,861	
 	
GOODWILL	1,478	
 	 	1,478	
 	
INTANGIBLE ASSETS, net	7,394	
 	 	8,490	
 	
DEFERRED INCOME TAXES	5,809	
 	 	7,518	
 	
 	$	527,716	
 	 	$	499,643	
 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	

CURRENT LIABILITIES:	 	

Accounts payable	$	11,932	
 	 	$	11,335	
 	
Accrued liabilities	17,318	
 	 	15,551	
 	
Total current liabilities	29,250	
 	 	26,886	

DEFERRED INCOME TAXES	4,325	
 	 	3,630	
 	
INCOME TAX LIABILITY	2,713	
 	 	4,402	
 	
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, 15,360 shares at September 30, 2014 and 15,103 shares at December 31, 2013; Outstanding, 15,360 shares September 30, 2014 and 15,102 shares at December 31, 2013	1,536	
 	 	1,510	
 	
Additional paid-in capital	93,900	
 	 	78,495	
 	
Treasury stock, at cost — 0 shares at September 30, 2014 and 1 shares at December 31, 2013	(1	)	 	(49	)	
Retained earnings	401,539	
 	 	382,576	
 	
Accumulated other comprehensive income	(5,546	)	 	2,193	
 	
Total stockholders’ equity	491,428	
 	 	464,725	
 	
 	$	527,716	
 	 	$	499,643	
 	
______________________________________________________
(1) December 31, 2013 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 Income
(Amounts in thousands, except per share data)
(unaudited)

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30,	 	Nine months ended September 30,	
 	2014	 	2013	 	2014	 	2013	
REVENUES:	 	

 	 	 	
 	
Net sales	$	77,329	
 	 	$	82,709	
 	 	$	228,997	
 	 	$	235,419	
 	
Other	128	
 	 	106	
 	 	367	
 	 	356	
 	
TOTAL REVENUE	77,457	
 	 	82,815	
 	 	229,364	
 	 	235,775	
 	
COST OF GOODS SOLD	39,310	
 	 	41,860	
 	 	117,648	
 	 	119,988	
 	
Gross profit	38,147	
 	 	40,955	
 	 	111,716	
 	 	115,787	
 	
OPERATING EXPENSES:	 	

 	
 	 	—	
 	
Selling, general and administrative	21,843	
 	 	22,399	
 	 	68,640	
 	 	68,447	
 	
Research and development	5,055	
 	 	3,140	
 	 	13,252	
 	 	8,949	
 	
Restructuring charges	2,840	
 	 	—	
 	 	2,840	
 	 	—	
 	
Total operating expenses	29,738	
 	 	25,539	
 	 	84,732	
 	 	77,396	
 	
Income from operations	8,409	
 	 	15,416	
 	 	26,984	
 	 	38,391	
 	
OTHER INCOME	155	
 	 	190	
 	 	572	
 	 	570	
 	
Income before income taxes	8,564	
 	 	15,606	
 	 	27,556	
 	 	38,961	
 	
PROVISION FOR INCOME TAXES	(2,136	)	 	(4,572	)	 	(8,593	)	 	(11,875	)	
NET INCOME	$	6,428	
 	 	$	11,034	
 	 	$	18,963	
 	 	$	27,086	
 	
NET INCOME PER SHARE	 	

 	 	 	
 	
Basic	$	0.42	
 	 	$	0.75	
 	 	$	1.25	
 	 	$	1.85	
 	
Diluted	$	0.42	
 	 	$	0.72	
 	 	$	1.22	
 	 	$	1.79	
 	
WEIGHTED AVERAGE NUMBER OF SHARES	 	

 	 	 	
 	
Basic	15,319	
 	 	14,684	
 	 	15,220	
 	 	14,603	
 	
Diluted	15,488	
 	 	15,324	
 	 	15,497	
 	 	15,139	

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 (Loss)
(Amounts in thousands)
(unaudited)

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30,	 	Nine months ended September 30,	
 	2014	
 	2013	 	2014	 	2013	
Net income	$	6,428	
 	 	$	11,034	
 	 	$	18,963	
 	 	$	27,086	
 	
Other comprehensive income (loss), net of tax of $(1,833) and $713 for the three months ended September 30, 2014 and 2013, respectively and $(2,060) and $450 for the nine months ended September 30, 2014 and 2013, respectively:	 	

Foreign currency translation adjustment	(6,936	)	 	3,223	
 	 	(7,739	)	 	2,002	
 	
Comprehensive income (loss)	$	(508	)	 	$	14,257	
 	 	$	11,224	
 	 	$	29,088	

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
(Amounts in thousands)
(unaudited)

 	 	 	 	 	 	 	 	
 	Nine months ended September 30,	
 	2014	 	2013	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	

Net income	$	18,963	
 	 	$	27,086	
 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	
 	 	 	
Depreciation and amortization	14,642	
 	 	14,451	
 	
Provision for doubtful accounts	3	
 	 	40	
 	
Provision for warranty and returns	(488	)	 	124	
 	
Stock compensation	6,990	
 	 	4,133	
 	
Loss (gain) on disposal of property and equipment	8	
 	 	(20	)	
Bond premium amortization	1,599	
 	 	2,045	
 	
Cash provided (used) by changes in operating assets and liabilities	 	
 	 	 	
Accounts receivable	9,433	
 	 	(2,538	)	
Inventories	(4,655	)	 	2,471	
 	
Prepaid expenses and other assets	2,146	
 	 	1,572	
 	
Accounts payable	681	
 	 	(790	)	
Accrued liabilities	2,123	
 	 	(1,236	)	
Income taxes, including excess tax benefits and deferred income taxes	(3,098	)	 	(5,094	)	
Net cash provided by operating activities	48,347	
 	 	42,244	
 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	

Purchases of property and equipment	(14,924	)	 	(15,223	)	
Proceeds from sale of asset	5	
 	 	21	
 	
Intangible asset additions	(709	)	 	(839	)	
Purchases of investment securities	(78,993	)	 	(71,919	)	
Proceeds from sale of investment securities	69,470	
 	 	76,681	
 	
Net cash used by investing activities	(25,151	)	 	(11,279	)	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	

Proceeds from exercise of stock options	9,105	
 	 	5,016	
 	
Proceeds from employee stock purchase plan	2,485	
 	 	2,457	
 	
Tax benefits from exercise of stock options	2,734	
 	 	4,567	
 	
Purchase of treasury stock	(5,836	)	 	(3,033	)	
Net cash provided by financing activities	8,488	
 	 	9,007	
 	
Effect of exchange rate changes on cash	(5,465	)	 	1,158	
 	
NET INCREASE IN CASH AND CASH EQUIVALENTS	26,219	
 	 	41,130	
 	
CASH AND CASH EQUIVALENTS, beginning of period	226,022	
 	 	146,900	
 	
CASH AND CASH EQUIVALENTS, end of period	$	252,241	
 	 	$	188,030	

NON-CASH INVESTING ACTIVITIES	 	 	 	
  Accrued liabilities for property and equipment	$	100	
 	 	$	273	

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
Three and Nine Months Ended September 30, 2014 and 2013 
(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, 2013.
 
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:	Restructuring Charges	

In the third quarter of 2014, we reorganized our selling and corporate infrastructure, resulting in a reduction in workforce of 61 employees. The $2.8 million restructuring charge is presented as a separate line item on our statements of income and is comprised of one-time employee termination benefits and other associated costs. We have $2.1 million accrued for the restructuring charges as of September 30, 2014.
 	 	
Note 3:	New Accounting Pronouncements	
 
In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") number 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity. This ASU changes the criteria for reporting discontinued operations and adds additional disclosures on discontinued operations. ASU 2014-08 improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have or will have a major effect on an entities operations and financial results. Under current U.S. GAAP, disposals of small groups of assets that are recurring in nature and do not change an entity's strategy currently qualify for discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. We do not anticipate a material impact on our consolidated financial statements from adoption of this ASU.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance requires that an entity depict the consideration by applying a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently assessing the impact that adopting this new accounting update will have on our consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite

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Service Period. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.
We are currently assessing the impact that adopting this new accounting update will have on our consolidated financial statements and footnote disclosures.

Note 4:	Fair Value Measurement	
 
Our investment securities consist of certificates of deposit, corporate bonds, commercial paper 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 September 30, 2014, we had $5.7 million of our investment securities as Level 1 assets, which are certificates of deposit with quoted prices in active markets, and $71.8 million of our investment securities as Level 2 assets, which are pre-refunded municipal securities, non-pre-refunded municipal securities, corporate bonds and commercial paper and have observable market based inputs such as quoted prices, interest rates and yield curves. The following table provides the assets and liabilities carried at fair value measured on a recurring basis.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Fair value measurements at September 30, 2014 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	$	77,503	
 	 	$	5,665	
 	 	$	71,838	
 	 	$	—	
 	
 	$	77,503	
 	 	$	5,665	
 	 	$	71,838	
 	 	$	—	

 

 	Fair value measurements at December 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	$	70,869	
 	 	$	3,205	
 	 	$	67,664	
 	 	$	—	
 	
 	$	70,869	
 	 	$	3,205	
 	 	$	67,664	
 	 	$	—	

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Note 5: Investment Securities

Our investment securities consist of certificates of deposit, corporate bonds, commercial paper 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 loss in the stockholders' equity section of our consolidated balance sheets. We had no gross unrealized gains or losses on available-for-sale securities at September 30, 2014 or December 31, 2013. The scheduled maturities of the debt securities are between 2014 and 2045 and are all callable within one year. The investment securities consist of the following at September 30, 2014 and December 31, 2013:

 	 	 	 	 	 	 	 	
 	September 30, 2014	 	December 31, 2013	
Federal tax-exempt debt securities	$	14,828	
 	 	$	21,968	
 	
Corporate bonds	50,713	
 	 	45,696	
 	
Commercial paper	6,297	
 	 	—	
 	
Certificates of deposit	5,665	
 	 	3,205	
 	
 	$	77,503	
 	 	$	70,869	

Note 6: Inventories
 
Inventories consisted of the following:

 	 	 	 	 	 	 	 	
 	September 30, 2014	 	December 31, 2013	
Raw material	$	23,066	
 	 	$	21,867	
 	
Work in process	4,188	
 	 	2,749	
 	
Finished goods	10,994	
 	 	9,835	
 	
Total	$	38,248	
 	 	$	34,451	

 	 	
Note 7:	Property and Equipment	

Property and equipment consisted of the following:

 	 	 	 	 	 	 	 	
 	September 30, 2014	 	December 31, 2013	
Machinery and equipment	$	91,027	
 	 	$	84,317	
 	
Land, building and building improvements	71,768	
 	 	64,238	
 	
Molds	32,782	
 	 	30,813	
 	
Computer equipment and software	22,857	
 	 	21,625	
 	
Furniture and fixtures	3,619	
 	 	3,552	
 	
Construction in progress	2,065	
 	 	8,456	
 	
Total property and equipment, cost	224,118	
 	 	213,001	
 	
Accumulated depreciation	(135,586	)	 	(125,140	)	
Net property and equipment	$	88,532	
 	 	$	87,861	

 	 	
Note 8:	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

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approximated 211,000 for the three months ended September 30, 2014. There were no anti-dilutive options for the three months ended September 30, 2013. Options that are anti-dilutive because their exercise price exceeded the average market price of the common stock for the period approximated 235,000 and 8,000 for nine months ended September 30, 2014 and September 30, 2013, respectively.
 
The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30,	 	Nine months ended September 30,	
 	2014	 	2013	 	2014	 	2013	
Net income	$	6,428	
 	 	$	11,034	
 	 	$	18,963	
 	 	$	27,086	
 	
Weighted average number of common shares outstanding (for basic calculation)	15,319	
 	 	14,684	
 	 	15,220	
 	 	14,603	
 	
Dilutive securities	169	
 	 	640	
 	 	277	
 	 	536	
 	
Weighted average common and common equivalent shares outstanding (for diluted calculation)	15,488	
 	 	15,324	
 	 	15,497	
 	 	15,139	
 	
EPS — basic	$	0.42	
 	 	$	0.75	
 	 	$	1.25	
 	 	$	1.85	
 	
EPS — diluted	$	0.42	
 	 	$	0.72	
 	 	$	1.22	
 	 	$	1.79	

 	 	
Note 9:	Major Customer	
    
We had revenues equal to 10% or more of total revenues from one customer, Hospira, Inc. Such revenues were 37%  and 40% of total revenue for the three months ended September 30, 2014 and 2013, respectively, and 36% and 40% of total revenue for the nine months ended September 30, 2014 and 2013, respectively.  As of September 30, 2014 and December 31, 2013, we had accounts receivable from Hospira of 30% and 32% of consolidated accounts receivable, respectively.

Note 10:	Income Taxes	
 
Income taxes were accrued at an estimated effective tax rate of 31% and 30% in the first nine months of 2014 and 2013, 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 related to the conclusion of state tax examinations.
 	 	
Note 11:	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.

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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 help clinicians improve patient outcomes by minimizing bacterial ingress that can cause bloodstream infections and preventing exposure to infectious diseases or hazardous drugs.  Our product line includes needlefree vascular access devices, custom infusion sets, closed system hazardous drug handling devices and systems, advanced sensor catheters, needlefree closed blood sampling systems and innovative hemodynamic monitoring systems. 

Business Overview

In the early 1990s, we launched the Clave, an innovative one-piece, needlefree infusion connection device. The Clave is a leader in worldwide connector sales. The Clave's unique design ensures compliance with needlefree policies because it is rendered non-functional when use of a needle is attempted.  Our Clave products accounted for 35% of our revenues in 2013.

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 growth strategies is through acquisitions of companies, assets or product lines. We are continuously exploring acquisition opportunities, however 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. In 2013, we introduced the ChemoLock closed system transfer device. ChemoLock prevents the escape of hazardous drug or vapor concentrations, blocks the transfer of environmental contaminants into the system, and eliminates needlestick injuries. In 2011 and 2012, we introduced the Neutron, a catheter patency device using Clave technology, the NanoClave, a smaller Clave product designed for neonatal and pediatric 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, but are not limited to, our 2014 agreement with Premier, the extension of the term of our agreement with MedAssets and our 2011 agreement with Novation covering all our critical care products.  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.
 
Our products are used in hospitals and alternate medical sites in more than 55 countries throughout the world. We categorize our products into three main market segments: Infusion Therapy, Critical Care and Oncology. In prior periods, we included Tego needlefree hemodialysis connector and Lopez enteral valve under "Other". The Tego is now included under Infusion Therapy. The Lopez Valve is now included under Critical Care. Our primary products include:

Infusion Therapy
•Needlefree connector products
◦MicroClave and MicroClave Clear
◦Anti-Microbial MicroClave
◦Neutron
◦NanoClave
◦Clave
◦Y-Clave
◦Anti-Microbial Clave
•Custom infusion sets
•Tego needlefree hemodialysis connector

Critical Care
•Hemodynamic monitoring systems
◦Transpac disposable pressure transducers

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◦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
•Lopez enteral valve
    
Oncology
•ChemoLock closed system transfer device and components
•ChemoClave closed system transfer device and components including:
◦Genie closed vial access device
◦Spiros closed male luer
•Custom preparation and administration sets and accessories
•Diana hazardous drug compounding system

Our largest customer is Hospira.  Hospira accounted for 36%, 39% and 42% of our worldwide revenues in the first nine months of 2014 and each of the years ended 2013 and 2012, respectively. Our relationship with Hospira has been and will continue to be important for our growth.  Hospira has a significant share of the I.V. set market in the U.S. and provides us access to that market. We expect revenues from infusion therapy sales and new products to Hospira to remain a significant percentage of our revenues and to continue to be important to our worldwide growth.

Revenues for the first nine months of 2014 and the years ended 2013 and 2012 were $229.4 million, $313.7 million and $316.9 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 bulk, non-sterile connectors and oncology products.  Under 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 most of 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 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. 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.

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The following table sets forth, for the periods indicated, total revenues by market segment as a percentage of total revenues.  

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended September 30,	 	Nine months ended September 30,	 	Fiscal year ended	
Market segment	 	2014	 	2013	 	2014	 	2013	 	2013	 	2012	
Infusion therapy	 	71	%	 	71	%	 	69	%	 	71	%	 	71	%	 	72	%	
Critical care	 	17	%	 	17	%	 	18	%	 	17	%	 	17	%	 	17	%	
Oncology	 	12	%	 	12	%	 	12	%	 	12	%	 	12	%	 	10	%	
Other	 	—	%	 	—	%	 	1	%	 	—	%	 	—	%	 	1	%	
 	 	100	%	 	100	%	 	100	%	 	100	%	 	100	%	 	100	%	
   
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 and nine months ended September 30, 2014 and 2013 and the year ended December 31, 2013, the percentages of each income statement caption in relation to total revenues.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Percentage of revenues	
 	 	Three months ended September 30,	 	Nine months ended September 30,	 	Fiscal year	
 	 	2014	 	2013	 	2014	 	2013	 	2013	
Total revenues	 	100	%	 	100	%	 	100	%	 	100	%	 	100	%	
Gross margin	 	49	%	 	49	%	 	49	%	 	49	%	 	49	%	
Selling, general and administrative expenses	 	28	%	 	27	%	 	30	%	 	29	%	 	28	%	
Research and development expenses	 	7	%	 	3	%	 	6	%	 	4	%	 	4	%	
Restructuring charges	 	3	%	 	—	%	 	1	%	 	—	%	 	—	%	
Total operating expenses	 	38	%	 	30	%	 	37	%	 	33	%	 	32	%	
Income from operations	 	11	%	 	19	%	 	12	%	 	16	%	 	17	%	
Other income	 	—	%	 	—	%	 	—	%	 	—	%	 	—	%	
Income before income taxes	 	11	%	 	19	%	 	12	%	 	16	%	 	17	%	
Income taxes	 	3	%	 	6	%	 	4	%	 	5	%	 	4	%	
Net income	 	8	%	 	13	%	 	8	%	 	11	%	 	13	%	

Restructuring Charges

In the third quarter of 2014, we reorganized our selling and corporate infrastructure, resulting in a reduction in workforce of 61 employees. The $2.8 million restructuring charge is presented as a separate line item on our statements of income and is comprised of one-time employee termination benefits and other associated costs. We have $2.1 million accrued for the restructuring charges as of September 30, 2014 and expect the majority of this accrual to be paid out in the fourth quarter of 2014 and the first quarter of 2015.

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Quarter Ended September 30, 2014 Compared to the Quarter Ended September 30, 2013 
 
Revenues were $77.5 million in the third quarter of 2014 and $82.8 million in the third quarter of 2013.
 
Infusion Therapy:   Net infusion therapy sales were $54.9 million in the third quarter of 2014, a decrease of $3.6 million, or 6%, from the third quarter of 2013. Domestic infusion therapy sales were $41.0 million in the third quarter of 2014, a decrease of $4.1 million, or 9%, from the third quarter of 2013. The decrease in domestic infusion therapy was from $3.1 million in lower sales to Hospira and $1.0 million in lower direct domestic sales. International infusion therapy sales were $13.9 million in the third quarter of 2014, an increase of $0.5 million, or 4%, from the third quarter of 2013. The increase in international infusion therapy sales was from higher unit sales and higher average selling prices ("ASPs") due to change in product mix inside and outside of Europe.
 
Critical Care: Net critical care sales were $12.8 million in the third quarter of 2014, a decrease of $1.4 million, or 10%, from the third quarter of 2013. Domestic critical care sales were $9.1 million in the third quarter of 2014, a decrease of $1.4 million, or 13%, from the third quarter of 2013 due to lower unit sales and lower average selling prices due to change in product mix. International critical care sales were $3.7 million in the third quarter of 2014 and in the third quarter of 2013, a $0.3 million decrease in critical care sales in Europe was offset by a $0.3 million increase in international critical care sales outside of Europe.
 
Oncology: Net oncology sales were $9.4 million in the third quarter of 2014, a decrease of $0.5 million, or 5%, from the third quarter of 2013. Domestic oncology sales were $4.3 million in the third quarter of 2014, a decrease of $0.2 million, or 4%, from the third quarter of 2013, due to a decrease in domestic oncology sales to Hospira of $0.8 million due to lower unit sales, offset by an increase in direct domestic oncology sales of $0.6 million due to higher unit sales. International oncology sales were $5.1 million in the third quarter of 2014, a decrease of $0.3 million, or 6%, from the third quarter of 2013 due to lower unit sales outside of Europe.

Gross margins for the third quarters of 2014 and 2013 were 49.2% and 49.4%, respectively. The decrease in gross margin was primarily due to unfavorable change in product mix, partially offset by lower logistic expenses.

Selling, general and administrative expenses(“SG&A”)were $21.8 million, or 28% of revenues, in the third quarter of 2014, compared with $22.4 million, or 27%, of revenues in third quarter of 2013.  The decrease in SG&A expenses is primarily from $0.7 million in lower compensation and benefits and $0.7 million in lower travel expenses, partially offset by $1.1 million in higher stock compensation expense. The decreases in compensation and benefits and travel expenses were primarily due to the restructuring of our sales organization in the third quarter of 2014, resulting in a reduction in workforce.
 
Research and development expenses(“R&D”) were $5.1 million, or 7% of revenue, in the third quarter of 2014 compared to $3.1 million, or 3%, of revenue in the third quarter of 2013.  The increase in R&D expenses was primarily from increased compensation and benefits expenses from an increase in employees and increased external R&D project expenses. Our R&D team focuses on filling in product line gaps and product enhancements for our product line target markets and creating additional market opportunities.

Restructuring charges were $2.8 million, or 3% of revenues, in the third quarter of 2014. We reorganized our selling and corporate infrastructure in the third quarter of 2014, resulting in a reduction in workforce of 61 employees. The restructuring charges are comprised of one-time employee termination benefits and other associated costs.

Other income was $0.2 million in the third quarter of 2014 and in the third quarter of 2013. 

Income taxes were accrued at an estimated effective tax rate of 25% in the third quarter of 2014 and 29% in the third quarter of 2013.  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. 

Nine Months EndedSeptember 30, 2014 Compared to the Nine Months Ended September 30, 2013 
 
Revenues were $229.4 million in the first nine months of 2014, compared to $235.8 million in the first nine months of 2013.

Infusion Therapy:  Net infusion therapy sales were $159.3 million in the first nine months of 2014, a decrease of $7.1 million, or 4%, from the first nine months of 2013. Domestic infusion therapy sales were $115.2 million in the first nine months of 2014, a decrease of $10.7 million, or 9%, from the first nine months of 2013. The decrease in domestic infusion

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therapy was primarily from $10.6 million in lower sales to Hospira, due to lower unit sales. International infusion therapy sales were $44.0 million in the first nine months of 2014, an increase of $3.6 million, or 9%, from the first nine months of 2013. The increase in international infusion therapy sales was primarily from higher unit sales and higher ASPs due to change in product mix outside of Europe.
  
Critical Care: Net critical care sales were $41.3 million in the first nine months of 2014, an increase of $0.3 million, or 1%, from the first nine months of 2013. Domestic critical care sales were $29.8 million in the first nine months of 2014, a decrease of $0.6 million, or 2%, from the first nine months of 2013 due to lower unit sales and lower average selling prices due to change in product mix. International critical care sales were $11.5 million in the first nine months of 2014, an increase of $0.8 million, or 8%, from the first nine months of 2013 primarily due to higher unit sales and higher ASPs due to change in product mix outside of Europe.

Oncology: Net oncology sales were $27.7 million in the first nine months of 2014, an increase of $0.2 million, or 1%, from the first nine months of 2013. Domestic oncology sales were $12.2 million in the first nine months of 2014, an increase of $0.1 million, or 1%, from the first nine months of 2013. The increase in domestic oncology was from $0.9 million increase in direct sales from higher unit sales, partially offset by $0.8 million in lower sales to U.S. Hospira. International oncology sales were $15.6 million in the first nine months of 2014, an increase of $0.2 million, or 1%, from the first nine months of 2013. European oncology sales increased $1.1 million due to higher unit sales and were partially offset by $0.9 million in lower international oncology sales outside of Europe due to lower unit sales.
 
Gross margins for the first nine months of 2014 and 2013 were 48.7% and 49.1%, respectively.  The decrease in gross margin was due to unfavorable change in product mix and temporary rework of one of our product lines, partially offset by lower logistic expenses.

SG&A were $68.6 million, or 30% of revenues, in the first nine months of 2014, compared with $68.4 million, or 29% of revenues, in the first nine months of 2013.  The increase was primarily from $2.6 million in higher stock compensation expense and $0.6 million in higher outside services expenses, partially offset by $1.6 million in lower travel expenses and $1.1 million in lower compensation and benefit expenses.
 
R&D were $13.3 million, or 6% of revenue, in the first nine months of 2014 compared to $8.9 million, or 4% of revenue, in the first nine months of 2013.  The increase in R&D expenses was primarily from increased compensation and benefit expenses from an increase in R&D employees and increased external R&D project expenses.

Restructuring charges were $2.8 million, or 3% of revenues, in the first nine months of 2014. We reorganized our selling and corporate infrastructure in the third quarter of 2014, resulting in a reduction in workforce of 61 employees. The restructuring charges are comprised of one-time employee termination benefits and other associated costs.

Other income was $0.6 million in the first nine months of 2014 and in the first nine months of 2013. 

Income taxes were accrued at an estimated effective tax rate of 31% in the first nine months of 2014 compared to 30% in the first nine months of 2013.  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. 

Liquidity and Capital Resources
 
During the first nine months of 2014, our cash, cash equivalents and investment securities increased by $32.8 million from $296.9 million at December 31, 2013 to $329.7 million at September 30, 2014.
 
Operating Activities: Our cash provided by operating activities 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 $48.3 million in the first nine months of 2014. Net income plus adjustments for non-cash net expenses contributed $41.7 million to cash provided by operations. Changes in operating assets and liabilities contributed $6.6 million to cash provided by operations. The $9.4 million decrease in accounts receivable and $4.7 million increase in inventory were the largest changes in operating assets and liabilities. Cash provided by the change in accounts receivable is primarily due to improved days sales outstanding and lower revenue in the third quarter of 2014 compared to the third quarter of 2013. The increase in inventory was due to raw materials inventory, higher finished goods inventory and work in progress inventory.

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Investing Activities:  Our cash used by investing activities was $25.2 million in the first nine months of 2014, which was primarily comprised of $14.9 million in capital purchases and net investment purchases of $9.5 million. Our property, plant and equipment purchases were primarily for the plant expansion, machinery, equipment and mold additions in our Salt Lake City plant, machinery and equipment additions in our Mexico plant and investments in IT that benefit world-wide operations.
 
While we can provide no assurances, we estimate that our capital expenditures in 2014 will approximate $16.0 million to $19.0 million. The construction for the expansion of our Salt Lake City plant was completed in June 2014. Capital expenditures for the plant expansion were approximately $8.0 million in the first nine months of 2014. We also anticipate making additional 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 IT that benefit world-wide operations. We expect to use our cash and investments to fund our capital purchases. These planned amounts of spending are estimates and actual spending may substantially differ from these amounts.
 
Financing Activities:  Our cash provided by financing activities was $8.5 million in the first nine months of 2014. Cash and tax benefits provided by the exercise of stock options and shares purchased by our employees under the employee stock purchase plan was $14.3 million in the first nine months of 2014. In the first nine months of 2014, we withheld 4,583 shares of our common stock from option exercises and 4,232 shares of our common stock from vested restricted stock units as consideration for $0.2 million in payments for the employee's share award tax withholding obligations.

In July 2010, our Board of Directors approved a share purchase plan to purchase up to $40.0 million of our common stock.  We purchased $5.6 million in our common stock in the first half of 2014, all in the first quarter. As of September 30, 2014, we purchased $17.5 million of our common stock pursuant to this plan, leaving a balance of $22.5 million available for future purchases. 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 September 30, 2014, we have $19.3 million of cash and cash equivalents held by our foreign subsidiaries, 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 September 30, 2014, of approximately the amounts set forth in the table below. These amounts 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 $2.7 million due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities.

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 	 	(in thousands)	 	 	
Contractual Obligations	 	Total	 	2014	 	2015	 	2016	 	2017	
Operating leases	 	$	288	
 	 	$	74	
 	 	$	151	
 	 	$	63	
 	 	—	
 	
Service agreements	 	122	
 	 	93	
 	 	13	
 	 	13	
 	 	3	
 	
Purchase obligations	 	4,115	
 	 	4,115	
 	 	—	
 	 	—	
 	 	—	
 	
 	 	$	4,525	
 	 	$	4,282	
 	 	$	164	
 	 	$	76	
 	 	3	

Critical Accounting Policies
 
In our Annual Report on Form 10-K for the year ended December 31, 2013, 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 3 to Part I, Item 1.  Financial Statements.

Forward Looking Statements
 
Various portions of this Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 "anticipate," "believe," "expect," "estimate," "intend," "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 of products; expected increases or decreases in sales; 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; planned capital purchases for molds, machinery and equipment in our manufacturing operations and investments in information technology; results of R&D; 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; 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; 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.	

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 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, 2013 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;	

•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, commercial paper and certificates of deposit of $77.5 million as of September 30, 2014.  The securities are all “investment grade”, comprised of $14.3 million of pre-refunded municipal securities, $0.5 million of non-pre-refunded municipal securities, $50.7 million in corporate bonds, $6.3 million in commercial paper and $5.7 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 $0.5 million to investment income based on the investment securities balance at September 30, 2014.
 
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 September 30, 2014 was
approximately €18.2 million. We also have approximately €52.1 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 September 30, 2014 spot rate would impact our

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consolidated amounts on these balance sheet items by approximately $8.9 million, or 2.7% 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 2013 and our manufacturing spending from 2013 would have impacted 2013 cost of goods sold by approximately $2.4 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 2013, a 10% increase to the price of resin would have resulted in approximately a $1.2 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 September 30, 2014 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 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	
 
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, 2013, 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, 2013.

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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 third quarter of 2014:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	
07/01/2014 — 07/31/2014	 	—	
 	 	$	—	
 	 	—	
 	 	$	22,522,000	
 	
08/01/2014 — 08/31/2014	 	—	
 	 	—	
 	 	—	
 	 	22,522,000	
 	
09/01/2014 — 09/30/2014	 	—	
 	 	—	
 	 	—	
 	 	22,522,000	
 	
Third quarter of 2014 total	 	—	
 	 	$	—	
 	 	—	
 	 	$	22,522,000	

Item 6. Exhibits

Exhibit 3.1	 	Amended and Restated Bylaws (1)	
 	 	 	
Exhibit 10.1	 	Employment Agreement between Registrant and George A. Lopez, M.D. effective October 21, 2013 (2)*	
 	 	 	
Exhibit 10.2	 	Amended and Restated Retention Agreement between Registrant and George A. Lopez, M.D. effective October 21, 2013*	
 	 	 	
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	
* Executive compensation plan or other arrangement
(1) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed July 25, 2014, and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q filed August 8, 2014, and incorporated herein by reference.

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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:	November 10, 2014	
Scott E. Lamb	 	 	
Chief Financial Officer	 	 	
(Principal Financial Officer)	 	 	

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Exhibit Index

 	 	 	
Exhibit 10.2	 	Amended and Restated Retention Agreement between Registrant and George A. Lopez, M.D. effective October 21, 2013	
 	 	 	
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

2013 AMENDED AND RESTATED RETENTION AGREEMENT

This AMENDED AND RESTATED RETENTION AGREEMENT is entered into as of this 21st day of October, 2013, by and between ICU MEDICAL, INC., a Delaware corporation (the “ Company ”) and George A. Lopez (the “ Employee ”), and supersedes in their entirety the RETENTION AGREEMENT entered into by the Company and the Employee as of January 29, 2010 and the AMENDED AND RESTATED RETENTION AGREEMENT entered into by the Company and the Employee as of November 3, 2010.
RECITALS
WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that the uncertainties raised by such a possibility may result in the distraction or even the premature departure of the Employee to the detriment of the Company and its stockholders, and
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Employee without distraction from the possibility of a change in control of the Company and related events and circumstances.
NOW, THEREFORE, as an inducement for and in consideration of the Employee remaining in its employ, the Company agrees that the Employee shall receive the severance benefits set forth in this Agreement in the event the Employee’s employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1).
1.Key Definitions.
As used herein, the following terms shall have the following respective meanings:
1.1    “Change in Control” means
(a)the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) (a “ Person ”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (i) the then-outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided, however, that for purposes of this subsection 1.1(a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with all of clauses (i), (ii) and (iii) of subsection (c) of this Section 1.1; or
(b)individuals who, as of the date hereof, constitute the members of the Board (the “ Incumbent Directors ”) ceasing for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Incumbent Directors then in office shall be deemed to be an Incumbent Director (except that this

proviso shall not apply to any individual whose initial election as a director occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board); or
(c)the consummation of a reorganization, merger or consolidation involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a “ Business Combination ”), unless, immediately following such Business Combination, each of the following three conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries)(such resulting or acquiring corporation is referred to as the “ Acquiring Corporation ”) in substantially the same proportions, relative to one another, as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the Business Combination) and (iii) a majority of the members of the board of directors of the Acquiring Corporation were Incumbent Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d)approval of the stockholders of the Company of a complete liquidation or dissolution of the Company; provided that in each case a Change in Control must constitute a “change in control event” under Code Section 409A.
1.2    “Change in Control Date” means the applicable date on which a Change in Control occurs if one or more Change in Control events occur during the Term (as defined in Section 2). Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and if the Employee’s employment with the Company is terminated prior to the Change in Control Date or if any event which constitutes Good Reason (as defined in Section 1.4) occurs prior to the Change in Control Date, and if it is reasonably demonstrated by the Employee that such termination of employment or event which constitutes Good Reason (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the “ Change in Control Date ” shall mean the date immediately prior to the date of such termination of employment or event which constitutes Good Reason.
1.3    “Cause” means:
(e)the Employee’s intentional, willful and continuous failure to substantially perform his reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness), which failure is materially and demonstrably injurious to the Company, and which failure is not cured within 30 days after a written demand for substantial performance is received by the Employee from the Board which specifically identifies the manner in which the Board believes the Employee has not substantially performed the Employee’s duties, provided, however, that there shall be no specific requirement mandating (i) the number of hours worked in any particular month or other given time period, or (ii) the location such work is to be performed; or
(f)the Employee’s conviction of a felony or for other illegal conduct which is materially and demonstrably injurious to the Company.

For purposes of this Section 1.3, no act or failure to act by the Employee shall be considered “willful” unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Employee’s action or omission was in the best interests of the Company. The determination of whether Employee is being terminated for Cause or whether the event or condition constituting Cause is curable shall be made in good faith by the Board.
1.4    “Good Reason” means the occurrence, without the Employee’s written consent, of any of the events or circumstances set forth in clauses (a) through (f) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Employee in respect thereof, such event or circumstance has been fully corrected and the Employee has been reasonably compensated for any losses or damages resulting therefrom; provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Employee:
(g)any significant diminution in the Employee’s duties, responsibilities or authority in effect immediately prior to the earliest to occur of (i) a Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for a Change in Control or (iii) the date of the adoption by the Board of a resolution providing for a Change in Control (with the earliest to occur of such dates referred to as the “ Measurement Date ”);
(h)any reduction in the Employee’s annual base salary as in effect on the Measurement Date or as the same may be increased from time to time;
(i)the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (a “ Benefit Plan ”) in which the Employee participates or which is applicable to the Employee immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan or reasonable cash compensation in lieu thereof) has been made with respect to such plan or program, (ii) continue the Employee’s participation in a Benefit Plan (or in such substitute or alternative plan or make reasonable cash compensation in lieu thereof) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Employee’s participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Employee in amounts and in a manner substantially consistent with past practice in light of the Company’s financial performance;
(j)a material change by the Company in the location at which the Employee performs the Employee’s principal duties for the Company to a new location that is either (i) outside a radius of 35 miles from the Employee’s principal residence immediately prior to the Measurement Date; (ii) more than 30 miles from the location at which the Employee performs his principal duties for the Company immediately prior to the Measurement Date, and which results in a material increase in the Employee’s daily commuting distance; or (iii) a requirement by the Company that the Employee travel on Company business (to locations outside a radius of 35 miles from the Employee’s principal residence immediately prior to the Measurement Date and more than 30 miles from the location at which the Employee performs his principal duties for the Company immediately prior to the Measurement Date) to a materially greater extent than required immediately prior to the Measurement Date;
(k)any material breach by the Company of any employment agreement with the Employee, including any intentional or commercially unreasonable failure of the Company to pay or provide to the Employee any portion of the Employee’s compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or the failure of the Company to obtain the agreement, in a form reasonably satisfactory to the Employee, from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6; or

(l)the Employee has a disability, meaning that the Employee is unable to perform his duties under his employment agreement with the Company, dated as of October 21, 2013 (the “ Employment Agreement ”), for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Employee or the Employee’s legal representative and acceptable to the Company or its insurers (the “ Physician ”), or that the Physician determines that the Employee is immediately unable to perform the essential functions of his duties with or without reasonable accommodation due to bodily injury or sickness, including mental or nervous disorder, and the inability to perform the essential functions is expected to last at least 180 consecutive calendar days.
1.5    “Effective Date” means the date as of which this Agreement is entered into.
2.Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of
(a)the expiration of the Term (as defined below) if (i) a Change in Control has not occurred during the Term or (ii) the only Change in Control event(s) during the Term have occurred prior to the 24-month period preceding the expiration of the Term and the Employee was still employed by the Company 24 months after the Change in Control Date(s);
(b)if a Change in Control has occurred within the 24-month period preceding the expiration of the Term, the date 24 full calendar months after the Change in Control Date, if the Employee is still employed by the Company as of such later date; or
(c)if a Change in Control has occurred at any time during the Term and the Employee’s employment with the Company terminates within 24 full calendar months following the Change in Control Date, the fulfillment by the Company of all of its obligations under Sections 4 and 6, provided that Section 5 shall remain in effect from the Effective Date until 24 full calendar months after the Date of Termination of the Employee.
“Term” shall mean the period commencing as of the Effective Date and continuing in effect through January 31, 2016.
3.    Employment Status; Termination Following Change in Control.
3.1    Not an Employment Contract. The Employee acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Employee as an employee and that this Agreement does not prevent the Employee from terminating employment at any time. If the Employee’s employment with the Company terminates for any reason not in connection with or in anticipation of a Change in Control and subsequently a Change in Control occurs, the Employee shall not be entitled to any benefits hereunder, except as otherwise provided pursuant to Section 1.2.
3.2    Termination of Employment.
(d)If a Change in Control Date occurs during the Term, any termination of the Employee’s employment by the Company or by the Employee within 24 full calendar months following the Change in Control Date (other than due to the death of the Employee) shall be communicated by a written notice to the other party hereto (the “ Notice of Termination ”), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice; (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination for the Employee’s employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The date on which an employment termination becomes effective (the “ Date of Termination ”) shall be the close of business on the date specified in the Notice of Termination (which date shall be 30 days after the date of delivery of such Notice of Termination), in the case of a termination other than due to the Employee’s death or the date of the Employee’s death, as the case may be.

(e)The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, to assert any such fact or circumstance in enforcing the Employee’s or the Company’s right hereunder.
(f)Any Notice of Termination for Cause given by the Company must be given within 60 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Employee shall be entitled to a hearing before the Board at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held with not less than 15 days’ prior written notice to the Employee stating the Board’s intention to terminate the Employee for Cause and stating in detail the particular event(s) or circumstance(s) which the Board believes constitutes Cause for termination,
(g)Any Notice of Termination for Good Reason given by the Employee must be given within 60 days of the occurrence of the event(s) or circumstance(s) which constitute Good Reason.
4.    Benefits to Employee.
4.1    Compensation. If a Change in Control Date occurs during the Term and the Employee’s employment with the Company terminates within 24 full calendar months following the Change in Control Date, the Employee shall be entitled to the following benefits:
(h)Termination Without Cause or for Good Reason following a Change in Control. If the Employee’s employment with the Company is terminated by the Company (other than for Cause or death) or by the Employee for Good Reason within 24 full calendar months following the Change in Control Date, then the Employee shall be entitled to the following benefits:
(i)The Company shall pay to the Employee in a lump sum in cash within 60 days after the Date of Termination the aggregate of the following amounts (provided that, in the event the Employee is entitled to benefits under this Section 4.1(a) as a result of a qualifying termination of the Employee’s employment that occurs prior to a Change in Control as provided by Section 1.2 of this Agreement, such lump sum payment shall be made within 60 days after the applicable date on which the Change in Control occurs provided Employee makes a valid claim within 45 days after the applicable date on which the Change in Control occurs):
(1)the sum of (A) the Employee’s annual base salary through the Date of Termination and (B) the product of (x) the Employee’s total on target semi-annual and annual bonuses for the current fiscal year (meaning the maximum amount of bonus for which the Employee is eligible for the entire fiscal year, if any, under the Company’s Employee bonus plan) (the “ Target Bonus ”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, less (C) the amount of any annual compensation previously paid, whether in quarterly bonus payments, or otherwise, (the sum of the amounts described in clauses (A) and (B), less the amount previously paid in (C), shall be referred to as the “ Accrued Obligations ”); and
(2)two hundred percent (200%) of the higher of (A) the sum of the Employee’s annual base salary as of the date immediately before the Date of Termination and the Employee’s Target Bonus, if any, for the current fiscal year; or (B) the sum of the amounts paid for the Employee’s annual base salary and bonus in the fiscal year that is up to two (2) years prior to the fiscal year in which the Date of Termination occurs.
(ii)To the extent not previously paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive following the Employee’s termination of employment under any plan, program, policy, practice, contract or agreement of the Company (such other amounts and benefits shall be referred to as the “ Other Benefits ”);

(iii)The Employee will be entitled to continue to use all of the Company’s San Clemente facilities for a period of five years to the extent that the Company maintains such facilities;
(iv)Notwithstanding any provision of this Agreement, (A) awards that have been granted to the Employee under the LTRP (“ LTRP Awards ”) that have not been paid in accordance with the terms of the LTRP shall not be considered Accrued Obligations, Target Bonus or benefits to be provided in accordance with Benefit Plans for purposes of determining amounts to be paid under this Section 4.1 and (B) LTRP Awards are Other Benefits that will be paid or not paid, as the case may be, in accordance with the terms the LTRP.
(i)Resignation without Good Reason, Termination for Cause, or Termination for Death Following a Change in Control . If the Employee voluntarily terminates his employment with the Company within 24 full calendar months following a Change in Control Date, excluding a termination for Good Reason, or the Employee’s employment with the Company is terminated by the Company for Cause, or by reason of the Employee’s death within 24 full calendar months following a Change in Control Date, then the Company shall (i) pay the Employee (or his estate, if applicable), in a lump sum in cash within 60 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Employee the Other Benefits earned before the Date of Termination.
4.2    Limitation on Payments. In the event that any of the payments or benefits provided for in this Agreement or otherwise (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this Section 4.2, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s payments or benefits under this Agreement or otherwise will be either:
(j)delivered in full, or
(k)delivered as to such lesser extent which would result in no portion of such payments or benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Employee on an after-tax basis of the greatest amount of payments and benefits, notwithstanding that all or some portion of such payments or benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4.2 will be made in writing by the Company’s independent public accountants immediately prior to the Change in Control Date (the “ Accountants ”), whose determination will be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 4.2, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 4.2. The Company will bear all fees and costs payable to the Accountants in connection with any calculations contemplated by this Section 4.2. Any reduction in payments and/or benefits required by this Section 4.2 shall occur in the following order: (1) reduction of cash payments, (2) reduction of equity acceleration (full-value awards first, then stock options), and (3) other benefits paid to the Employee. In the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the equity awards.
4.3    Mitigation. The Employee shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Employee as a result

of employment by another employer, by retirement benefits, by disability or death benefits, by offset against any amount claimed to be owed by the Employee to the Company or otherwise.
5.    Disputes.
5.1    Settlement of Disputes; Arbitration. All claims by the Employee for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Employee in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Employee for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Orange County, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
5.2    Expenses. The prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys’ fees, expert witness fees, court costs and all other costs and expenses incurred in any action or proceeding arising out of this Agreement or as to any matters related to but not covered by this Agreement. “ Prevailing party ” for purposes of this Section 5.2 includes a party who agrees to dismiss an action or proceeding upon the other’s payment of the sums allegedly due or for performance of the covenants, undertakings or agreements allegedly breached, or who obtains substantially the relief it sought.
6.    Successors; Binding Agreement.
(l)The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Employee elects to terminate employment (and such termination shall be deemed to have occurred after a Change in Control), except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “ Company ” shall mean the Company as defined above and any successor to its business or assets as aforesaid that assumes and agrees to perform this Agreement, by operation of law or otherwise.
(m)This Agreement shall inure to the benefit of and be enforceable by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amount would still be payable to the Employee or his family hereunder if the Employee had continued to live, all such amounts, unless otherwise provided, herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Employee’s estate.
7.    Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company at 951 Calle Amanecer, San Clemente, CA 92673, and to the Employee at the home address most recently provided by the Employee to the Company (or to such other address as either the Company or the Employee may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered, whether or not actually received, five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other

communication shall be deemed to have been duly delivered unless and until it is actually is received by the party for whom it is intended.
8.    Miscellaneous.
8.1    Employment by Subsidiary. For purposes of this Agreement, the Employee’s employment with the Company shall not be deemed to have terminated solely as a result of the Employee continuing to be employed by a wholly-owned subsidiary of the Company.
8.2    Severability. If any provision of this Agreement is declared invalid or unenforceable, such provision shall be deemed automatically adjusted to conform to the requirements for validity or enforceability as declared at such time while maintaining the original intent of the provision to the greatest extent possible and, as so adjusted, shall be deemed a provision of this Agreement as though originally included herein. If the provision invalidated or deemed unenforceable is of such a nature that it cannot be so adjusted, the provision shall be deleted from this Agreement as though it had never been included therein. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
8.3    Injunctive Relief. The Company and the Employee agree that any breach of this Agreement by the Company or the Employee is likely to cause the Employee or the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Employee or the Company shall have the right to seek specific performance and injunctive relief.
8.4    Governing Law. The validity, interpretation, construction, enforceability and performance of this Agreement shall be governed by the internal law of the State of California.
8.5    Waivers. No waiver by the Employee at any time of any breach of or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time.
8.6    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together will constitute one and the same instrument.
8.7    Tax Withholding. Subject to Section 4.2, any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law.
8.8    Entire Agreement. Except as provided in the Employee’s stock option, RSU, and PSU agreements and the Employment Agreement, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Nothing contained in this Agreement shall limit the Employee’s or the Company’s rights, obligations and benefits under the Employee’s stock option, RSU and PSU agreements and the Employment Agreement.
8.9    Amendments. The Employee and the Company may, by mutual agreement, amend or modify this Agreement, provided, however that any such amendment or modification shall only be effected by a written instrument executed by both the Company and the Employee.
8.10    Section 409A Compliance. This Agreement is intended to comply with Section 409A (as amplified by any Internal Revenue Service or U.S. Treasury Department guidance), and shall be construed and interpreted in accordance with such intent. The severance payments set forth in this Agreement are intended to comply with or be exempt from Section 409A, and shall at all times be interpreted and administered in furtherance of this intent. The Company shall delay the payments of any amounts under this Agreement to the extent necessary to comply with Section 409A(a)(2)(B)(c) of the Code. If penalty or interest liability would be charged to the Employee under Section 409A or similar state or local law, for which it is reasonably concluded that the event giving rise to the liability was not in the reasonable control of the Employee, the Company shall reimburse the Employee for such penalty and/

or interest liability accruing under Section 409A or similar state or local law within sixty (60) days of the Employee’s remittance of such penalty and/or interest liability to the appropriate tax authorities.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a sealed instrument as of the day and year first set forth above.
ICU MEDICAL, INC.
By:        
 	 	
Title:	____________________________________	

    
GEORGE A. LOPEZ, M.D.

Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Vivek Jain, 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:	November 10, 2014	/s/ Vivek Jain	
 	 	Chief Executive Officer	

 	

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:	November 10, 2014	/s/ Scott E. Lamb	
 	 	Chief Financial Officer	

 	

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 September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vivek Jain, 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.	

 	
 	 	
November 10, 2014	/s/ Vivek Jain	
 	Vivek Jain	
 
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 September 30, 2014 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.	

 	 	
November 10, 2014	/s/ Scott E. Lamb	
 	Scott E. Lamb