Exhibit 99.2
ICU MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On January 6, 2022 (the “Closing Date”), ICU Medical, Inc. (the “Company”, “ICU Medical”, “we” or “us”) completed the acquisition of Smiths Medical 2020 Limited (“Smiths Medical”), the holding company of Smiths Group plc’s (“Smiths Group”) global medical device business, and its consolidated subsidiaries (the “Acquisition”) pursuant to the terms and conditions of the Share Sale and Purchase Agreement, dated as of September 27, 2021 (the “Purchase Agreement”).
The Acquisition will be accounted for using the acquisition method of accounting for business combinations under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 805, Business Combinations, with ICU Medical representing the accounting acquirer under this guidance. The unaudited pro forma combined financial statements were prepared in accordance with Article 11 of Regulation S-X, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. The unaudited pro forma combined financial information is presented to illustrate the estimated effects of the Acquisition and the issuance of debt used to partially fund the Acquisition.
The unaudited pro forma combined balance sheet assumes that the Acquisition occurred on September 30, 2021 and combines ICU Medical’s historical unaudited consolidated balance sheet as of September 30, 2021 with Smiths Medical’s July 31, 2021 adjusted consolidated balance sheet.
The unaudited pro forma combined statement of operations for the year ended December 31, 2020 combines ICU Medical’s historical audited consolidated statement of operations for the year ended December 31, 2020 with Smiths Medical’s historical unaudited consolidated statement of income for the twelve months ended January 31, 2021, giving effect to the Acquisition as if it had been completed on January 1, 2020.
The unaudited pro forma combined statement of operations for the nine months ended September 30, 2021 combines ICU Medical’s historical unaudited consolidated statement of operations for the nine months ended September 30, 2021 with Smiths Medical’s historical unaudited consolidated statement of income for the nine months ended July 31, 2021, giving effect to the Acquisition as if it had been completed on January 1, 2020.
The estimated purchase price of the Acquisition will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the Closing Date; any excess value of the estimated consideration transferred over the net assets will be recognized as goodwill. The Company has made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed using information currently available. The finalization of the Company’s purchase accounting assessment may result in changes to the valuation of assets acquired and liabilities assumed, which could have a material impact on the accompanying unaudited pro forma combined financial information.
The unaudited pro forma combined financial information contains certain reclassification adjustments to conform the historical Smiths Medical’s financial statement presentation to ICU Medical’s financial statement presentation. Additionally, in the accompanying unaudited pro forma combined financial information, Smiths Medical’s financial information has been adjusted from International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) to accounting principles generally accepted in the United States of America (“U.S. GAAP”). Further, the unaudited pro forma combined financial information contains adjustments reflecting the Acquisition and related debt financing.
On January 6, 2022, ICU Medical entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Barclays Bank PLC and certain other financial institutions (the “Lenders”), pursuant to which, among other things, the Lenders provided ICU Medical with credit facilities in an aggregate amount of $2.2 billion (the “Credit Facilities”) consisting of a Term Loan A Facility of $850 million, a Term Loan B Facility of $850 million, and a Revolving Credit Facility of $500 million. Proceeds of $1.7 billion, net of lender fees and debt issuance costs of $35.7 million, received under the Credit Facilities on the Closing Date were used to partially fund the Acquisition. The Company had no borrowings under the Revolving
Credit Facility as of the Closing Date. The adjustments related to the Credit Facilities are shown in a separate column as “Financing Adjustments”.
Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma combined balance sheet and unaudited pro forma combined statements of operations.
The following unaudited pro forma combined financial information should be read in conjunction with ICU Medical’s consolidated financial statements and related notes and Smiths Medical’s audited financial statements and related notes. ICU Medical’s financial statements and notes are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2021. Smiths Medical’s audited financial statements and related notes for the year ended July 31, 2021 are included elsewhere in this Form 8-K.
The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma combined financial information and related notes are presented for illustrative purposes only, and do not purport to represent what the actual consolidated results of operations or financial condition would have been had the Acquisition occurred on the dates indicated, nor are they necessarily indicative of the combined company's future results of operations or financial position. Additionally, the unaudited pro forma combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies, or any revenue, tax, or other synergies that may result from the Acquisition.
ICU MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2021
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ICU Medical September 30, 2021 Historical | | Smiths Medical July 31, 2021 (As Adjusted) (Note 3) | | Transaction Adjustments (Note 6) | | Note Ref | | Financing Adjustments (Note 7) | | Pro Forma Combined |
| ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | |
Cash and cash equivalents | $ | 519,485 | | | $ | 229,477 | | | $ | (1,922,955) | | | 6A | | $ | 1,664,362 | | | $ | 490,369 | |
Short-term investment securities | 18,009 | | | — | | | — | | | | | — | | | 18,009 | |
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENT SECURITIES | 537,494 | | | 229,477 | | | (1,922,955) | | | | | 1,664,362 | | | 508,378 | |
Accounts receivable, net of allowance for doubtful accounts | 116,043 | | | 156,489 | | | — | | | | | — | | | 272,532 | |
Inventories | 291,601 | | | 201,263 | | | 34,500 | | | 6E | | — | | | 527,364 | |
Prepaid income taxes | 31,381 | | | 3,959 | | | — | | | | | — | | | 35,340 | |
Prepaid expenses and other current assets | 34,718 | | | 1,544,465 | | | (1,526,297) | | | 6B | | — | | | 52,886 | |
TOTAL CURRENT ASSETS | 1,011,237 | | | 2,135,653 | | | (3,414,752) | | | | | 1,664,362 | | | 1,396,500 | |
| | | | | | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, net | 458,041 | | | 176,485 | | | 49,515 | | | 6C | | — | | | $ | 684,041 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | 40,979 | | | 55,958 | | | 5,922 | | | 6F | | — | | | 102,859 | |
LONG-TERM INVESTMENT SECURITIES | 7,172 | | | 19,000 | | | — | | | | | — | | | 26,172 | |
GOODWILL | 32,760 | | | 717,185 | | | 573,532 | | | 6I | | — | | | 1,323,477 | |
INTANGIBLE ASSETS, net | 192,778 | | | 17,710 | | | 907,290 | | | 6D | | — | | | 1,117,778 | |
DEFERRED INCOME TAXES | 35,585 | | | 16,836 | | | — | | | | | — | | | 52,421 | |
OTHER ASSETS | 60,799 | | | 2,327 | | | — | | | | | 8,336 | | | 71,462 | |
TOTAL ASSETS | $ | 1,839,351 | | | $ | 3,141,154 | | | $ | (1,878,493) | | | | | $ | 1,672,698 | | | $ | 4,774,710 | |
| | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | |
Accounts payable | $ | 62,008 | | | $ | 107,846 | | | $ | (830) | | | 6B | | $ | — | | | $ | 169,024 | |
Current portion of long-term debt | — | | | 1,124,187 | | | (1,124,187) | | | 6B | | 22,312 | | | 22,312 | |
Accrued liabilities | 94,133 | | | 140,482 | | | 31,409 | | | 6G | | — | | | 266,024 | |
Income tax payable | 2,636 | | | 17,716 | | | — | | | | | — | | | 20,352 | |
Contingent earn-out liability | 26,300 | | | — | | | 53,520 | | | 6A | | — | | | 79,820 | |
TOTAL CURRENT LIABILITIES | 185,077 | | | 1,390,231 | | | (1,040,088) | | | | | 22,312 | | | 557,532 | |
| | | | | | | | | | | |
CONTINGENT EARN-OUT LIABILITY | 3,100 | | | — | | | — | | | | | — | | | 3,100 | |
LONG-TERM DEBT | — | | | 24 | | | — | | | | | 1,650,386 | | | 1,650,410 | |
OTHER LONG-TERM LIABILITIES | 40,853 | | | 119,869 | | | — | | | | | — | | | 160,722 | |
DEFERRED INCOME TAXES | 1,663 | | | (1,248) | | | 249,307 | | | 6K | | — | | | 249,722 | |
INCOME TAX LIABILITY | 18,686 | | | — | | | — | | | | | — | | | 18,686 | |
COMMITMENTS AND CONTINGENCIES | — | | | — | | | — | | | | | — | | | — | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | | |
ICU MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2021
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible preferred stock | — | | | — | | | — | | | | | — | | | — | |
Common stock | 2,124 | | | 12,556 | | | (12,306) | | | 6A,6H | | — | | | 2,374 | |
Additional paid-in capital | 711,152 | | | 172 | | | 575,553 | | | 6A,6H | | — | | | 1,286,877 | |
Treasury stock, at cost | (48) | | | — | | | — | | | | | — | | | (48) | |
Retained earnings | 891,862 | | | 2,121,883 | | | (2,153,292) | | | 6H | | — | | | 860,453 | |
Accumulated other comprehensive loss | (15,118) | | | (502,333) | | | 502,333 | | | 6H | | — | | | (15,118) | |
TOTAL STOCKHOLDERS' EQUITY | 1,589,972 | | | 1,632,278 | | | (1,087,712) | | | | | — | | | 2,134,538 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,839,351 | | | $ | 3,141,154 | | | $ | (1,878,493) | | | | | $ | 1,672,698 | | | $ | 4,774,710 | |
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2020
(Amounts in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ICU Medical 12 months ended December 31, 2020 Historical | | Smiths Medical 12 months ended January 31, 2021 As Adjusted (Note 3) | | Transaction Adjustments (Note 6) | | Note Ref | | Financing Adjustments (Note 7) | | Pro Forma Combined |
| | | | | | | | | | | |
TOTAL REVENUES | $ | 1,271,004 | | | $ | 1,199,074 | | | $ | — | | | | | $ | — | | | $ | 2,470,078 | |
COST OF GOODS SOLD | 809,507 | | | 714,226 | | | 35,853 | | | 6C, 6E, 6F | | — | | | 1,559,586 | |
GROSS PROFIT | 461,497 | | | 484,848 | | | (35,853) | | | | | — | | | 910,492 | |
OPERATING EXPENSES: | | | | | | | | | | | |
Selling, general and administrative | 283,953 | | | 288,430 | | | 105,575 | | | 6C, 6D, 6F | | — | | | 677,958 | |
Research and development | 42,948 | | | 32,993 | | | 39 | | | 6C, 6F | | — | | | 75,980 | |
Restructuring, strategic transaction and integration | 28,409 | | | — | | | 31,409 | | | 6G | | — | | | 59,818 | |
Change in fair value of contingent ear-out | 9,000 | | | | | | | | | | | 9,000 | |
Contract settlement | (975) | | | — | | | — | | | | | — | | | (975) | |
TOTAL OPERATING EXPENSES | 363,335 | | | 321,423 | | | 137,023 | | | | | — | | | 821,781 | |
INCOME FROM OPERATIONS | 98,162 | | | 163,425 | | | (172,876) | | | | | — | | | 88,711 | |
INTEREST EXPENSE | (1,753) | | | (25,840) | | | 22,371 | | | 6B | | (47,525) | | | (52,747) | |
OTHER INCOME (EXPENSE), NET | 1,085 | | | 36,811 | | | (47,156) | | | 6B | | — | | | (9,260) | |
INCOME BEFORE INCOME TAXES | 97,494 | | | 174,396 | | | (197,661) | | | | | (47,525) | | | 26,704 | |
PROVISION FOR INCOME TAXES | (10,624) | | | (20,445) | | | 46,499 | | | 6K | | 11,881 | | | 27,311 | |
NET INCOME | $ | 86,870 | | | $ | 153,951 | | | $ | (151,162) | | | | | $ | (35,644) | | | $ | 54,015 | |
NET INCOME PER SHARE | | | | | | | | | | | |
Basic | $ | 4.16 | | | | | | | | | | | $ | 2.31 | |
Diluted | $ | 4.02 | | | | | | | | | | | $ | 2.24 | |
WEIGHTED AVERAGE NUMBER OF SHARES | | | | | | | | | | | |
Basic | 20,907 | | | | | 2,500 | | | | | | | 23,407 | |
Diluted | 21,591 | | | | | 2,500 | | | | | | | 24,091 | |
The accompanying notes are an integral part of these consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Amounts in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ICU Medical, Inc. 9 months ended September 30, 2021 Historical | | Smiths Medical 9 months ended July 31, 2021 As Adjusted (Note 3) | | Transaction Adjustments (Note 6) | | Note Ref | | Financing Adjustments (Note 7) | | Pro Forma Combined |
| | | | | | | | | | | |
TOTAL REVENUES | $ | 975,783 | | | $ | 900,457 | | | $ | — | | | | | $ | — | | | $ | 1,876,240 | |
COST OF GOODS SOLD | 611,783 | | | 587,416 | | | (5,760) | | | 6C, 6F | | — | | | 1,193,439 | |
GROSS PROFIT | 364,000 | | | 313,041 | | | 5,760 | | | | | — | | | 682,801 | |
OPERATING EXPENSES: | | | | | | | | | | | |
Selling, general and administrative | 221,127 | | | 223,069 | | | 72,217 | | | 6C, 6D, 6F | | — | | | 516,413 | |
Research and development | 34,332 | | | 22,319 | | | (140) | | | 6C, 6F | | — | | | 56,511 | |
Restructuring, strategic transaction and integration | 8,994 | | | — | | | — | | | | | — | | | 8,994 | |
Change in fair value of contingent earn-out | — | | | — | | | — | | | | | — | | | — | |
Contract settlement | 127 | | | — | | | — | | | | | — | | | 127 | |
TOTAL OPERATING EXPENSES | 264,580 | | | 245,388 | | | 72,077 | | | | | — | | | 582,045 | |
INCOME FROM OPERATIONS | 99,420 | | | 67,653 | | | (66,317) | | | | | — | | | 100,756 | |
INTEREST EXPENSE | (492) | | | (20,309) | | | 19,377 | | | 6B | | (32,244) | | | (33,668) | |
OTHER INCOME, NET | 921 | | | 76,402 | | | (85,940) | | | 6B | | — | | | (8,617) | |
INCOME BEFORE INCOME TAXES | 99,849 | | | 123,746 | | | (132,880) | | | | | (32,244) | | | 58,471 | |
PROVISION FOR INCOME TAXES | (16,639) | | | (11,940) | | | 33,220 | | | 6K | | 8,061 | | | 12,702 | |
NET INCOME | $ | 83,210 | | | $ | 111,806 | | | $ | (99,660) | | | | | $ | (24,183) | | | $ | 71,173 | |
NET INCOME PER SHARE | | | | | | | | | | | |
Basic | $ | 3.93 | | | | | | | | | | | $ | 3.00 | |
Diluted | $ | 3.83 | | | | | | | | | | | $ | 2.94 | |
WEIGHTED AVERAGE NUMBER OF SHARES | | | | | | | | | | | |
Basic | 21,189 | | | | | 2,500 | | | | | | | 23,689 | |
Diluted | 21,735 | | | | | 2,500 | | | | | | | 24,235 | |
The accompanying notes are an integral part of these consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1: Basis of Pro Forma Presentation
The unaudited pro forma combined financial information is presented to illustrate the pro forma effects of the Acquisition. ICU Medical’s historical financial information is derived from ICU Medical’s unaudited consolidated balance sheet as of September 30, 2021, audited consolidated statement of operations for the fiscal year ended December 31, 2020, and unaudited consolidated statement of operations for the nine months ended September 30, 2021, all of which were prepared in accordance with U.S. GAAP.
Smiths Medical’s historical financial information is derived from Smiths Medical’s audited consolidated balance sheet as of July 31, 2021, unaudited consolidated statement of income for the twelve months ended January 31, 2021, and unaudited consolidated statement of income for the nine months ended July 31, 2021, all of which have been adjusted from IFRS to U.S. GAAP.
Due to ICU Medical’s and Smiths Medical’s different fiscal year ends, the pro forma statement of income for Smiths Medical’s three month period ended January 31, 2021 was included in both the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 and the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2021. The following table reflects the results of Smiths Medical, as adjusted, for the three months ended January 31, 2021 (in thousands):
| | | | | |
| Smiths Medical 3 months ended Jan 31, 2021, as adjusted |
TOTAL REVENUES | $ | 299,178 | |
NET INCOME | 83,868 | |
The unaudited pro forma combined statements of operations illustrate the effects of the Acquisition as if it had been completed on January 1, 2020, and the unaudited pro forma combined balance sheet reflects effects of the Acquisition as if it had been completed on September 30, 2021. The pro forma adjustments are preliminary and based on estimates of the purchase consideration and estimates of fair value and useful lives of the assets acquired and liabilities assumed. The final purchase price allocations will be based on estimated fair value of the assets acquired and the liabilities assumed as of the Closing Date of the Acquisition and could result in material changes to the unaudited pro forma combined financial information.
For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed in determining the final purchase price allocations, ICU Medical will apply U.S. GAAP for fair value measurements. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date". This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers unrelated to ICU Medical in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting in accordance with ASC 805, with ICU Medical treated as the accounting acquirer of Smiths. Under ASC 805, acquisition-related transaction costs (such as advisory, legal, valuation, and other professional fees) are not part of the allocation of the consideration transferred but are part of the transaction accounting adjustments for the Acquisition and not a separate material transaction. Adjustments were made for transaction costs to the extent that they were incurred or expected to be incurred and not already recognized in the historical financial statements.
The unaudited pro forma combined information is preliminary, presented solely for informational purposes and does not purport to represent what the combined statements of operations or balance sheet would have been for the periods or dates indicated, nor is it necessarily indicative of the combined future consolidated results of operations or financial position. The actual results reported in periods following the Acquisition may differ significantly from those reflected in these unaudited pro forma combined financial information presented herein for
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma adjustments and actual amounts, cost savings or associated costs to achieve such savings from operating efficiencies, synergies, debt refinancing, or other restructuring that may result from the Acquisition, but for which are not reflected herein. Any non-recurring items related to the Acquisition were reflected in the pro forma combined statement of operations for the year ended December 31, 2020 as they will not recur beyond twelve months after the acquisition.
Note 2: Description of the Acquisition
On September 8, 2021, ICU Medical entered into the Purchase Agreement with Smiths Group International Holdings Limited, a consolidated subsidiary of Smiths Group, (the “Seller”) to acquire all issued ordinary shares of Smiths Medical. On January 6, 2022, pursuant to the Purchase Agreement, ICU Medical consummated the purchase of Smiths Medical, a medical device business, for estimated purchase consideration of $2.6 billion, consisting of:
(i) $798.6 million in cash to Seller, financed through existing cash on hand and net proceeds from the Credit Facilities;
(ii) 2,500,000 newly issued and non-assessable shares of ICU Medical common stock, par value of $0.10 per share, with a fair value of $576.0 million to Seller;
(iii) settlement of a $1.1 billion intra-group loan owed by Smiths Medical ASD, a consolidated subsidiary of Smiths Medical, to Smiths Group for the benefit of Smiths Medical, financed through existing cash on hand and the net proceeds from the Credit Facilities; and
(iv) additional cash consideration with an estimated fair value of $53.5 million, with a potential cash payment of up to $100.0 million (the “Additional Consideration”), payable to Seller. If, on or prior to the third anniversary of the Closing Date, the 30-Day volume weighted average price (“VWAP”) of ICU Medical’s shares equals or exceeds US$300 per share or on or prior to the fourth anniversary of the Closing Date, the 45-Day VWAP of ICU Medical’s shares exceeds US$300 per share (each, a “Price Target”), and Smiths Group at the time the Price Target is achieved, is the beneficial owner of at least 1,250,000 shares of ICU Medical’s common stock, then the Additional Consideration will be paid in cash.
Upon issuance of these unaudited pro forma combined financial statements, the purchase consideration is preliminary. See Note 4 below for further details on the estimated purchase consideration.
In connection with the Acquisition, ICU Medical entered into the Credit Agreement on January 6, 2022 for the issuance of Credit Facilities totaling $2.2 billion. ICU Medical used the proceeds of $1.7 billion, net of lender fees and debt issuance costs of $35.7 million, from the Credit Facilities to partially fund the Acquisition on the Closing Date. Under the Credit Agreement, the final maturity of the Term Loan A Facility and the Revolving Credit Facility will occur on the fifth anniversary of the Closing Date, and the final maturity of the Term Loan B Facility will occur on the seventh anniversary of the Closing Date. The U.S. dollar revolving and term loans under the Credit Facilities may bear interest, at our option, on either (1) the Base Rate (“Base Rate Loan”) (as defined in the Credit Agreement) plus the applicable margin or (2) Adjusted Term secured overnight financing rate ("Term SOFR Loan") (as defined in the Credit Agreement) plus applicable margin. Euro loans (“Eurocurrency Rate Loan”) bear interest based on the applicable Adjusted Eurocurrency Rate (as defined in the Credit Agreement) plus the applicable interest margin. Pounds Sterling loans bear interest based on the Adjusted Daily Simple RFR rate (as defined in the Credit Agreement) plus the applicable interest margin. The applicable interest margins with respect to the Term Loan A Facility and Revolving Credit Facility is initially set at 0.75% for Base Rate Loans and 1.75% for other term and revolving loans. The applicable interest margins for the Term Loan B Facility are initially set at 1.5% for the Base Rate Loans and 2.50% for Eurocurrency Rate Loans. The applicable interest margins will be based on changes in the Leverage Ratio (as defined in the Credit Agreement). The Credit Agreement is included in our Form 8-K filing dated January 7, 2022.
Note 3: Adjustments to Smiths Medical 2020 Limited Financial Statements
Smiths Medical’s historical consolidated balance sheet as of July 31, 2021 and consolidated statements of operations for the nine months ended July 31, 2021 and twelve months ended January 31, 2021 were prepared in
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
accordance with IFRS as issued by the IASB. Certain adjustments are reflected in the financial information below to convert from IFRS to U.S. GAAP and align accounting policies and presentation with that of ICU Medical.
As part of preparing the unaudited pro forma combined financial statements, ICU Medical conducted an initial review of the accounting policies of Smiths Medical to determine if differences in accounting policies or presentation between Smiths Medical and ICU Medical existed that may require recasting or reclassification to conform to ICU Medical’s accounting policies and presentation. Management’s assessment is ongoing and, at the time of preparing the unaudited pro forma combined financial statements, other than the adjustments and reclassifications made herein, management is not aware of any other material differences.
The Company identified certain reclassifications that were necessary to conform Smiths Medical’s financial statement presentation to that of ICU Medical. For purposes of the unaudited pro forma combined financial statements, Smiths Medical’s historical balance sheet and statements of income have been adjusted to reflect these reclassifications.
(A) Balance Sheet
The following table illustrates the impact of aligning financial statement line items to conform to ICU Medical’s financial statement presentation and converting the financial statements to US GAAP (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Smiths Medical July 31, 2021 Historical | | Alignment to ICU Medical Captions | | Reclassification Adjustments | Note Ref | IFRS vs. US GAAP Adjustments | Note Ref | Smiths Medical July 31, 2021, as adjusted |
ASSETS |
CURRENT ASSETS: | | | | | | | | | | |
Cash and cash equivalents | | $ | 229,477 | | | $ | — | | | $ | — | | | $ | — | | | $ | 229,477 | |
Short-term investment securities | | — | | | — | | | — | | | — | | | — | |
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENT SECURITIES | | 229,477 | | | — | | | — | | | — | | | 229,477 | |
Accounts receivable, net of allowance for doubtful accounts | | — | | | 156,489 | | | — | | | — | | | 156,489 | |
Trade and other receivables | | 169,631 | | | (169,631) | | | — | | | — | | | — | |
Related party notes receivable | | 1,526,297 | | | (1,526,297) | | | — | | | — | | | — | |
Prepaid income taxes | | — | | | 3,959 | | | — | | | — | | | 3,959 | |
Current tax receivables | | 3,959 | | | (3,959) | | | — | | | — | | | |
Inventories | | 201,263 | | | — | | | — | | | — | | | 201,263 | |
Financial derivatives | | 5,026 | | | (5,026) | | | — | | | — | | | — | |
Prepaid expenses and other current assets | | — | | | 1,544,465 | | | — | | | — | | | 1,544,465 | |
TOTAL CURRENT ASSETS | | 2,135,653 | | | — | | | — | | | — | | | 2,135,653 | |
| | | | | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, net | | 168,954 | | | — | | | 7,531 | | Ai | — | | | 176,485 | |
RIGHT OF USE ASSETS, NET | | 55,958 | | | — | | | — | | | (55,958) | | Bii | |
OPERATING LEASE RIGHT-OF-USE ASSETS | | — | | | — | | | — | | | 55,958 | | Bii | 55,958 | |
LONG-TERM INVESTMENT SECURITIES | | — | | | 19,000 | | | — | | | — | | | 19,000 | |
GOODWILL | | — | | | 717,185 | | | — | | | — | | | 717,185 | |
INTANGIBLE ASSETS, net | | 857,933 | | | (717,185) | | | (7,531) | | Ai | (115,507) | | Bii | 17,710 | |
OTHER FINANCIAL ASSETS | | 19,282 | | | (19,282) | | | — | | | — | | | — | |
TRADE AND OTHER RECEIVABLES | | 2,045 | | | (2,045) | | | — | | | — | | | — | |
DEFERRED INCOME TAXES | | 16,836 | | | — | | | — | | | — | | | 16,836 | |
OTHER ASSETS | | — | | | 2,327 | | | — | | | — | | | 2,327 | |
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL ASSETS | | $ | 3,256,661 | | | $ | — | | | $ | — | | | $ | (115,507) | | | $ | 3,141,154 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | 107,846 | | | $ | — | | | $ | — | | | $ | 107,846 | |
Current portion of long-term debt | | — | | | 1,124,187 | | | — | | | — | | | 1,124,187 | |
Accrued liabilities | | — | | | 140,482 | | | — | | | — | | | 140,482 | |
Income tax liability | | 17,716 | | | — | | | — | | | — | | | 17,716 | |
Contingent earn-out liability | | — | | | — | | | — | | | — | | | — | |
Financial liabilities | | | | | | | | | | — | |
- borrowings - cash overdrafts | | 18,157 | | | (18,157) | | | — | | | — | | | — | |
- borrowings - related party | | 1,124,458 | | | (1,124,458) | | | — | | | — | | | — | |
- lease liabilities | | 17,035 | | | (17,035) | | | — | | | — | | | — | |
- financial derivatives | | 2,980 | | | (2,980) | | | — | | | — | | | — | |
Trade and other payables | | 198,487 | | | (198,487) | | | — | | | — | | | — | |
Related party trade and other payables, net | | 830 | | | (830) | | | — | | | — | | | — | |
Provisions for liabilities and charges | | 10,839 | | | (10,839) | | | — | | | — | | | — | |
TOTAL CURRENT LIABILITIES | | 1,390,502 | | | (271) | | | — | | | — | | | 1,390,231 | |
| | | | | | | | | | |
FINANCIAL LIABILITIES | | | | | | | | | | |
CONTINGENT EARN-OUT LIABILITY | | — | | | — | | | — | | | — | | | — | |
LONG-TERM DEBT | | — | | | 24 | | | — | | | — | | | 24 | |
OTHER LONG-TERM LIABILITIES | | — | | | 119,869 | | | — | | | — | | | 119,869 | |
INCOME TAX LIABILITY | | — | | | — | | | — | | | — | | | — | |
- LEASE LIABILITIES | | 44,845 | | | (44,845) | | | — | | | — | | | — | |
- FINANCIAL DERIVATIVES | | 56 | | | (56) | | | — | | | — | | | — | |
TRADE AND OTHER PAYABLES | | 25,414 | | | (25,414) | | | — | | | | | — | |
PROVISIONS FOR LIABILITIES AND CHARGES | | 42,607 | | | (42,607) | | | — | | | — | | | — | |
RETIREMENT BENEFIT OBLIGATIONS | | 6,700 | | | (6,700) | | | | | — | | | — | |
DEFERRED INCOME TAXES | | 27,629 | | | — | | | — | | | (28,877) | | Bi | (1,248) | |
COMMITMENTS AND CONTINGENCIES | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | |
Convertible preferred stock | | — | | | — | | | — | | | — | | | — | |
Common stock | | — | | | 12,556 | | | — | | | | | 12,556 | |
Share Capital | | 12,556 | | | (12,556) | | | — | | | | | — | |
Additional paid-in capital | | — | | | 172 | | | — | | | | | 172 | |
Share premium | | 172 | | | (172) | | | | | | | — | |
Treasury stock, at cost | | — | | | — | | | | | | | — | |
Retained earnings | | 2,208,513 | | | — | | | — | | | (86,630) | | Bi | 2,121,883 | |
Accumulated other comprehensive loss | | — | | | (502,333) | | | — | | | — | | | (502,333) | |
Group Construction Reserve | | (371,999) | | | 371,999 | | | — | | | | | — | |
Cumulative translation reserve | | (132,040) | | | 132,040 | | | — | | | | | — | |
Hedge reserve | | 1,706 | | | (1,706) | | | — | | | | | — | |
TOTAL STOCKHOLDERS' EQUITY | | 1,718,908 | | | — | | | — | | | (86,630) | | | 1,632,278 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 3,256,661 | | | $ | — | | | $ | — | | | $ | (115,507) | | | $ | 3,141,154 | |
B) Income Statement
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following table illustrates the impact of aligning financial statement line items to conform to ICU Medical’s financial statement presentation and converting the financial statements to US GAAP for the twelve months ended January 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Smiths Medical 12 months ended January 31, 2021 Historical | | Alignment to ICU Medical Captions | | Reclassification Adjustments | Note Ref | IFRS vs. US GAAP Adjustments | Note Ref | Smiths Medical 12 months ended January 31, 2021 as adjusted |
| |
TOTAL REVENUES | | $ | 1,171,455 | | | $ | — | | | $ | 27,619 | | Ai | $ | — | | | $ | 1,199,074 | |
COST OF GOODS SOLD | | 583,436 | | | — | | | 144,013 | | Aii, Aiv | (13,223) | | Bi | 714,226 | |
GROSS PROFIT | | 588,019 | | | — | | | (116,394) | | | 13,223 | | | 484,848 | |
OPERATING EXPENSES: | | | | | | | | | | |
Selling, general and administrative | | 444,831 | | | (29,080) | | | (127,321) | | Ai, Aii, Aiii, Aiv | — | | | 288,430 | |
Other operating expenses | | 3,913 | | | (3,913) | | | — | | | | | — | |
Research and development | | — | | | 32,993 | | | — | | | — | | | 32,993 | |
Restructuring, strategic transaction and integration | | — | | | — | | | — | | | — | | | — | |
Change in fair value of contingent earn-out | | — | | | — | | | — | | | — | | | — | |
Contract settlement | | — | | | — | | | — | | | — | | | — | |
TOTAL OPERATING EXPENSES | | 448,744 | | | — | | | (127,321) | | | — | | | 321,423 | |
INCOME FROM OPERATIONS | | 139,275 | | | — | | | 10,927 | | | 13,223 | | | 163,425 | |
INTEREST INCOME | | 7,208 | | | (7,208) | | | — | | | — | | | — | |
INTEREST EXPENSE | | (25,840) | | | — | | | — | | | — | | | (25,840) | |
OTHER FINANCING INCOME (EXPENSE) | | 40,530 | | | (40,530) | | | — | | | — | | | — | |
OTHER INCOME (EXPENSE), NET | | — | | | 47,738 | | | (10,927) | | Aiii | — | | | 36,811 | |
INCOME BEFORE INCOME TAXES | | 161,173 | | | — | | | — | | | 13,223 | | | 174,396 | |
PROVISION FOR INCOME TAXES | | (17,139) | | | — | | | — | | | (3,306) | | Bi | (20,445) | |
NET INCOME | | $ | 144,034 | | | $ | — | | | | | $ | 9,917 | | | $ | 153,951 | |
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following table illustrates the impact of aligning financial statement line items to conform to ICU Medical’s financial statement presentation and converting the financial statements to US GAAP for the nine months ended July 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Smiths Medical 9 months ended July 31, 2021 Historical | | Alignment to ICU Medical Captions | | Reclassification Adjustments | Note Ref | IFRS vs. US GAAP Adjustments | Note Ref | Smiths Medical 9 months ended July 31, 2021 as adjusted |
| |
TOTAL REVENUES | | $ | 880,403 | | | $ | — | | | $ | 20,054 | | Ai | $ | — | | | $ | 900,457 | |
COST OF GOODS SOLD | | 476,809 | | | — | | | 120,776 | | Aii, Aiv | (9,620) | | Bi | 587,965 | |
GROSS PROFIT | | 403,594 | | | — | | | (100,722) | | | 9,620 | | | 312,492 | |
OPERATING EXPENSES: | | | | | | | | | | |
Selling, general and administrative | | 340,304 | | | 63,456 | | | (110,648) | | Ai, Aii, Aiii, Aiv | (70,592) | | Bi | 222,520 | |
Other operating expenses | | 85,775 | | | (85,775) | | | — | | | | | — | |
Research and development | | — | | | 22,319 | | | — | | | — | | | 22,319 | |
Restructuring, strategic transaction and integration | | — | | | — | | | — | | | — | | | — | |
Change in fair value of contingent earn-out | | — | | | — | | | — | | | — | | | — | |
Contract settlement | | — | | | — | | | — | | | — | | | — | |
TOTAL OPERATING EXPENSES | | 426,079 | | | — | | | (110,648) | | | (70,592) | | | 244,839 | |
INCOME FROM OPERATIONS | | (22,485) | | | — | | | 9,926 | | | 80,212 | | | 67,653 | |
INTEREST INCOME | | 2,794 | | | (2,794) | | | — | | | — | | | — | |
INTEREST EXPENSE | | (20,309) | | | — | | | — | | | — | | | (20,309) | |
OTHER FINANCING INCOME (EXPENSE) | | 83,534 | | | (83,534) | | | — | | | — | | | — | |
OTHER INCOME (EXPENSE), NET | | — | | | 86,328 | | | (9,926) | | Aiii | — | | | 76,402 | |
INCOME BEFORE INCOME TAXES | | 43,534 | | | — | | | — | | | 80,212 | | | 123,746 | |
PROVISION FOR INCOME TAXES | | 8,113 | | | — | | | — | | | (20,053) | | Bi | (11,940) | |
NET INCOME | | $ | 51,647 | | | $ | — | | | $ | — | | | $ | 60,159 | | | $ | 111,806 | |
Reclassification Adjustments
A In addition to the alignment of Smiths Medical’s historical financial information to conform to ICU Medical’s financial statement line items, the following summary represents reclassifications to conform Smiths
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Medical’s historical financial information to financial statement line items and presentation of ICU Medical based on ICU Medical’s accounting policies:
Consolidated Balance Sheets Reclassification Adjustments
i.Acquired software of $7.5 million from Intangible assets, net to Property, plant and equipment, net.
December 31, 2020 Consolidated Statements of Operations Reclassification Adjustments
i.Distributor and group purchasing organization (“GPO”) fees of $27.6 million from Total revenues to Selling, general and administrative.
ii.Warranty expense of $4.1 million from Cost of goods sold to Selling, general and administrative.
iii.Nonrecurring transaction costs and other specific items of $10.9 million from Selling, general and administrative to Other income (expense), net.
iv.Specific cost items totaling $148.2 million from Selling, general and administrative to Cost of goods sold.
September 30, 2021 Consolidated Statements of Operations Reclassification Adjustments
i.Distributor and GPO fees of $20.1 million from Total revenues to Selling, general and administrative.
ii.Warranty expense of $4.7 million from Cost of goods sold to Selling, general and administrative.
iii.Nonrecurring transaction costs and other specific items of $9.9 million from Selling, general and administrative to Other income (expense), net.
iv.Specific cost items of $124.9 million from Selling, general and administrative to Cost of goods sold
IFRS to US GAAP Adjustment
B The following adjustments have been made to align Smiths Medical’s historical financial information prepared under IFRS as issued by the IASB to US GAAP:
i.Capitalized Development Costs. Represents an adjustment to record a reversal of capitalized research and development costs as, under US GAAP, internally generated research and development costs are expensed as incurred unless there is an alternative future use, with certain exceptions for software and advertising that are not applicable to this balance. The balance sheet impact is a decrease in Intangible assets, net, of $115.5 million, offset by a decrease to Deferred income taxes of $28.9 million and a decrease to Retained earnings of $86.6 million. On the statement of operations, for the year ended December 31, 2020, this resulted in a decrease to Cost of goods sold of $13.2 million and increase to Provision for income taxes of $3.3 million. On the statement of operations for and the nine months ended September 30, 2021, this resulted in a decrease to Cost of goods sold of $9.6 million, decrease to Selling, general and administrative of $70.6 million, and increase to Provision for income taxes of $20.1 million.
ii.Right of Use Assets. Adjustment of $56.0 million from Right of use assets, net to Operating lease right-of-use assets reflects Management’s assessment that the acquired leases are operating leases under US GAAP.
Note 4: Estimated Purchase Consideration
The calculation of the estimated purchase consideration is based on the terms of the Purchase Agreement. The estimated preliminary purchase price is as follows (in thousands, except per share data):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
| | | | | | | | |
Cash Consideration | | 798,645 | |
Payment of related party loan payable for the benefit of Smiths Medical | | 1,124,310 | |
Consideration Shares: 2,500,000 shares of ICU Medical issued at $230.39 per share | | 575,975 | |
Additional Consideration: Contingent consideration based on ICU Medical’s common stock performance | | 53,520 | |
Total purchase price consideration | | $ | 2,552,450 | |
The following table illustrates calculation of the closing consideration related to the share issuance (in thousands except for share price):
| | | | | |
Number of shares of ICU Medical’s common stock issued at Closing Date | 2,500 | |
Share price at Closing Date | $ | 230.39 | |
Fair Value of Share Consideration | $ | 575,975 | |
Common Stock | $ | 250 | |
Additional paid-in capital | $ | 575,725 | |
Note 5: Preliminary Purchase Price Allocation
The table below represents the preliminary purchase price allocation for Smiths Medical based on estimates, assumptions, valuations and other analyses as of the Closing Date, that have not been finalized in order to make a definitive allocation. Accordingly, the pro forma adjustments to allocate the purchase consideration will remain preliminary until ICU Medical's management finalizes the fair values of assets acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed are dependent upon certain valuation and other studies that have not yet been completed, and as previously stated could differ materially from the amounts presented in the unaudited pro forma combined financial statements.
The total preliminary estimated purchase consideration as shown in the table above is allocated to the tangible and intangible assets and liabilities of Smiths Medical based on their estimated fair values as if the Acquisition had occurred on September 30, 2021, which is the assumed acquisition date for purposes of the pro forma balance sheet (in thousands).
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
| | | | | | | | |
Assets acquired: | | |
Cash and cash equivalents | | $ | 229,477 | |
Accounts receivable | | 156,489 | |
Inventories | | 235,763 | |
Prepaid income taxes | | 3,959 | |
Prepaid expenses and other current assets | | 18,168 | |
Property, plant and equipment | | 226,000 | |
Operating lease right-of-use assets | | 61,880 | |
Long-term investment securities | | 19,000 | |
Goodwill | | 1,290,717 | |
Intangible assets | | 925,000 | |
Deferred income taxes | | 16,836 | |
Other assets | | 2,327 | |
Total assets acquired | | 3,185,616 | |
Liabilities assumed: | | |
Accounts payable | | 107,016 | |
Accrued liabilities | | 140,482 | |
Income tax liability | | 17,716 | |
Long-term debt | | 24 | |
Other long-term liabilities | | 119,869 | |
Deferred income taxes | | 248,059 | |
Total liabilities assumed | | 633,166 | |
Net assets acquired | | $ | 2,552,450 | |
The estimated purchase consideration and purchase price allocation are preliminary and are subject to change as we obtain further information; accordingly, the actual goodwill may be materially different from the estimate included in these unaudited pro forma combined financial statements.
Note 6: Transaction Adjustments
A Closing Consideration:
Adjustments in the unaudited pro forma financial information are represented by the following:
Balance Sheet Impact
This adjustment records the cash purchase consideration of $1.9 billion million comprised of cash paid of $798.6 million, settlement of an intra-group loan of $1.1 billion for the benefit of Smiths Medical, contingent consideration valued at $53.5 million, and share issuance valued at $576.0 million. This adjustment results in a decrease to Cash and cash equivalents of $1.9 billion for the Cash Consideration paid on the Closing Date, an increase to Contingent earn-out liability of $53.5 million for the Additional Consideration, an increase to Common stock of $250.0 thousand for the par value of Share Consideration, and an increase to Additional paid-in capital of $575.7 million for the remaining fair value of Share Consideration.
B Extinguished and Assigned Related Party Balances:
Represents an adjustment to exclude (1) the intra-group receivable balance associated with a loan balance owed to Smiths Medical by Smiths Group that was assigned to the Seller prior to the Closing Date and, thus, was not acquired in the Acquisition and (2) an adjustment to reflect settlement of the intra-group loan payable of $1.1 billion owed by Smiths Medical ASD, a consolidated subsidiary of Smiths Medical, to Smiths Group for the benefit of
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Smiths Medical that was part of the closing consideration discussed above. This adjustment results in a decrease to Prepaid expenses and other current assets of $1.5 billion, a decrease to Accounts payable of $0.8 million, and a decrease to Current portion of long-term debt of $1.1 billion.
Statement of Operations Impact
Removal of interest income and foreign currency impacts related to the intra-group receivable represents an adjustment to reduce Other income (expense), net by $47.2 million and $85.9 million for the year ended December 30, 2020 and nine months ended September 30, 2021, respectively. Settlement of the intra-group loan payable results in an adjustment to reflect a decrease to Interest expense of $22.4 million and $19.4 million for the year ended December 31, 2020 and nine months ended September 30, 2021, respectively.
C Property, Plant and Equipment, Net:
Balance Sheet Impact
Represents an adjustment to account for acquired property, plant and equipment at fair value under purchase accounting pursuant to US GAAP. This adjustment results in an increase to Property, plant and equipment, net of $49.5 million.
Statement of Operations Impact
Represents a change in depreciation expense related to both the fair value adjustment of the acquired property, plant and equipment, the adoption of ICU’s accounting policies on useful life and reversal of impairments recognized in the historical financial information, resulting in an increase to Cost of goods sold of $1.2 million, increase to Selling, general and administrative of $0.1 million, and increase to Research and development of $31.0 thousand for the year ended December 31, 2020 and a decrease to Cost of goods sold of $5.9 million, decrease to Selling, general and administrative of $3.1 million, and decrease to Research and development of $0.1 million for the nine months ended September 30, 2021.
D Intangible Assets, Net:
Balance Sheet Impact
Adjustment reflects an increase to Intangible assets, net of $907.3 million for the acquired identifiable intangible assets consisting of a trade mark license agreement, developed technology, internally developed software, and customer relationships.
Statement of Operations Impact
Adjustment reflects incremental amortization expense, shown as an increase to Selling, general and administrative of $105.2 million and $75.1 million for the year ended December 31, 2020 and nine months ended September 30, 2021, respectively.
The following table summarizes the estimated fair values of Smiths Medical’s identifiable intangible assets, the fair values as a percentage of purchase price, their estimated useful lives, and amount of amortization recognized on such identified intangible assets under a straight-line method of amortization for the year ended December 31, 2020 and the nine months ended September 30, 2021 (in thousands except percentages and useful lives):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value | | % of Purchase Consideration | | Useful life | | Amortization for the 12 months ended December 31, 2020 | | Amortization for the 9 months ended September 30,2021 |
Trade mark license agreement | | $ | 5,000 | | | 0.2 | % | | 0.5 | | | $ | 5,000 | | | $ | — | |
Developed technology | | 390,000 | | | 15.3 | % | | 10.0 | | | 39,000 | | | 29,250 | |
Internally developed software | | 30,000 | | | 1.2 | % | | 5.0 | | | 6,000 | | | 4,500 | |
Customer relationships | | 500,000 | | | 19.6 | % | | 8.0 | | | 62,500 | | | 46,875 | |
Total assets acquired | | $ | 925,000 | | | 36.2 | % | | | | $ | 112,500 | | | $ | 80,625 | |
E Inventories:
Balance Sheet Impact
Represents an adjustment to step up Smiths Medical’s inventory to fair value in accordance with US GAAP. This adjustment results in an increase to Inventories of $34.5 million.
Statement of Operations Impact
Inventory is expected to turn over during the first year post-Acquisition. Therefore, adjustment represents an increase to Cost of goods sold of $34.5 million for the year ended December 31, 2020.
F Leases:
Balance Sheet Impact
Represents an adjustment to account for acquired leases as new leases under purchase accounting pursuant to US GAAP. This adjustment results in an increase to the Operating lease right-of-use assets of $5.9 million.
Statement of Operations Impact
Represents an increase in right-of-use asset amortization associated with the step up of operating lease right-of-use assets in accordance with purchase accounting. This adjustment results in an increase to Cost of goods sold of $0.2 million, increase to Selling, general and administrative of $0.3 million, and increase to Research and development of $8.0 thousand for the year ended December 31, 2020, and an increase to Cost of goods sold of $0.2 million, increase to Selling, general and administrative of $0.2 million, and increase to Research and development of $6.1 thousand for the nine months ended September 30, 2021.
G Transaction Costs:
Balance Sheet Impact
Represents an adjustment to reflect the accrual of additional transaction costs incurred by ICU Medical and Smiths Medical not included in the historical financial statements of ICU Medical and Smiths Medical and results in a $31.4 million increase to Accrued liabilities.
Statement of Operations Impact
Reflects an increase of transaction expenses of $31.4 million related to transaction costs incurred by ICU Medical and Smiths Medical that are not included in the historical financial statements of ICU Medical and Smiths Medical, resulting in a $31.4 million increase to Restructuring, strategic transaction and integration expense for the year ended December 31, 2020.
H Equity: Adjustment eliminates Smiths Medical’s historical shareholders’ equity of $1.6 billion.
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
I Goodwill: Adjustment shows estimated goodwill of $1.3 billion recognized from the Acquisition derived using the fair value estimate of net assets acquired and the purchase price (see Note 5) inclusive of the elimination of historical Smiths Medical Goodwill of $717.2 million. Adjustment is represented as an increase to goodwill of $573.5 million.
J Earnings Per Share: As noted above, a portion of the purchase consideration was paid by delivery of 2,500,000 newly issued and non-assessable ICU Medical common shares to Smiths Group at the Closing Date. For purposes of the unaudited pro forma combined statement of operations, the 2,500,000 shares comprising the Share Consideration are assumed to be outstanding for the entire year ending December 31, 2020 and the entire nine months ended September 30, 2021. There were no share awards issued in connection with the Acquisition and, therefore, the pro forma adjustments to the basic and diluted earnings per share amounts are the same. The following table reflects the pro forma adjustments:
| | | | | | | | | | | | | | |
| | For the 12 months ending December 31, 2020 | | For the 9 months ending September 30, 2021 |
Pro Forma weighted-average shares outstanding (Basic) | | | | |
Historical weighted-average shares outstanding | | 20,907 | | | 21,189 | |
Number of shares of ICU Medical’s common stock issued at Closing Date | | 2,500 | | | 2,500 | |
Pro Forma basic weighted-average shares outstanding | | 23,407 | | | 23,689 | |
| | | | |
Pro Forma weighted-average shares outstanding (Basic) | | | | |
Historical weighted-average shares outstanding | | 21,591 | | | 21,735 | |
Number of shares of ICU Medical’s common stock issued at Closing Date | | 2,500 | | | 2,500 | |
Pro Forma basic weighted-average shares outstanding | | 24,091 | | | 24,235 | |
| | | | |
Pro Forma earnings per share | | | | |
Pro forma net income | | 54,015 | | | 71,173 | |
Pro forma basic earnings per share | | $ | 2.31 | | | $ | 3.00 | |
Pro forma diluted earnings per share | | $ | 2.24 | | | $ | 2.94 | |
K Provision for Income Tax:
Balance Sheet Impact
Represents an adjustment to reflect an increase in Deferred income taxes of $249.3 million arising from the transaction accounting adjustments related to the Acquisition.
Statement of Operations Impact
Reflects a decrease to income tax expense as a result of the Acquisition, resulting in a decrease of $46.5 million and $33.2 million for the year ended December 31, 2020 and nine months ended September 30, 2021, respectively, to Provision for income taxes.
Note 7: Financing Adjustments
A Debt Issuance
Balance Sheet Impact
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
This adjustment reflects ICU Medical’s receipt of $1.7 billion in borrowings from the Credit Facilities, consisting of $850.0 million of a Term Loan A Facility and $850.0 million of a Term Loan B Facility, net of lender fees and debt issuance costs of $35.7 million. This adjustment results in an increase to Cash and cash equivalents of $1.7 billion, increase to Other assets of $8.3 million, increase to Current portion of long-term debt of $22.3 million, and increase to Long-term debt of $1.7 billion.
Statement of Operations Impact
Results in an increase to Interest expense of $47.5 million and $32.2 million for the year ended December 31, 2020 and nine months ended September 30, 2021, respectively, and a decrease to the Provision for income taxes of $11.9 million and $8.1 million for the year ended December 31, 2020 and nine months ended September 30, 2021, respectively, related to interest expense incurred on the debt issued under the Credit Facilities on the Closing Date and amortization of lender fees and debt issuance costs.
The following table reflects the term loan proceeds and fees and expenses related to the Credit Facilities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | Current portion of long-term debt | | Long-term debt | | Other assets |
Term loan proceeds | | | | | | | |
Term Loan A | $ | 850,000 | | | $ | 15,938 | | | $ | 834,063 | | | $ | — | |
Term Loan B | 850,000 | | | 6,374 | | | 843,625 | | | — | |
Total term loan proceeds | 1,700,000 | | | 22,312 | | | 1,677,688 | | | — | |
Fees and expenses related to debt | | | | | | | |
Term Loan A | (15,219) | | | — | | | (15,219) | | | — | |
Term Loan B | (12,083) | | | — | | | (12,083) | | | — | |
Revolver | (8,336) | | | — | | | — | | | 8,336 | |
Total fees and expenses related to debt | (35,638) | | | — | | | (27,302) | | | (8,336) | |
Total | $ | 1,664,362 | | | $ | 22,312 | | | $ | 1,650,386 | | | $ | 8,336 | |
Additionally, the following table reflects the interest expense and amortization of lender fees and debt issuance costs related to the debt financing, in addition to providing a sensitivity analysis to reflect a change of 1/8 of one percent in interest (in thousands):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | For the 12 months ending December 31, 2020 | | For the 9 months ending September 30, 2021 |
Interest expense on Credit Facilities (or term loans issued on the Closing Date) | | | | |
Term Loan A | | $ | 15,654 | | | $ | 10,072 | |
Term Loan B | | 25,435 | | | 17,344 | |
Total interest expense on Credit Facilities/term loans | | 41,089 | | | 27,416 | |
Amortization of lender fees and debt issuance costs | | | | |
Term Loan A | | 3,043 | | | 2,283 | |
Term Loan B | | 1,726 | | | 1,295 | |
Revolver | | 1,667 | | | 1,250 | |
Total amortization of lender fees and debt issuance costs | | 6,436 | | | 4,828 | |
Total interest expense and amortization of lender fees and debt issuance costs | | $ | 47,525 | | | $ | 32,244 | |
| | | | |
A change of 1/8 of 1% in the interest rate would change to interest amount by approximately: |
Interest expense: | | 8,006 | | | 5,356 | |