

x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2018

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 Number 0-18592

MERIT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



Utah						87-0447695
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

1600 West Merit Parkway, South Jordan, Utah 84095

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (801) 253-1600

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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x

Accelerated Filer o

~~Non-Accelerated~~Non-Accelerated Filero~~(Do not check if a smaller reporting company)~~

Smaller Reporting Company o

Emerging Growth Company o

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

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

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



Common Stock						~~54,735,486~~54,833,602
Title or class						Number of Shares Outstanding at ~~August 6,~~November 5, 2018

Table of Content s

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

~~PART I.~~

~~FINANCIAL INFORMATION~~

Item 1.

Financial Statements (Unaudited)

~~Consolidated~~C onsolidated Balance Sheets as of ~~June~~September 30, 2018 and December 31, ~~2017~~201 7

~~Consolidated~~C onsolidated Statements of Income for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017

~~Consolidated Statements~~C onsolidated State ments of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017

~~Consolidated~~C onsolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017

Condensed Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

3230

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4442

Item 4.

Controls and Procedures

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017
(In thousands)
	September 30,		December 31,
	2018		2017
	(unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	51,955	$	32,336
Trade receivables — net of allowance for uncollectible accounts — 2018 — $2,011 and 2017 — $1,769	129,282		105,536
Other receivables	8,903		9,429
Inventories	181,439		155,288
Prepaid expenses and other assets	11,720		9,096
Prepaid income taxes	3,307		3,225
Income tax refund receivables	1,043		1,211

Total current assets	387,649		316,121

PROPERTY AND EQUIPMENT:
Land and land improvements	26,926		19,877
Buildings	150,880		147,356
Manufacturing equipment	211,215		197,651
Furniture and fixtures	53,869		49,528
Leasehold improvements	33,365		31,161
Construction-in-progress	48,166		32,896

Total property and equipment	524,421		478,469

Less accumulated depreciation	(204,496)		(185,649)

Property and equipment — net	319,925		292,820

OTHER ASSETS:
Intangible assets:
Developed technology — net of accumulated amortization — 2018 — $93,680 and 2017 — $72,420	224,540		167,771
Other — net of accumulated amortization — 2018 — $46,088 and 2017 — $38,127	64,565		59,553
Goodwill	249,023		238,147
Deferred income tax assets	2,254		2,359
Other assets	61,927		35,040

Total other assets	602,309		502,870

TOTAL	$	1,309,883	$	1,111,811

See condensed notes to consolidated financial statements.			(continued)

Table of Content s

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2018 AND DECEMBER 31, 2017
(In thousands)

June 30, December 31,
2018 2017
ASSETS (unaudited)

CURRENT ASSETS:
Cash and cash equivalents $ 43,512
$ 32,336
Trade receivables — net of allowance for uncollectible accounts — 2018 — $1,921 and 2017 — $1,769 131,943
105,536
Other receivables 8,490
9,429
Inventories 169,254
155,288
Prepaid expenses and other assets 12,142
9,096
Prepaid income taxes 3,292
3,225
Income tax refund receivables 2,331
1,211

Total current assets 370,964
316,121

PROPERTY AND EQUIPMENT:
Land and land improvements 26,940
19,877
Buildings 150,726
147,356
Manufacturing equipment 205,911
197,651
Furniture and fixtures 52,649
49,528
Leasehold improvements 33,029
31,161
Construction-in-progress 40,454
32,896

Total property and equipment 509,709
478,469

Less accumulated depreciation (197,941 ) (185,649 )

Property and equipment — net 311,768
292,820

OTHER ASSETS:
Intangible assets:
Developed technology — net of accumulated amortization — 2018 — $86,023 and 2017 — $72,420 232,880
167,771
Other — net of accumulated amortization — 2018 — $43,246 and 2017 — $38,127 66,188
59,553
Goodwill 248,998
238,147
Deferred income tax assets 2,318
2,359
Other assets 58,075
35,040

Total other assets 608,459
502,870

TOTAL $ 1,291,191
$ 1,111,811

See condensed notes to consolidated financial statements. (continued)


MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017
(In thousands)
	September 30,		December 31,
	2018		2017
	(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Trade payables	$	50,697	$	34,931
Accrued expenses	65,530		58,932
Current portion of long-term debt	22,000		19,459
Income taxes payable	1,598		2,298

Total current liabilities	139,825		115,620

LONG-TERM DEBT	186,867		259,013

DEFERRED INCOME TAX LIABILITIES	23,102		23,289

LONG-TERM INCOME TAXES PAYABLE	4,846		4,846

LIABILITIES RELATED TO UNRECOGNIZED TAX BENEFITS	2,746		2,746

DEFERRED COMPENSATION PAYABLE	12,176		11,181

DEFERRED CREDITS	2,296		2,403

OTHER LONG-TERM OBLIGATIONS	14,814		16,379

Total liabilities	386,672		435,477

COMMITMENTS AND CONTINGENCIES (Notes 5, 10, 11, and 14)

STOCKHOLDERS’ EQUITY:
Preferred stock — 5,000 shares authorized as of September 30, 2018 and December 31, 2017; no shares issued	—		—
Common stock, no par value; shares authorized — 2018 and 2017 - 100,000; issued and outstanding as of September 30, 2018 - 54,802 and December 31, 2017 - 50,248	568,051		353,392
Retained earnings	354,236		321,408
Accumulated other comprehensive income	924		1,534

Total stockholders’ equity	923,211		676,334

TOTAL	$	1,309,883	$	1,111,811

See condensed notes to consolidated financial statements.			(concluded)

Table of Content s

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2018 AND DECEMBER 31, 2017
(In thousands)

June 30, December 31,
2018 2017
LIABILITIES AND STOCKHOLDERS’ EQUITY (unaudited)

CURRENT LIABILITIES:
Trade payables $ 50,823
$ 34,931
Accrued expenses 65,838
58,932
Current portion of long-term debt 21,985
19,459
Income taxes payable 948
2,298

Total current liabilities 139,594
115,620

LONG-TERM DEBT 391,582
259,013

DEFERRED INCOME TAX LIABILITIES 23,148
23,289

LONG-TERM INCOME TAXES PAYABLE 4,846
4,846

LIABILITIES RELATED TO UNRECOGNIZED TAX BENEFITS 2,746
2,746

DEFERRED COMPENSATION PAYABLE 11,620
11,181

DEFERRED CREDITS 2,332
2,403

OTHER LONG-TERM OBLIGATIONS 16,069
16,379

Total liabilities 591,937
435,477

COMMITMENTS AND CONTINGENCIES (Notes 5, 10, 11, and 14)

STOCKHOLDERS’ EQUITY:
Preferred stock — 5,000 shares authorized as of June 30, 2018 and December 31, 2017; no shares issued —
—
Common stock, no par value; shares authorized — 2018 and 2017 - 100,000; issued and outstanding as of June 30, 2018 - 50,635 and December 31, 2017 - 50,248 359,570
353,392
Retained earnings 337,618
321,408
Accumulated other comprehensive income 2,066
1,534

Total stockholders’ equity 699,254
676,334

TOTAL $ 1,291,191
$ 1,111,811

See condensed notes to consolidated financial statements. (concluded)


MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(In thousands, except per share amounts - unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018		2017		2018		2017
NET SALES	$	221,659	$	179,337	$	649,504	$	536,955

COST OF SALES	119,620		98,823		359,400		296,358

GROSS PROFIT	102,039		80,514		290,104		240,597

OPERATING EXPENSES:
Selling, general and administrative	66,382		54,716		200,389		169,896
Research and development	14,525		12,838		44,163		38,676
Intangible asset impairment charge	657		—		657		—
Contingent consideration expense (benefit)	(661)		20		(442)		39
Acquired in-process research and development	75		12,061		382		12,136

Total operating expenses	80,978		79,635		245,149		220,747

INCOME FROM OPERATIONS	21,061		879		44,955		19,850

OTHER INCOME (EXPENSE):
Interest income	359		94		847		266
Interest expense	(2,329)		(1,590)		(8,064)		(5,935)
Gain on bargain purchase	—		(778)		—		10,796
Other income (expense) - net	294		(810)		(429)		(376)

Other income (expense) — net	(1,676)		(3,084)		(7,646)		4,751

INCOME (LOSS) BEFORE INCOME TAXES	19,385		(2,205)		37,309		24,601

INCOME TAX EXPENSE	2,766		1,364		4,481		3,884

NET INCOME (LOSS)	$	16,619	$	(3,569)	$	32,828	$	20,717

EARNINGS PER COMMON SHARE:
Basic	$	0.31	$	(0.07)	$	0.64	$	0.43

Diluted	$	0.30	$	(0.07)	$	0.62	$	0.42

AVERAGE COMMON SHARES:
Basic	53,431		50,150		51,434		48,332

Diluted	55,103		51,599		53,096		49,555

See condensed notes to consolidated financial statements.

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(In thousands, except per share amounts - unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
NET SALES $ 224,810
$ 186,549
$ 427,844
$ 357,618

COST OF SALES 124,801
102,408
239,779
197,535

GROSS PROFIT 100,009
84,141
188,065
160,083

OPERATING EXPENSES:
Selling, general and administrative 69,095
57,409
134,007
115,180
Research and development 15,316
13,313
29,638
25,838
Contingent consideration expense (benefit) 178
(18 ) 219
19
Acquired in-process research and development 306
75
306
75

Total operating expenses 84,895
70,779
164,170
141,112

INCOME FROM OPERATIONS 15,114
13,362
23,895
18,971

OTHER INCOME (EXPENSE):
Interest income 342
89
487
172
Interest expense (3,338 ) (1,639 ) (5,736 ) (4,345 )
Gain on bargain purchase —
(669 ) —
11,574
Other income (expense) - net (553 ) 170
(721 ) 434

Other income (expense) — net (3,549 ) (2,049 ) (5,970 )
7,835

INCOME BEFORE INCOME TAXES 11,565
11,313
17,925
26,806

INCOME TAX EXPENSE 624
1,830
1,715
2,520

NET INCOME $ 10,941
$ 9,483
$ 16,210
$ 24,286

EARNINGS PER COMMON SHARE:
Basic $ 0.22
$ 0.19
$ 0.32
$ 0.51

Diluted $ 0.21
$ 0.19
$ 0.31
$ 0.50

AVERAGE COMMON SHARES:
Basic 50,473
49,957
50,376
47,406

Diluted 52,154
51,188
52,033
48,516

See condensed notes to consolidated financial statements.

Table of Content s

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2018 AND 2017

(In thousands - unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2018		2017		2018		2017
Net income	$	16,619	$	(3,569)	$	32,828	$	20,717
Other comprehensive income (loss):
Cash flow hedges	667		(144)		3,541		166
Less income tax benefit (expense)	(172)		56		(910)		(64)
Foreign currency translation adjustment	(1,637)		721		(3,241)		2,925
Less income tax (expense)	—		—		—		(252)
Total other comprehensive income (loss)	(1,142)		633		(610)		2,775
Total comprehensive income (loss)	$	15,477	$	(2,936)	$	32,218	$	23,492

See condensed notes to consolidated financial statements.

Table of Content s

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Net income $ 10,941
$ 9,483
$ 16,210
$ 24,286
Other comprehensive income (loss):
Cash flow hedges 881
(527 ) 2,873
310
Less income tax benefit (expense) (226 ) 205
(738 ) (121 )
Foreign currency translation adjustment (4,195 ) 1,425
(1,603 ) 2,205
Less income tax expense —
—
—
(252 )
Total other comprehensive income (loss) (3,540 ) 1,103
532
2,142
Total comprehensive income $ 7,401
$ 10,586
$ 16,742
$ 26,428

See condensed notes to consolidated financial statements.


MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(In thousands - unaudited)

	Nine Months Ended September 30,
	2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,828	$	20,717

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,436		39,388
Gain on bargain purchase	—		(10,796)
Loss on sales and/or abandonment of property and equipment	425		219
Write-off of patents and intangible assets	744		86
Acquired in-process research and development	382		12,136
Amortization of deferred credits	(106)		(111)
Amortization of long-term debt issuance costs	603		514
Deferred income taxes	—		(290)
Stock-based compensation expense	4,494		2,883
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade receivables	(25,482)		(10,963)
Other receivables	255		(449)
Inventories	(19,375)		(9,922)
Prepaid expenses and other current assets	(2,719)		(1,587)
Prepaid income taxes	(120)		(231)
Income tax refund receivables	134		280
Other assets	(1,370)		(2,992)
Trade payables	15,936		(876)
Accrued expenses	7,707		4,470
Income taxes payable	(1,528)		(764)


Deferred compensation payable	994		1,107
Other long-term obligations	(1,381)		574

Total adjustments	30,029		22,676

Net cash provided by operating activities	62,857		43,393

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment	(47,024)		(29,522)
Intangible assets	(2,234)		(1,927)
Proceeds from the sale of property and equipment	7		9
Issuance of note receivable	(10,750)		—
Cash paid in acquisitions, net of cash acquired	(122,770)		(103,500)

Net cash used in investing activities	(182,771)		(134,940)

See condensed notes to consolidated financial statements.			(continued)

Table of Content s

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(In thousands - unaudited)
Six Months Ended June 30,
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,210
$ 24,286

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 32,779
25,709
Gain on bargain purchase —
(11,574 )
Loss on sales and/or abandonment of property and equipment 371
234
Write-off of patents and intangible assets 86
19
Acquired in-process research and development 306
75
Amortization of deferred credits (71 ) (76 )
Amortization of long-term debt issuance costs 402
343
Deferred income taxes —
(295 )
Stock-based compensation expense 2,821
1,691
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade receivables (27,947 ) (13,248 )
Other receivables 966
(114 )
Inventories (7,189 ) (2,160 )
Prepaid expenses and other current assets (3,105 ) (1,230 )
Prepaid income taxes (100 ) (92 )
Income tax refund receivables (1,146 ) 294
Other assets (751 ) (1,500 )
Trade payables 15,767
3,664
Accrued expenses 7,467
7,421
Income taxes payable (2,076 ) (301 )
Deferred compensation payable 438
513
Other long-term obligations (179 ) 907

Total adjustments 18,839
10,280

Net cash provided by operating activities 35,049
34,566

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (31,559 ) (17,782 )
Intangible assets (1,755 ) (1,082 )
Proceeds from the sale of property and equipment 4
3
Issuance of note receivable (10,500 ) —
Cash paid in acquisitions, net of cash acquired (118,654 ) (54,809 )

Net cash used in investing activities (162,464 ) (73,670 )

See condensed notes to consolidated financial statements. (continued)


MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(In thousands - unaudited)
	Nine Months Ended September 30,
	2018		2017
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	213,276	$	143,069
Offering costs	(366)		(816)
Proceeds from issuance of long-term debt	380,825		151,462
Payments on long-term debt	(450,575)		(197,962)

Contingent payments related to acquisitions	(184)		(45)
Payment of taxes related to an exchange of common stock	(2,616)		—

Net cash provided by financing activities	140,360		95,708

EFFECT OF EXCHANGE RATES ON CASH	(827)		30

NET INCREASE IN CASH AND CASH EQUIVALENTS	19,619		4,191

CASH AND CASH EQUIVALENTS:
Beginning of period	32,336		19,171

End of period	$	51,955	$	23,362

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $468 and $371, respectively)	$	8,018	$	5,953

Income taxes	$	6,069	$	4,029

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	3,058	$	1,394

Acquisition purchases in accrued expenses and other long-term obligations	$	—	$	12,000

Merit common stock surrendered (43 and 0 shares, respectively) in exchange for exercise of stock options	$	2,262	$	—

See condensed notes to consolidated financial statements.			(concluded)

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(In thousands - unaudited)
Six Months Ended June 30,
2018 2017
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 3,251
$ 140,989
Offering costs —
(815 )
Proceeds from issuance of long-term debt 320,827
96,859
Payments on long-term debt (185,827 ) (179,359 )
Contingent payments related to acquisitions (130 ) (30 )

Net cash provided by financing activities 138,121
57,644

EFFECT OF EXCHANGE RATES ON CASH 470
(36 )

NET INCREASE IN CASH AND CASH EQUIVALENTS 11,176
18,504

CASH AND CASH EQUIVALENTS:
Beginning of period 32,336
19,171

End of period $ 43,512
$ 37,675

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $314 and $240, respectively) $ 5,714
$ 4,386

Income taxes $ 5,141
$ 2,678

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable $ 3,943
$ 1,560

Acquisition purchases in accrued expenses and other long-term obligations $ —
$ 6,000

Merit common stock surrendered (32 and 0 shares, respectively) in exchange for exercise of stock options $ 1,684
$ —

See condensed notes to consolidated financial statements. (concluded)

Table of Content s

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of ~~June~~September 30, 2018 and December 31, 2017, and our results of operations and cash flows for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017. The results of operations for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 are not necessarily indicative of the results for a full-year period. These interim consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K (the "2017 Form 10-K") for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (the "SEC") on March 1, 2018.

2. Inventories. Inventories at ~~June~~September 30, 2018 and December 31, 2017, consisted of the following (in thousands):


	June 30,		December 31,			September 30,		December 31,
	2018		2017			2018		2017
Finished goods	$	101,092	$	86,555	Finished goods	$	103,258	$	86,555
Work-in-process	20,962		12,799		Work-in-process	20,546		12,799
Raw materials	47,200		55,934		Raw materials	57,635		55,934

Total Inventories	$	169,254	$	155,288	Total Inventories	$	181,439	$	155,288

3. Stock-Based Compensation Expense. ~~The stock-based~~Stock-based compensation expense before income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, consisted of the following (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of sales	$	241	$	189	$	657	$	453
Research and development	141		110		412		262
Selling, general and administrative	1,291		893		3,425		2,168
Stock-based compensation expense before taxes	$	1,673	$	1,192	$	4,494	$	2,883

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Cost of sales $ 232
$ 168
$ 416
$ 264
Research and development 147
100
271
152
Selling, general and administrative 1,186
846
2,134
1,275
Stock-based compensation expense before taxes $ 1,565
$ 1,114
$ 2,821
$ 1,691

We recognize stock-based compensation expense (net of a forfeiture rate) for those awards which are expected to vest on a straight-line basis over the requisite service period. We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures. As of ~~June~~September 30, 2018, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately ~~$22.4~~$20.7 million and is expected to be recognized over a weighted average period of ~~3.46~~3.25 years.

During the ~~three and six-month periods~~three-month period ended ~~June~~September 30, 2018, we did not grant any new stock-based awards. During the nine-month period ended September 30, 2018, we granted stock-based awards representing ~~200,000 and~~ 692,002 shares of our common ~~stock, respectively.~~stock. During the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2017, we granted stock-based awards representing 20,000 and approximately ~~1.28~~1.3 million shares of our common ~~stock.~~stock, respectively. We use the Black-Scholes methodology to value the stock-based compensation expense for options. In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:

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	Six Months Ended June 30,			Nine Months Ended September 30,
	2018	2017		2018	2017
Risk-free interest rate	2.63% - 2.77%	1.77% - 1.79%	Risk-free interest rate	2.63% - 2.77%	1.77% - 1.83%
Expected option life	5.0 years	5.0 years	Expected option life	5.0 years	5.0 years
Expected dividend yield	—	—	Expected dividend yield	—	—
Expected price volatility	34.06% - 34.32%	33.81% - 34.03%	Expected price volatility	34.06% - 34.32%	33.81% - 34.07%

The average risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of grant, based on the expected term of the stock options. We determine the expected term of the stock options using the historical exercise behavior of employees. The expected price volatility was determined using a weighted average of daily historical volatility of our stock price over the corresponding expected option life and implied volatility based on recent trends of the daily historical volatility. For options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period.

4. Earnings Per Common Share (EPS). The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the following periods consisted of the following (in thousands, except per share amounts):


	Three Months								Nine Months
	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Period ended September 30, 2018:
Basic EPS	$	16,619	53,431	$	0.31	$	32,828	51,434	$	0.64
Effect of dilutive stock options and warrants			1,672					1,662

Diluted EPS	$	16,619	55,103	$	0.30	$	32,828	53,096	$	0.62

Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			667					462

Period ended September 30, 2017:
Basic EPS	$	(3,569)	50,150	$	(0.07)	$	20,717	48,332	$	0.43
Effect of dilutive stock options and warrants			1,449					1,223

Diluted EPS	$	(3,569)	51,599	$	(0.07)	$	20,717	49,555	$	0.42

Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			200					434

Table of ~~the Argon critical care division.~~Content s

Other Income (Expense)

Our other income (expense) for the three-month periods ended ~~June~~September 30, 2018 and 2017 was approximately ~~$(3.5)~~$(1.7) million, and ~~$(2.0)~~$(3.1) million, respectively. The ~~increase~~decrease in other expense was ~~primarily~~primarily a result of ~~increased interest expense due~~the bargain purchase gain related to ~~higher debt balances used to finance~~ the BDacquisition of the Argon critical care division which was adjusted during the third quarter of 2017 and ~~other acquisitions.~~fluctuations in the currency gains and losses during the third quarter of 2018.

Our other income (expense) for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 was approximately ~~$(6.0)~~$(7.6) million, and ~~$7.8~~$4.8 million, respectively. The change in other income (expense) for these periods was primarily a result of the bargain purchase gain related to the acquisition of the Argon critical care division the first quarter of 2017, which did not recur in 2018, and increased interest expense in 2018 due to higher average debt balances used to finance the BD and other acquisitions.

Net Income

Our net income for three-month periods ended ~~June~~September 30, 2018 and 2017 was approximately ~~$10.9~~$16.6 million and ~~$9.5~~$(3.6) million, respectively. The increase in net income was primarily due to increased sales and improvement in our gross margin. In addition, the net loss for the three months ended September 30, 2017 was primarily due to the acquired in-process research and development expenses of $12.1 million primarily attributable to the IntelliMedical acquisition, which ~~were partially offset by a decrease~~did not recur in ~~gross profit as a percentage of sales.~~ 2018.

Our net income for ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 was approximately ~~$16.2~~$32.8 million and ~~$24.3~~$20.7 million, respectively. The ~~decrease~~increase in net income was primarily related to increased sales, lower SG&A expenses as a percentage of sales and the ~~gain on bargain purchase~~acquired in-process research and development expenses of ~~$11.6~~$12.1 million ~~reported~~ in 2017 attributable to the IntelliMedical acquisition, which did not recur in 2018, partially offset by the gain on bargain purchase in 2017 of approximately $10.8 million related to the acquisition of the Argon critical care ~~division, which was partially offset by increased sales in the six months ended June 30, 2018 compared to the same period in 2017.~~division.

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LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

At ~~June~~September 30, 2018 and December 31, 2017, we had cash and cash equivalents of approximately ~~$43.5~~$52.0 million and $32.3 million respectively, of which approximately ~~$41.9~~$46.9 million and $30.4 million, respectively, were held by foreign subsidiaries. The 2017 Tax Act one-time repatriation tax liability effectively taxes the undistributed earnings previously deferred from U.S. income taxes. We have not provided for foreign withholding tax on the undistributed earnings from our non-U.S. subsidiaries because such earnings are currently considered to be indefinitely reinvested. We are still analyzing how the 2017 Tax Act impacts our existing accounting position to indefinitely reinvest foreign earnings and have yet to determine whether we plan to change our position. The cash held by our foreign subsidiaries for indefinite reinvestment is used to fund the operating activities of our foreign subsidiaries and for further investment in foreign operations.

In addition, cash held by our subsidiary in China is subject to local laws and regulations that require government approval for the transfer of such funds to entities located outside of China. As of ~~June~~September 30, 2018 and December 31, 2017, we had cash and cash equivalents of approximately ~~$22.9~~$21.0 million and $13.1 million, respectively, held by our subsidiary in China.

Cash flows provided by operating activities. Cash provided by operating activities during the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 was primarily the result of net income excluding non-cash items, offset by shifts in working capital. Our working capital as of ~~June~~September 30, 2018 and December 31, 2017 was approximately ~~$231.4~~$247.8 million and $200.5 million, respectively. The increase in working capital as of ~~June~~September 30, 2018 compared to December 31, 2017 was primarily the result of increases in trade receivables and inventories which were partially offset by an increase in trade payables and accrued expenses. As of ~~June~~September 30, 2018 and December 31, 2017, we had a current ratio of ~~2.66~~2.77 to 1 and 2.73 to 1, respectively.

During the ~~six-month~~nine-month period ended ~~June~~September 30, 2018, our inventory balance increased approximately ~~$14.0~~$26.2 million, from approximately $155.3 million as of December 31, 2017 to approximately ~~$169.3~~$181.4 million as of ~~June~~September 30, 2018. The increase in the inventory balance was due to several factors, including acquisitions and expansion to support increased sales and the opening of new modified direct sales markets. The trailing twelve-month inventory turns as of ~~June~~September 30, 2018 was ~~2.90,~~2.84, compared to 2.91 for the twelve-month period ended December 31, 2017.

Cash flows provided by financing activities. Cash provided by financing activities for the ~~six-month~~nine-month period ended ~~June~~September 30, 2018 was approximately ~~$138.1~~$140.4 million compared to approximately ~~$57.6~~$95.7 million for the ~~six-month~~nine-month period ended ~~June~~September 30, 2017, an increase of approximately ~~$80.5~~$44.7 million. The increase in net cash provided from financing activities was primarily the result of ~~additional borrowings in 2018 to fund the acquisition of assets from BD, NinePoint and DirectACCESS, partially offset by a decrease in~~higher proceeds from the issuance of common stock ~~(as no public equity offering was undertaken~~ in 2018 (compared to the ~~six-month period ended June 30, 2018).~~proceeds we received from issuance of common stock in 2017), partially offset by higher net debt repayments in 2018.

On ~~March 14,~~September 3, 2018, we renewed our loan agreement with HSBC Bank ~~USA, National Association ("HSBC Bank")~~ whereby HSBC Bank agreed to provide us with a loan in the amount of approximately $7.0 million. The loan matures on ~~July~~January 10, ~~2018,~~2019, with an extension available at our option, subject to certain conditions. The loan agreement bears interest at the ~~three-month~~six-month LIBOR rate, plus 1.0%~~, which resets quarterly.~~. The loan is secured by assets ~~equal to~~having a value not less than the currently outstanding loan balance. The loan contains covenants, representations and warranties and other terms customary for loans of this nature. As of ~~June~~September 30, 2018, our interest rate on the loan was a variable rate of ~~3.26%~~3.12%.

The Second Amended Credit Agreement provides for a term loan of $150 million and a revolving credit commitment up to an aggregate amount of $375 million, which includes a reserve of $25 million to make swingline loans from time to time. The term loan is payable in quarterly installments in the amounts provided in the Second Amended Credit Agreement until the maturity date of July 6, 2021, at which time the term and revolving credit loans, together with accrued interest thereon, will be due and payable. At any time prior to the maturity date, we may repay any amounts owing under all revolving credit loans, term loans, and all swingline loans in whole or in part, subject to certain minimum thresholds, without premium or penalty, other than breakage costs.

Revolving credit loans denominated in dollars and term loans made under the Second Amended Credit Agreement bear interest, at our election, at either a Base Rate or Eurocurrency Base Rate (as such terms are defined in the Second Amended Credit Agreement) plus the applicable margin, which increases as our Consolidated Total Leverage Ratio (as defined in the Second Amended Credit Agreement) increases. Revolving credit loans denominated in an Alternative Currency (as defined in the Second Amended Credit Agreement) bear interest at the Eurocurrency rate plus the applicable margin. Swingline loans bear interest at the Base Rate plus the applicable margin. Upon an event of default, the interest rate may be increased by 2.0%. The revolving credit commitment will also carry a commitment fee of 0.15% to 0.40% per annum on the unused portion.

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The Second Amended Credit Agreement is collateralized by substantially all our assets. The Second Amended Credit Agreement contains covenants, representations and warranties and other terms customary for loans of this nature. The Second Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

Covenant Requirement

Consolidated Total Leverage Ratio ⁽¹⁾

January 1, 2018 and thereafter

3.5 to 1.0

Consolidated EBITDA ⁽²⁾

1.25 to 1.0

Consolidated Net Income ⁽³⁾

Facility Capital Expenditures ⁽⁴⁾

$30 million

~~Covenant Requirement~~

~~Consolidated Total Leverage Ratio~~ ⁽¹⁾

~~January 1, 2018 and thereafter~~

~~3.5 to 1.0~~

~~Consolidated EBITDA~~ ⁽²⁾

~~1.25 to 1.0~~

~~Consolidated Net Income~~ ⁽³⁾

~~Facility Capital Expenditures~~ ⁽⁴⁾

~~$30 million~~

⁽¹⁾

Maximum Consolidated Total Leverage Ratio (as defined in the Second Amended Credit Agreement) as of any fiscal quarter end.

⁽²⁾

Minimum ratio of Consolidated EBITDA (as defined in the Second Amended Credit Agreement and adjusted for certain expenditures) to Consolidated Fixed Charges (as defined in the Second Amended Credit Agreement) for any period of four consecutive fiscal quarters.

⁽³⁾

Minimum level of Consolidated Net Income (as defined in the Second Amended Credit Agreement) for certain periods, and subject to certain adjustments.

⁽⁴⁾

Maximum level of the aggregate amount of all Facility Capital Expenditures (as defined in the Second Amended Credit Agreement) in any fiscal year.

Additionally, the Second Amended Credit Agreement contains customary events of default and affirmative and negative covenants for transactions of this type. As of ~~June~~September 30, 2018, we believe we were in compliance with all covenants set forth in the Second Amended Credit Agreement.

As of ~~June~~September 30, 2018, we had outstanding borrowings of approximately ~~$407.0~~$202.3 million under the Second Amended Credit Agreement ~~(an increase~~(a decrease in ~~long-term debt~~outstanding borrowings under the Second Amended Credit Agreement of approximately ~~$132.6~~$69.8 million from December 31, 2017, which was principally due to applying the proceeds of the July 2018 common stock offering toward our ~~acquisition~~outstanding debt balance in the third quarter of ~~assets from BD, NinePoint and DirectACCESS),~~2018, partially offset by increased debt levels in the first six months of 2018 to fund acquisitions) with available borrowings of approximately ~~$47.8~~$248.4 million, based on the leverage ratio required pursuant to the Second Amended Credit Agreement. Our interest rate as of ~~June~~September 30, 2018 was a fixed rate of 2.87% on $175.0 million as a result of an interest rate swap (see Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report) and a variable floating rate of ~~3.84%~~3.99% on ~~$232.0~~$27.3 million. Our interest rate as of December 31, 2017 was a fixed rate of 2.68% on $175.0 million as a result of an interest rate swap and a variable floating rate of 2.82% on $97.0 million.

As discussed in Note 1615 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report, the net proceeds from our offering of common stock, which closed on July 30, 2018, were used primarily to repay outstanding borrowings (primarily revolving credit loans) under the Second Amended Credit Agreement.

Cash flows used in investing activities.Our cash flows used in investing activities for the ~~six-month~~nine-month period ended ~~June~~September 30, 2018 was approximately ~~$162.5~~$182.8 million compared to approximately ~~$73.7~~$134.9 million for the ~~six-month~~nine-month period ended ~~June~~September 30, 2017, an increase of approximately ~~$88.8~~$47.8 million. This increase was primarily a result of an increase of approximately ~~$63.8~~$19.3 million in net cash paid for acquisitions during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to the ~~six~~nine months ended ~~June~~September 30, 2017 (see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report), combined with a ~~$13.8~~$17.5 million increase in capital expenditures for property and equipment. Capital expenditures for property and equipment were approximately ~~$31.6~~$47.0 million and ~~$17.8~~$29.5 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017, respectively.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under the Second Amended Credit Agreement will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future. In the event we pursue and complete significant transactions or acquisitions in the future, additional funds will likely be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.

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Off-Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses,

results of operations, liquidity, capital expenditures or capital resources that are material to investors. As of ~~June~~September 30, 2018, we have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially, from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the audit committee of our Board of Directors. The following paragraphs identify our most critical accounting policies:

Inventory Obsolescence. Our management reviews on a quarterly basis inventory quantities on hand for unmarketable and/or slow-moving products that may expire prior to being sold. This review includes quantities on hand for both raw materials and finished goods. Based on this review, we provide adjustments for any slow-moving finished good products or raw materials that we believe will expire prior to being sold or used to produce a finished good and any products that are unmarketable. This review of inventory quantities for unmarketable and/or slow moving products is based on forecasted product demand prior to expiration lives.

Forecasted unit demand is derived from our historical experience of product sales and production raw material usage. If market conditions become less favorable than those projected by our management, additional inventory write-downs may be required. During the years ended December 31, 2017, 2016 and 2015, we recorded obsolescence expense of approximately $6.1 million, $3.9 million and $2.8 million, respectively, and wrote off approximately $2.9 million, $2.8 million and $2.5 million, respectively. Based on this historical trend, we believe that our inventory balances as of ~~June~~September 30, 2018 have been accurately adjusted for any unmarketable and/or slow moving products that may expire prior to being sold.

Allowance for Doubtful Accounts. A majority of our receivables are with hospitals which, over our history, have demonstrated favorable collection rates. Therefore, we have experienced relatively minimal bad debts from hospital customers. In limited circumstances, we have written off bad debts as the result of the termination of our business relationships with foreign distributors. The most significant write-offs over our history have come from U.S. and international distributors.

We maintain allowances for doubtful accounts relating to estimated losses resulting from the inability of our customers to make required payments. These allowances are based upon historical experience and a review of individual customer balances. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Stock-Based Compensation. We measure stock-based compensation cost at the grant date based on the value of the award and recognize the cost as an expense over the term of the vesting period. Judgment is required in estimating the fair value of share-based awards granted and their expected forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Income Taxes. Under our accounting policies, we initially recognize a tax position in our financial statements when it becomes more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax positions that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities assuming full knowledge of the position and all relevant facts. Although we believe that our provisions for unrecognized tax positions are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our income tax provisions and accruals. The tax law is subject to varied interpretations, and we have taken positions related to certain matters where the law is subject to interpretation. Additionally, changes in tax law - such as the 2017 Tax Act - may be subject to evolving interpretation over a period of time

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following their enactment. Such differences and evolving interpretations could have a material impact on our income tax provisions and operating results in the period(s) in which we make such determination.

Goodwill and Intangible Asset Impairment and Contingent Consideration. We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We test our goodwill balances for impairment as of July 1 of each year, or whenever impairment indicators arise. We utilize several reporting units in

evaluating goodwill for impairment. We assess the estimated fair value of reporting units using a combination of a guideline public company market-based approach and a discounted cash flow income-based approach. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized in an amount equal to the excess of the carrying amount of the reporting unit goodwill over the implied fair value of that goodwill. This analysis requires significant judgment, including estimation of future cash flows and the length of time they will occur, which is based on internal forecasts, and a determination of a discount rate based on our weighted average cost of capital. During our annual test of goodwill balances in ~~2017,~~2018, which was completed during the third quarter of ~~2017,~~2018, we determined that the fair value of each reporting unit with goodwill exceeded the carrying amount by a significant amount.

We evaluate the recoverability of intangible assets subject to amortization whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable. This analysis requires similar significant judgments as those discussed above regarding goodwill, except that undiscounted cash flows are compared to the carrying amount of intangible assets to determine if impairment exists. In-process technology intangible assets, which are not subject to amortization until projects reach commercialization, are assessed for impairment at least annually and more frequently if events occur that would indicate a potential reduction in the fair value of the assets below their carrying value. During the ~~fourth~~third quarter of ~~2017,~~2018, we compared the carrying value of the amortizing intangible assets acquired in our July 2015 acquisition of certain assets from ~~Distal Access,~~Quellent, LLC to the undiscounted cash flows expected to result from the asset group and determined that the carrying amount was not recoverable. We then determined the fair value of the amortizing assets related to the ~~Distal Access~~Quellent acquisition based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities. Some of the factors that influenced our estimated cash flows were slower than anticipated sales growth in the products acquired from our ~~Distal Access~~Quellent acquisition and uncertainty about future sales growth. The excess of the carrying value compared to the fair value was recognized as an intangible asset impairment charge. We recorded an impairment charge for ~~Distal Access~~Quellent of approximately ~~$809,000~~$657,000 during the ~~fourth~~third quarter of ~~2017.~~2018.

Contingent consideration is an obligation by the buyer to transfer additional assets or equity interests to the former owner upon reaching certain performance targets. Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue milestones. In connection with a business combination, any contingent consideration is recorded on the acquisition date based upon the consideration expected to be transferred in the future. We utilize a discounted cash flow method, which includes a probability factor for milestone payments, in valuing the contingent consideration liability. We re-measure the estimated liability each quarter and record changes in the estimated fair value through operating expense in our consolidated statements of income. Significant increases or decreases in our estimates could result in changes to the estimated fair value of our contingent consideration liability, as the result of changes in the timing and amount of revenue estimates, as well as changes in the discount rate or periods.

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~~Item~~ITEM 3.QUANTITATIVE AND QUALITATIVE ~~DICSLOSURES~~DISCLOSURES ABOUT MARKET RISK

Currency Risk

Our principal market risk relates to changes in the value of the following currencies relative to the U.S. Dollar (USD):

• Euro (EUR)

• Chinese Yuan Renminbi (CNY), and

• British Pound (GBP).

We also have a limited market risk relating to the following currencies (among others):

• Hong Kong Dollar (HKD),

• Mexican Peso (MXN),

• Australian Dollar (AUD),

• Canadian Dollar (CAD),

• Brazilian Real (BRL),

• Swiss Franc (CHF),

• Swedish Krona (SEK),

• Danish Krone (DKK),

• Singapore Dollars (SGD),

• South Korean Won (KRW), and

• Japanese Yen (JPY).

Our consolidated financial statements are denominated in, and our principal currency is, the U.S. Dollar. For the ~~six-month~~nine-month period ended ~~June~~September 30, 2018, a portion of our net sales (approximately ~~$143.4~~$213.8 million, representing approximately ~~33.5%~~32.9% of our aggregate net sales), was attributable to sales that were denominated in foreign currencies. All other international sales were denominated in U.S. Dollars.

Our Euro-denominated revenue represents our largest single currency risk. However, our Euro-denominated expenses associated with our European operations (manufacturing sites, a distribution facility and sales representatives) provide a natural hedge. Accordingly, changes in the Euro, and in particular a strengthening of the U.S. Dollar against the Euro, generally have a positive effect on our operating income. As we continue to expand our operations in China, we have been increasingly exposed to currency risk related to our CNY-denominated revenue. In general, a strengthening of the U.S. Dollar against CNY has a negative effect on our operating income. The following table presents the USD impact to reported operating income related to a hypothetical positive and negative 10% exchange rate fluctuation in the value of the U.S. Dollar relative to both the EUR and CNY (annual amounts):


(in thousands)							(in thousands)
	USD Relative to Other Currency							USD Relative to Other Currency
	10% Strengthening			10% Weakening				10% Strengthening	10% Weakening
Impact to Operating Income of:							Impact to Operating Income of:
EUR	$	4,300		$	(4,300	)	EUR	$3,400	$(3,400)
CNY	$	(5,800	)	$	5,800		CNY	$(6,200)	$6,200



Net Assets Acquired
Inventories	$	971
Intangibles
Developed technology	4,840
Customer list	120
Trademarks	400
Goodwill	938

Total net assets acquired	$	7,269


Inventories	$	971
Intangibles
Developed technology	4,840
Customer list	120
Trademarks	400
Goodwill	938

Total assets acquired	$	7,269



		Preliminary Allocation		Adjustments ⁽¹⁾			Revised Allocation
	Inventories	$	6,039	$	(235	)	$	5,804
	Property and equipment	581		167			748
	Intangibles
	Developed technology	79,900		(5,900		)	74,000
	Customer list	3,500		700			4,200
	Trademarks	4,700		200			4,900
	Goodwill	5,387		5,226			10,613

	Total net assets acquired	$	100,107	$	158		$	100,265

(1)	Under U.S. GAAP, measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments for the periods presented. Amounts represent adjustments to the preliminary purchase price allocation first presented in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 resulting from a final working capital adjustment and our ongoing activities with respect to finalizing asset valuations for this acquisition.


Inventories	$	5,804
Property and equipment	748
Intangibles
Developed technology	74,000
Customer list	4,200
Trademarks	4,900
Goodwill	10,613

Total assets acquired	$	100,265


Assets Acquired
Trade receivables	$	1,287
Other receivables	56
Inventories	1,808
Prepaid expenses and other assets	65
Property and equipment	1,053
Intangibles
Customer lists	5,940
Goodwill	3,945
Total assets acquired	14,154

Liabilities Assumed
Trade payables	(216)
Accrued expenses	(747)
Deferred income tax liabilities	(1,901)
Total liabilities assumed	(2,864)

Total net assets acquired	$	11,290

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017 (In thousands, except per share amounts - unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
NET SALES	$	224,810		$	186,549		$	427,844		$	357,618

COST OF SALES	124,801			102,408			239,779			197,535

GROSS PROFIT	100,009			84,141			188,065			160,083

OPERATING EXPENSES:
Selling, general and administrative	69,095			57,409			134,007			115,180
Research and development	15,316			13,313			29,638			25,838
Contingent consideration expense (benefit)	178			(18		)	219			19
Acquired in-process research and development	306			75			306			75

Total operating expenses	84,895			70,779			164,170			141,112

INCOME FROM OPERATIONS	15,114			13,362			23,895			18,971

OTHER INCOME (EXPENSE):
Interest income	342			89			487			172
Interest expense	(3,338		)	(1,639		)	(5,736		)	(4,345		)
Gain on bargain purchase	—			(669		)	—			11,574
Other income (expense) - net	(553		)	170			(721		)	434

Other income (expense) — net	(3,549		)	(2,049		)	(5,970		)	7,835

INCOME BEFORE INCOME TAXES	11,565			11,313			17,925			26,806

INCOME TAX EXPENSE	624			1,830			1,715			2,520

NET INCOME	$	10,941		$	9,483		$	16,210		$	24,286

EARNINGS PER COMMON SHARE:
Basic	$	0.22		$	0.19		$	0.32		$	0.51

Diluted	$	0.21		$	0.19		$	0.31		$	0.50

AVERAGE COMMON SHARES:
Basic	50,473			49,957			50,376			47,406

Diluted	52,154			51,188			52,033			48,516

See condensed notes to consolidated financial statements.



	Three Months					Six Months
	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Period ended June 30, 2018:
Basic EPS	$	10,941	50,473	$	0.22	$	16,210	50,376	$	0.32
Effect of dilutive stock options and warrants			1,681					1,657

Diluted EPS	$	10,941	52,154	$	0.21	$	16,210	52,033	$	0.31

Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			535					359

Period ended June 30, 2017:
Basic EPS	$	9,483	49,957	$	0.19	$	24,286	47,406	$	0.51
Effect of dilutive stock options and warrants			1,231					1,110

Diluted EPS	$	9,483	51,188	$	0.19	$	24,286	48,516	$	0.50

Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			1,007					552


Intangibles
Developed technology	$	7,800
In-process technology	920
Goodwill	4,281
Deferred tax liabilities	(3,101)

Total net assets acquired	$	9,900


	Assets Acquired
	Cash and cash equivalents	$	1,436
	Trade receivables	8,351
	Inventories	11,222
	Prepaid expenses and other assets	1,275
	Income tax refund receivables	165
	Property and equipment	2,319
	Deferred income tax assets	202
	Intangibles
	Developed technology	2,200
	Customer lists	1,500
	Trademarks	900
	Total assets acquired	29,570

	Liabilities Assumed
	Trade payables	(2,414)
	Accrued expenses	(5,083)
	Deferred income tax liabilities	(934)
	Total liabilities assumed	(8,431)

	Total net assets acquired	21,139
	Gain on bargain purchase ⁽¹⁾	(11,039)
	Total purchase price	$	10,100

⁽¹⁾	The total fair value of the net assets acquired from Argon exceeded the purchase price, resulting in a gain on bargain purchase which was recorded within other income (expense) in our consolidated statements of income. We believe the reason for the gain on bargain purchase was a result of the divestiture of a non-strategic, slow-growth critical care business for Argon. It is our understanding that the divestiture allows Argon to focus on its higher growth interventional portfolio. A reduction of $1.2 million was recorded since the bargain purchase gain was first presented in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, resulting from our ongoing activities, including reassessment of the assets acquired and liabilities assumed. The purchase price allocation for this acquisition is now final.



Assets Acquired
Trade receivables	$	4,054
Other receivables	6
Inventories	8,585
Prepaid expenses and other assets	630
Property and equipment	1,630
Other long-term assets	145
Intangibles
Developed technology	67,600
Customer lists	2,400
Trademarks	4,400
Goodwill	24,818
Total assets acquired	114,268

Liabilities Assumed
Trade payables	(1,790		)
Accrued expenses	(5,298		)
Deferred income tax liabilities - current	(701		)
Deferred income tax liabilities - noncurrent	(10,844		)
Total liabilities assumed	(18,633		)

Net assets acquired, net of cash received of $1,327	$	95,635



Assets Acquired
Inventories	$	2,455
Property and equipment	290
Intangibles
Developed technology	12,100
Trademarks	700
Customers Lists	400
Goodwill	2,555

Total assets acquired	$	18,500


	Six Months Ended					Nine Months Ended
	June 30, 2017					September 30, 2017
	As Reported		Pro Forma			As Reported		Pro Forma
Net sales	$	357,618	$	360,378	Net sales	$	536,955	$	539,715
Net income	24,286		12,444		Net income	20,717		10,039
Earnings per common share:					Earnings per common share:
Basic	$	0.51	$	0.26	Basic	$	0.43	$	0.21
Diluted	$	0.50	$	0.26	Diluted	$	0.42	$	0.20


3.	~~Determine the transaction price~~. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. None of our contracts as of June 30, 2018 contained a significant financing


4.	~~Allocate the transaction price to performance obligations in the contract~~. We typically do not have multiple performance obligations in our contracts with customers. As such, we recognize revenue upon delivery of the product to the customer's control at contractually stated pricing.


5.	~~Recognize revenue when or as we satisfy a performance obligation.~~ We satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.


	Three Months Ended September 30, 2018										Three Months Ended September 30, 2017
	United States		International		Total		United States		International		Total
Cardiovascular
Stand-alone devices	$	52,173	$	38,802	$	90,975	$	36,383	$	32,366	$	68,749
Custom kits and procedure trays	23,199		9,896		33,095		23,085		7,326		30,411
Inflation devices	7,819		15,074		22,893		8,241		11,792		20,033
Catheters	18,081		22,510		40,591		15,377		16,374		31,751
Embolization devices	5,145		7,250		12,395		5,414		6,838		12,252
CRM/EP	10,462		1,739		12,201		8,202		1,325		9,527
Total	116,879		95,271		212,150		96,702		76,021		172,723

Endoscopy
Endoscopy devices	9,229		280		9,509		6,389		225		6,614

Total	$	126,108	$	95,551	$	221,659	$	103,091	$	76,246	$	179,337


	Nine Months Ended September 30, 2018										Nine Months Ended September 30, 2017
	United States		International		Total		United States		International		Total
Cardiovascular
Stand-alone devices	$	147,125	$	119,592	$	266,717	$	109,750	$	93,709	$	203,459
Custom kits and procedure trays	69,184		31,175		100,359		68,823		22,259		91,082
Inflation devices	23,647		45,970		69,617		24,257		35,072		59,329
Catheters	50,055		63,775		113,830		46,529		47,828		94,357
Embolization devices	15,272		22,434		37,706		16,548		20,388		36,936
CRM/EP	31,058		5,105		36,163		28,212		3,765		31,977
Total	336,341		288,051		624,392		294,119		223,021		517,140

Endoscopy
Endoscopy devices	24,269		843		25,112		19,195		620		19,815

Total	$	360,610	$	288,894	$	649,504	$	313,314	$	223,641	$	536,955



	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
	United States		International		Total		United States		International		Total
Cardiovascular
Stand-alone devices	$	50,941	$	41,555	$	92,496	$	37,202	$	33,854	$	71,056
Custom kits and procedure trays	23,667		10,325		33,992		24,271		7,526		31,797
Inflation devices	8,160		16,145		24,305		8,042		12,747		20,789
Catheters	16,704		22,670		39,374		16,022		16,407		32,429
Embolization devices	5,094		7,630		12,724		5,593		6,565		12,158
CRM/EP	11,758		1,738		13,496		10,264		1,170		11,434
Total	116,324		100,063		216,387		101,394		78,269		179,663

Endoscopy
Endoscopy devices	8,121		302		8,423		6,712		174		6,886

Total	$	124,445	$	100,365	$	224,810	$	108,106	$	78,443	$	186,549



	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
	United States		International		Total		United States		International		Total
Cardiovascular
Stand-alone devices	$	94,953	$	80,789	$	175,742	$	73,366	$	61,343	$	134,709
Custom kits and procedure trays	45,984		21,280		67,264		45,737		14,935		60,672
Inflation devices	15,828		30,896		46,724		16,017		23,279		39,296
Catheters	31,974		41,265		73,239		31,151		31,454		62,605
Embolization devices	10,126		15,184		25,310		11,134		13,551		24,685
CRM/EP	20,596		3,366		23,962		20,011		2,440		22,451
Total	219,461		192,780		412,241		197,416		147,002		344,418

Endoscopy
Endoscopy devices	15,040		563		15,603		12,806		394		13,200

Total	$	234,501	$	193,343	$	427,844	$	210,222	$	147,396	$	357,618


	September 30, 2018		December 31, 2017
2016 Term loan	$	76,250	$	85,000
2016 Revolving credit loans	126,000		187,000
Collateralized debt facility	7,000		6,959
Less unamortized debt issuance costs	(383)		(487)
Total long-term debt	208,867		278,472
Less current portion	22,000		19,459
Long-term portion	$	186,867	$	259,013



	June 30, 2018			December 31, 2017
2016 Term loan	$	80,000		$	85,000
2016 Revolving credit loans	327,000			187,000
Collateralized debt facility	6,985			6,959
Less unamortized debt issuance costs	(418		)	(487		)
Total long-term debt	413,567			278,472
Less current portion	21,985			19,459
Long-term portion	$	391,582		$	259,013


Years Ending	Future Minimum
December 31	Principal Payments
Remaining 2018	$	3,750
2019	22,000
2020	17,500
2021	166,000
Total future minimum principal payments	$	209,250



Currency	Symbol	Forward Notional Amount
Canadian Dollar	CAD	~~2,410~~	2,460
Swiss Franc	CHF	~~1,158~~	1,215
Chinese Renminbi	CNY	~~66,000~~	60,000
Danish Krone	DKK	~~11,650~~	10,835
Euro	EUR	~~12,870~~	12,270
British Pound	GBP	~~2,975~~	3,355
~~Mexican Peso~~Japanese Yen	~~MXN~~JPY	~~94,275~~	330,000
Mexican Peso	MXN	93,575
Swedish Krona	SEK	~~13,830~~	12,780


			Fair Value								Fair Value
		Balance Sheet Location	June 30, 2018			December 31, 2017				Balance Sheet Location	September 30, 2018		December 31, 2017
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments								Derivatives designated as hedging instruments
Assets									Assets
Interest rate swap		Other assets (long-term)	$	8,047		$	5,749		Interest rate swap	Other assets (long-term)	$	8,284	$	5,749
Foreign currency forward contracts		Prepaid expenses and other assets	700			363			Foreign currency forward contracts	Prepaid expenses and other assets	813		363
Foreign currency forward contracts		Other assets (long-term)	83			35			Foreign currency forward contracts	Other assets (long-term)	161		35

Liabilities									Liabilities
Foreign currency forward contracts		Accrued expenses	(231		)	(468		)	Foreign currency forward contracts	Accrued expenses	(240)		(468)
Foreign currency forward contracts		Other long-term obligations	(38		)	(82		)	Foreign currency forward contracts	Other long-term obligations	(56)		(82)

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments								Derivatives not designated as hedging instruments
Assets									Assets
Foreign currency forward contracts		Prepaid expenses and other assets	$	1,097		$	223		Foreign currency forward contracts	Prepaid expenses and other assets	$	360	$	223
Liabilities									Liabilities
Foreign currency forward contracts		Accrued expenses	(228		)	(841		)	Foreign currency forward contracts	Accrued expenses	(475)		(841)


	Amount of Gain/(Loss) Recognized in OCI							Amount of Gain/(Loss) Reclassified from AOCI
	Three Months Ended September 30,							Three Months Ended September 30,
	2018		2017			2018		2017

Derivative instrument						Location in statements of income
Interest rate swaps	$	664	$	1	Interest Expense	$	428	$	96
Foreign currency forward contracts	543		100		Revenue	86		(101)
					Cost of sales	26		250

	Amount of Gain/(Loss) Recognized in OCI							Amount of Gain/(Loss) Reclassified from AOCI
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2018		2017			2018		2017

Derivative instrument						Location in statements of income
Interest rate swaps	$	3,532	$	(611)	Interest Expense	$	998	$	(8)
Foreign currency forward contracts	1,112		841		Revenue	(299)		(141)
					Cost of sales	404		213


				Fair Value Measurements Using										Fair Value Measurements Using
	Total Fair			Quoted prices in		Significant other			Significant			Total Fair		Quoted prices in		Significant other		Significant
	Value at			active markets		observable inputs			unobservable inputs			Value at		active markets		observable inputs		unobservable inputs
Description	June 30, 2018			(Level 1)		(Level 2)			(Level 3)		Description	September 30, 2018		(Level 1)		(Level 2)		(Level 3)

Interest rate contracts ⁽¹⁾	$	8,047		$	—	$	8,047		$	—	Interest rate contracts ⁽¹⁾	$	8,284	$	—	$	8,284	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	1,880		$	—	$	1,880		$	—	Foreign currency contract assets, current and long-term ⁽²⁾	$	1,334	$	—	$	1,334	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(497	)	$	—	$	(497	)	$	—	Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(771)	$	—	$	(771)	$	—

				Fair Value Measurements Using										Fair Value Measurements Using
	Total Fair			Quoted prices in		Significant other			Significant			Total Fair		Quoted prices in		Significant other		Significant
	Value at			active markets		observable inputs			unobservable inputs			Value at		active markets		observable inputs		unobservable inputs
Description	December 31, 2017			(Level 1)		(Level 2)			(Level 3)		Description	December 31, 2017		(Level 1)		(Level 2)		(Level 3)

Interest rate contracts ⁽¹⁾	$	5,749		$	—	$	5,749		$	—	Interest rate contracts ⁽¹⁾	$	5,749	$	—	$	5,749	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	621		$	—	$	621		$	—	Foreign currency contract assets, current and long-term ⁽²⁾	$	621	$	—	$	621	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(1,391	)	$	—	$	(1,391	)	$	—	Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(1,391)	$	—	$	(1,391)	$	—


	2018
Goodwill balance at January 1	$	238,147
Effect of foreign exchange	(881)

Additions as the result of acquisitions	11,757
Goodwill balance at September 30	$	249,023


	September 30, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents	$	18,676	$	(4,665)	$	14,011
Distribution agreements	8,012		(5,509)		2,503
License agreements	24,913		(6,895)		18,018
Trademarks	21,514		(6,039)		15,475
Covenants not to compete	1,028		(993)		35
Customer lists	35,590		(21,987)		13,603
In-process technology	920		—		920

Total	$	110,653	$	(46,088)	$	64,565


Year Ending December 31
Remaining 2018	$	10,140
2019	39,647
2020	38,386
2021	31,025
2022	29,141



Year Ending December 31
Remaining 2018	$	20,132
2019	39,154
2020	37,881
2021	30,488
2022	28,688


	Three Months Ended				Six Months Ended					Three Months Ended			Nine Months Ended
	June 30, 2018				June 30, 2018					September 30, 2018			September 30, 2018
	Currency Impact to Reported Amounts				Currency Impact to Reported Amounts					Currency Impact to Reported Amounts			Currency Impact to Reported Amounts
	Increase/(Decrease)		Percent Increase/(Decrease)		Increase/(Decrease)		Percent Increase/(Decrease)			Increase/(Decrease)	Percent Increase/(Decrease)	Increase/(Decrease)	Percent Increase/(Decrease)
Net Sales	$	3,645	1.6	%	$	8,798	2.1	%	Net Sales	$(1,418)	(0.6)%	$7,380	1.1%
Cost of Sales	$	2,521	2.1	%	$	4,596	2.0	%	Cost of Sales	$(838)	0.7%	$5,434	1.5%
Gross Profit ⁽¹⁾	$	1,124	1.1	%	$	4,202	2.3	%	Gross Profit ⁽¹⁾	$(2,256)	(2.2)%	$1,945	0.7%
⁽¹⁾ Represents approximately 22 basis points decrease and 8 basis points increase in gross margin percentage for the three and six months ended June 30, 2018, respectively
(1) Represents approximately 72 basis points decrease and 21 basis points decrease in gross margin percentage for the three and nine months ended September 30, 2018, respectively.									(1) Represents approximately 72 basis points decrease and 21 basis points decrease in gross margin percentage for the three and nine months ended September 30, 2018, respectively.


~~(1)~~101.Def			~~Incorporated by reference from our Current Report on Form 8-K filed on May 31, 2018 (as amended).~~			Definition Linkbase Document