ICU MEDICAL, INC.

(Exact name of Registrant as provided in charter)

(949) 366-2183

(Registrant’s Telephone No. Including Area Code)

Indicate by check mark whether or not the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

ICU Medical, Inc.

Index

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ICU Medical, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

(1) December 31, 2005 balances were derived from audited consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ICU Medical, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Amounts in thousands, except share and per share data)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ICU Medical, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ICU Medical, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Amounts in thousands)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ICU Medical, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2006

(Amounts in tables in thousands except share and per share data)

(unaudited)

Note 1:   Basis of Presentation: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, which consist of only normal recurring adjustments, which are, in the opinion of Management, necessary for a fair statement of the consolidated results for the interim periods presented. Results for the interim periods are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2005 Annual Report to Stockholders.

ICU Medical, Inc. (the “Company”), a Delaware corporation, operates principally in one business segment engaged in the development, manufacturing and marketing of disposable medical devices. The Company’s devices are sold principally to distributors and medical product manufacturers throughout the United States and a portion internationally. All subsidiaries are wholly or majority owned and are included in the consolidated financial statements. All intercompany balances and transactions have been eliminated.

Note 2:   New Accounting Policy – Share Based Awards  Prior to the January 1, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”), the Company accounted for stock-based compensation granted to employees and directors under Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees” and related interpretations as permitted by SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”). Accordingly, because the exercise price of the options equaled the fair market value of the underlying shares at the date of grant and because rights to purchase stock under the 2002 Employee Stock Purchase Plan (“ESPP”) were non-compensatory under the provisions of APB Opinion No. 25, no compensation cost was recognized by the Company for stock-based compensation. As required by SFAS No. 123, the Company presented certain proforma information for stock-based compensation in the notes to the consolidated financial statements.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method. Under this transition method, stock-based compensation cost was recognized in the consolidated financial statements for all share based payments after January 1, 2006. These include stock options, and rights to purchase stock under the ESPP, because the related purchase discounts for the ESPP exceeded the amount allowed under SFAS 123R for non-compensatory treatment. Compensation cost recognized includes the estimated expense for the portion of the vesting period after January 1, 2006 for share based payments prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Results for prior periods have not been restated, as provided for under the modified-prospective method. Shares to be issued to satisfy future stock option exercises and stock purchase rights under the ESPP will be issued either from authorized but unissued shares or from treasury shares.

Total stock-based compensation cost recognized in the three and six months ended June 30, 2006 was $0.1 million and $0.3 million, respectively, for stock options and the ESPP. The effect of the adoption SFAS 123R on the Company’s basic and diluted earning per share was less than $.01 and $.02 per share for the three and six months ended June 30, 2006, respectively. Prior to the adoption of SFAS 123R, the Company presented all tax benefits resulting from the exercise of stock options as operating cash inflows in the consolidated statements of

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cash flows, in accordance with the provisions of the Emerging Issues Task Force (“EITF”) Issue No. 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.” In the Company’s case, all tax benefits received were tax benefits of tax deductions in excess of stock compensation cost recognized because no stock compensation cost was recognized under APB Opinion No. 25. SFAS 123R requires the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis. This amount is shown as “tax benefits from exercise of stock options” on the consolidated statement of cash flows. Other than this classification change, the effect of adopting SFAS 123R had no effect on the Company’s Condensed Consolidated Statement of Cash Flows.

The following information shows the effect on net income and net income per share for the three and six months ended June 30, 2005 had compensation cost been recognized based upon the estimated fair value on the grant dates of stock options, and ESPP, in accordance with SFAS 123R.

Note 3:   Stock-Based Compensation

Stock Option Plans

The 2003 Stock Option Plan (2003 Plan) has 1,500,000 shares of common stock reserved for issuance to employees. Options may be granted with exercise prices at no less than fair market value at date of grant. Options granted under the 2003 Plan may be “nonstatutory stock options” which expire no more than ten years from date of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended. Upon exercise of nonstatutory stock options, the Company is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise; the Company is generally not entitled to any tax deduction on the exercise of an incentive stock option. The 2003 Plan includes conditions whereby options not vested are cancelled if employment is terminated.

The Company also has the 2001 Directors’ Stock Option Plan (the “Directors’ Plan”), which had 750,000 shares reserved for issuance to members of the Company’s Board of Directors. Options not vested terminate if the directorship is terminated. All further grants under the Director’s Plan have been suspended.

The fair value of stock grants is calculated using the Black-Scholes option valuation model. Grants for the first six months of 2005 were valued using the following weighted-average assumptions: risk-free interest rate of 3.8 percent, expected option life of 4.3 years, expected volatility of 46 percent and no dividends. There have been no option grants during the six months ended June 30, 2006. As of June 30, 2006, the Company has $0.1 million of

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unamortized stock compensation cost, the majority of which will be amortized in the remainder of 2006. As of June 30, 2006, the Company has one unvested performance based grant of 15,000 options and three unvested time-based grants totaling 1,668 options, which vest in 2006 and 2007. Vested and expected to vest stock options equal the Company’s total outstanding options at June 30, 2006.

A summary of the Company’s stock option activity for the six months ended June 30, 2006 is as follows:

The intrinsic value of stock options exercised in the six months ended June 30, 2006 was $7.0 million. The intrinsic value of options outstanding and options exercisable at June 30, 2006 was $84.4 million and $84.1 million, respectively. The above intrinsic values are before applicable taxes, based on the Company’s closing stock price of $42.24 on June 30, 2006. The weighted average remaining contractual term of options outstanding and options exercisable at June 30, 2006 was 5.2 years.

A majority-owned subsidiary of the Company has adopted a stock option plan under which 300,000 shares are reserved for issuance to employees and directors. The terms are similar to the Company’s 2003 Plan. The subsidiary options were granted with exercise prices at fair market value at the date of grant and have been issued for approximately 8.5% of the outstanding shares of the subsidiary. As of June 30, 2006, 255,000 stock options are outstanding under this plan and 125,000 are exercisable. All outstanding and exercisable stock options have an average exercise price of $2.00 and a weighted average remaining contractual life of 9.0 years. There were no option grants, forfeitures or exercises under this plan in the first six months of 2006.

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Employee Stock Purchase Plan

The Company has an ESPP under which U.S. employees, other than executive officers of the Company, may purchase up to $25,000 annually of Common Stock at 85% of its fair market value at the beginning or the end of a six-month offering period, whichever is lower. There are 750,000 shares of Common Stock reserved for issuance under the ESPP, which is subject to an annual increase. The Board of Directors determined that the annual increases due January 1, 2003, 2004, 2005 and 2006 would not take place. The ESPP is intended to constitute an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. Employees purchased 22,442 and 11,077 shares of Common Stock under the ESPP Plan in the first six months of 2006 and 2005, respectively. As of June 30, 2006, there are 663,918 shares available for future issuance.

The fair value of rights to purchase shares under the ESPP shares is calculated using the Black-Scholes option valuation model. Rights for the August 2005-February 2006 and February 2006-August 2006 purchase periods were valued using the following weighted-average assumptions: risk-free interest rate of 3.5 and 4.5 percent, respectively; expected option life of 0.5 years, expected volatility of 28 and 31 percent, respectively, which is based on the historical volatility of the Company and no dividends. As of June 30, 2006, the Company has $0.1 million of unamortized stock compensation expense from ESPP which will be recognized in the third quarter of 2006.

Note 4:   Asset Purchase

On May 1, 2005, the Company acquired a Salt Lake City, Utah manufacturing facility, related capital equipment, certain inventories and assumed liabilities from Hospira, Inc. (“Hospira”) for approximately $31.8 million in cash and $0.8 million in acquisition costs. The Company has a twenty-year Manufacturing, Commercialization and Development Agreement (“MCDA”) with Hospira under which the Company produces for sale to Hospira on an exclusive basis substantially all the products that Hospira had manufactured at that facility. Hospira retains commercial responsibility for the products the Company is producing, including sales, marketing, pricing, distribution, customer contracts, customer service and billing. The majority of the products the Company produces under the MCDA are Hospira’s critical care products, which include medical devices such as catheters, angiography kits and cardiac monitoring systems. The Company has also committed to fund certain research and development to improve critical care products and develop new products for sale to Hospira, and has also committed to provide certain sales specialist support. The Company’s prices and gross margins on the products it sells to Hospira under the MCDA are based on cost savings that it is able to achieve in producing those products over Hospira’s cost to manufacture those same products at the purchase date. The Company records revenue net of any such reductions.

The Company is in the process of moving all molding and automated assembly to the Salt Lake City location from its San Clemente and Connecticut locations. In addition, the Company has expanded its production facility in Mexico to take over substantially all manual assembly currently done in its Salt Lake City facility. These changes are expected to be completed by the first half of 2007.

Hospira is reimbursing the Company for severance costs and certain other termination costs for workers employed at the Salt Lake City plant at the date of purchase that are involuntarily terminated within two years of the May 1, 2005 date of purchase. The Company will charge to expense as incurred costs of relocating personnel to Salt Lake City, and moving machinery to and installing it in Salt Lake City. Such costs have not been significant to date. The Company expects to pay one-time termination benefits to certain employees in San Clemente and Connecticut who are involuntarily terminated because of the move to Salt Lake City if they continue to render service until terminated and the liability for such benefits is being accrued ratably over the employees’ expected service period in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” As of June 30, 2006, the Company has $0.8 million accrued for

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these exit costs. The total estimated exit costs associated with these terminations is $0.9 million. Costs of moving production to Mexico will be capitalized or charged to expense immediately, as appropriate; relocation costs to Mexico are not expected to be material. Total costs of moving, relocation and termination benefits charged to expense in the first six months of 2006 were approximately $0.4 million and are included in cost of good sold.

The purchase price of $31.8 million and acquisition costs of $0.8 million were allocated to the assets and liabilities assumed based on their estimated fair market values as follows.

In June 2006, the Company signed an agreement with a third party to sell one of its three buildings in San Clemente. The management of the Company has not yet determined what to do with the building in Connecticut, which will no longer be needed for production. The management of the Company does not believe that it will incur any loss on sales of the San Clemente or Connecticut buildings.

Note 5:   Inventories consisted of the following:

Note 6:   Property and equipment consisted of the following:

Note 7:   Finance loans receivable are commercial loans by ICU Finance, Inc., a wholly-owned consolidated subsidiary. Loans were made only to credit-worthy healthcare entities and are fully secured by real and personal property. The Company plans to hold the loans to maturity or payoff. They are carried at their outstanding principal amount and will be reduced for an allowance for credit losses and charge offs, if any such reductions are determined to be necessary in the future. Interest is accrued as earned based on the stated interest rate and amounts outstanding. Loan fees and costs have not been material. Scheduled maturities are: remainder of 2006 $0.6

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million; 2007 $1.1 million and 2008 $1.3 million. Weighted average maturity (principal and interest) at June 30, 2006 was 1.3 years and the weighted average interest rate was 5.7%. In October 2003, the Company discontinued new lending activities. There were no unfunded commitments at June 30, 2006.

Note 8:   Net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive securities, except in a loss period, when such securities are excluded because they would decrease the diluted loss per share. Dilutive securities are outstanding common stock options (excluding stock options with an exercise price in excess of the average market value for the period), less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method, and were 1,239,771 and 1,266,118 for the three months ended June 30, 2006 and 2005, respectively and 1,215,422 and 1,224,680 for the six months ended June 30, 2006 and 2005, respectively. Options that are antidilutive because their exercise price exceeded the average market price of the Company’s common stock approximated 14,000 and 494,000 for the three months ended June 30, 2006 and 2005, respectively and 110,000 and 775,000 for the six months ended June 30, 2006 and 2005, respectively.

Note 9:   Income taxes: The effective tax rate differs from that computed at the federal statutory rate of 35% principally because of the effect of state income taxes and losses of a subsidiary not consolidated for income tax purposes, partially offset by the effect of tax-exempt investment income and state and federal tax credits.

Note 10: Major customers and Concentration of Credit Risk: The Company had revenues equal to ten percent or greater of total revenue from one customer, Hospira, Inc. Such revenues were 77% and 75% in the three months ended June 30, 2006 and 2005, respectively and 77% and 69% in the six months ended June 30, 2006 and 2005, respectively. As of June 30, 2006, accounts receivable from one manufacturer was 67% of the Company’s net accounts receivable balance.

As of June 30, 2006, approximately $24.1 million of the Company’s long-lived assets, principally property and equipment, were located outside the United States: approximately $18.9 million in Mexico and approximately $5.2 million in Italy.

Note 11: Commitments and Contingencies: The Company is from time to time involved in various legal proceedings, either as a defendant or plaintiff, most of which are routine litigation in the normal course of business. The Company believes that the resolution of the legal proceedings in which it is involved will not have a material adverse effect on its financial position or results of operations.

In the normal course of business, the Company has agreed to indemnify officers and directors of the Company, to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters related to sales of the Company’s products. There is no maximum limit on the indemnification that may be required under these agreements. The Company has never incurred, nor does it expect to incur, any liability for indemnification, and therefore, the Company has not recorded any liability for these indemnification agreements in its financial statements and does not expect to incur any. Except for indemnification agreements, the Company does not have any “off balance sheet arrangements”.

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

We are a leader in the development, manufacture and sale of proprietary, disposable medical connection systems for use in intravenous (“I.V.”) therapy applications. Our devices are designed to protect patients from catheter related bloodstream infections and healthcare workers from exposure to infectious diseases through accidental needlesticks. We are also a leader in the production of custom I.V. systems and low cost generic I.V. systems and we incorporate our proprietary products in many of those custom I.V. systems. With the acquisition of Hospira’s Salt Lake City plant in May 2005 and commencement of production under a 20-year Manufacturing, Commercialization and Development Agreement with Hospira (“MCDA”), we are now also a significant manufacturer of critical care medical devices, including catheters, angiography kits and cardiac monitoring systems.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our 2005 Annual Report to Shareholders. In preparing our financial statements, we make estimates and assumptions that affect the expected amounts of assets and liabilities and disclosure of contingent assets and liabilities. We apply our accounting policies on a consistent basis. As circumstances change, they are considered in our estimates and judgments, and future changes in circumstances could result in changes in amounts at which assets and liabilities are recorded.

Investment securities are all marketable and considered “available for sale”. See Item 3. Quantitative and Qualitative Disclosures about Market Risk. Under our current investment policies, the securities in which we invest have no significant difference between cost and fair value. If our investment policies were to change, and there were differences between cost and fair value, that difference, net of tax effect, would be reflected as a separate component of stockholders’ equity.

We record sales and related costs when ownership of the product transfers to the customer and collectibility is reasonably assured. Under the terms of all our purchase orders, ownership transfers on shipment. If there are significant doubts at the time of shipment as to the collectibility of the receivable, we defer recognition of the sale in revenue until the receivable is collected. Most of our customers are medical product manufacturers or distributors, although a few are end-users. Our only post-sale obligations are warranty and certain rebates. We warrant products against defects and have a policy permitting the return of defective products. We record warranty returns as an expense and amounts have been insignificant. With certain exceptions, customers do not retain any right of return and there is no price protection with respect to unsold products. Returns from customers with return rights have not been significant. We accrue rebates as a reduction in revenue based on contractual commitments and historical experience. Adjustments of estimates of warranty claims, rebates or returns, which have not been, and are not expected to be material, affect current operating results when they are determined.

Accounts receivable are stated at net realizable value. An allowance is provided for estimated collection losses based on specific past due accounts for which we consider collection to be doubtful. We rely on prior payment trends, financial status and other factors to estimate the cash which ultimately will be received. Such amounts cannot be known with certainty at the financial statement date. We regularly review individual past due balances for collectibility. Loss exposure is principally with international distributors for whom normal payment terms are long in comparison to those of our other customers and, to a lesser extent, domestic distributors. Many of these distributors are relatively small and we are vulnerable to adverse developments in their businesses that can hinder our collection of amounts due. If actual collection losses exceed expectations, we could be required to accrue additional bad debt expense, which could have an adverse effect on our operating results in the period in which the accrual occurs.

Inventories are stated at the lower of cost (first in, first out) or market. We need to carry many components

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to accommodate our rapid product delivery, and if we misestimate demand or if customer requirements change, we may have components in inventory that we may not be able to use. Most finished products are made only after we receive orders except for certain standard (non-custom) products which we will carry in inventory in expectation of future orders. For finished products in inventory, we need to estimate what may not be saleable. We regularly review inventory for slow moving items and write off all items we do not expect to use in manufacturing, or finished products we do not expect to sell. If actual usage of components or sales of finished goods inventory is less than our estimates, we could be required to write off additional inventory, which could have an adverse effect on our operating results in the period in which the write-off occurs.

Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimates of useful lives are significant judgments in accounting for property and equipment, particularly for molds and automated assembly machines that are custom made for us. We may retire them on an accelerated basis if we replace them with larger or more technologically advanced tooling. The remaining useful lives of all property and equipment are reviewed regularly and lives are adjusted or assets written off based on current estimates of future use. As part of that review, property and equipment is reviewed for other indicators of impairment. An unexpected shortening of useful lives of property and equipment that significantly increases depreciation provisions, or other circumstances causing us to record an impairment loss on such assets, could have an adverse effect on our operating results in the period in which the related charges are recorded.

New Accounting Pronouncements

As described in Note 2 and Note 3 to the Condensed Consolidated Financial Statements, we implemented FASB Statement No. 123 (revised 2004) “Share Based Payment” as of January 1, 2006. The effect of adoption was not significant to our financial statements.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We no not expect FIN 48 will have a material effect on our consolidated financial condition or results of operations.

We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial statements.

Business Overview

Until the late 1990s, our primary emphasis in product development, sales and marketing was disposable medical connectors for use in I.V. therapy, and our principal product was the CLAVE®. In the late 1990s, we commenced a transition from a product-centered company to an innovative, fast, efficient, low-cost manufacturer of custom I.V. systems, using processes that we believe can be readily applied to a variety of disposable medical devices. This strategy has enabled us to capture revenue on the entire I.V. delivery system, and not just a component of the system.

We are also increasing our efforts to acquire new products. We acquired the Punctur-Guard® line of blood collection needles in 2002, invested in a company developing a new medical device in 2004 and increased our investment in this company in 2005, acquired Hospira’s Salt Lake City, Utah manufacturing facility in May 2005 and entered into an agreement to produce critical care products for Hospira. We are continuing to seek other opportunities. However, there is no assurance that we will be successful in finding acquisition opportunities, or in

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acquiring companies or products or that we will successfully integrate them into our existing business.

Custom I.V. systems and new products will be of increasing importance to us in future years. We expect continued growth in our CLAVE products in the U.S., but at a slower percentage growth rate than prior to 2004 because further penetration of markets available to our existing customers in the U.S. becomes increasingly difficult. We may also encounter substantial increases in competition in our CLAVE business if we are unsuccessful in enforcing our intellectual property rights. Growth for all of our products outside the U.S. could be substantial, although to date it has been relatively modest. Therefore, we are directing increasing product development, acquisition, sales and marketing efforts to custom I.V. systems and other products that lend themselves to customization and new products in the U.S. and international markets, and increasing our emphasis on markets outside the U.S.

Our largest customer is Hospira. Our relationship with Hospira has been and will continue to be of singular importance to our growth. In 2003, approximately 67% of our revenue was from sales to Hospira. While our sales to Hospira declined to approximately 53% of revenue in 2004, this percentage increased in 2005 to 73% and was 77% in the first six months of 2006. We expect this percentage to remain significant in the future both as a result of increased sales of CLAVE products and I.V. sets to Hospira and as a result of the new MCDA with Hospira described below. Hospira has a significant share of the I.V. set market in the U.S., and provides us access to that market.

On May 1, 2005, we acquired Hospira’s Salt Lake City manufacturing facility, related capital equipment, certain inventories and assumed liabilities for $31.8 million in cash and $0.8 million of acquisition costs. We entered into a 20–year MCDA with Hospira, under which we produce for sale, exclusively to Hospira, substantially all the products that Hospira had manufactured at that facility. Hospira retains primary commercial responsibility for the products we are producing, including sales, marketing, pricing, distribution, customer contracts, customer service and billing. The majority of the products under the MCDA are invasive monitoring and angiography products, which include medical devices such as catheters, cardiac monitoring systems and angiography kits. Sales of products manufactured under the MCDA from May to December 2005 were $46.7 million and in the first six months of 2006 were $38.6 million. We have also committed to fund certain research and development to improve critical care products and develop new products for sale to Hospira, and have also committed to provide certain sales specialist support. Our prices and our gross margins on the products we sell to Hospira under the MCDA are based on cost savings that we are able to achieve in producing those products over Hospira’s cost to manufacture those same products at the purchase date. We record revenue net of any such reductions. We give no assurance as to the amounts of future sales or profits under the MCDA.

A substantial portion of the invasive monitoring and angiography products made in Salt Lake City are custom products designed to meet the specific needs of the customer. We believe we can significantly expand the market for custom invasive monitoring and angiography products through cost savings using our proprietary low-cost manufacturing techniques.

We believe that achievement of our growth objectives will require increased efforts by us in sales and marketing and product development in these markets.

There is no assurance that we will be successful in implementing our growth strategy. The custom products market is still small and we could encounter customer resistance to custom products. Further, we could encounter increased competition as other companies see opportunity. Product development or acquisition efforts may not succeed, and even if we do develop or acquire products, there is no assurance that we will achieve profitable sales of such products. An adverse change in our relationship with Hospira, or a deterioration of Hospira’s position in the market, could have an adverse effect on us. Increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected, or at all. While we have taken steps to control those risks, there are certain of those risks which may be outside of our control, and there is no assurance

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that steps we have taken will succeed.

Overview of Operations

The following table sets forth the net revenues by product as a percentage of total revenue for the periods indicated:

Critical care, critical care custom products and other MCDA products account for 38% and 39% of total revenue for the three and six months ended June 30, 2006, respectively. Custom I.V. systems, excluding critical care custom products, were 19% of total revenues for the three and six months ended June 30, 2006.

Most custom I.V. systems include one or more CLAVE. Total CLAVE sales including custom I.V. systems with at least one CLAVE were $25.5 million or 50% of total revenue in the second quarter of 2006 compared to $20.8 million or 51% of total revenue in the second quarter of 2005. Total CLAVE sales including custom I.V. systems with at least one CLAVE were $48.1 million or 48% of total revenue in the first six months of 2006 compared to $41.2 million or 61% of total revenue in the first six months of 2005.

We sell our I.V. administration products to independent distributors and through agreements with Hospira and certain other medical product manufacturers. In certain international markets, we sell directly to healthcare providers. Most independent distributors handle the full line of our I.V. administration products. We sell our invasive monitoring, angiography and I.V. administration products through three agreements with Hospira (the “Hospira Agreements”). Under a 1995 agreement, Hospira purchases CLAVE products, principally bulk, non-sterile connectors, and the CLC2000 and since 2004, our Punctur-Guard line of blood collection needles. Under a 2001 agreement, we sell custom I.V. systems to Hospira under a program referred to as SetSource. Our 1995 and 2001 agreements with Hospira provide Hospira with conditional exclusive and nonexclusive rights to distribute all existing ICU Medical products worldwide with terms that extend to 2014. Under the MCDA we sell Hospira invasive monitoring, angiography and other products which they formerly manufactured at the Salt Lake City facility. The term of the MCDA extends to 2025. We also sell certain other products to a number of other medical product manufacturers.

We believe that as healthcare providers continue to either consolidate or join major buying organizations, the success of our products will depend, in part, on our ability, either independently or through strategic relationships such as our Hospira relationship, to secure long-term contracts with large healthcare providers and major buying organizations. As a result of this marketing and distribution strategy we derive most of our revenues

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from a relatively small number of distributors and manufacturers. The loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer’s products could have a material adverse effect on our operating results.

In June 2004, Cardinal Health, Inc. (“Cardinal”) acquired Alaris Medical Systems (“Alaris”). Alaris manufactures a connector that competes with the CLAVE. Cardinal is the largest distributor of healthcare products in the United States, and the companies have announced their intent to increase market share growth beyond what Alaris might be able to achieve on its own. We believe the ownership of Alaris by Cardinal could adversely affect our market share and the prices for our CLAVE products.

We believe the success of the CLAVE has motivated, and will continue to motivate others to develop one-piece, swabbable, needleless connectors that may incorporate many of the same functional and physical characteristics as the CLAVE. We are aware of a number of such products. We have patents covering the technology embodied in the CLAVE and intend to enforce those patents as appropriate. If we are not successful in enforcing our patents, competition from such products could adversely affect our market share and prices for our CLAVE products. In response to competitive pressure, we have been reducing prices to protect and expand our market, although overall pricing has been stable recently. The price reductions to date have been more than offset by increased volume after excluding the effect of Hospira’s inventory reductions in 2004. We expect that the average price of our CLAVE products may continue to decline. There is no assurance that our current or future products will be able to successfully compete with products developed by others.

The federal Needlestick Safety and Prevention Act, enacted in November 2000, modified standards promulgated by the Occupational Safety and Health Administration to require employers to use safety I.V. systems where appropriate to reduce risk of injury to employees from needlesticks. We believe this law has had and will continue to have a positive effect on sales of our needleless systems and blood collection needles, although we are unable to quantify the current or anticipated effect of the law on our sales.

We are reducing our dependence on our current proprietary products by introducing new products and systems and acquiring product lines. We are expanding our custom products business through increased sales to medical product manufacturers and independent distributors. Under one of our Hospira Agreements, we manufacture all new custom I.V. systems for sale by Hospira and jointly promote the products under the name SetSource. We also contract with group purchasing organizations and independent dealer networks for inclusion of our non-critical care custom products in the product offerings of those entities. Custom products accounted for approximately $26.0 million or 26% of total revenue in the first six months of 2006, including sales under the Hospira SetSource program of approximately $7.8 million and custom critical care products that we manufactured for Hospira under the MCDA of approximately $7.4 million. We expect continued increases in sales of custom products. Punctur-Guard product revenues in the first six months of 2006 were $2.3 million. In 2004 and 2005, we invested in a company developing a new medical device. Sales depend on the success of efforts to develop and market the device, and there can be no certainty that those efforts will succeed. In 2005, we acquired Hospira’s Salt Lake City manufacturing facility and entered into the MCDA to produce their invasive monitoring, angiography products and certain other products they had manufactured at that facility. There is no assurance that any of these initiatives will continue to succeed.

We have an ongoing program to increase systems capabilities, improve manufacturing efficiency, reduce labor costs, reduce time needed to produce an order, and minimize investment in inventory. This includes the use of automated assembly equipment for new and existing products, use of larger molds and molding machines, centralization of all proprietary molding in Salt Lake City, expansion of our production facility in Mexico to take over manual assembly currently done in Salt Lake City, possible establishment of other production facilities outside the U.S. and development and implementation of proprietary, highly sophisticated, custom software systems for custom design and validation, order processing, materials handling, tracking, labeling and invoicing and innovative systems and procedures to expedite assembly and distribution operations.

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We distribute products through three distribution channels. Product revenues for each distribution channel were as follows:

Quarter-to-quarter comparisons: We present summarized income statement data in Item 1. Financial Statements. The following table shows, for the year 2005 and the second quarter and first six months of 2006 and 2005, the percentages of each income statement caption in relation to revenues. (We currently calculate our gross profit percentage based on net sales, which includes only product sales and excludes non-product revenue such as license fees. See below for more information on non-product revenue. We present the alternative calculation based on net product revenue for the convenience of readers.)

Quarterly results: The healthcare business in the United States is subject to seasonal fluctuations, and activity tends to diminish somewhat in the summer months of June, July and August, when illness is less frequent than in winter months and patients tend to postpone elective procedures. This typically causes seasonal fluctuations in our business. In addition, we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers, which may be driven more by production scheduling and their inventory levels,

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and less by seasonality. Our expenses often do not fluctuate in the same manner as net sales, which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue.

Quarter Ended June 30, 2006 Compared to the Quarter Ended June 30, 2005

Revenues increased $10.7 million to $51.4 million in the second quarter of 2006, compared to $40.7 million in the second quarter of 2005.

Distribution channels: Net U.S. sales to Hospira in the second quarter of 2006 were $38.2 million, compared to net sales of $30.4 million in the second quarter of 2005. Net sales of CLAVE Products to Hospira, excluding custom CLAVE I.V. systems were $14.1 million in the second quarter of 2006, compared to $12.1 million in the second quarter of 2005.

Sales to Hospira under the SetSource program approximated $4.0 million in the second quarter of 2006 compared to $3.5 million in the second quarter of 2005, an increase of 12%. The SetSource increase is attributed to unit sales increases in the custom set market. Sales to Hospira under the MCDA were $19.3 million or 38% of total revenue in the second quarter of 2006 compared to $13.2 million or 33% of total revenue in the second quarter of 2005. The 2005 sales covered two of the three months of the second quarter of 2005 since the MCDA began in May of 2005. We expect a significant increase in our sales to Hospira in 2006 from the inclusion of critical care products for a full year, continuing growth in sales of custom I.V. systems and a modest percentage growth in CLAVE and other product sales, although there is no assurance that these expectations will be realized.

Net sales to independent domestic distributors (including Canada) were $6.8 million and $6.0 million in the second quarters of 2006 and 2005, respectively. The increase was primarily from increased sales in custom I.V. systems and an increase in CLAVE sales, both due to increased unit volumes. We expect that sales to domestic distributors will increase principally from growth in custom I.V. system business, with modest growth in sales of other products, although there is no assurance that these expectations will be realized.

Net sales to international customers (excluding Canada) were $5.3 million in the second quarter of 2006, compared with $3.2 million in the second quarter of 2005, an increase of 66%. Approximately 92% of the increase was attributable to increased sales in Europe. The principal product lines showing increases were custom I.V. systems, which accounted for 48% of the increase and CLAVE, which accounted for 34% of the increase. Both increases were due to increased unit volumes. We expect significant increases in sales to international customers across all areas and all principal product lines, although there is no assurance that these expectations will be realized.

Product and other revenue: Net sales of CLAVE Products (excluding custom CLAVE I.V. systems) increased from $15.1 million in the second quarter of 2005 to $18.1 million in the second quarter of 2006. U.S CLAVE sales to Hospira accounted for 68% of this increase and international CLAVE sales accounted for 24% of the increase. Sales of CLAVE products and custom I.V. systems including one or more CLAVE connectors combined were $25.5 million in the second quarter of 2006 compared with $20.8 million in the second quarter of 2005. This increase was due to increased unit purchases of CLAVE products in all our distribution channels.

Sales to Hospira of critical care products, excluding custom critical care products sales, were $12.4 million in the second quarter of 2006 compared to $8.6 million in the second quarter of 2005. The increase is mainly due to the full quarter of sales in 2006 compared to two months for the second quarter of 2005.

Net sales of custom products, including custom critical care products, were $14.0 million in the second quarter of 2006 as compared with $11.1 million for the second quarter of 2005, an increase of $2.9 million. $0.9

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million of this increase was from the inclusion of critical care products. Net sales of custom I.V. systems increased approximately $2.0 million, or 25%, to $9.8 million in the second quarter of 2006 compared to the second quarter of 2005, principally because of increased unit volume. The SetSource program with Hospira accounted for approximately $0.4 million of the increase, international distributors accounted for approximately $1.0 million of the increase and domestic distributors accounted for the balance of the increase.

Net sales of Punctur-Guard products (excluding royalties) were $1.2 million in the second quarter of 2006 compared to $1.4 million in the second quarter of 2005. The decrease was due to a decrease in unit sales.

Net sales of the CLC2000 were $1.5 million in the second quarter of 2006 and 2005. Lower purchases by Hospira were offset by modest unit volume increases in all other distribution channels.

Sales of other products were $3.8 million in 2006 and $2.4 million in 2005. In the second quarters of 2006 and 2005 sales include $2.7 million and $1.3 million, respectively, principally related to products manufactured under the MCDA related to a product line that we will no longer manufacture under the MCDA after 2006. We did not purchase the production equipment for this product line. All production of that product is scheduled to cease by the end of September 2006.

Other revenue consists of license, royalty and revenue share income and was approximately $0.5 million in the second quarter of 2006 and $0.6 million in the second quarter of 2005. We may receive other license fees or royalties in the future for the use of our technology. We give no assurance as to amounts or timing of any future payments, or whether such payments will be received.

Gross margin for the second quarter of 2006 and 2005, calculated on net sales and excluding other revenue, was 44% and 39%, respectively. The increase in gross margin is due to higher margins realized in our critical care products, which is due to efficiencies gained in our Salt Lake City plant. We expect overall gross margins in 2006 to improve as we make improvements in the Salt Lake City plant and progress on the relocation of manufacturing, although there is no assurance that these expectations will be realized.

Selling, general and administrative expenses (“SG&A”) increased by $2.6 million to $12.2 million, and were 24% of revenues in the second quarter of 2006 and 2005. The increase in costs was partially due to $1.8 million of increased compensation and benefit expenses, principally from $1.3 million of special bonuses, the addition of new sales personnel and increased pay rates. Travel expense increases accounted for approximately $0.9 million of the increase. We expect SG&A in 2006 to be approximately 22% to 24% of revenue. There is no assurance that these expectations will be realized.

Research and development expenses (“R&D”) were $2.3 million in the second quarter of 2006 compared to $1.0 million in the second quarter of 2005. The increase was primarily from new R&D activity associated with our new products, including new R&D activity on critical care products.

Other income is from investment earnings of $0.9 million and $0.5 million for the second quarters of 2006 and 2005, respectively and $0.3 million and $0.5 million payment of a legal settlement for the second quarters of 2006 and 2005, respectively.

Minority interest was $0.1 million in the second quarters of 2006 and 2005 and represents the minority interest share of the net loss of the company developing a new medical device for use in screening heart disease.

Income taxes were accrued at an effective tax rate of 37.0% and 31.2% in the second quarter of 2006 and 2005, respectively. In the second quarter of 2005, we adjusted our annual estimated effective tax rate down to 35.2% for a one-time tax credit. We expect our effective tax rate to remain at approximately 37.0% in 2006.

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Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Revenues increased $32.4 million to $100.2 million in the first half of 2006, compared to $67.8 million in the first half of 2005.

Distribution channels: Net U.S. sales to Hospira in the first half of 2006 were $74.8 million, compared to net sales of $46.8 million in the first half of 2005. Net sales of CLAVE Products to Hospira, excluding custom CLAVE I.V. systems were $26.6 million in the first half of 2006, compared to $24.5 million in the first half of 2005.

Sales to Hospira under the SetSource program approximated $7.8 million in the first half of 2006 compared to $6.7 million in the first half of 2005, an increase of 16%. The SetSource increase is attributed to unit sales increases in the custom I.V. system market. Sales to Hospira under the MCDA were $38.6 million or 39% of total revenue in the first half of 2006 compared to $13.2 million or 20% of total revenue in the first half of 2005. This increase is primarily because the MCDA began in May of 2005, so there were no MCDA sales in the first four months of 2005.

Net sales to independent domestic distributors (including Canada) were $13.0 million and $12.0 million in the first six months of 2006 and 2005, respectively. The increase was primarily from increase unit sales of custom I.V. systems and an increase in CLAVE sales, both due to unit increases.

Net sales to international customers (excluding Canada) were $9.5 million in the first half of 2006, compared to $5.8 million in the first half of 2005, an increase of 65%. Approximately 80% of the increase was attributable to increased sales in Europe and 15% of the increase was from increased sales in Latin America. The principal product lines showing increases were custom I.V. systems, which accounted for 54% of the increase and CLAVE, which accounted for 31% of the increase. Both increases were due to increased unit volumes.

Product and other revenue: Net sales of CLAVE Products (excluding custom CLAVE I.V. systems) increased from $30.8 million in the first half of 2005 to $34.2 million in the first half of 2006. U.S. CLAVE sales to Hospira accounted for 64% of this increase and international distributors made up 34% of the increase. Sales of CLAVE products and custom I.V. systems including one or more CLAVE connectors combined were $48.1 million in the first half of 2006 compared with $41.2 million in the first half of 2005. This increase was due to increased unit purchases of CLAVE products in all our distribution channels.

Sales to Hospira of critical care products, excluding custom critical care products sales were $24.3 million in the first half of 2006 compared to May and June sales in 2005 of $8.6 million.

Net sales of custom products, including custom critical care products, were $26.0 million in the first half of 2006 compared with $18.0 million for the first half of 2005, an increase of $8.0 million. Net sales of custom critical care products were $7.4 million in the first half of 2006 and were $3.2 million in May and June of 2005. Net sales of custom I.V. systems increased approximately $3.9 million, or 27%, to $18.6 million in the first half of 2006 compared to the first half of 2005, principally because of increased unit volume. The SetSource program with Hospira accounted for approximately $1.1 million of the increase, international distributors accounted for approximately $2.0 million of the increase and domestic distributors accounted for the balance of the increase.

Net sales of Punctur-Guard products (excluding royalties) were $2.3 million in the first half of 2006 and $2.5 million in the first half of 2005. The decrease was due to a decrease in unit sales.

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Net sales of the CLC2000 were $2.7 million in the first half of 2006 and $2.6 million in the first half of 2005. Lower purchases by Hospira were offset by modest unit volume increases in all other distribution channels.

Sales of other products were $8.8 million in 2006 and $3.3 million in 2005. The first half of 2006 and 2005 other product sales include $7.1 million and $1.3 million, respectively, principally related to products manufactured under the MCDA related to a product line that we will no longer manufacture under the MCDA after 2006.

Other revenue consists of license, royalty and revenue share income and was approximately $1.9 million in the first half of 2006 and $2.0 million in the first half of 2005.

Gross margin for the first half of 2006 and 2005, calculated on net sales and excluding other revenue, was 43% and 45%, respectively due primarily to the introduction of lower margin critical care products.

Selling, general and administrative expenses (“SG&A”) increased by $5.2 million to $22.8 million, and were 22% of revenues in the first half of 2006, compared with 26% in the first half of 2005. The increase in costs was partially due to $3.1 million of increased compensation and benefit expenses, including increased bonuses, the addition of our Salt Lake City facility, the addition of new sales personnel and increased pay rates. Travel expense increases accounted for approximately $0.8 million of the increase. Increased computer related costs, which includes software expenses, maintenance costs and hosting costs, increased by $0.6 million. Amortization of intangibles and depreciation accounted for a $0.5 million increase.

Research and development expenses (“R&D”) were $3.9 million in the first half of 2006 compared to $1.7 million in the first half of 2005. This increase was primarily from R&D activity associated with our new products, including new R&D activity on critical care products. The increase was also comprised of a $0.4 million increase from our majority–owned subsidiary developing a new medical device being designed for use in screening for heart disease.

Other income is from investment earnings of $1.7 million and 1.1 million for the first six months of 2006 and 2005, respectively, and $0.3 million and $0.5 million payment of a legal settlement in the first six months of 2006 and 2005, respectively.

Minority interest was $0.3 million and $0.2 million in the first six months of 2006 and 2005, respectively and represents the minority interest share of the net loss of the company developing a new medical device for use in screening heart disease.

Income taxes were accrued at an effective tax rate of 37.0% and 35.2% in the first half of 2006 and 2005, respectively.

Liquidity and Capital Resources

In the first half of 2006, our cash and liquid investments increased by $13.7 million. Operating activities generated $14.4 million in cash and we received $8.1 million from our stock plans. This was primarily offset by $9.4 million in purchases of property and equipment.

Operating Activities: Our cash provided by operating activities tends to increase over time because of our positive operating results. However, it is subject to fluctuations, principally from the impact of integrating new locations from acquisitions, changes in net income, accounts receivable, inventories, and the timing of tax payments.

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Accounts receivable increased $3.1 million from December 31, 2005, which is primarily due to higher sales in the second quarter of 2006 compared to the fourth quarter of 2005.

We generally try to maintain a minimal amount of inventory of finished goods and work in process, but will maintain larger amounts of components (classified as raw material) acquired from third parties to avoid production delays if deliveries by our suppliers are late. The critical care products require more raw material and work-in-process inventories in relation to sales because of the relatively large number of different products produced and relatively long production cycles. Our inventory balance increased by $3.1 million from December 31, 2005 because of an increase of $2.7 million in work-in-process and finished goods and raw materials increased by $0.4 million. We increased our finished goods to build a buffer stock of inventory as we move production from San Clemente to Salt Lake City. We expect to inventories to decrease from the June 30, 2006 balances in the second half of 2006.

The $1.9 million increase in accrued liabilities is primarily from increased compensation and benefit related accruals.

Tax benefits from stock options, which were the tax benefits of tax deductions in excess of compensation cost recognized, are no longer classified in Cash Flows from Operating Activities, but are included in Cash Flows from Financing Activities commencing January 1, 2006 under the newly effective SFAS 123R.

We expect our sales will continue to grow in the future. As sales increase, working capital is expected to increase to fund the increase in operations.

Investing Activities: During the first half of 2006, we used cash of $22.6 million in investing activities. This was comprised of purchases of property and equipment of $9.4 million, and net purchases of liquid investments of $14.8 million, partially offset by proceeds from finance loan payments of $0.6 million.

In June 2006, we purchased the land and building that our plant in Italy operates in for $2.1 million. Also, improvements are in process at our Salt Lake City facility to accommodate moving all molding and automated assembly from our San Clemente and Connecticut facilities. In addition, we have also expanded our production facility in Mexico by 45,000 square feet to take over most of the manual assembly currently done in our Salt Lake City facility. The moves from Salt Lake City to Mexico began in July 2005 and we expect them to be completed by the first half of 2007. The moves from San Clemente to Salt Lake City began in April 2006 and are expected to be completed in the summer of 2006.

We estimate that capital expenditures in 2006, including the building improvements in our Salt Lake City and Mexico facilities, will be approximately $14.5 million. Amounts of spending are estimates and actual spending may substantially differ from those amounts.

ICU Finance, Inc. is a wholly owned consolidated subsidiary that we established in 2002 as a licensed commercial lender to provide financing to companies involved in distribution of healthcare products and provision of healthcare services. Loans were made only to credit-worthy healthcare entities and are fully secured by real and personal property. At June 30, 2006, $3.0 million in loans were outstanding. Scheduled maturities are: remainder of 2006 $0.6 million; 2007 $1.1 million and 2008 $1.3 million. Weighted average maturity (principal and interest) at June 30, 2006 was 1.3 years and the weighted average interest rate was 5.7%. There were no unfunded commitments at June 30, 2006.

Financing Activities: Cash provided by stock options and the employee stock purchase plan, including tax benefits, was $8.1 million in the first half of 2006 at an average exercise price of $16.80 to purchase 326,361 shares. Cash provided by stock options and the employee stock purchase plan in the first half of 2005, excluding

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tax benefits, was $4.0 million to purchase 274,428 shares at an average exercise price of $14.42. The tax benefits from the exercise of stock options fluctuates based principally on when employees choose to exercise their vested stock options. Tax benefits from the exercise of stock options in the first half of 2006 were $2.6 million. The amount in the first half of 2005 was $2.1 million, and, as explained above, is included in Cash Flows from Operating Activities.

We have purchased our common stock for treasury in the past, and future purchases, if any, will depend on market conditions and other factors. In July 2006, we adopted a plan to initially purchase common stock at a cost of up to $2 million and thereafter purchase common stock at a cost of up to $1 million each month for a year. We expect to implement this plan before the end of July 2006 and it is subject to being discontinued at any time.

We have a substantial cash and liquid investment position generated from profitable operations and stock sales, principally from the exercise of employee stock options. We maintain this position to fund our growth, meet increasing working capital requirements, fund capital expenditures, and to take advantage of acquisition opportunities that may arise. Our primary investment goal is capital preservation, as further described in Item 3. Quantitative and Qualitative Disclosures about Market Risk. Our liquid investments have very little credit risk or market risk. We believe that our existing cash and liquid investments along with funds expected to be generated from future operations will provide us with sufficient funds to finance our current operations for the next twelve months.

Off Balance Sheet Arrangements

In the normal course of business, we have agreed to indemnify officers and directors of the Company to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters related to sales of our products. There is no maximum limit on the indemnification that may be required under these agreements. We have never incurred, nor do we expect to incur, any liability for indemnification. Except for indemnification agreements, we do not have any “off balance sheet arrangements”.

Contractual Obligations

We have contractual obligations of approximately the amounts set forth in the table below. These amounts exclude purchase orders for goods and services for current delivery. The majority of our purchase orders are blanket purchase orders that represent an estimated forecast of goods and services. We do not have a commitment liability on the blanket purchase orders. Since we do not have the ability to separate out blanket purchase orders from non-blanket purchase orders for goods and services for current delivery, these amounts are excluded from the table below. The commitments under the MCDA are those to fund certain research and development to improve critical care products and develop new products for sale to Hopsira and to provide sales specialists focused on critical care. We believe that our existing cash and liquid investments along with funds expected to be generated from future operations will provide us with sufficient funds to meet commitments under all of our contractual obligations. There are no obligations past 2009. (in thousands)

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Forward Looking Statements

Various portions of this Report, including this Management’s Discussion and Analysis, describe trends in our business and finances that we perceive and state some of our expectations and beliefs about our future. These statements about the future are “forward looking statements,” and we identify them by using words such as “believe,” “expect,” “estimate,” “plan,” “will,” “continue,” “could,” may,” and by similar expressions and statements about aims, goals and plans. The forward looking statements are based on the best information currently available to us and assumptions that we believe are reasonable, but we do not intend the statements to be representations as to future results. They include, among other things, statements about:

•      future operating results and various elements of operating results, including future expenditures on sales and marketing and product development, future sales and unit volumes of products, future license, royalty and revenue share income, production costs, gross margins, SG&A, and R&D expense, income, losses, cash flow, changes in working capital items such as receivables and inventory, selling prices, and income taxes;

•      factors affecting operating results, such as shipments to specific customers, reduced dependence on current proprietary products, expansion in international markets, selling prices, future increases or decreases in sales of certain products and in certain markets and distribution channels, impact of safety legislation, increases in systems capabilities, introduction and sales of new products, warranty claims, rebates, product returns, bad debt expense, inventory requirements, manufacturing efficiencies and cost savings, unit manufacturing costs, oil and gas prices, effect of interruption of crude oil supplies; acquisition and use of production equipment and expansion of facilities and assembly capacity, asset impairment losses, relocation of manufacturing facilities and personnel, expansion of markets and the need for additional facilities, and personnel, business seasonality and fluctuations in quarterly results, customer ordering patterns and the effects of new accounting pronouncements;

•      new or extended contracts with manufacturers and buying organizations, dependence on a small number of customers, effect of contract amendments with Hospira, effect of the acquisition of Hospira’s Salt Lake City manufacturing facility and the manufacture of products for Hospira under the MCDA, cost savings and use of our systems and procedures under the MCDA, and the outcome of our strategic initiatives;

•      regulatory approvals and compliance; outcome of litigation; competitive and market factors, including continuing development of competing products by other manufacturers, the impact of Cardinal’s acquisition of Alaris, consolidation of the healthcare provider market and downward pressure on selling prices; factors impacting our stock price; future stock option grants; future purchases of treasury stock; working capital requirements; foreign currency denominated financial instruments; capital expenditures; acquisitions of other businesses or product lines; indemnification liabilities; contractual liabilities; and common stock repurchases.

The kinds of statements described above and similar forward looking statements about our future performance are subject to a number of risks and uncertainties which one should consider in evaluating the statements. First, one should consider the factors and risks described in the statements themselves. Those factors are uncertain, and if one or more of them turn out differently than we currently expect, our operating results may differ materially from our current expectations.

Second, one should read the forward looking statements in conjunction with the Risk Factors in Part II, Item 1A of this Quarterly Report to the Securities and Exchange Commission. Also, our actual future operating results are subject to other important factors that we cannot predict or control, including among others the following:

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•      general economic and business conditions;