What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-08 · 120 added, 68 removed, 359 unchanged (34% of the section changed)

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As such, COVID-19 pandemic may pose significant risks to our business.

We operate globally and the COVID-19 pandemic and its adverse effects have impacted most of the locations where we, our customers and our suppliers conduct business and as a result, during the first quarter of 2020, we have experienced some disruption to our operations, most notably due to self-imposed travel restrictions.

As a result of the COVID-19 pandemic, we have temporarily closed our non-essential offices and facilities, including our corporate headquarters.

We operate globally and the COVID-19 pandemic and its adverse effects have impacted most of the locations where we, our customers and our suppliers conduct business.

As a result of the COVID-19 pandemic, our non-essential offices and facilities, including our corporate headquarters remain closed to non-essential employees.

With a large number of employees now working remotely there is a potential loss of productivity, which could negatively impact our future results.

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• initiated a visitor pre-entry questionnaire to limit potential exposure in our facilities.

During the quarter ended March 31, 2020, we saw increased demand for our products as a result of customer stocking, particularly within our IV Solutions and Infusion Systems product lines.

We also experienced foreign exchange losses related to

the strengthening of the U.S.

During the first quarter ended March 31, 2020, we saw increased demand for our products as a result of customer stocking, particularly within our IV Solutions and Infusion Systems product lines.

We also experienced foreign exchange losses related to the strengthening of the U.S.

dollar relative to certain foreign currencies as general economic conditions declined.

During March 2020, as a precautionary measure in response to market uncertainty driven by COVID-19, we preemptively increased our liquidity by borrowing $150.0 million under our Senior Secured Revolving Credit Facility ("Credit Facility").

During the second quarter ended June 30, 2020, the COVID-19 pandemic continued to have an impact on our results of operations.

We saw a meaningful decline in demand for our dedicated infusion sets in our Infusion Consumables and IV Solutions product portfolios, although the impact on our results of operations was partially offset by an increase in the demand for our infusion pumps.

The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be fully predicted at this time, as such, the impact of the pandemic on our future results of operations and overall financial performance remain uncertain and can not as yet be quantified.

However, our future results could be impacted by the following:

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Infusion Pump Hardware:

◦ Plum 360™ :

The Plum 360™ infusion pump is an ICU Medical MedNet™ ready large volume infusion pump with an extensive drug library and wireless capability.

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Three months ended

June 30, Six months ended

2020 2019 2020 2019

$ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue

Domestic $ 208.2 69 % $ 227.7 73 % $ 438.4 69 % $ 474.9 74 %

International 95.2 31 % 84.6 27 % 193.6 31 % 168.3 26 %

2 unchanged sentences

Three months ended

June 30, Six months ended

Product line 2020 2019 2020 2019

Infusion Consumables 37 % 38 % 37 % 37 %

Infusion Systems 30 % 26 % 28 % 26 %

IV Solutions 29 % 33 % 31 % 33 %

Critical Care 4 % 3 % 4 % 4 %

100 % 100 % 100 % 100 %

We manage our product distribution in the U.S.

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We present income statement data in Part I, Item 1 - Financial Statements.

The following table shows, for the three months ended March 31, 2020 and 2019 , the percentages of each income statement caption in relation to total revenue:

The following table shows, for the three and six months ended June 30, 2020 and 2019, the percentages of each income statement caption in relation to total revenue:

Three months ended

June 30, Six months ended

2020 2019 2020 2019

Total revenue 100 % 100 % 100 % 100 %

Gross margin 35 % 33 % 36 % 37 %

Selling, general and administrative expenses 22 % 22 % 22 % 22 %

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Interest expense — % — % — % — %

Other (expense) income, net

Other income (expense), net 1 % — % (1) % 1 %

Income before income taxes 8 % 8 % 7 % 8 %

Provision for income taxes (1) % (2) % (1) % (1) %

Net income 7 % 6 % 6 % 7 %

In addition to comparing changes in revenue on a U.S.

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Three months ended

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Infusion Consumables $ 111.0 $ 117.7 $ (6.7) (5.7) % $ 234.5 $ 238.2 $ (3.7) (1.6) %

Infusion Consumables revenue increased for the three months ended March 31, 2020 , as compared to the same period in the prior year driven by the addition of new customers for our oncology products and increased orders from distributors partly due to the global COVID-19 pandemic.

On a constant currency basis, Infusion Consumables revenue would have been $125.0 million for the three months ended March 31, 2020 , an increase of $4.5 million or 3.6%, as compared to the same period in the prior year.

Infusion Consumables revenue decreased for the three and six months ended June 30, 2020, as compared to the same periods in the prior year.

For the three months ended June 30, 2020, growth in our oncology business was more than offset by the impact of lower demand from hospital customers due to COVID-19 and by the impact of foreign exchange rates.

For the six months ended June 30, 2020, the revenue decrease was driven primarily by the impact of foreign exchange rates.

On a constant currency basis, Infusion Consumables revenue would have been $112.3 million for the three months ended June 30, 2020, a decrease of $5.4 million or 4.6%, as compared to the same period in the prior year.

On a constant currency basis, Infusion Consumables revenue would have been $237.2 million for the six months ended June 30, 2020, a decrease of $1.0 million or 0.4%, as compared to the same period in the prior year.

Infusion Systems

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Three months ended

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Infusion Systems $ 91.1 $ 81.3 $ 9.8 12.1 % $ 179.5 $ 165.6 $ 13.9 8.4 %

Infusion Systems revenue increased for the three months ended March 31, 2020 , as compared to the same period in the prior year due to high demand for our infusion pumps and increased orders from distributors primarily driven by the global COVID-19 pandemic.

On a constant currency basis Infusion Systems revenue would have been $90.5 million for the three months ended March 31, 2020 , an increase of $6.2 million or 7.4%, as compared to the same period in the prior year.

Infusion Systems revenue increased for the three and six months ended June 30, 2020, as compared to the same periods in the prior year due to high demand for our infusion pumps during the global COVID-19 pandemic.

On a constant currency basis Infusion Systems revenue would have been $93.6 million for the three months ended June 30, 2020, an increase of $12.3 million or 15.1%, as compared to the same period in the prior year.

On a constant currency basis Infusion Systems revenue would have been $184.0 million for the six months ended June 30, 2020, an increase of $18.4 million or 11.1%, as compared to the same period in the prior year.

The following table summarizes our total IV Solutions revenue (in millions):

Three months ended

IV Solutions sales decreased for the three months ended March 31, 2020 , as compared to the same period in the prior year, primarily due to lower contract manufacturing sales to Pfizer.

IV Solutions revenue was positively impacted in the period by stocking orders related to the global COVID-19 pandemic.

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

IV Solutions $ 89.2 $ 102.6 $ (13.4) (13.1) % $ 193.5 $ 215.8 $ (22.3) (10.3) %

IV Solutions sales decreased for the three and six months ended June 30, 2020, as compared to the same periods in the prior year.

For the three months ended June 30, 2020, the decrease was related to lower demand from hospital customers due to the COVID-19 pandemic and lower contract manufacturing sales to Pfizer, offset partially by an increase in sales to new customers.

For the six months ended June 30, 2020, the decrease was related to lower contract manufacturing sales to Pfizer, lower demand from hospital customers due to the COVID-19 pandemic and higher sales in the first quarter of 2019 to non-contracted customers.

Critical Care

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Three months ended

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Critical Care $ 12.1 $ 10.7 $ 1.4 13.1 % $ 24.5 $ 23.6 $ 0.9 3.8 %

Critical Care revenue decreased for the three months ended March 31, 2020 , as compared to the same period in the prior year, primarily as a result of manufacturing challenges that resulted in supply constraints of certain products.

Critical Care revenue increased for the three and six months ended June 30, 2020, as compared to the same periods in the prior year, primarily as a result of growth in the Asia region.

Gross Margins

For the three months ended March 31, 2020 and 2019, gross margins were 36.9% and 40.9% , respectively.

The decrease in gross margin for the three months ended March 31, 2020, as compared to the same period in the prior year was primarily due to lower IV Solutions manufacturing volumes and charges related to the disposal of certain infusion sets.

For the three and six months ended June 30, 2020, gross margins were 35.0% and 36.0%, respectively.

For the three and six months ended June 30, 2019, gross margins were 33.3% and 37.2%, respectively.

The increase in gross margin for the three months ended June 30, 2020, as compared to the same period in the prior year was primarily due to one-time charges related to our IV Solutions product line in the prior year period.

The decrease in gross margin for the six months ended June 30, 2020, as compared to the same period in the prior year was primarily due to lower IV Solutions manufacturing volumes and unfavorable product mix.

Selling, General and Administrative (“SG&A”) Expenses

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Three months ended

SG&A expenses in total were flat for the three months ended March 31, 2020 , as compared to the same period in the prior year.

For the three months ended March 31, 2020 as compared to the same period in the prior year, bad debt expense decreased $2.5 million, consulting expense decreased $1.8 million, and travel expenses decreased $1.0 million.

Offsetting these decreases was a $2.3 million increase in dealer fees and a $1.8 million increase in amortization expense.

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

SG&A $ 67.2 $ 67.8 $ (0.6) (0.9) % $ 139.5 $ 140.5 $ (1.0) (0.7) %

SG&A expenses in total were essentially flat for the three and six months ended June 30, 2020, as compared to the same periods in the prior year.

For the three months ended June 30, 2020 as compared to the same period in the prior year, bad debt expense decreased $3.7 million, travel expenses decreased $1.9 million, and sales and marketing expenses decreased $1.3 million.

Offsetting these decreases was a $3.4 million increase in compensation expense, $2.4 million increase in depreciation and amortization expense, and a $2.1 million increase in dealer fees.

Bad debt expense is estimated based on an analysis of the expected losses on the accounts receivables at the reporting date, which varies from period-to-period due to the quality of those receivables.

Consulting expense was higher in the prior year due to the integration of our HIS business acquired in 2017.

Travel expenses decreased in the current year, as compared to the same prior year period, due to our ongoing efforts to reduce travel costs, and to a lesser extent due to self-imposed travel restrictions in response to COVID-19.

Travel expenses decreased in the current period, as compared to the same prior year period, due to travel restrictions in response to COVID-19.

Sales and marketing expenses decreased due to the impact of COVID-19 on trade shows, conferences, and related expenses.

Compensation expense increased as a result of lower incentive compensation recognized in the prior year due to forecasted results trending below performance targets.

Depreciation and amortization expense increased primarily as a result of the increase in amortization base due to the November 2019 acquisition of Pursuit Vascular, Inc ("Pursuit").

Dealer fees increased due to an increase in revenue from distributors.

Amortization expense increased as a result of the increase in amortization base due to the November 2019 acquisition of Pursuit Vascular, Inc ("Pursuit").

For the six months ended June 30, 2020 as compared to the same period in the prior year, bad debt expense decreased $6.2 million, travel expenses decreased $2.8 million, consulting expenses decreased $2.7 million, and sales and marketing expenses decreased $1.7 million.

Offsetting these decreases was a $4.4 million increase in dealer fees, a $4.1 million increase in depreciation and amortization expense and a $2.4 million increase in compensation expense.

See the above explanations for the three months ended June 30, 2020, which also apply to the six months ended June 30, 2020.

Consulting expense was higher in the prior year due to charges incurred related to regulatory and tax compliance.

Research and Development (“R&D”) Expenses

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Three months ended

R&D expenses decreased for the three months ended March 31, 2020 , as compared to the same period in the prior year.

June 30, Six months ended

2020 2019 $ Change % Change 2020 2019 $ Change % Change

R&D $ 10.3 $ 11.2 $ (0.9) (8.0) % $ 21.0 $ 24.0 $ (3.0) (12.5) %

R&D expenses decreased for the three and six months ended June 30, 2020, as compared to the same periods in the prior year.

R&D expense primarily relates to compensation and related benefit expenses on current R&D projects.

Restructuring and Strategic Transaction and Integration Expenses

Restructuring and strategic transaction and integration expenses were $12.3 million and $24.4 million for the three months ended March 31, 2020 and 2019, respectively.

Restructuring and strategic transaction and integration expenses were $6.5 million and $18.8 million for the three and six months ended June 30, 2020, respectively, as compared to $37.0 million and $61.4 million for the three and six months ended June 30, 2019, respectively.

Restructuring charges

Restructuring charges were $7.2 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.

Restructuring charges for the three months ended March 31, 2020, were primarily related to severance and other costs related to office and facility closures.

For the three months ended March 31, 2019, the restructuring charges were related to the integration of our acquired HIS business.

We expect to pay our unpaid restructuring charges as of March 31, 2020 by the end of the year.

Restructuring charges were $0.9 million and $8.1 million for the three and six months ended June 30, 2020, respectively, as compared to $6.9 million and $7.7 million for the three and six months ended June 30, 2019, respectively.

Restructuring charges for the three and six months ended June 30, 2020, were primarily related to severance and other costs related to office and facility closures.

For the three and six months ended June 30, 2019, the restructuring charges were primarily related to a one-time charge to move our U.S.

pump service depot to our existing Salt Lake City facility.

We expect to pay our unpaid restructuring charges as of June 30, 2020 by the end of the year.

Strategic transaction and integration expenses

Strategic transaction and integration expenses were $5.1 million and $23.6 million for the three months ended March 31, 2020 and 2019, respectively.

The strategic transaction and integration expenses during the three months ended March 31, 2020 were primarily related to the integration of HIS which included the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during the three months ended March 31, 2019, were primarily related to our final Pfizer separation costs and clean-up, which included a $12.7 million non-cash write-off of related assets.

Change in Fair Value of Earn-out

For the three months ended March 31, 2020, there was no change in fair value of the Pursuit earn-out liability as the underlying target forecasts did not change.

For the three months ended March 31, 2019, we conducted a revaluation of the fair value of our HIS contingent earn-out liability that resulted in a decrease of value of $7.7 million.

Strategic transaction and integration expenses were $5.6 million and $10.7 million for the three and six months ended June 30, 2020, respectively, as compared to $30.1 million and $53.7 million for the three and six months ended June 30, 2019,

respectively.

The strategic transaction and integration expenses during the three and six months ended June 30, 2020 were primarily related to the integration of HIS, which for the six months ended June 30, 2020 included the migration of IT systems at our Austin facility.

The strategic transaction and integration expenses during the three and six months ended June 30, 2019 included a one-time strategic supply chain restructuring charge of $22.1 million, which reduced our contracted commitments to our third party manufacturer.

The six months ended June 30, 2019, also included charges related to our final Pfizer separation costs, which included a $12.7 million non-cash write-off of related assets.

Change in Fair Value of Contingent Earn-out

For the three and six months ended June 30, 2020, the fair value revaluation of our Pursuit earn-out liability resulted in an increase in value of $2.7 million, respectively.

For the three and six months ended June 30, 2019, the fair value revaluation of our HIS contingent earn-out liability resulted in a decrease of value of $39.5 million and $47.2 million, respectively.

Contract Settlement

For the three months ended March 31, 2019, we incurred an expense of $2.9 million related to the resolution of a dispute with a product partner, which resulted in a redefinition of our contractual arrangement and in the rights and remedies determined under such arrangement.

For the three and six months ended June 30, 2019, we incurred a contract settlement expense of $1.0 million and $3.8 million, respectively, related to the resolution of a dispute with a product partner, which resulted in a redefinition of our contractual arrangement and in the rights and remedies determined under such arrangement.

Interest Expense

Interest expense was $0.2 million and $0.1 million or the three months ended March 31, 2020 and 2019, respectively.

The interest expense for all periods is related to the per annum commitment fee charged on the unused portion of the revolver under our Credit Facility, the amortization of financing costs incurred as of year-end December 31, 2017, in connection with entering into the Credit Facility, and for the three months ended March 31, 2020, interest incurred on borrowings under the Credit Facility (see Note 16:

Interest expense was $0.8 million and $1.0 million for the three and six months ended June 30, 2020, respectively, and $0.1 million and $0.3 million for the three and six months ended June 30, 2019, respectively.

The three and six months ended June 30, 2020 primarily includes interest expense incurred on borrowings under the Credit Facility and the amortization of financing costs that were incurred in 2017 in connection with entering into the Credit Facility.

The three and six months ended June 30, 2019 includes the amortization of financing costs and interest expense related to the per annum commitment fee charged on the unused portion of the revolver under our Credit Facility (see Note 16:

Long-Term Obligations in our accompanying condensed consolidated financial statements for additional information).

Interest expense for the remainder of 2020 will increase due to the borrowing under the revolving Credit Facility.

Other (Expense) Income, net

Other (expense) income netted to ($5.5) million and $3.2 million for the three months ended March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020, the other expense, net was primarily related to $6.1 million in foreign exchange losses as a result of the strengthening of the U.S.

dollar from the impact of COVID-19, partially offset by interest income.

For the three months ended March 31, 2019, the other income, net was primarily interest income and foreign exchange gains.

For the three months ended March 31, 2020 and 2019, income taxes were accrued at an estimated effective tax rate of 17% and 7% , respectively.

The effective tax rate for the three months ended March 31, 2020 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

Other Income (Expense), net

Other income (expense) netted to $2.1 million and ($3.4) million for the three and six months ended June 30, 2020, respectively, as compared to $1.5 million and $4.7 million for the three and six months ended June 30, 2019, respectively.

For the three months ended June 30, 2020, the other income, net was primarily related to $1.5 million in foreign exchange gains.

For the six months ended June 30, 2020, the other expense, net was primarily related to $4.7 million in foreign exchange losses as a result of the strengthening of the U.S.

dollar from the impact of COVID-19 during the first quarter, partially offset by interest income.

For the three and six months ended June 30, 2019, the other income, net was primarily related to interest income.

For the three and six months ended June 30, 2020, income taxes were accrued at an estimated effective tax rate of 9% and 13%, respectively, as compared to 17% and 12%, for the three and six months ended June 30, 2019, respectively.

The effective tax rate for the three and six months ended June 30, 2020 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII") and tax credits.

The effective tax rate for the three months ended March 31, 2019 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

The effective tax rate during the three and six months ended June 30, 2020 included a tax benefit of $3.0 million and $3.5 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the periods.

The effective tax rate for the three and six months ended June 30, 2019 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, GILTI and tax credits.

The effective tax rate during the three months ended March 31, 2019 included a tax benefit of $5.6 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

The effective tax rate during the three and six months ended June 30, 2019 included a tax benefit of $1.8 million and $7.4 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the periods.

Liquidity and Capital Resources

During the first three months of 2020, our cash, cash equivalents and short-term investments increased by $147.0 million from $292.6 million at December 31, 2019 to $439.7 million at March 31, 2020 .

During the first six months of 2020, our cash, cash equivalents and short-term investments increased by $168.1 million from $292.6 million at December 31, 2019 to $460.7 million at June 30, 2020.

We are continuously assessing our liquidity and anticipated capital requirements due to the uncertainty created by COVID-19.

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Cash Flows from Operating Activities

Our net cash provided by operations for the three months ended March 31, 2020 was $39.5 million .

Our net cash provided by operations for the six months ended June 30, 2020 was $68.7 million.

Net income plus adjustments for non-cash net expenses contributed $107.4 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $38.7 million.

The changes in operating assets and liabilities included a $35.1 million decrease in accounts payable, and a $6.4 million increase in other assets.

Offsetting these amounts was a $19.4 million decrease in inventories, a $2.6 million decrease in prepaid expenses and other current assets, $2.3 million in net changes in income taxes,

including excess tax benefits and deferred income taxes, a $0.9 million decrease in accounts receivables, and a $0.5 million increase in accrued liabilities.

The changes in operating assets and liabilities included a $23.3 million decrease in accounts payable, a $15.3 million decrease in accrued liabilities, a $9.3 million increase in prepaid expenses and other current assets and a $7.2 million increase in other assets.

Offsetting these amounts was a $8.5 million decrease in inventories, a $5.3 million decrease in accounts receivables, and a $2.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

The decrease in accounts payable was due to the timing of payments.

The decrease in accrued liabilities was due to the payment of accrued supply chain reorganization costs.

The increase in prepaid expenses and other current assets was primarily due to an increase in deferred costs.

The increase in other assets was due to the purchase of spare parts.

The decrease in inventory was primarily due to improved inventory management and increased demand for certain products driven by the global COVID-19 pandemic.

The increase in prepaid expenses and other current assets was primarily due to an increase in deferred costs.

The decrease in accounts receivable is due to lower sales and collections partially due to decreased demand from hospital customers due to COVID-19.

The net changes in income taxes was a result of the timing of payments.

Our net cash used in operations for the three months ended March 31, 2019 was $21.0 million .

Our net cash provided by operations for the six months ended June 30, 2019 was $2.3 million.

Net income plus adjustments for non-cash net expenses contributed $95.5 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $93.2 million.

The changes in operating assets and liabilities included a $49.5 million

increase in accounts receivable, a $34.8 million decrease in accrued liabilities, a $12.0 million increase in inventories, a $7.5 million increase in other assets and $1.1 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

The changes in operating assets and liabilities included a $46.9 million increase in accounts receivable, a $21.1 million decrease in accrued liabilities, a $16.1 million increase in inventories, an $18.1 million increase in other assets and $0.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

Offsetting these amounts was a $6.1 million decrease in prepaid expenses and other current assets and a $2.0 million increase in accounts payable.

The increase in accounts receivable was mainly due to the reclassification of receivables from Pfizer and the timing of revenue and collections.

In 2019, receivables from Pfizer are included in accounts receivable and not in a separate related-party receivable line item as in 2018.

The increase in accounts receivable is mainly due to the current year reclassification of receivables from Pfizer and the timing of revenue and collections.

In the current year, receivables from Pfizer are included in accounts receivable and not in a separate related-party receivable line item as in the prior year.

As of December 31, 2018, Pfizer had sold all of its shares of ICU common stock thereby ending its related-party relationship with ICU.

The decrease in accrued liabilities was primarily a result of the payout of accrued compensation.

The decrease in accrued liabilities was primarily a result of the payout of accrued compensation, partially offset by an increase in certain accruals including $22.1 million in accrued costs related to the initial ramp down of IV Solution production.

The increase in inventory was primarily due to an increase in our finished goods safety stock.

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The following table summarizes the changes in our investing cash flows (in thousands):

Three months ended

Six months ended

2020 2019 Change

Investing Cash Flows:

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Proceeds from sale of assets 147 19 128

Business acquisitions, net of cash acquired — (4,600) 4,600 (2)

Intangible asset additions (4,104) (4,088) (16)

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(1) Our purchases of property and equipment will vary from period to period based on additional investments needed to support new and existing products and expansion of our manufacturing facilities.

(2) Our business acquisitions will vary from period to period based upon our current growth strategy and our ability to execute on desirable target companies.

(3) Our purchases of investment securities will vary from period to period based on current cash needs, planning for known future transactions and due to changes in our investment strategy.

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The following table summarizes the changes in our financing cash flows (in thousands):

Three months ended

Six months ended

2020 2019 Change

Financing Cash Flows:

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Proceeds from exercise of stock options 6,799 3,934 2,865 (2)

Payments on finance leases (116) — (116)

Tax withholding payments related to net share settlement of equity awards (12,561) (18,265) 5,704 (3)

3 unchanged sentences

(2) Proceeds from the exercise of stock options will vary from period to period based on the volume of options exercised and the exercise price of the specific options exercised.

(2) During the three months ended March 31, 2020, our employees surrendered 63,511 shares of our common stock from vested restricted stock awards as consideration for approximately $12.2 million in minimum statutory withholding obligations paid on their behalf.

During the three months ended March 31, 2019, our employees surrendered 77,642 shares of our common stock from vested restricted stock awards as consideration for approximately $18.2 million in minimum statutory withholding obligations paid on their behalf.

(2) During the six months ended June 30, 2020, our employees surrendered 65,392 shares of our common stock from vested restricted stock awards as consideration for approximately $12.6 million in minimum statutory withholding obligations paid on their behalf.

During the six months ended June 30, 2019, our employees surrendered 78,108 shares of our common stock from vested restricted stock awards as consideration for approximately $18.3 million in minimum statutory withholding obligations paid on their behalf.

In August 2019, our Board of Directors approved a share purchase plan to purchase up to $100.0 million of our common stock.

This plan replaced our existing plan and has no expiration date.

As of March 31, 2020 , all of the $100 million available for purchase was remaining under the plan.

As of June 30, 2020, all of the $100 million available for purchase was remaining under the plan.

We have a substantial cash and investment security position generated from operations and from borrowings under our revolving Credit Facility.

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We believe that our existing cash and cash equivalents along with funds expected to be generated from future operations will provide us with sufficient funds to finance our current operations for the next twelve months.

In the event that we experience downturns, cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to achieve anticipated revenue and expense levels, we may need to obtain or seek alternative sources of capital or financing, and we can provide no assurances that the terms of such capital or financing will be available to us on favorable terms, if at all.

In the event that we experience downturns, cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to

achieve anticipated revenue and expense levels, we may need to obtain or seek alternative sources of capital or financing, and we can provide no assurances that the terms of such capital or financing will be available to us on favorable terms, if at all.

Our ability to generate cash flows from operations, issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions.

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The minimum Consolidated Fixed Charge Coverage Ratio is 2.00 to 1.00.

We were in compliance with all financial covenants as of March 31, 2020.

We were in compliance with all financial covenants as of June 30, 2020.

Off-Balance Sheet Arrangements

29 unchanged sentences

amortization;

source of funds for capital purchases and

source of funds for capital purchases and operations;

future tax rates;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis