What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-10 · 118 added, 98 removed, 381 unchanged (36% of the section changed)

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

Our manufacturing, distribution, and pump service facilities are operating under our business continuity plan due to the need for our critical healthcare products, however, we have taken certain precautionary measures including the following to maximize the safety of our employees and to mitigate disruption to our operations:

Our manufacturing, distribution, and pump service facilities are operating under our business continuity plan due to the need for our critical healthcare products;

however, we have taken certain precautionary measures including the following to maximize the safety of our employees and to mitigate disruption to our operations:

• implemented physical distancing measures;

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

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.

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 Credit Facility.

As we now have a greater insight into how we are able to operate during COVID-19, we decided to fully repay the $150.0 million borrowed during the first quarter under our Credit Facility.

During the third quarter ended September 30, 2020, our results of operations were impacted by an increase in the demand for our infusion pump hardware that was partially offset by a decline in the demand for certain products in our Infusion Consumables product portfolio.

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

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• lower income due to a delay in cost savings projects as a result of the travel and social distancing requirements of COVID-19;

• lower interest income on cash balances due to recent reductions in interest rates along with higher interest expense from borrowing $150.0 million under our Credit Facility.

• lower interest income on cash balances due to recent reductions in interest rates along with higher interest expense from borrowings under our $150.0 million Credit Facility if necessary to maintain adequate liquidity.

See Risk Factors for further information regarding the actual and potential future impacts of the COVID-19 pandemic on us, our operations and our business.

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• Including Sodium Chloride, Dextrose, Balanced Electrolyte Solutions, Lactated Ringer's, Ringer's, Mannitol, Sodium Chloride/Dextrose and Sterile Water.

• Including Sodium Chloride Irrigation, Sterile Water Irrigation, Physiologic Solutions, Ringer's Irrigation, Ringer's Irrigation, Acetic Acid Irrigation, Glycine Irrigation, Sorbitol-Mannitol Irrigation, Flexible Containers and Pour Bottle Options.

• Including Sodium Chloride Irrigation, Sterile Water Irrigation, Physiologic Solutions, Ringer's Irrigation, Acetic Acid Irrigation, Glycine Irrigation, Sorbitol-Mannitol Irrigation, Flexible Containers and Pour Bottle Options.

Critical Care

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

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:

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

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

Infusion Consumables $ 116.1 $ 119.8 $ (3.7) (3.1) % $ 350.6 $ 358.0 $ (7.4) (2.1) %

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

For the three months ended September 30, 2020, the revenue decrease was driven primarily by the impact of lower demand from hospital customers due to COVID-19, particularly in international markets, offset partially by sales of our ClearGuard HD product, which we acquired in our fourth quarter 2019 acquisition of Pursuit Vascular, Inc ("Pursuit").

For the nine months ended September 30, 2020, the revenue decrease was driven primarily by the impact of lower demand from hospital customers globally due to COVID-19, offset by Oncology growth internationally and sales of our ClearGuard HD product.

On a constant currency basis, Infusion Consumables revenue would have been $115.3 million for the three months ended September 30, 2020, a decrease of $4.5 million or 3.8%, as compared to the same period in the prior year.

On a constant currency basis, Infusion Consumables revenue would have been $352.5 million for the nine months ended September 30, 2020, a decrease of $5.5 million or 1.5%, as compared to the same period in the prior year.

Infusion Systems

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Infusion Systems $ 88.4 $ 78.9 $ 9.5 12.0 % $ 267.9 $ 244.5 $ 23.4 9.6 %

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.

Infusion Systems revenue increased for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year due to higher demand for our infusion pump hardware, offset somewhat by lower demand for our dedicated infusion sets during the global COVID-19 pandemic.

On a constant currency basis Infusion Systems revenue would have been $88.9 million for the three months ended September 30, 2020, an increase of $10.0 million or 12.7%, as compared to the same period in the prior year.

On a constant currency basis Infusion Systems revenue would have been $273.0 million for the nine months ended September 30, 2020, an increase of $28.5 million or 11.7%, as compared to the same period in the prior year.

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

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IV Solutions $ 101.9 $ 98.2 $ 3.7 3.8 % $ 295.4 $ 314.0 $ (18.6) (5.9) %

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.

IV Solutions sales increased for the three months ended September 30, 2020, as compared to the same period in the prior year, primarily due to an increase in sales to new customers.

IV Solutions sales decreased for the nine months ended September 30, 2020, as compared to the same period in the prior year, primarily due 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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Critical Care $ 12.2 $ 10.6 $ 1.6 15.1 % $ 36.7 $ 34.2 $ 2.5 7.3 %

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.

Critical Care revenue increased for the three and nine months ended September 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 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.

For the three and nine months ended September 30, 2020, gross margins were 35.8% and 35.9%, respectively.

For the three and nine months ended September 30, 2019, gross margins were 38.6% and 37.6%, respectively.

The decrease in gross margin for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year was primarily due to lower IV Solutions manufacturing volumes, unfavorable product mix, and increased product quality costs.

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

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SG&A $ 70.9 $ 65.9 $ 5.0 7.6 % $ 210.4 $ 206.3 $ 4.1 2.0 %

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.

SG&A expenses in total increased for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year.

For the three months ended September 30, 2020 as compared to the same period in the prior year, dealer fees increased $4.3 million, stock compensation increased $2.7 million, and depreciation and amortization expense increased $1.9 million.

Offsetting these expense increases was a decrease of $1.7 million in travel expenses, and a decrease of $1.2 million in consulting expenses.

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

Stock compensation increased in the current period due to a change in the number of performance shares estimated to vest on one of our non-executive performance awards.

Depreciation and amortization expense increased primarily as a result of the increase in amortization base due to the November 2019 acquisition of Pursuit.

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.

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

For the nine months ended September 30, 2020 as compared to the same period in the prior year, dealer fees increased $8.7 million, depreciation and amortization expense increased $6.0 million, compensation expense increased $2.7 million, and stock compensation increased $2.4 million.

Offsetting these expense increases was a $5.2 decrease in bad debt expense, a $4.6 million decrease in travel expenses, a $3.9 million decrease in consulting expenses, and a $2.6 million decrease in sales and marketing expenses.

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

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.

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.

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

Research and Development (“R&D”) Expenses

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R&D $ 10.1 $ 12.0 $ (1.9) (15.8) % $ 31.2 $ 36.0 $ (4.8) (13.3) %

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 expenses decreased for the three and nine months ended September 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 $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 and strategic transaction and integration expenses were $4.1 million and $22.9 million for the three and nine months ended September 30, 2020, respectively, as compared to $8.0 million and $69.4 million for the three and nine months ended September 30, 2019, respectively.

Restructuring charges

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.

Restructuring charges were $0.0 million and $8.1 million for the three and nine months ended September 30, 2020, respectively, as compared to $0.8 million and $8.4 million for the three and nine months ended September 30, 2019, respectively.

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

For the three and nine months ended September 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 and other plant restructuring.

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

Strategic transaction and integration expenses

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.

Strategic transaction and integration expenses were $4.1 million and $14.8 million for the three and nine months ended September 30, 2020, respectively, as compared to $7.2 million and $61.0 million for the three and nine months ended September 30, 2019, respectively.

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

The strategic transaction and integration expenses during the nine months ended September 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 nine months ended September 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.

For the three and nine months ended September 30, 2020, the fair value revaluation of our Pursuit earn-out liability resulted in an increase in value of $4.3 million and $7.0 million, respectively.

For the three and nine months ended September 30, 2019, the fair value revaluation of our HIS contingent earn-out liability resulted in a decrease of value of $0.2 million and $47.4 million, respectively.

Contract Settlement

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.

For the three and nine months ended September 30, 2020, we recorded $1.0 million in contract settlement income related to the resolution of a dispute with one of our suppliers.

For the nine months ended September 30, 2019, we incurred a contract settlement expense of $3.8 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.

Interest Expense

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:

Interest expense was $0.6 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2019, respectively.

The three and nine months ended September 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 nine months ended September 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).

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.

Other income (expense) netted to $1.3 million and ($2.2) million for the three and nine months ended September 30, 2020, respectively, as compared to $0.0 million and $4.7 million for the three and nine months ended September 30, 2019, respectively.

For the three months ended September 30, 2020, the other income, net was related to $2.5 million of miscellaneous income and $0.8 million of interest income, partially offset by $1.4 million in foreign exchange losses and $0.6 million of loss from disposed assets.

For the nine months ended September 30, 2020, the other expense, net was primarily related to $6.0 million in foreign exchange losses and $1.7 million of loss from disposed assets, partially offset by $2.5 million in miscellaneous income and $3.0 million in interest income.

The foreign exchange losses are primarily as a result of the strengthening of the U.S.

dollar from the impact of COVID-19.

For the three months ended September 30, 2019, the other income, netted out as interest income was mostly offset by foreign exchange losses For the nine months ended September 30, 2020, the other income, net was primarily related to interest income, partially offset by foreign exchange losses.

For the three and nine months ended September 30, 2020, income taxes were accrued at an estimated effective tax rate of 5% and 10%, respectively, as compared to 19% and 14%, for the three and nine months ended September 30, 2019, respectively.

The effective tax rate for the three and nine months ended September 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 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.

The effective tax rate during the three and nine months ended September 30, 2020 included a tax benefit of $0.1 million and $3.6 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 nine months ended September 30, 2020 also included U.S.

federal and state return-to-provision adjustments net of related reserve changes for the year ended December 31, 2019 of $3.8 million tax benefit primarily due to changes in estimates for GILTI, FDII, and related foreign tax credits.

The effective tax rate for the three and nine months ended September 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 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.

The effective tax rate during the three and nine months ended September 30, 2019 included a tax benefit of $0.3 million and $7.7 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 nine months ended September 30, 2019 was also impacted by the repatriation of certain intellectual property and assets from a liquidation of one of our foreign subsidiaries to the U.S.

In accordance with the changes to the accounting for income tax effects of such intra-entity transfers of assets, we recorded a net tax benefit of $3.8 million related to the liquidation.

Lastly, the effective tax rate during the three and nine months ended September 30, 2019 included a tax expense of $2.2 million related to return-to-provision adjustments for the year ended December 31, 2018 primarily due to changes in estimates for our U.S.

GILTI inclusion.

Liquidity and Capital Resources

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.

During the first nine months of 2020, our cash, cash equivalents and short-term investments increased by $70.9 million from $292.6 million at December 31, 2019 to $363.5 million at September 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 six months ended June 30, 2020 was $68.7 million.

Our net cash provided by operations for the nine months ended September 30, 2020 was $144.2 million.

Net income plus adjustments for non-cash net expenses contributed $174.3 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $30.1 million.

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 changes in operating assets and liabilities included a $38.0 million decrease in accounts payable, a $20.4 million decrease in accrued liabilities, a $12.1 million increase in other assets, a $6.5 million increase in prepaid expenses, and $0.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

Offsetting these amounts was a $38.9 million decrease in accounts receivables, and a $8.9 million decrease in inventories.

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

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

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

The decrease in accounts receivable is primarily due to collection efforts.

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

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

Our net cash provided by operations for the nine months ended September 30, 2019 was $53.1 million.

Net income plus adjustments for non-cash net expenses contributed $156.9 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $103.9 million.

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 changes in operating assets and liabilities included a $30.9 million increase in inventories, a $29.5 million increase in other assets, a $32.5 million increase in accounts receivable, a $23.2 million decrease in accrued liabilities, and a $3.0 million decrease in accounts payable.

Offsetting these amounts was a $8.8 million decrease in prepaid expenses and other current assets and $6.5 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

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

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

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.

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

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.

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

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

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

The decrease in prepaid expenses and other current assets was primarily due to the collection of receivable amounts owed from Pfizer.

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

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

Cash Flows from Investing Activities

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

Six months ended

Nine months ended

September 30,

2020 2019 Change

18 unchanged sentences

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

Six months ended

Nine months ended

September 30,

2020 2019 Change

1 unchanged sentence

Proceeds from short-term debt $ 150,000 $ — $ 150,000 (1)

Repayment of short-term debt (150,000) — (150,000) (1)

Proceeds from exercise of stock options 8,586 4,240 4,346 (2)

4 unchanged sentences

(1) During March 2020, as a result of market uncertainty caused by COVID-19, we borrowed $150.0 million under our revolving Credit Facility.

We fully repaid the amounts borrowed under our revolving Credit Facility in September 2020.

(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 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.

(3) During the nine months ended September 30, 2020, our employees surrendered 66,749 shares of our common stock from vested restricted stock awards as consideration for approximately $12.8 million in minimum statutory withholding obligations paid on their behalf.

During the nine months ended September 30, 2019, our employees surrendered 79,313

shares of our common stock from vested restricted stock awards as consideration for approximately $18.5 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 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.

As of September 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.

We maintain this position to address any operational challenges related to COVID-19, fund our growth, meet increasing working capital requirements, fund capital expenditures and to take advantage of acquisition opportunities that may arise.

2 unchanged sentences

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, fail to achieve anticipated revenue and expense levels, or have significant unplanned cash expenditures, 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.

9 unchanged sentences

During March 2020, as a precautionary measure in response to market uncertainty driven by the COVID-19 pandemic, we preemptively increased our liquidity by borrowing $150.0 million under our Credit Facility.

In September 2020, we fully repaid the borrowings under our Credit Facility.

Financial Covenants

5 unchanged sentences

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

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

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

Off-Balance Sheet Arrangements

In the normal course of business, we have agreed to indemnify our officers and directors to the maximum extent permitted under Delaware law and to indemnify customers as to certain intellectual property matters related to sales of our products.

There is no maximum limit on the indemnification that may be required under these agreements.

119 unchanged sentences

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