What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 80 added, 170 removed, 329 unchanged (43% of the section changed)

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Operations Overview

COVID-19 Update

In late 2019, a novel coronavirus (“COVID-19”) was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic.

The outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States and elsewhere, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel restrictions, border closings, business closures, quarantines and shelter-in-place orders.

Additionally, the COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the economy across many industries.

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.

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.

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;

• enhanced hygiene protocols and increased frequency of cleaning procedures;

• acquired additional personal protective equipment;

• developed contingency plans and protocols to assess employee illness;

• helped employees with childcare issues due to school and daycare closures;

• implemented COVID-19 temperature screening for employees entering our manufacturing and distribution facilities;

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

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.

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 cannot as yet be quantified.

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

• lost revenue or additional costs associated with either disruptions at our production and distribution facilities or interruptions in our supply chain;

• fluctuations in demand from customers as a result of an increase in COVID-19 patient admissions in hospitals offset by the decline in non-COVID-19 patient admissions;

• healthcare customers that defer the more profitable elective procedures may experience financial difficulties and may be unable to pay within payment terms for the products they purchased;

• potential lower demand in future periods due to over-purchasing of our products due to the COVID-19 pandemic;

• reduced revenue due to delays in implementation of our infusion systems and oncology products at hospital locations due to restricted access;

• higher operating costs related to additional compensation paid to our manufacturing and distribution facility workers;

• volatility in revenue and income due to foreign currency fluctuations;

• lower travel and entertainment costs due to global travel restrictions;

• 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 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.

The novel coronavirus and its variants (“COVID-19”) continues to have an impact on our business operations.

Our manufacturing, distribution and pump service facilities continue to operate under our business continuity plan and our precautionary safety measures implemented to maximize the safety of our employees and mitigate disruption of our business are still in effect.

For greater detail on the above mentioned safety measures and a discussion of how future results may potentially be impacted by COVID-19 see Part II, Item 7, of our 2020 Annual Report on Form 10-K.

While we continually monitor the ongoing and evolving impact of the effect of the COVID-19 pandemic on our operations the overall impact will not be fully reflected in our results of operations 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 overall financial performance remain uncertain and cannot as yet be quantified.

Infusion Consumables

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• SwabCap disinfecting cap, used to protect and disinfect any needlefree connector, including competitive brands of connectors;

• Tego TM hemodialysis connector used to cap and protect hemodialysis central venous catheter hubs;

• NovaCath ™ and SuperCath ™ peripheral IV catheters (PIV);

• ClearGuard HD antimicrobial barrier caps for hemodialysis catheters;

• Tego TM hemodialysis connector used to cap and protect hemodialysis central venous catheter hubs;

Closed System Transfer Devices ("CSTD") and hazardous drug compounding systems are used to prepare and deliver hazardous IV medications such as those used in chemotherapy, which, if released, can have harmful effects on the healthcare worker and environment.

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Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

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

$ % of Revenue $ % of Revenue

Domestic $ 227.3 71 % $ 230.2 70 %

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September 30, Nine months ended

September 30,

Product line 2021 2020

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Critical Care 4 % 4 %

100 % 100 % 100 % 100 %

We manage our product distribution in the U.S.

through a network of three owned and one leased distribution facilities, as well as, through direct channels, which include independent distributors and the end users of our products, and as original equipment manufacturer suppliers.

Most of our independent distributors handle the full line of our products.

through a network of two owned and one leased distribution facilities in combination with independent distributors and third-party fulfillment and logistics providers.

Our end customers, which include healthcare providers and original equipment manufacturer suppliers, may order and receive our products directly from us or through an independent full-line distributor.

Internationally, we manage distribution utilizing international regional hubs and through independent distributors.

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

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:

The following table shows, for the three and nine months ended March 31, 2021 and 2020, the percentages of each income statement caption in relation to total revenue:

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Total revenue 100 % 100 %

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Three months ended

September 30, Nine months ended

September 30,

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

2021 2020 $ Change % Change

Infusion Consumables $ 126.4 $ 123.5 $ 2.9 2.3 %

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 Consumables revenue increased for the three months ended March 31, 2021, as compared to the same period in the prior year due to higher demand for our oncology and renal products and foreign exchange gains.

These increases were somewhat offset by a decrease in IV therapy sales due to increased distributor orders in the prior year due to the global COVID-19 pandemic.

On a constant currency basis, Infusion Consumables revenue would have been $123.1 million for the three months ended March 31, 2021, a decrease of $0.4 million or 0.3%, as compared to the same period in the prior year.

Infusion Systems

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Three months ended

September 30, Nine months ended

September 30,

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

2021 2020 $ Change % Change

Infusion Systems $ 84.3 $ 88.4 $ (4.1) (4.6) %

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.

Infusion Systems revenue decreased for the three months ended March 31, 2021, as compared to the same period in the prior year due to a decline in our non-large volume pump business as well as lower IV set revenues due to higher COVID-19-related purchases during the first quarter of 2020.

On a constant currency basis Infusion Systems revenue would have been $83.3 million for the three months ended March 31, 2021, a decrease of $5.1 million or 5.8%, as compared to the same period in the prior year.

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

Three months ended

September 30, Nine months ended

September 30,

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

2021 2020 $ Change % Change

IV Solutions $ 94.2 $ 104.3 $ (10.1) (9.7) %

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.

IV Solutions sales decreased for the three months ended March 31, 2021, as compared to the same period in the prior year, primarily due to customer stocking in the prior year driven by the onset of the COVID-19 pandemic.

Critical Care

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September 30, Nine months ended

September 30,

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

2021 2020 $ Change % Change

Critical Care $ 13.1 $ 12.4 $ 0.7 5.6 %

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.

Critical Care revenue increased for the three months ended March 31, 2021, as compared to the same period in the prior year, primarily as a result of increased sales of our Cogent 2-in-1 hemodynamic monitoring system.

Gross Margins

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.

For the three months ended March 31, 2021 and 2020, gross margins were 35.4% and 36.9%, respectively.

The decrease in gross margin for the three months ended March 31, 2021, as compared to the same period in the prior year was primarily due to capitalized manufacturing variances from the shutdown of our Austin plant in the fourth quarter of 2020 and additional weather-related costs at our Austin plant during the first quarter of 2021.

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

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September 30,

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

2021 2020 $ Change % Change

SG&A $ 72.4 $ 72.3 $ 0.1 0.1 %

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.

SG&A expenses were essentially flat for the three months ended March 31, 2021, as compared to the same period in the prior year.

For the three months ended March 31, 2021 as compared to the same period in the prior year, legal fees increased $1.4 million and dealer fees increased $1.3 million.

These increases were mostly offset by a decrease of $1.2 million in travel expenses and a decrease of $1.0 million in stock based compensation expenses.

Legal fees increased due to additional services performed in the current year related to various legal matters.

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.

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.

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.

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

Travel expenses decreased due to travel restrictions in response to COVID-19.

Stock compensation decreased in the current period due to a prior year change in the number of performance shares estimated to vest on one of our executive performance awards, which increased the expense in that period.

Research and Development (“R&D”) Expenses

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September 30,

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

2021 2020 $ Change % Change

R&D $ 10.7 $ 10.7 $ — — %

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 expenses were flat for the three months ended March 31, 2021, as compared to the same period 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 $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 and strategic transaction and integration expenses were $2.9 million and $12.3 million for the three months ended March 31, 2021 and 2020, respectively.

Restructuring charges

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.

Restructuring charges were $0.0 million and $7.2 million for the three months ended March 31, 2021 and 2020, respectively.

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

We expect to pay our unpaid restructuring charges as of March 31, 2021 by the end of the year.

Strategic transaction and integration expenses

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.

Strategic transaction and integration expenses were $2.9 million and $5.1 million for the three months ended March 31, 2021 and 2020, respectively.

The strategic transaction and integration expenses during the three months ended March 31, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives.

The strategic transaction and integration expenses during the three months ended March 31, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

Change in Fair Value of Contingent Earn-out

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.

For the three months ended March 31, 2021 and 2020, there was no change in fair value of the Pursuit earn-out liability for each period, respectively, as the underlying forecasts during those periods did not materially change.

Contract Settlement

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.

For the three months ended March 31, 2021, we recorded $0.1 million in contract settlement expense.

Interest Expense

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:

Interest expense was $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.

The interest expense for both periods includes the per annum commitment fee charged on the unused portion of the revolver under our Credit Facility and the amortization of financing costs that were incurred in 2017 in connection with entering into the Credit Facility.

During March 2020, we borrowed $150.0 million under our Credit Facility and, accordingly the interest expense for the three months ended March 31, 2020 also includes interest incurred on borrowings under the 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 $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.

Other income (expense) netted to $0.7 million and ($5.5) million for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021, the other income, net was related to $0.7 million of interest

income, $0.5 million in foreign exchange gains and $0.2 million of miscellaneous income partially offset by $0.7 million of loss from disposed assets.

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, 2021 and 2020, income taxes were accrued at an estimated effective tax rate of 12% and 17% , respectively.

The effective tax rate for the three months ended March 31, 2021 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 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 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.

The effective tax rate during the three months ended March 31, 2021 included a tax benefit of $1.8 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 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.

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

Liquidity and Capital Resources

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.

We are currently closely monitoring and managing our receivable and payable balances.

During the first three months of 2021, our cash, cash equivalents and short and long-term investments increased by $31.0 million from $423.8 million at December 31, 2020 to $454.8 million at March 31, 2021.

Cash Flows from Operating Activities

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

Our net cash provided by operations for the three months ended March 31, 2021 was $51.3 million.

Net income plus adjustments for non-cash net expenses contributed $56.9 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $5.6 million.

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 changes in operating assets and liabilities included a $20.0 million decrease in accrued liabilities, a $3.5 million increase in other assets and a $0.7 million increase in prepaid expenses and other assets.

Offsetting these amounts was a $13.2 million decrease in inventories, a $2.4 million increase in accounts payable, a $1.5 million decrease in accounts receivables and $1.4 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

The decrease in accrued liabilities was primarily due to the payment of annual bonuses.

The net increase in prepaid expenses and other current assets was primarily due to the payment of annual software renewals, offset by the amortization of prepaid insurance and property taxes.

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 inventory was primarily due to the timing of production and customer purchases combined with the reduction in capitalized manufacturing variances.

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

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 nine months ended September 30, 2019 was $53.1 million.

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

Net income plus adjustments for non-cash net expenses contributed $55.3 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $15.8 million.

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

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

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September 30,

Three months ended

2021 2020 Change

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Proceeds from sale of assets 55 131 (76)

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

Intangible asset additions (1,874) (1,958) 84

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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.

(2) 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.

2 unchanged sentences

We anticipate making additional investments in machinery and equipment in our manufacturing operations in Costa Rica, the U.S.

and Mexico to support new and existing products, in infusion devices that are placed with customers outside the U.S., and in IT to benefit world-wide operations.

and Mexico to support new and existing products and in infusion pumps that are placed with customers outside the U.S.

We expect to use our cash and cash equivalents to fund our capital purchases.

Amounts of spending are estimates and actual spending may substantially differ from those amounts.

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

Nine months ended

September 30,

Three months ended

2021 2020 Change

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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 4,864 560 4,304 (2)

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Tax withholding payments related to net share settlement of equity awards (7,723) (12,174) 4,451 (3)

Net cash provided by (used in) financing activities $ (4,466) $ (14,238) $ 9,772

Net cash (used in) provided by financing activities $ (3,000) $ 138,386 $ (141,386)

______________________________

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(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.

(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.

(3) During the three months ended March 31, 2021, our employees surrendered 37,423 shares of our common stock from vested restricted stock awards as consideration for approximately $7.7 million in minimum statutory withholding obligations paid on their behalf.

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.

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

As of March 31, 2021, 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.

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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 September 30, 2020.

We were in compliance with all financial covenants as of March 31, 2021.

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

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

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Contractual Obligations

During 2019, we signed ten-year lease for a 610,806 square foot warehouse, which commenced during the first quarter of 2020.

Over the ten-year lease term, lease payment will be approximately $21.9 million.

There have been no other material changes to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("Annual Report").

There have been no material changes to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 ("Annual Report").

Critical Accounting Policies

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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