What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 108 added, 96 removed, 189 unchanged (52% of the section changed)

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The discussion and analysis presented below refers to, and should be read in conjunction with, the consolidated financial statements and accompanying notes included in Item 8 of Part II of this Annual Report on Form 10-K.

Owens & Minor, Inc., along with its subsidiaries, (we, us, our or the Company) is a leading global healthcare solutions company.

Owens & Minor, Inc., along with its subsidiaries, (we, us, our or the Company) is a global healthcare solutions company that incorporates product manufacturing, distribution support and innovative technology services to deliver significant and sustained value across the breadth of the industry – from acute care to patients in their home.

On June 18, 2020 (the Divestiture Date), we completed the divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin, Ireland office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million.

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We recorded a loss of $65.5 million in connection with the Divestiture for the year ended December 31, 2020.

As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” through the Divestiture Date and the related assets and liabilities were classified as “held- for-sale” in the consolidated balance sheet as of December 31, 2019.

As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” through the Divestiture Date.

See Note 3, “Discontinued Operations,” of the Notes to Consolidated Financial Statements for further information.

Unless otherwise indicated, the following information relates to continuing operations.

On January 7, 2022, we entered into an Agreement and Plan of Merger to acquire Apria, Inc.

(Apria) for $37.50 in cash per share of common stock, representing an equity value of approximately $1.45 billion, as well as the assumption of debt and cash for a total transaction value of approximately $1.6 billion.

Apria is a provider of integrated home healthcare equipment and related services in the United States.

The Agreement and Plan of Merger contains certain termination rights for the Company and Apria.

In the event that Apria terminates the contract for a superior proposal, Apria will be required to pay the Company a termination fee of $42.0 million.

The transaction, which has been approved by the board of directors of both companies, is subject to customary closing conditions, including the Hart Scott Rodino Act and other regulatory approvals and the approval of Apria’s stockholders, and is expected to close during the first half of 2022.

Income from continuing operations per diluted share was $2.94 for the year ended December 31, 2021, an increase of $1.55 compared to 2020.

Global Solutions segment operating income was $66.6 million for the year ended December 31, 2021, compared to $30.9 million for 2020.

The decline was due to lower distribution revenues as a result of customer non-renewals that occurred in 2019 and a reduction in elective surgical procedures primarily due to the impact of COVID-19.

The increase was a result of strong revenue growth, leveraging our fixed costs, and operating efficiencies, partially offset by inflationary pressures later in the year.

Global Products segment operating income was $372 million for the year ended December 31, 2021, compared to $260 million for 2020.

The increase was a result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with continued operating efficiencies compared to 2019.

The increase was a result of higher personal protective equipment (PPE) sales, favorable timing of cost pass-through on gloves, productivity initiatives, favorable product mix, and improved fixed cost leverage, partially offset by higher commodity prices and rising transportation costs, compared to the prior year.

COVID-19 Update

We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We are closely monitoring the impact of the 2019 novel coronavirus (COVID-19), including the related Delta and Omicron variants, on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders.

Revenue in 2020 of $8.5 billion includes a significant overall impact from COVID-19 related to the reduction of surgical procedures beginning in mid-March, which was partially offset by a greater demand for PPE.

Operating income also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies.

We have expanded our PPE production operations to 24 hours a day, 7 days a week, and have taken measures to increase and improve our production such as retooling existing equipment, installing and optimizing new production lines and ramping up our new non-woven fabric machinery.

We have delivered over 12 billion units of PPE to healthcare workers in the fight against COVID-19, of which approximately 5 billion units were produced with materials manufactured in our American factories or Owens & Minor owned facilities, since January 2020.

Revenue for the year ended December 31, 2021 of $9.8 billion continues to be impacted by COVID-19 and includes the effective response to the ongoing recovery of elective procedures, higher sales of PPE, and pass-through of elevated glove costs.

Operating income for the year ended December 31, 2021 also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies.

In 2020, we expanded our PPE production operations and have taken measures to increase and improve our production such as retooling existing equipment, installing and optimizing new production lines and ramping up our new non-woven fabric machinery.

We expect that we will continue servicing our customers' needs related to the heightened demand for our PPE as a result of various factors, including the implementation of new regulations and healthcare protocols calling for increased use of PPE, healthcare professional preference for medical grade PPE, stockpile PPE demand and the creation of new channels for PPE demand in healthcare, non-healthcare and international markets.

We are evaluating various government-sponsored COVID-response stimulus, relief, and production initiatives such as under the DPA and recent CARES Act.

In March 2020, under the DPA, we were awarded a contract with the U.S.

Department of Health and Human Services (HHS) to produce N-95 respirator masks in an effort to replenish the Strategic National Stockpile.

In March 2020, under the Defense Production Act (DPA), we were awarded a contract with the U.S.

Department of Health and Human Services to produce N-95 respirator masks in an effort to replenish the Strategic National Stockpile.

In April 2020, also under the DPA, the U.S.

Department of Defense initiated a technology investment agreement with us involving up to $30.0 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks.

Through December 31, 2020, approximately $27.0 million had been expended and $20.8 million had been reimbursed in accordance with this arrangement.

In addition, as allowed under the CARES Act, we filed for $13.7 million and $17.6 million income tax refunds with the Internal Revenue Service (IRS) related to the carryback of net operating losses (NOL) incurred in 2018 and 2019.

As of December 31, 2020, we have received substantially all of the refunds.

In connection with these NOL carryback items, we recorded a $12.5 million income tax benefit for the year ended December 31, 2020.

We are unable to predict the timing of the pandemic and the full impact that COVID-19 will have on our future financial position and operating results due to numerous variables and continued uncertainties.

Department of Defense initiated a technology investment agreement with us involving up to

$30.0 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks.

Through December 31, 2021, substantially all of the anticipated funding had been expended and reimbursed in accordance with this arrangement.

We are unable to predict the timing of the pandemic and the full impact that COVID-19 will have on our future operating results, financial position and cash flows due to numerous variables and continued uncertainties.

Travel, transportation, and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in certain locations, including within Asia.

Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs from supply chain challenges.

Although we have experienced growth in sales volumes for certain of our products (such as PPE) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic.

Risk Factors — “We are subject to risks related to public health crises or future outbreaks of health crises or other adverse public health developments such as the global pandemic associated with the 2019 novel coronavirus (COVID-19).”

Supplemental Financial Information

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At or for the years ended December 31,

2021 2020 2019

Summary of Operations:

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Per Common Share:

Income (loss) from continuing operations per share—basic and diluted $ 1.39 $ (0.37)

Income (loss) from continuing operations per share—basic $ 3.05 $ 1.39 $ (0.37)

Income (loss) from continuing operations per share—diluted $ 2.94 $ 1.39 $ (0.37)

Cash dividends $ 0.01 $ 0.01 $ 0.01

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Days sales outstanding (DSO) (1)

24.6 26.0 27.1

Inventory days (2)

64.7 57.8 55.3

(1) Based on year end accounts receivable and net revenue for the fourth quarter ended December 31, 2021, 2020 and 2019

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Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of year-to-year comparisons between 2020 and 2019 are not included in this Annual Report on Form 10-K, but can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

2021 compared to 2020

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Net revenue $ 9,785,315 $ 8,480,177 $ 1,305,138 15.4 %

The change in net revenue for the year ended December 31, 2020 reflected the impact of lower distribution revenues as a result of customer non-renewals that occurred in 2019 and a reduction in elective surgical procedures primarily due to the impact of COVID-19.

These were partially offset by revenue growth in Global Products from increased demand for PPE and growth in Byram, our Home Healthcare business.

Foreign currency translation had a $2.6 million favorable impact on net revenue for the year ended December 31, 2020 as compared to the prior year.

The change in net revenue for the year ended December 31, 2021 reflected our market share gains, the effective response to the ongoing recovery of elective procedures, higher sales of surgical & infection prevention (S&IP) products, pass-through of elevated glove costs, as well as continued strong performance in our Patient Direct business.

Foreign currency translation had a favorable impact on net revenue of $19.5 million for the year ended December 31, 2021 as compared to the prior year.

Cost of goods sold.

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There is no cost of goods sold associated with our fee-for-service arrangements.

Cost of goods sold compared to prior year reflects changes in sales activity, including sales mix.

Cost of goods sold compared to prior year reflects changes in sales activity, including sales mix, and accelerating inflationary pressures.

Gross margin.

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As a % of net revenue 15.46 % 15.10 %

Gross margin for the year ended December 31, 2020 was impacted by improved sales mix and productivity, operating efficiencies in Global Products and a favorable impact from foreign currency translation of $7.3 million.

Gross margin increase for the year ended December 31, 2021 was driven by revenue growth, market dynamics including timing of glove price and cost changes, an overall improved sales mix and operating efficiencies, partially offset by accelerating inflationary pressures.

Foreign currency translation had an unfavorable impact on gross margin of $3.7 million for the year ended December 31, 2021 as compared to the prior year.

We value distribution inventory held in the United States under the LIFO method.

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Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers.

Overall DS&A expenses were affected by the revenue decline and change in mix and investments in the business, partially offset by operational efficiencies.

Overall DS&A expenses increased year over year primarily due to revenue growth, changes in salaries and incentive compensation, accelerating inflationary pressures, and charitable contributions, which were partially offset by operational efficiencies for the year ended December 31, 2021.

DS&A expenses also included an unfavorable impact for foreign currency translation of $1.8 million for the year ended December 31, 2021.

Acquisition-related charges were $11.8 million and $15.7 million for the years ended December 31, 2020 and 2019, and consisted primarily of transition costs for the Halyard acquisition.

Acquisition-related charges were $3.0 million and $11.8 million for the years ended December 31, 2021 and 2020.

Amounts in 2021 consisted primarily of costs related to the pending Apria transaction.

Amounts in 2020 consisted primarily of transition costs for the Halyard acquisition.

Exit and realignment charges were $31.1 million and $25.9 million for the years ended December 31, 2021 and 2020.

Amounts in 2021 consisted of wind-down costs related to Fusion5, IT restructuring charges, costs associated with our strategic organizational realignment, and other items.

Amounts in 2020 were associated with severance from reduction in workforce, IT restructuring charges, post closing costs associated with the Movianto divestiture, costs associated with the sale of certain assets of Fusion5 and other costs related to the reorganization of the U.S.

commercial, operations and executive teams.

Amounts in 2019 were associated with severance from reduction in workforce and other costs related to the reorganization of the U.S.

commercial and operations and executive teams, along with facility closures in the U.S.

and other IT restructuring charges.

The change in other operating (income) expense, net was attributed primarily to a gain on legal settlement and lower software as a service implementation expenses due to the adoption of ASU No.

2018-15 as of January 1, 2020.

See Note 1 in Notes to Consolidated Financial Statements.

The change in other operating (income) expense, net for the year ended December 31, 2021 includes the impact of higher foreign currency transaction gains as compared to the prior year.

Interest expense, net.

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Effective interest rate 4.61 % 6.39 %

Interest expense decreased year over year primarily due to a reduction in debt, which was partially offset by the amortization of additional deferred financing costs as a result of the Fifth Amendment to the Credit Agreement in February 2020.

Interest expense decreased year over year primarily due to a reduction in debt and lower interest rates, including the affect of our debt refinancing in March 2021.

See Note 10 in Notes to Consolidated Financial Statements.

Other expense, net .

Loss on extinguishment of debt

For the years ended December 31, Change

(Dollars in thousands) 2021 2020 $ %

Other expense, net $ 10,812 $ 3,757 $ 7,055 187.8 %

Other expense, net in 2020 includes a make-whole premium related to the extinguishment of our 2021 Notes, the write-off of deferred financing costs, third party fees incurred and interest cost and net actuarial losses related to the U.S.

Retirement Plan, offset by a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes.

Other expense, net in 2019 includes interest cost and net actuarial losses related to the U.S.

Retirement Plan, the write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement in February 2019, and a gain on extinguishment of debt related to the partial repurchase of our 2021 Notes.

Loss on extinguishment of debt $ 40,433 $ 11,219 $ 29,214 260.4 %

Loss on extinguishment of debt for the year ended December 31, 2021 included the write-off of deferred financing costs and third party fees associated with the debt financing in March 2021 of $15.3 million and amounts reclassified from accumulated other comprehensive loss as a result of the termination of our interest rate swaps of $25.1 million.

Loss on extinguishment of debt in 2020 primarily included a make-whole premium related to the extinguishment of our 2021 Notes, the write-off of deferred financing costs and third party fees, partially offset by the gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes.

Other expense (income), net .

For the years ended December 31, Change

(Dollars in thousands) 2021 2020 $ %

Other expense (income), net $ 3,196 $ (407) $ 3,603 885.3 %

Other expense (income), net in 2021 and 2020 represented interest cost and net actuarial losses related to our retirement plans.

Other expense (income), net in 2020 also includes a gain from the surrender of company-owned life insurance policies.

Income taxes.

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(Dollars in thousands) 2021 2020 $ %

Income tax provision (benefit) $ 21,834 $ (6,135) $ 27,969 455.9 %

Income tax provision $ 55,165 $ 21,834 $ 33,331 152.7 %

Effective tax rate 19.9 % 19.9 %

The change in the effective tax rates compared to 2019 resulted primarily from income tax benefits recorded in 2020 associated with the CARES Act and year over year changes in, and mixture of, income and losses in jurisdictions in which we operate.

In addition, the provision for income taxes reflects an increase in our reserve for uncertain tax positions for the year ended December 31, 2020 in connection with the IRS audit of our 2015 and 2016 consolidated income tax returns described in Note 14 in the Notes to Consolidated Financial Statements.

The effective tax rates in 2021 and 2020 reflect an income tax benefit recorded in the first quarter of 2020 associated with the CARES Act and income tax benefits recorded in the third and fourth quarters of 2021 for Foreign Derived Intangible Income (FDII), the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax benefit associated with the vesting of restricted stock.

Financial Condition, Liquidity and Capital Resources

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We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory days.

We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility, or a combination thereof of approximately $26 million.

We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility or Receivables Securitization Program, or a combination thereof of approximately $27 million.

The majority of our cash and cash equivalents are held in cash depository accounts with major banks in the United States, Europe, and Asia.

Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collection of accounts receivable, and payments to suppliers.

The increase in merchandise inventories is associated with inventories to support revenue growth and the increased cost of gloves.

December 31, Change

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Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows, which relates to continuing operations and discontinued operations:

The following table summarizes our consolidated statements of cash flows.

For the year ended December 31, 2020, cash flows relate to continuing operations and discontinued operations.

For the years ended December 31,

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Financing activities (129,478) (379,386)

Effect of exchange rate changes on cash 9,909 (2,671)

Increase (decrease) in cash, cash equivalents and restricted cash $ 49,819 $ (18,680)

Cash provided by operating activities in 2020 and 2019 reflected fluctuations in net income along with favorable changes in working capital.

Cash provided by investing activities in 2020 included cash consideration received of $133 million from the sale of Movianto, proceeds of $6.0 million from the surrender of company-owned life insurance policies, and capital expenditures of $59.2 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

Cash used for investing activities in 2019 included capital expenditures of $52.2 million for our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.

Cash used for financing activities in 2020 included dividend payments of $0.6 million and repayments of $74.7 million under our revolving credit facility, compared to $5.2 million and $32.2 million, for the same period of 2019.

We also had proceeds from borrowings in 2020 of $155 million related to the Accounts Receivable Securitization Program and proceeds from the issuance of common stock in 2020 of $190 million related to our follow-on equity offering.

Financing activities also included repayments of $617 million in 2020, compared to $85.6 million in the same period of 2019, on our term loans (under the Credit Agreement) and 2021 and 2024 Notes.

We used $269 million of cash to repurchase $267 million aggregate principal amount of the 2021 and 2024 Notes during 2020, which included a $5.0 million make-whole premium paid to fully retire the 2021 Notes in November 2020.

In 2019, we used $36.2 million of cash to repurchase $37.3 million aggregate principal amount of the 2021 Notes.

We also paid $10.4 million in financing costs related to the Fifth Amendment to the Credit Agreement in 2020, as compared to $4.3 million in financing costs related to the Fourth Amendment to the Credit Agreement in February 2019.

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (3,540) 9,909

Net (decrease) increase in cash, cash equivalents and restricted cash $ (62,471) $ 49,819

Cash provided by operating activities in 2021 and 2020 reflected cash generated by net income along with changes in working capital.

Cash used for investing activities in 2021 and 2020 included capital expenditures of $49.7 million and $59.2 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas and Thailand, as well as capitalized software.

Cash provided by investing activities in 2020 also included cash consideration received of $133 million from the sale of Movianto and proceeds of $6.0 million from the surrender of company-owned life insurance policies.

Cash used for financing activities in 2021 included dividend payments of $0.7 million and net repayments of $103.2 million under our revolving credit facility, compared to $0.6 million and $74.7 million for the same period of 2020.

We also had proceeds from borrowings of $575 million related to the 2029 Unsecured Notes and Accounts Receivable Securitization Program in 2021, compared to $155 million related to the Accounts Receivable Securitization Program in 2020.

In 2020, we also had proceeds from the issuance of common stock of $190 million related to our follow-on equity offering.

Financing activities also included repayments of $553 million in 2021 on our term loans, 2021 and 2024 Notes, and Accounts Receivable Securitization Program, compared to $617 million in the same period of 2020 on our term loans and 2021 and 2024 Notes.

We used $269 million of cash to repurchase $267 million aggregate principal amount of the 2021 and 2024 Notes, which included a $5.0 million make-whole premium paid to fully retire the 2021 Notes in November 2020.

We also paid $13.9 million in financing costs in 2021, as compared to $10.4 million in financing costs for the same period of 2020.

In addition, we paid $15.4 million to terminate the remaining $300 million in notional value of interest rate swaps during 2021.

Payments for taxes related to the vesting of restricted stock awards were $20.2 million and $4.3 million in 2021 and 2020, which are included in Other, net.

Capital resources.

Our sources of liquidity include cash and cash equivalents, a revolving credit facility under our Credit Agreement with Bank of America, N.A, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and a syndicate of lenders (the Credit Agreement), and the Receivables Securitization Program.

Our sources of liquidity include cash and cash equivalents, a revolving credit facility under our Credit Agreement with Bank of America, N.A, as an administrative agent and collateral agent, and a syndicate of financial institutions, as lenders (the Credit Agreement), and the Receivables Securitization Program.

The Credit Agreement provides a revolving borrowing capacity of $300 million.

The interest rate on our revolving credit facility and Term A Loans is based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement).

Our interest rate on the revolving credit facility at December 31, 2020 was Eurocurrency Rate plus 2.75%.

Our Term B Loan accrues interest based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of 3.50% per annum for Base Rate Loans and 4.50% per annum for Eurocurrency Rate Loans (each as defined in the Credit Agreement).

Our interest rate on the Term B Loan at December 31, 2020 was Eurocurrency Rate plus 4.50%.

We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility.

At December 31, 2020 and 2019, we had borrowings of $103 million and $178 million, and letters of credit of $13.9 million and $11.7 million, outstanding under the revolving credit facility.

The interest rate on our revolving credit facility is based on a spread over a benchmark rate (as described in the Credit Agreement).

The Credit Agreement matures in March 2026.

At December 31, 2021, we had no borrowings and letters of credit of $9.4 million outstanding under our revolving credit facilities.

At December 31, 2020, we had borrowings of $103 million and letters of credit of $13.9 million outstanding under our revolving credit facilities.

At December 31, 2021 and 2020, we had $291 million and $283 million, available for borrowing.

The December 31, 2019 availability reflected letters of credit associated with discontinued operations of $1.1 million.

We also had letters of credit and bank guarantees outstanding for $2.2 million and $1.6 million as of December 31, 2021 and 2020, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

These letters of credit and guarantees were issued independent of the Credit Agreement.

We have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the holders of the 2024 Notes and the parties secured under the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

The Fifth Amendment to the Credit Agreement included additional collateral requirements of the Credit Parties, including an obligation to pledge our owned U.S.

real estate and the remaining equity interests in foreign subsidiaries.

Our Credit Agreement has a “springing maturity date” with respect to the Term B Loan.

If the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.

The revolving credit facility matures in July 2022 and the Term B Loan matures in April 2025.

On February 19, 2020, we entered into an accounts receivable securitization program (the Receivables Securitization Program).

Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time.

The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued.

These letters of credit and guarantees were issued outside of the revolving credit facility.

We entered into a Security and Pledge Agreement (the Security Agreement), dated March 10, 2021, pursuant to which we granted collateral on behalf of the holders of the 2024 Notes, and the parties secured under the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries, subject to certain customary exceptions, and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

On March 10, 2021, we entered into an amendment to our accounts receivable securitization program (the Receivables Securitization Program).

Pursuant to the amended Receivables Securitization Program, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $450 million outstanding at any time.

The interest rate under the Receivables Securitization Program is based on a spread over a benchmark rate (as described in the Third Amendment to the Receivables Financing Agreement).

Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC.

The Receivables Securitization Program matures on February 17, 2023.

In February 2020, we drew $150 million from the Receivables Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement.

The Fifth Amendment to the Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A Loans to the extent those instruments are outstanding.The Credit Agreement, Receivables Securitization Program, and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement.

The Receivables Securitization Program matures in March 2024.

The Credit Agreement, Receivables Securitization Program, 2024 Notes and 2029 Unsecured Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements.

The terms of the Credit Agreement also require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture.

We were in compliance with our debt covenants at December 31, 2021.

Current maturities include $34.4 million of the remaining Term A-2 Loan principal balance, which was repaid in full on January 4, 2021, scheduled principal payments within the next 12 months of $5.0 million for our Term B Loan, and $1.1 million in short-term finance leases.

In May 2020, we entered into an equity distribution agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million.

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On October 6, 2020, we completed a follow-on equity offering wherein we sold an aggregate of 8,475,000 shares of our common stock at an offering price of $20.50, resulting in net proceeds to us of approximately $165 million, after deducting expenses relating to the follow-on equity offering, including the underwriters’ discounts and commissions.

Pursuant to the

underwriting agreement, we granted the underwriters an option to purchase up to an additional 1,271,250 shares of our common stock, which the underwriters exercised in full.

Pursuant to the underwriting agreement, we granted the underwriters an option to purchase up to an additional 1,271,250 shares of our common stock, which the underwriters exercised in full.

Inclusive of this exercised option, net proceeds to us were approximately $190 million, after deducting expenses relating to the follow-on equity offering, including the underwriters’ discounts and commissions.

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Including the tender offer, we used $269 million of cash to repurchase $267 million aggregate principal amount of the 2021 Notes and 2024 Notes during 2020.

We used $36.2 million of cash to repurchase $37.3 million aggregate principal amount of the 2021 Notes during 2019.

We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure.

From time to time, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms).

Our ability to consummate any such transaction will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Our ability to consummate any such transaction will depend on prevailing market

conditions, our liquidity requirements, contractual restrictions and other factors.

We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.

In 2018, the fourth quarter dividend was accrued at December 31, 2018 and paid in January 2019.

We paid cash dividends on our outstanding common stock at the rate of $0.0025 per common share for each of the four quarters of 2021 and 2020.

In February 2021, the Board of Directors approved the first quarter dividend of $0.0025 per common share.

The payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements, current and future limitations under our Credit Agreement (as amended) and other factors.

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement and Receivables Securitization Program, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, debt repurchases and other cash requirements.

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement and Receivables Securitization Program, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, future payments of quarterly cash dividends, debt repurchases and other cash requirements.

While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.

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We will continue to evaluate our foreign earnings repatriation policy in 2022 for all our foreign subsidiaries.

Contractual Obligations

As of December 31, 2021, material cash requirements, including known contractual and other obligations, in the next twelve months primarily comprise of $58.5 million in operating leases, $35.9 million in purchase obligations related to outsourced information technology operations and management of our U.S.

private fleet transportation, $21.4 million in unrecognized tax benefits, $3.6 million in retirement plan benefits, and $2.7 million in finance leases.

Additionally, as of December 31, 2021, material cash requirements, including known contractual and other obligations, due beyond the next twelve months primarily comprise of $946 million in principal debt payments, $195 million in operating leases, $85.0 million in purchase obligations related to outsourced information technology operations and management of our U.S.

private fleet transportation, $26.4 million in retirement plan benefits, and $15.7 million in finance leases.

We cannot reasonably estimate the timing of cash settlement for the $21.4 million liability associated with unrecognized tax benefits.

See Note 8, “Leases,”, Note 10, "Debt", Note 12 "Retirement Plans", Note 14 "Income Taxes", and Note 18 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.

On January 7, 2022, we entered into an Agreement and Plan of Merger to acquire Apria, Inc.

for $37.50 in cash per share of common stock, representing an equity value of approximately $1.45 billion, as well as the assumption of debt and cash for a total transaction value of approximately $1.6 billion.

See Note 21, "Subsequent Events" for additional information.

Impact of Inflation

The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation.

We have recently experienced higher costs as a result of the increasing cost of raw materials, finished goods, labor, and transportation.

The increase in cost of raw materials and finished goods are due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation.

Additionally, there is uncertainty that we will be able to pass elevated costs onto customers in an effort to offset inflationary pressures.

Guarantor and Collateral Group Summarized Financial Information

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Total current assets $ 1,449,917

Intercompany receivable 399,484

Total assets 2,807,581

Current liabilities 1,399,499

Intercompany payable 89,040

Total liabilities 2,422,542

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Total current assets $ 1,514,724

Intercompany receivable 158,651

Total assets 2,729,455

Current liabilities 1,341,691

Intercompany payable 486,491

Total liabilities 2,398,694

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We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on financial condition or liquidity.

Critical Accounting Policies

Critical Accounting Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

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The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures.

We continually evaluate the accounting policies and estimates used to prepare the financial statements.

Critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used.

We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements.

Critical accounting estimates are defined as those estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used.

Our estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances.

Because of the uncertainty inherent in such estimates, actual results may differ.

We believe our critical accounting policies and estimates include accounting for goodwill.

We believe our critical accounting estimates include accounting for goodwill.

Goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired.

We evaluate goodwill for impairment annually, as of October 1, and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable.

Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Qualitative factors may first be assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed.

The quantitative goodwill impairment test uses valuation techniques to determine fair value, including comparable multiples of reporting unit's earnings before interest, taxes, depreciation and amortization (EBITDA) and discounted cash flows.

The quantitative test, when performed, uses valuation techniques to determine fair value, including comparable multiples of reporting unit's earnings before interest, taxes, depreciation and amortization (EBITDA) and discounted cash flows.

The EBITDA multiples are based on an analysis of current enterprise valuations and recent acquisition prices of similar companies, if available.

Goodwill totaled $390 million at December 31, 2021.

The impairment review of goodwill requires the extensive use of accounting estimates and assumptions.

The quantitative impairment review of goodwill requires the extensive use of accounting estimates and assumptions.

The application of alternative assumptions or inability to meet certain financial projections, could produce materially different results.

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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-K

Item 7. Management’s Discussion and Analysis