What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 116 added, 72 removed, 194 unchanged (49% of the section changed)

3 unchanged sentences

Trends of a material nature are discussed to the extent known and considered relevant.

This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

This discussion should be read in conjunction with the consolidated financial statements,

related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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

10 unchanged sentences

This business is reported as part of the Patient Direct segment.

Net income per diluted share was $0.52 for the three months ended March 31, 2022 as compared to $0.98 for the three months ended March 31, 2021.

Products & Healthcare Services segment operating income was $89.1 million for the three months ended March 31, 2022, compared to $150.4 million for the three months ended March 31, 2021.

The decrease was primarily the result of the timing of glove price changes, accelerating inflationary pressures, including commodities, transportation, and labor, partially offset by leveraging our fixed costs, and operating efficiencies.

Patient Direct segment operating income was $15.8 million for the three months ended March 31, 2022, compared to $12.3 million for the three months ended March 31, 2021.

The increase was primarily the result of strong revenue growth, leveraging our fixed costs, and operating efficiencies, partially offset by accelerating inflationary pressures.

Net income per diluted share was $0.37 and $0.89 for the three and six months ended June 30, 2022 as compared to $0.87 and $1.80 for the three and six months ended June 30, 2021.

Products & Healthcare Services segment operating income was $61.2 million and $150 million for the three and six months ended June 30, 2022, compared to $101 million and $252 million for the three and six months ended June 30, 2021.

The decreases were primarily the result of lower hospital demand, the reduction of glove cost pass through, and headwinds created by macroeconomic conditions, including accelerating inflationary pressures, supply chain issues, and rising interest rates, partially offset by operating efficiencies and productivity gains derived from the Owens & Minor business system.

Patient Direct segment operating income was $52.3 million and $68.1 million for the three and six months ended June 30, 2022, compared to $14.3 million and $26.6 million for the three and six months ended June 30, 2021.

The increase was primarily the result of the inclusion of Apria in the Patient Direct segment since the Acquisition Date, strong revenue growth in our Byram business, leveraging our fixed costs, and operating efficiencies, partially offset by accelerating inflationary pressures.

Net income per diluted share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.05 and $0.08 for the three and six months ended June 30, 2022.

COVID-19 Update

We are closely monitoring the impact of the 2019 novel coronavirus (COVID-19), including recent variants, 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 its variants and sub-variants, on all aspects of our business, including 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.

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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.

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.

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Philips Respironics Recall

In June 2021, one of Apria's suppliers, Philips Respironics, announced a voluntary recall (Recall) for continuous and non-continuous ventilators (certain CPAP, BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices.

In June 2021, one of Apria's suppliers, Philips Respironics, announced a voluntary recall (Recall) for continuous and non-continuous ventilators (certain continuous positive airway pressure (CPAP), BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices.

The Food and Drug Administration (FDA) has since identified this as a Class I recall, the most serious category of recall.

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This Recall may cause us to incur significant costs, some or all of which may not be recoverable from the product manufacturer.

The Recall may also materially negatively affect our revenues and results of operations as a result of patients not using their impacted devices, current shortages in the availability of both replacement devices for impacted patients and new devices for new patients, patient hesitancy to use respiratory devices generally or other reasons.

The Recall may

also materially negatively affect our revenues and results of operations as a result of patients not using their impacted devices, current shortages in the availability of both replacement devices for impacted patients and new devices for new patients, patient hesitancy to use respiratory devices generally or other reasons.

We are closely monitoring the impact of the Recall on our business and the uncertainty surrounding the availability and supply of CPAP and ventilators due to the Recall.

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Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

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Net revenue $ 2,500,015 $ 2,489,460 $ 10,555 0.4 %

The increase in net revenue in our Patient Direct segment for the three months ended March 31, 2022 was driven by continued strong performance in our Byram business and the acquisition of Apria on March 29, 2022.

The increase in net revenue in our Products & Healthcare Services segment for the three months ended March 31, 2022 reflected market share gains and growth with existing customers, along with an additional sales day, partially offset by a decline in PPE sales.

Foreign currency translation had an unfavorable impact on net revenue of $8.5 million for the three months ended March 31, 2022 as compared to the prior year.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Products & Healthcare Services $ 4,061,429 $ 4,365,265 $ (303,836) (7.0) %

Patient Direct 845,538 450,729 394,809 87.6 %

Net revenue $ 4,906,967 $ 4,815,994 $ 90,973 1.9 %

The increase in net revenue in our Patient Direct segment for the three and six months ended June 30, 2022 was driven by the acquisition of Apria on March 29, 2022 and continued strong performance in our Byram business.

The decrease in net revenue in our Products & Healthcare Services segment for the three and six months ended June 30, 2022 reflected lower hospital demand and the reduction of glove cost pass through.

Foreign currency translation had an unfavorable impact on net revenue of $12.6 million and $21.1 million for the three and six months ended June 30, 2022 as compared to the prior year.

Cost of goods sold.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Cost of goods sold $ 1,967,510 $ 2,089,392 $ (121,882) (5.8) %

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Cost of goods sold $ 4,001,014 $ 3,973,175 $ 27,839 0.7 %

Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory loss.

These are sometimes referred to as distribution contracts.

Cost of goods sold also includes direct and certain indirect labor, material and overhead costs associated with our Products & Healthcare Services segment.

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, and accelerating inflationary pressures.

Cost of goods sold also includes direct and certain indirect labor, depreciation of certain property and equipment, product costs, and material and overhead costs.

Cost of goods sold compared to prior year reflects the inclusion of Apria since the Acquisition Date, changes in sales activity, including product mix, accelerating inflationary pressures, and supply chain issues.

Gross margin.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

As a % of net revenue 21.30 % 16.07 %

Gross margin decrease in the three months ended March 31, 2022 was driven by market dynamics including timing of glove price and cost changes in the prior year, accelerating inflationary pressures and sales mix, partially offset by revenue growth.

Foreign currency translation had an unfavorable impact on gross margin of $4.0 million for the three months ended March 31, 2022 as compared to the prior year.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Gross margin $ 905,953 $ 842,819 $ 63,134 7.5 %

As a % of net revenue 18.46 % 17.50 %

Gross margin increase in the three and six months ended June 30, 2022 was driven by inclusion of Apria in the Patient Direct segment since the Acquisition Date and sales mix, partially offset by lower hospital demand, the reduction of glove cost pass through, accelerating inflationary pressures, and supply chain issues.

Foreign currency translation had an unfavorable impact on gross margin of $6.9 million and $10.8 million for the three and six months ended June 30, 2022 as compared to the prior year.

Operating expenses.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

2 unchanged sentences

Acquisition-related and exit and realignment charges $ 7,602 $ 8,624 $ (1,022) (11.9) %

Other operating income, net $ (899) $ (2,605) $ 1,706 65.5 %

Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements.

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 changes in accrued incentive compensation, teammate benefits, charitable contributions, and operational efficiencies, partially offset by higher volume to support revenue growth and accelerating inflationary pressures for the three months ended March 31, 2022.

DS&A expenses also included an favorable impact for foreign currency translation of $0.9 million for the three months ended March 31, 2022.

Acquisition-related charges were $31.9 million for the three months ended March 31, 2022 as compared to no acquisition-related charges for the three months ended March 31, 2021.

Acquisition-related costs in 2022 consisted primarily of costs related to the Apria acquisition.

Exit and realignment charges were $1.7 million for the three months ended March 31, 2022, which consisted primarily of severance and other charges associated with the reorganization of our segments.

Exit and realignment charges were $6.0 million for the three months ended March 31, 2021, which consisted primarily of an increase in reserves associated with certain retained assets of Fusion5, IT restructuring charges and other costs related to the reorganization of the U.S.

commercial, operations and executive teams.

The change in other operating income, net for the three months ended March 31, 2022 includes the impact of foreign currency transaction losses, as compared to foreign currency transaction gains for the three months ended March 31, 2021.

Other operating (income) expense, net $ (2,995) $ 464 $ (3,459) (745.5) %

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Distribution, selling and administrative expenses $ 732,553 $ 586,796 $ 145,757 24.8 %

As a % of net revenue 14.93 % 12.18 %

Acquisition-related and exit and realignment charges $ 41,150 $ 14,587 $ 26,563 182.1 %

Other operating (income) expense, net $ (3,894) $ (2,141) $ (1,753) (81.9) %

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 inclusion of Apria in our results since the Acquisition Date, and accelerating inflationary pressures for the three and six months ended June 30, 2022, partially offset by operating efficiencies and productivity gains derived from the Owens & Minor business system, and changes in accrued incentive compensation.

DS&A expenses also included a favorable impact for foreign currency translation of $1.5 million and $2.4 million for the three and six months ended June 30, 2022.

Acquisition-related charges were $6.4 million and $38.3 million for the three and six months ended June 30, 2022 as compared to no acquisition-related charges for the three and six months ended June 30, 2021.

Acquisition-related charges in 2022 consisted primarily of costs related to the Apria acquisition.

Exit and realignment charges were $1.2 million and $2.9 million for the three and six months ended June 30, 2022, which consisted primarily of severance and other charges associated with the reorganization of our segments.

Exit and realignment charges were $8.6 million and $14.6 million for the three and six months ended June 30, 2021 and consisted primarily of an increase in reserves associated with certain retained assets of Fusion5, IT restructuring charges and other costs related to the reorganization of the U.S.

The change in other operating (income) expense, net for the three and six months ended June 30, 2022 includes the impact of foreign currency transaction gains, as compared to foreign currency transaction losses for the three months ended June 30, 2021 and foreign currency gains for the six months ended June 30, 2021.

Interest expense, net .

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

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Effective interest rate 5.26 % 4.30 %

Interest expense, net and the effective interest rate fo r the three months ended March 31, 2022 decreased primarily due to lower interest rates, partially offset by the increase in debt associated with the Apria Acquisition on March 29, 2022.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Interest expense, net $ 47,858 $ 25,212 $ 22,646 89.8 %

Effective interest rate 5.12 % 4.94 %

Interest expense, net and the effective interest rate fo r the three and six months ended June 30, 2022 increased primarily due to the increase in debt associated with the Apria Acquisition on March 29, 2022.

See Note 6 in Notes to Consolidated Financial Statements.

Loss on extinguishment of debt.

Three Months Ended

March 31, Change

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Loss on extinguishment of debt $ — $ 40,433 $ (40,433) (100.0) %

Loss on extinguishment of debt for the three months ended March 31, 2021 includes the write-off of deferred financing costs and third party fees associated with the debt financing in March 2021 of $15.

Loss on extinguishment of debt for the six months ended June 30, 2021 includes 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.

1 unchanged sentence

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Other expense, net $ 783 $ 1,028 $ (245) (23.8) %

Other expense, net for the three months ended March 31, 2022 and 2021 represents interest cost and net actuarial losses related to our retirement plans.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Other expense, net $ 1,565 $ 1,598 $ (33) (2.1) %

Other expense, net for the three and six months ended June 30, 2022 and 2021 represents interest cost and net actuarial losses related to our retirement plans.

Income taxes.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Effective tax rate 25.6 % 21.8 %

The change in the effective tax rate for the three months ended March 31, 2022 compared to the same period in 2021 resulted primarily from 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 recorded in the first quarter of 2022.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Income tax provision $ 18,837 $ 40,848 $ (22,011) (53.9) %

Effective tax rate 21.7 % 23.2 %

The change in the effective tax rate for the three and six months ended June 30, 2022 compared to the same periods in 2021 resulted primarily from the mixture of income and losses in jurisdictions in which we operate offset by the incremental income tax benefit associated with the vesting of restricted stock recorded in the six months ended June 30, 2022.

Financial Condition, Liquidity and Capital Resources

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Accounts payable $ 1,137,337 $ 1,001,959 $ 135,378 13.5 %

(1) Based on period end accounts receivable and net revenue for the quarters ended March 31, 2022 and December 31, 2021, excluding the impact of the Apria Acquisition.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended March 31, 2022 and December 31, 2021, excluding the impact of the Apria Acquisition.

(1) Based on period end accounts receivable and net revenue for the quarters ended June 30, 2022 and December 31, 2021.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended June 30, 2022 and December 31, 2021.

Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows for the three months ended March 31, 2022 and 2021:

The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2022 and 2021:

(Dollars in thousands) 2022 2021

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Net increase (decrease) in cash, cash equivalents and restricted cash $ 994 $ (72,759)

Cash provided by operating activities in the first three months of 2022 and 2021 reflected cash generated by net income along with changes in working capital.

Cash used for investing activities in the first three months of 2022 included cash paid for the acquisition of Apria of $1.6 billion and capital expenditures of $11.0 million for our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.

Cash used for investing activities in the first three months of 2021 included capital expenditures of $6.6 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

C ash used for financing activities in the first three months of 2022 included borrowings under our revolving credit facility, net and accounts receivable securitization program of $41.7 million compared to net repayments of $21.6 million for the same period of 2021.

We also had proceeds from borrowings of $1.7 billion related to the 2030 Unsecured Notes, Term Loan A, and Term Loan B for the first three months of 2022, compared to $500 million related to the 2029 Unsecured Notes for the first three months of 2021.

We also paid $33.7 million in financing costs in the first three months of 2022 , as compared to $11.7 million for the same period of 2021.

Payments for taxes related to the vesting of restricted stock awards were $35.7 million and $8.0 million for the first three months of 2022 and 2021, which are included in Other, net.

Financing activities in the first three months of 2021 included repayments of $523 million on our previous Term Loan A-2 and previous Term Loan B.

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

Cash provided by operating activities in the first six months of 2022 and 2021 reflected cash generated by net income along with changes in working capital.

Cash used for investing activities in the first six months of 2022 included cash paid for the acquisition of Apria of $1.7 billion and capital expenditures of $65.7 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.

Cash used for investing activities in the first six months of 2021 included capital expenditures of $18.7 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

C ash used for financing activities in the first six months of 2022 included borrowings under our revolving credit facility, net and accounts receivable securitization program of $30.0 million compared to net repayments of $5.0 million for the same period of 2021.

Gross issuances and repayments under our amended accounts receivable securitization program were $347.8 million and $402.8 million for the first six months of 2022.

We also had proceeds from borrowings of $1.7 billion related to the 2030 Unsecured Notes, Term Loan A, and Term Loan B for the first six months of 2022, compared to $500 million related to the 2029 Unsecured Notes for the first six months of 2021.

We also paid $41.5 million in financing costs in the first six months of 2022 , as compared to $12.9 million for the same period of 2021.

Payments for taxes related to the vesting of restricted stock awards were $44.4 million and $19.1 million for the first six months of 2022 and 2021, which are included in Other, net.

Financing activities in the first six months of 2021 included repayments of $523 million on our previous Term Loan A-2 and previous Term Loan B.

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

Capital resources.

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The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029.

At March 31, 2022 and December 31, 2021, we had borrowings of $11.7 million and letters of credit of $28.0 million.

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

At March 31, 2022 and December 31, 2021, we had $410 million and $291 million, available for borrowing.

We also had letters of credit and bank guarantees, which were issued outside of the Revolving Credit Facility for $2.1 million and $2.2 million as of March 31, 2022 and December 31, 2021, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

We entered into a Security and Pledge Agreement (the Security Agreement), dated March 10, 2021 and amended March 29, 2022, pursuant to which we granted collateral on behalf of the holders of the 2024 Notes, and the parties secured under the credit agreements (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.

At June 30, 2022, we had no borrowings and letters of credit of $28.0 million outstanding under our Revolving Credit Agreement.

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

At June 30, 2022 and December 31, 2021, we had $422 million and $291 million, available for borrowing under our Revolving Credit Agreement.

We also had letters of credit and bank guarantees, which were issued outside of the Revolving Credit Facility for $2.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

On March 29, 2022, we entered into a Security Agreement Supplement pursuant to which the Security and Pledge Agreement (the Security Agreement), dated March 10, 2021 was supplemented to grant collateral on behalf of the holders of the 2024 Notes, and the parties secured under the credit agreements (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Grantors (as defined in the Security Agreement) in the Grantors’ present and future subsidiaries, subject to certain customary exceptions, and (b) all present and future personal property and assets of the Grantors, subject to certain exceptions.

On March 29, 2022, we entered into an amendment to our accounts receivable securitization program (the Receivables Financing Agreement).

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The terms of the credit agreements 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 March 31, 2022.

We were in compliance with our debt covenants at June 30, 2022.

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.

We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and working capital purposes.

As of March 31, 2022 no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program.

We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and

working capital purposes.

As of June 30, 2022 no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program.

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

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We earn a portion of our operating income in foreign jurisdictions outside the United States.

Our cash and cash equivalents held by our foreign subsidiaries totaled $51.1 million and $26.9 million at March 31, 2022 and December 31, 2021.

Our cash and cash equivalents held by our foreign subsidiaries totaled $23.0 million and $26.9 million at June 30, 2022 and December 31, 2021.

We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand.

have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of March 31, 2022.

We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2022.

As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S.

1 unchanged sentence

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

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 inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business.

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, it is not certain that we will be able to pass elevated costs onto customers in an effort to offset inflationary pressures.

Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results.

Guarantor and Collateral Group Summarized Financial Information

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Summarized financial information of the Guarantor Group is as follows:

Summarized Consolidated Statement of Operations - Guarantor Group Three Months Ended March 31, 2022

Summarized Consolidated Statement of Operations - Guarantor Group Six Months Ended June 30, 2022

(Dollars in thousands)

3 unchanged sentences

Net income 48,825

(1) Includes $62 million in sales to non-guarantor subsidiaries for the three months ended March 31, 2022.

Summarized Consolidated Balance Sheets - Guarantor Group March 31, 2022 December 31, 2021

(1) Includes $140 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2022.

Summarized Consolidated Balance Sheets - Guarantor Group June 30, 2022 December 31, 2021

(Dollars in thousands)

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Summarized financial information of the Collateral Group is as follows:

Summarized Consolidated Balance Sheets - Collateral Group March 31, 2022 December 31, 2021

Summarized Consolidated Balance Sheets - Collateral Group June 30, 2022 December 31, 2021

(Dollars in thousands)

5 unchanged sentences

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 15 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on March 31, 2022.

Forward-looking Statements

3 unchanged sentences

• our ability to achieve revenue and operating income goals may be affected by:

COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic, including through any new variant strains of the underlying virus, or future pandemics, related governmental responses, the effectiveness, availability, and public acceptance of vaccines, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government vaccine and other mandates, temporary production and distribution center and office closures due to reduced workforces or government vaccine and other mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic, including through any new variant strains of the underlying virus, or future pandemics, related governmental responses, the effectiveness, availability, and public acceptance of vaccines, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government vaccine and other mandates, temporary production and distribution center and office closures due to reduced workforces or government vaccine and other mandates, availability of raw materials, potential labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

• competitive pressures in the marketplace, including intense pricing pressure;

36 unchanged sentences

• other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and our Form 10-Q for the three months ended March 31, 2022.

We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.

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