Item 1. Financial Statements
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2022 2021 2022 2021
Net revenue $ 2,497,401 $ 2,502,175 $ 7,404,368 $ 7,318,169
Cost of goods sold 1,984,122 2,173,336 5,985,136 6,146,511
Gross margin 513,279 328,839 1,419,232 1,171,658
Distribution, selling and administrative expenses 445,259 262,457 1,177,812 849,255
Acquisition-related and exit and realignment charges 8,898 6,380 50,048 20,967
Other operating income, net ( 1,125 ) ( 2,873 ) ( 5,020 ) ( 5,016 )
Operating income 60,247 62,875 196,392 306,452
Interest expense, net 39,869 11,572 87,727 36,784
Loss on extinguishment of debt — — — 40,433
Other expense, net 783 799 2,347 2,397
Income before income taxes 19,595 50,504 106,318 226,838
Income tax provision 7,098 6,375 25,937 47,224
Net income $ 12,497 $ 44,129 $ 80,381 $ 179,614
Net income per common share:
Basic $ 0.17 $ 0.60 $ 1.08 $ 2.47
Diluted $ 0.16 $ 0.58 $ 1.05 $ 2.38
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2022 2021 2022 2021
Net income $ 12,497 $ 44,129 $ 80,381 $ 179,614
Other comprehensive income (loss) net of tax:
Currency translation adjustments ( 19,986 ) ( 12,014 ) ( 39,604 ) ( 26,724 )
Change in unrecognized net periodic pension costs 288 395 774 552
Change in gains and losses on derivative instruments 9,167 — 11,931 20,044
Total other comprehensive (loss), net of tax ( 10,531 ) ( 11,619 ) ( 26,899 ) ( 6,128 )
Comprehensive income $ 1,966 $ 32,510 $ 53,482 $ 173,486
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
(in thousands, except per share data) 2022 2021
Assets
Current assets
Cash and cash equivalents $ 76,770 $ 55,712
Accounts receivable, net of allowances of $ 11,016 and $ 18,003
751,970 681,564
Merchandise inventories 1,508,443 1,495,972
Other current assets 104,734 88,564
Total current assets 2,441,917 2,321,812
Property and equipment, net of accumulated depreciation of $ 414,920 and $ 334,500
575,799 317,235
Operating lease assets 275,833 194,006
Goodwill 1,631,336 390,185
Intangible assets, net 464,077 209,745
Other assets, net 149,620 103,568
Total assets $ 5,538,582 $ 3,536,551
Liabilities and equity
Current liabilities
Accounts payable $ 1,156,230 $ 1,001,959
Accrued payroll and related liabilities 106,618 115,858
Other current liabilities 339,526 226,204
Total current liabilities 1,602,374 1,344,021
Long-term debt, excluding current portion 2,547,059 947,540
Operating lease liabilities, excluding current portion 215,022 162,241
Deferred income taxes 83,473 35,310
Other liabilities 123,817 108,938
Total liabilities 4,571,745 2,598,050
Commitments and contingencies
Equity
Common stock, par value $ 2 per share; authorized - 200,000 shares; issued and outstanding - 76,217 shares and 75,433 shares
152,434 150,865
Paid-in capital 413,894 440,608
Retained earnings 467,999 387,619
Accumulated other comprehensive loss ( 67,490 ) ( 40,591 )
Total equity 966,837 938,501
Total liabilities and equity $ 5,538,582 $ 3,536,551
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
(in thousands) 2022 2021
Operating activities:
Net income $ 80,381 $ 179,614
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 155,438 68,142
Share-based compensation expense 15,765 19,078
Loss on extinguishment of debt
— 40,433
Provision for losses on accounts receivable 5,289 19,270
Deferred income tax expense (benefit) 2,991 ( 18,286 )
Changes in operating lease right-of-use assets and lease liabilities 922 1,190
Gain on sale and dispositions of property and equipment ( 17,002 ) —
Changes in operating assets and liabilities:
Accounts receivable 7,417 ( 84,381 )
Merchandise inventories ( 6,823 ) ( 284,188 )
Accounts payable 30,424 120,821
Net change in other assets and liabilities ( 45,423 ) ( 8,341 )
Other, net 8,666 20,484
Cash provided by operating activities 238,045 73,836
Investing activities:
Acquisition, net of cash acquired ( 1,684,607 ) —
Additions to property and equipment ( 109,275 ) ( 26,446 )
Additions to computer software ( 5,873 ) ( 6,179 )
Proceeds from sale of property and equipment 29,720 41
Other, net ( 1,670 ) —
Cash used for investing activities ( 1,771,705 ) ( 32,584 )
Financing activities:
Proceeds from issuance of debt 1,691,000 574,900
Borrowings (repayments) under revolving credit facility, net and accounts receivable securitization program 30,000 ( 90,900 )
Repayments of debt ( 3,000 ) ( 553,140 )
Borrowings under amended accounts receivable securitization program 697,700 —
Repayments under amended accounts receivable securitization program ( 770,700 ) —
Financing costs paid ( 42,602 ) ( 13,912 )
Cash dividends paid — ( 548 )
Payment for termination of interest rate swaps
— ( 15,434 )
Other, net ( 41,813 ) ( 18,188 )
Cash provided by (used for) financing activities 1,560,585 ( 117,222 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5,752 ) ( 2,454 )
Net increase (decrease) in cash, cash equivalents and restricted cash 21,173 ( 78,424 )
Cash, cash equivalents and restricted cash at beginning of period 72,035 134,506
Cash, cash equivalents and restricted cash at end of period $ 93,208 $ 56,082
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds $ 33,568 $ 83,606
Interest paid $ 61,889 $ 32,035
Noncash investing activity:
Unpaid purchases of property and equipment and software at end of period $ 63,158 $ —
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
(in thousands, except per share data) Common
Shares
Outstanding Common
Stock
($ 2 par value )
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive Loss Total
Equity
Balance, December 31, 2021 75,433 $ 150,865 $ 440,608 $ 387,619 $ ( 40,591 ) $ 938,501
Net income 39,279 39,279
Other comprehensive loss ( 598 ) ( 598 )
Share-based compensation expense, exercises and other 653 1,307 ( 30,867 ) ( 29,560 )
Balance, March 31, 2022 76,086 152,172 409,741 426,898 ( 41,189 ) 947,622
Net income 28,604 28,604
Other comprehensive loss ( 15,770 ) ( 15,770 )
Share-based compensation expense, exercises and other 85 171 ( 1,968 ) ( 1,797 )
Balance, June 30, 2022 76,171 152,343 407,773 455,502 ( 56,959 ) 958,659
Net income 12,497 12,497
Other comprehensive loss ( 10,531 ) ( 10,531 )
Share-based compensation expense, exercises and other 46 91 6,121 6,212
Balance, September 30, 2022 76,217 $ 152,434 $ 413,894 $ 467,999 $ ( 67,490 ) $ 966,837
Balance, December 31, 2020 73,472 $ 146,944 $ 436,597 $ 167,022 $ ( 38,509 ) $ 712,054
Net income 69,589 69,589
Other comprehensive income 7,903 7,903
Dividends declared ($ 0.0025 per share)
( 434 ) ( 434 )
Share-based compensation expense, exercises and other 1,628 3,256 ( 6,107 ) ( 2,851 )
Balance, March 31, 2021 75,100 150,200 430,490 236,177 ( 30,606 ) 786,261
Net income 65,896 65,896
Other comprehensive loss ( 2,412 ) ( 2,412 )
Dividends declared ($ 0.0025 per share)
( 187 ) ( 187 )
Share-based compensation expense, exercises and other 295 591 ( 2,130 ) ( 1,539 )
Balance, June 30, 2021 75,395 150,791 428,360 301,886 ( 33,018 ) 848,019
Net income 44,129 44,129
Other comprehensive loss ( 11,619 ) ( 11,619 )
Dividends declared ($ 0.0025 per share)
( 183 ) ( 183 )
Share-based compensation expense, exercises and other 34 67 6,592 6,659
Balance, September 30, 2021 75,429 $ 150,858 $ 434,952 $ 345,832 $ ( 44,637 ) $ 887,005
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except per share data, unless otherwise indicated)
Note 1— Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, our or the Company) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
Our business has two distinct segments: Products & Healthcare Services and Patient Direct. Products & Healthcare Services provides distribution, outsourced logistics and value-added services, and manufactures and sources medical surgical products through our production and kitting operations. Patient Direct expands our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies and is a leading provider of integrated home healthcare equipment and related services in the United States. Beginning with the quarter ended March 31, 2022, we have reported financial results using this two segment structure and have recast our prior year segment results on the same basis.
On March 29, 2022, we completed the acquisition of 100 % of Apria, Inc. pursuant to the Agreement and Plan of Merger dated January 7, 2022, in exchange for approximately $ 1.7 billion, net of cash acquired. Refer to Note 3 for additional details.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in North America, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash included in Other assets, net as of September 30, 2022 and December 31, 2021 primarily represents cash held in an escrow account as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) initiatives related to wind-down costs of Fusion5.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows.
September 30, 2022 December 31, 2021
Cash and cash equivalents $ 76,770 $ 55,712
Restricted cash included in Other assets, net 16,438 16,323
Total cash, cash equivalents, and restricted cash $ 93,208 $ 72,035
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense for financial reporting purposes is computed on a straight-line method over the estimated useful lives of the assets or, for capital leases and leasehold improvements, over the term of the lease, if shorter. In general, the estimated useful lives for computing depreciation and amortization are three to 15 years for machinery and equipment, five to 40 years for buildings, one to 10 years for patient equipment, and up to 15 years for leasehold and land improvements. Straight-line and accelerated methods of depreciation are used for income tax purposes. Normal maintenance and repairs are expensed as incurred, and renovations and
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betterments are capitalized. We suspend depreciation and amortization on assets that are held for sale. In addition, we record capital-related government grants earned as reductions to the cost of property and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of our consolidated statements of cash flows. Patient equipment consists of medical equipment rented to patients on a month-to-month basis. Patient equipment depreciation is classified in our consolidated statements of operations within cost of goods sold as the equipment is rented to patients as part of our primary operations within the Patient Direct segment.
Revenue Recognition
Our revenue is primarily generated from sales contracts with customers. Under most of our distribution and product sales arrangements, our performance obligations are limited to delivery of products to a customer upon receipt of a purchase order. For these arrangements, we recognize revenue at the point in time when shipment is completed, as control passes to the customer upon product receipt.
Revenue for activity-based fees and other services is recognized over time as activities are performed. Depending on the specific contractual provisions and nature of the performance obligation, revenue from services may be recognized on a straight-line basis over the term of the service, on a proportional performance model, based on level of effort, or when final deliverables have been provided.
Our contracts sometimes allow for forms of variable consideration including rebates, discounts, performance guarantees, and implicit price concessions. In these cases, we estimate the amount of consideration to which we will be entitled in exchange for transferring the product or service to the customer. Rebates and customer discounts are estimated based on contractual terms or historical experience and we maintain an accrual for rebates or discounts that have been earned but are unpaid. When we have implicit price concessions, we determine the variable consideration under the expected value method as part of determining the sales transaction price using historical reimbursement experience, historical sales returns, and other operating trends.
In most cases, we record revenue gross, as we are the primary obligor. When we act as an agent in a sales arrangement and do not bear a significant portion of inventory risks, primarily for our outsourced logistics business, we record revenue net of product cost. Sales taxes collected from customers and remitted to governmental authorities are excluded from revenues.
Within our Patient Direct segment, revenues are recognized under fee-for-service arrangements for equipment we rent to patients and sales of equipment, supplies and other items we sell to patients. Revenue that is generated from equipment that we rent to patients is primarily recognized over the noncancelable rental period, typically one month, and commences on delivery of the equipment to the patients. Revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including private insurers, prepaid health plans, Medicare, Medicaid and patients. Rental revenue, less estimated adjustments, is recognized as earned on a straight-line basis over the noncancellable lease term. We recorded $ 148 million and $ 299 million in revenue related to equipment we rent to patients for the three and nine months ended September 30, 2022. Equipment rental revenue was not material in the prior year.
Note 2— Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued payroll and related liabilities reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The carrying amount of restricted cash also approximates fair value due to its nature. The fair value of debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). See Note 6 for the fair value of debt. The fair value of our derivative contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 8 for the fair value of derivatives.
Note 3— Acquisition
On March 29, 2022 (the Acquisition Date), we completed the acquisition of 100 % of Apria, Inc. (Apria) pursuant to the Agreement and Plan of Merger (Apria Acquisition) dated January 7, 2022, in exchange for approximately $ 1.7 billion, net of $ 144 million of cash acquired. The purchase was funded with a combination of debt and cash on hand. At the time of the Apria Acquisition, each share of Apria’s common stock was converted into the right to receive $ 37.50 in cash. Apria is a leading provider of integrated home healthcare equipment and related services in the United States. This business is reported as part of the Patient Direct segment.
The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed recognized as of the Acquisition Date. The fair value and useful lives of tangible and intangible assets acquired have been
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estimated based on various valuation methods, including the income and cost approach, using several significant unobservable inputs including, but not limited to projected cash flows and a discount rate. These inputs are considered Level 3 inputs. The allocation of purchase price to assets and liabilities acquired is not yet complete, as valuations of tangible and intangible assets and liabilities are still in process. The updated preliminary purchase price allocation resulted in an approximate $ 8.3 million reduction in intangible amortization expense during the three months ended September 30, 2022 that would have been recognized in previous periods if the adjustment to provisional amounts were recognized as of the Acquisition Date. This reduction resulted from a reallocation of intangible assets value to those with longer useful lives as compared to the purchase price allocation originally estimated as of the Acquisition Date.
Preliminary Fair Value Originally Estimated as of Acquisition Date (1)
Differences Between Prior and the Current Periods Preliminary Fair Value Estimate Preliminary Fair Value Currently Estimated as of Acquisition Date
Assets acquired:
Current assets $ 142,136 $ ( 1,968 ) $ 140,168
Goodwill 1,267,079 ( 17,601 ) 1,249,478
Intangible assets 295,466 17,334 312,800
Other non-current assets 371,320 ( 11,149 ) 360,171
Total assets $ 2,076,001 $ ( 13,384 ) $ 2,062,617
Liabilities assumed:
Current liabilities $ 241,266 $ 5,012 $ 246,278
Noncurrent liabilities 150,128 ( 18,396 ) 131,732
Total liabilities 391,394 ( 13,384 ) 378,010
Fair value of net assets acquired, net of cash $ 1,684,607 $ — $ 1,684,607
(1) As previously reported in our first quarter 2022 Form 10-Q .
Current assets acquired includes $ 89.3 million in fair value of receivables, which reflects the approximate amount contractually owed. We are amortizing the preliminary fair value of acquired intangible assets, primarily customer relationships, including payor and capitated relationships, and trade names over their estimated weighted average useful lives of one to 15 years.
Goodwill of $ 1.2 billion, which we assigned to our Patient Direct segment, consists largely of expected opportunities to expand into new markets and further develop a presence in the home healthcare business. Approximately $ 32 million of the goodwill is expected to be deductible for income tax purposes.
The following table provides pro forma results of net revenue and net (loss) income for the three and nine months ended September 30, 2022 and 2021 as if Apria was acquired on January 1, 2021. The pro forma results below are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net revenue $ 2,497,401 $ 2,789,372 $ 7,681,481 $ 8,166,919
Net income (loss) $ 12,497 $ 66,935 $ ( 39,696 ) $ 227,540
Pro forma net loss of $ 39.7 million for the nine months ended September 30, 2022 includes pro forma adjustments for interest expense of $ 20.8 million and amortization of intangible assets of $ 10.9 million, which reflects the updated preliminary purchase price allocation. The pro forma net loss also includes $ 39.4 million in seller transaction expenses and stock compensation expense associated with $ 108 million owed to the holders of Apria stock awards in connection with the Apria Acquisition. Revenue and net income of Apria since the Acquisition Date for the three months ended September 30, 2022 included in the consolidated statement of operations were $ 310 million and $ 0.7 million, respectively. Revenue and net loss of Apria since the Acquisition Date included in the consolidated statement of operations for the nine months ended September 30, 2022 were $ 620 million and $ 38.4 million, respectively.
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Note 4— Goodwill and Intangible Assets
In connection with our new segment structure, which began in the first quarter of 2022, goodwill is now reported as part of Products & Healthcare Services or Patient Direct. There was no change to our underlying reporting units as part of that segment change and therefore no reallocation of goodwill. The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through September 30, 2022:
Products & Healthcare Services Patient Direct Consolidated
Carrying amount of goodwill, December 31, 2021 $ 106,280 $ 283,905 $ 390,185
Acquisitions ( 532 ) 1,249,478 1,248,946
Currency translation adjustments ( 7,795 ) — ( 7,795 )
Carrying amount of goodwill, September 30, 2022 $ 97,953 $ 1,533,383 $ 1,631,336
Intangible assets subject to amortization at September 30, 2022 and December 31, 2021 were as follows:
September 30, 2022 December 31, 2021
Customer
Relationships Tradenames Other
Intangibles Customer
Relationships Tradenames Other
Intangibles
Gross intangible assets $ 434,582 $ 202,000 $ 79,062 $ 275,526 $ 90,000 $ 43,189
Accumulated amortization ( 182,741 ) ( 45,203 ) ( 23,623 ) ( 146,168 ) ( 33,242 ) ( 19,560 )
Net intangible assets $ 251,841 $ 156,797 $ 55,439 $ 129,358 $ 56,758 $ 23,629
Weighted average useful life 12 years 10 years 7 years 10 years 11 years 8 years
At September 30, 2022 and December 31, 2021, $ 142 million and $ 164 million in net intangible assets were held in the Products & Healthcare Services segment and $ 322 million and $ 45.7 million were held in the Patient Direct segment. Amortization expense for intangible assets was $ 14.3 million and $ 10.0 million for the three months ended September 30, 2022 and 2021 and $ 55.5 million and $ 30.1 million for the nine months ended September 30, 2022 and 2021. At September 30, 2022, customer relationships, tradenames, and other intangibles include preliminary estimated fair values of assets acquired as part of the Apria Acquisition.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is approximately $ 22 million for the remainder of 2022, $ 82 million for 2023, $ 65 million for 2024, $ 55 million for 2025, $ 54 million for 2026 and $ 47 million for 2027.
Note 5— Exit and Realignment Costs
We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain distribution and outsourced logistics centers, administrative offices and warehouses, our client engagement center and IT restructuring charges. These charges also include costs associated with our strategic organizational realignment which include leadership reorganization costs, certain professional fees, costs to streamline administrative functions and processes and divestiture related costs.
Exit and realignment charges by segment for the three and nine months ended September 30, 2022 and 2021 were as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Products & Healthcare Services $ 1,983 $ 5,091 $ 4,396 $ 18,933
Patient Direct — 1,289 483 2,034
Total exit and realignment charges $ 1,983 $ 6,380 $ 4,879 $ 20,967
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The following table summarizes the activity related to exit and realignment cost accruals through September 30, 2022 and 2021:
Total
Accrued exit and realignment costs, December 31, 2021 $ 8,306
Provision for exit and realignment activities:
Severance 811
Other 871
Cash payments ( 6,903 )
Accrued exit and realignment costs, March 31, 2022 3,085
Provision for exit and realignment activities:
Severance 246
Other 968
Cash payments ( 3,477 )
Accrued exit and realignment costs, June 30, 2022 822
Provision for exit and realignment activities:
Other 1,251
Cash payments ( 1,693 )
Accrued exit and realignment costs, September 30, 2022 $ 380
Accrued exit and realignment costs, December 31, 2020 $ 3,146
Provision for exit and realignment activities:
Information system restructuring costs 1,029
Lease obligations 347
Other 781
Cash payments ( 2,915 )
Accrued exit and realignment costs, March 31, 2021 2,388
Provision for exit and realignment activities:
Information system restructuring costs 1,611
Lease obligations ( 126 )
Other 989
Cash payments ( 2,302 )
Accrued exit and realignment costs, June 30, 2021 2,560
Provision for exit and realignment activities:
Information system restructuring costs 1,506
Lease obligations 107
Other 3,142
Cash payments ( 4,199 )
Accrued exit and realignment costs, September 30, 2021 $ 3,116
In addition to the exit and realignment accruals in the preceding table, we also incurred $ 0.7 million of costs that were expensed as incurred for the three and nine months ended September 30, 2022, which related to an increase in reserves associated with certain retained assets of Fusion5. We incurred $ 1.6 million and $ 11.6 million of costs that were expensed as incurred for the three and nine months ended September 30, 2021, which primarily includes $ 1.5 million and $ 9.6 million of wind-down costs related to Fusion5 for the three and nine months ended September 30, 2021.
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Acquisition-related charges within acquisition-related and exit and realignment charges presented in our consolidated statements of operations were $ 6.9 million and $ 45.2 million for the three and nine months ended September 30, 2022, which consisted primarily of costs related to the Apria Acquisition. There were no acquisition-related charges included within acquisition-related and exit and realignment charges presented in our consolidated statements of operations for the three and nine months ended September 30, 2021.
We do not expect material additional costs in 2022 for activities that were initiated through September 30, 2022.
Note 6— Debt
Debt consists of the following:
September 30, 2022 December 31, 2021
Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value
Receivables securitization program $ 153,823 $ 157,000 $ 197,026 $ 200,000
4.375 % Senior Notes, due December 2024
245,436 239,179 245,086 263,263
Term Loan A 490,278 500,000 — —
4.500 % Senior Notes, due March 2029
492,469 394,855 491,656 515,225
Term Loan B 577,062 585,806 — —
6.625 % Senior Notes, due April 2030
584,934 526,968 — —
Finance leases and other 17,777 17,777 15,809 15,809
Total debt 2,561,779 2,421,585 949,577 994,297
Less current maturities ( 14,720 ) ( 14,720 ) ( 2,037 ) ( 2,037 )
Long-term debt $ 2,547,059 $ 2,406,865 $ 947,540 $ 992,260
We have $ 246 million, excluding deferred financing costs and third party fees, of 4.375 % senior notes due in December 2024 (the 2024 Notes), with interest payable semi-annually. The 2024 Notes were sold at 99.6 % of the principal amount with an effective yield of 4.422 %. We have the option to redeem the 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100 % of the principal amount or the present value of the remaining scheduled payments discounted at the applicable Benchmark Treasury Rate (as defined) plus 30 basis points.
In March 2021, we issued $ 500 million, excluding deferred financing costs and third party fees, of 4.500 % senior unsecured notes due in March 2029 (the 2029 Unsecured Notes), with interest payable semi-annually (the Notes Offering). The 2029 Unsecured Notes were sold at 100 % of the principal amount with an effective yield of 4.500 %. We may redeem all or part of the 2029 Unsecured Notes prior to March 31, 2024, at a price equal to 100 % of the principal amount of the 2029 Unsecured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 10, 2021 (the Indenture). On or after March 31, 2024, we may redeem all or part of the 2029 Unsecured Notes at the applicable redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem up to 40 % of the aggregate principal amount of the 2029 Unsecured Notes at any time prior to March 31, 2024, at a redemption price equal to 104.5 % with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
On March 29, 2022, we completed the sale of $ 600 million in aggregate principal amount of our 6.625 % senior notes due in April 2030 (the 2030 Unsecured Notes), with interest payable semi-annually. The 2030 Unsecured Notes were sold at 100 % of the principal amount with an effective yield of 6.625 %. We may redeem all or part of the 2030 Unsecured Notes, prior to April 1, 2025, at a price equal to 100 % of the principal amount of the 2030 Unsecured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 29, 2022 (the New Indenture). From and after April 1, 2025, we may redeem all or part of the 2030 Unsecured Notes at the applicable redemption prices described in the New Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. We may also redeem up to 40 % of the aggregate principal amount of 2030 Unsecured Notes at any time prior to April 1, 2025, at a redemption price equal to 106.625 % with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The 2029 Unsecured Notes and 2030 Unsecured Notes are effectively subordinated to any of our secured indebtedness, including indebtedness under our credit agreements.
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On March 29, 2022, we entered into a term loan credit agreement with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (the Credit Agreement) that provides for two new credit facilities (i) a $ 500 million Term Loan A facility (the Term Loan A), and (ii) a $ 600 million Term Loan B facility (the Term Loan B). The interest rate on the Term Loan A is based on either the Term SOFR or the Base Rate plus an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029.
On March 29, 2022, we entered into an amendment to our revolving credit agreement, dated as of March 10, 2021 with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (Revolving Credit Agreement). The amendment (i) increased the aggregate revolving credit commitments under the Revolving Credit Agreement by $ 150 million, to an aggregate amount of $ 450 million and (ii) replaced the Eurocurrency Rate with the Adjusted Term SOFR Rate (each as defined in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027.
At September 30, 2022, we had no borrowings and letters of credit of $ 27.9 million 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 September 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 Agreement for $ 2.3 million and $ 2.2 million as of September 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). Pursuant to the amended Receivables Financing Agreement, 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 Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, 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 Financing Agreement matures in March 2025.
The Revolving Credit Agreement, Term Loan A, Term Loan B, Receivables Financing Agreement, 2024 Notes, 2029 Unsecured Notes, and 2030 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 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 September 30, 2022.
As of September 30, 2022, scheduled future principal payments of debt, excluding finance leases and other, were $ 1.5 million in 2022, $ 15.4 million in 2023, $ 274 million in 2024, of which $ 254 million is due in December 2024, $ 197 million in 2025, $ 43.5 million in 2026, $ 403 million in 2027, $ 6.0 million in 2028, $ 1.1 billion in 2029, and $ 600 million in 2030. Current maturities at September 30, 2022 include $ 6.3 million in principal payments on our Term Loan A, $ 6.0 million in principal payments on our Term Loan B and $ 2.5 million in current portion of finance leases.
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Note 7— Retirement Plans
We have a frozen noncontributory, unfunded retirement plan for certain retirees in the United States (U.S. Retirement Plan). As of September 30, 2022 and December 31, 2021, the accumulated benefit obligation of the U.S. Retirement Plan was $ 48.3 million and $ 50.2 million. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective teammates.
The components of net periodic benefit cost for the three and nine months ended September 30, 2022 and 2021 were as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Service cost $ 603 $ 693 $ 1,853 $ 2,106
Interest cost 516 443 1,559 1,337
Recognized net actuarial loss 267 353 801 1,060
Net periodic benefit cost $ 1,386 $ 1,489 $ 4,213 $ 4,503
Note 8— Derivatives
We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest on our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we entered into an interest rate swap agreement whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreement are included in interest expense.
We determine the fair value of our foreign currency derivatives and interest rate swaps based on observable market-based inputs or unobservable inputs that are corroborated by market data. We do not view the fair value of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying exposure. All derivatives are carried at fair value in our consolidated balance sheets. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of September 30, 2022:
Derivative Assets Derivative Liabilities
Notional Amount Maturity Date Classification Fair Value Classification Fair Value
Cash flow hedges
Interest rate swaps $ 400,000 March 2027 Other assets, net $ 16,123 Other liabilities $ —
Economic (non-designated) hedges
Foreign currency contracts $ 54,062 October 2022 Other current assets $ 97 Other current liabilities $ 273
In March 2021, we terminated the remaining $ 300 million in notional value of interest rate swaps concurrent with the debt financing transaction. The remaining balance of the fair value adjustments of $ 25.1 million, which related to these
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terminated interest rate swaps, within Accumulated other comprehensive loss was reclassified to Loss on extinguishment of debt within our consolidated statements of operations for the nine months ended September 30, 2021.
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2021:
Derivative Assets Derivative Liabilities
Notional Amount Maturity Date Classification Fair Value Classification Fair Value
Economic (non-designated) hedges
Foreign currency contracts $ 9,700 January 2022 Other current assets $ 81 Other current liabilities $ —
The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and nine months ended September 30, 2022:
Amount of Gain Recognized in Other Comprehensive Income (Loss) Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
Three months ended September 30, 2022 Nine months ended September 30, 2022 Three months ended September 30, 2022 Nine months ended September 30, 2022 Three months ended September 30, 2022 Nine months ended September 30, 2022
Interest rate swaps $ 12,153 $ 14,197 Interest expense, net $ 39,869 $ 87,727 $ ( 234 ) $ ( 1,926 )
The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and nine months ended September 30, 2021:
Amount of Gain Recognized in Other Comprehensive Income (Loss) Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
Three months ended September 30, 2021 Nine months ended September 30, 2021 Three months ended September 30, 2021 Nine months ended September 30, 2021 Three months ended September 30, 2021 Nine months ended September 30, 2021
Interest rate swaps $ — $ 2,426 Loss on extinguishment of debt $ — $ ( 40,433 ) $ — $ ( 25,518 )
The amount of ineffectiveness associated with these contracts was immaterial for the periods presented.
For the three and nine months ended September 30, 2022 we recognized losses of $ 1.8 million and $ 3.2 million associated with our economic (non-designated) foreign currency contracts. For the three and nine months ended September 30, 2021 we recognized losses of $ 0.9 million and $ 2.5 million associated with our economic (non-designated) foreign currency contracts.
We recorded the change in fair value of derivative instruments and the remeasurement adjustment of the foreign currency denominated asset or liability in other operating income, net for our foreign exchange contracts.
Note 9— Leases
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The components of lease expense were as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
Classification 2022 2021 2022 2021
Operating lease cost DS&A Expenses $ 24,231 $ 15,307 $ 64,832 $ 44,098
Finance lease cost:
Amortization of lease assets DS&A Expenses 318 254 944 675
Interest on lease liabilities Interest expense, net 304 315 915 916
Total finance lease cost 622 569 1,859 1,591
Short-term lease cost DS&A Expenses, Cost of goods sold 1,207 225 2,363 708
Variable lease cost DS&A Expenses, Cost of goods sold 10,390 4,349 24,418 13,009
Total lease cost $ 36,450 $ 20,450 $ 93,472 $ 59,406
Variable lease cost consists of taxes, insurance, and common area or other maintenance costs for our leased facilities and patient services equipment which are paid as incurred. Variable lease cost also includes expense associated with patient services equipment, which is based on equipment usage or a percentage of net revenues collected for specific products. Patient equipment lease expense is recorded in cost of goods sold in the consolidated statement of operations.
Supplemental balance sheet information is as follows:
Classification September 30, 2022 December 31, 2021
Assets:
Operating lease assets Operating lease assets $ 275,833 $ 194,006
Finance lease assets Property and equipment, net 10,754 8,896
Total lease assets $ 286,587 $ 202,902
Liabilities:
Current
Operating Other current liabilities $ 72,990 $ 41,817
Finance Other current liabilities 2,470 2,037
Noncurrent
Operating Operating lease liabilities, excluding current portion 215,022 162,241
Finance Long-term debt, excluding current portion 13,023 11,314
Total lease liabilities $ 303,505 $ 217,409
The gross value recorded under finance leases was $ 20.0 million and $ 20.6 million with associated accumulated depreciation of $ 9.2 million and $ 11.7 million as of September 30, 2022 and December 31, 2021. Operating lease assets include $ 83.6 million in right-of-use assets and $ 86.8 million of operating lease liabilities associated with Apria as of September 30, 2022.
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Other information related to leases was as follows:
Nine Months Ended
September 30,
2022 2021
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating and finance leases $ 63,488 $ 43,687
Financing cash flows from finance leases $ 1,115 $ 726
Right-of-use assets obtained in exchange for new operating and finance lease liabilities $ 64,325 $ 76,960
Weighted average remaining lease term (years)
Operating leases 4.3 5.2
Finance leases 5.9 6.9
Weighted average discount rate
Operating leases 6.9 % 8.6 %
Finance leases 10.8 % 11.0 %
Maturities of lease liabilities as of September 30, 2022 were as follows:
Operating Leases (1)
Finance Leases Total
2022 $ 24,060 $ 675 $ 24,735
2023 93,913 2,693 96,606
2024 80,267 2,641 82,908
2025 58,612 2,588 61,200
2026 41,058 2,506 43,564
Thereafter 49,224 4,774 53,998
Total lease payments 347,134 15,877 363,011
Less: Interest ( 59,122 ) ( 384 ) ( 59,506 )
Present value of lease liabilities $ 288,012 $ 15,493 $ 303,505
(1) Operating lease payments exclude $ 40.2 million of legally binding lease payments for the Morgantown, West Virginia center of excellence for medical supplies and logistics lease signed, but not yet commenced.
Note 10— Income Taxes
The effective tax rate was 36.2 % and 24.4 % for the three and nine months ended September 30, 2022, compared to 12.6 % and 20.8 % in the same periods of 2021. The change in these rates resulted primarily from the mixture of income and losses in jurisdictions in which we operate, as well as the utilization of foreign tax benefits in the three and nine months ended September 30, 2021. The liability for unrecognized tax benefits was $ 22.1 million at September 30, 2022 and $ 21.4 million at December 31, 2021. Included in the liability at September 30, 2022 and December 31, 2021 were $ 2.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied through the current date. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that we have adequately reserved for this matter and that the final adjudication of
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this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest, and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.
Note 11— Net Income per Common Share
The following summarizes the calculation of net income per common share attributable to common shareholders for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2022 2021 2022 2021
Net income $ 12,497 $ 44,129 $ 80,381 $ 179,614
Weighted average shares outstanding - basic 74,905 73,215 74,376 72,649
Dilutive shares 1,510 2,743 1,835 2,754
Weighted average shares outstanding - diluted 76,415 75,958 76,211 75,403
Net income per common share:
Basic $ 0.17 $ 0.60 $ 1.08 $ 2.47
Diluted $ 0.16 $ 0.58 $ 1.05 $ 2.38
Note 12— Shareholders' Equity
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 September 30, 2022, no shares were issued and $ 50.0 million of common stock remained available under the at-the-market equity financing program.
Note 13— Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss by component for the three and nine months ended September 30, 2022 and 2021:
Retirement Plans Currency
Translation
Adjustments Derivatives Total
Accumulated other comprehensive (loss) income, June 30, 2022 $ ( 14,111 ) $ ( 45,612 ) $ 2,764 $ ( 56,959 )
Other comprehensive (loss) income before reclassifications — ( 19,986 ) 12,153 ( 7,833 )
Income tax — — ( 3,159 ) ( 3,159 )
Other comprehensive (loss) income before reclassifications, net of tax — ( 19,986 ) 8,994 ( 10,992 )
Amounts reclassified from accumulated other comprehensive (loss) income 374 — 234 608
Income tax ( 86 ) — ( 61 ) ( 147 )
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax 288 — 173 461
Other comprehensive income (loss) 288 ( 19,986 ) 9,167 ( 10,531 )
Accumulated other comprehensive (loss) gain, September 30, 2022 $ ( 13,823 ) $ ( 65,598 ) $ 11,931 $ ( 67,490 )
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Retirement Plans Currency Translation Adjustments Derivatives Total
Accumulated other comprehensive loss, June 30, 2021 $ ( 18,290 ) $ ( 14,728 ) $ — $ ( 33,018 )
Other comprehensive loss before reclassifications — ( 12,014 ) — ( 12,014 )
Income tax — — — —
Other comprehensive loss before reclassifications, net of tax — ( 12,014 ) — ( 12,014 )
Amounts reclassified from accumulated other comprehensive loss 500 — — 500
Income tax ( 105 ) — — ( 105 )
Amounts reclassified from accumulated other comprehensive loss, net of tax 395 — — 395
Other comprehensive income (loss) 395 ( 12,014 ) — ( 11,619 )
Accumulated other comprehensive loss, September 30, 2021 $ ( 17,895 ) $ ( 26,742 ) $ — $ ( 44,637 )
Retirement Plans Currency Translation Adjustments Derivatives Total
Accumulated other comprehensive loss, December 31, 2021 $ ( 14,597 ) $ ( 25,994 ) $ — $ ( 40,591 )
Other comprehensive (loss) income before reclassifications — ( 39,604 ) 14,197 ( 25,407 )
Income tax — — ( 3,691 ) ( 3,691 )
Other comprehensive (loss) income before reclassifications, net of tax — ( 39,604 ) 10,506 ( 29,098 )
Amounts reclassified from accumulated other comprehensive (loss) income 1,009 — 1,926 2,935
Income tax ( 235 ) — ( 501 ) ( 736 )
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax 774 — 1,425 2,199
Other comprehensive income (loss) 774 ( 39,604 ) 11,931 ( 26,899 )
Accumulated other comprehensive (loss) gain, September 30, 2022 $ ( 13,823 ) $ ( 65,598 ) $ 11,931 $ ( 67,490 )
Retirement Plans Currency Translation Adjustments Derivatives Total
Accumulated other comprehensive loss, December 31, 2020 $ ( 18,447 ) $ ( 18 ) $ ( 20,044 ) $ ( 38,509 )
Other comprehensive (loss) income before reclassifications — ( 26,724 ) 2,426 ( 24,298 )
Income tax — — ( 611 ) ( 611 )
Other comprehensive (loss) income before reclassifications, net of tax — ( 26,724 ) 1,815 ( 24,909 )
Amounts reclassified from accumulated other comprehensive loss 704 — 25,518 26,222
Income tax ( 152 ) — ( 7,289 ) ( 7,441 )
Amounts reclassified from accumulated other comprehensive loss, net of tax 552 — 18,229 18,781
Other comprehensive income (loss) 552 ( 26,724 ) 20,044 ( 6,128 )
Accumulated other comprehensive loss, September 30, 2021 $ ( 17,895 ) $ ( 26,742 ) $ — $ ( 44,637 )
We include amounts reclassified out of accumulated other comprehensive loss related to defined benefit pension plans as a component of net periodic pension cost recorded in Other expense, net.
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Note 14— Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under two segments: Products & Healthcare Services and Patient Direct. The Products & Healthcare Services segment includes our United States distribution business (Medical Distribution), outsourced logistics and value-added services business, and Global Products which manufactures and sources medical surgical products through our production and kitting operations. The Patient Direct segment includes our home healthcare businesses (Byram and Apria).
We evaluate the performance of our segments based on their operating income excluding intangible amortization and acquisition-related and exit and realignment charges that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis. Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading and not meaningful.
The following tables present financial information by segment:
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net revenue:
Products & Healthcare Services $ 1,903,356 $ 2,256,295 $ 5,964,784 $ 6,621,560
Patient Direct 594,045 245,880 1,439,584 696,609
Consolidated net revenue $ 2,497,401 $ 2,502,175 $ 7,404,368 $ 7,318,169
Operating income:
Products & Healthcare Services $ 23,781 $ 64,415 $ 174,108 $ 316,062
Patient Direct 59,666 14,865 127,791 41,434
Intangible amortization ( 14,302 ) ( 10,025 ) ( 55,459 ) ( 30,077 )
Acquisition-related and exit and realignment charges ( 8,898 ) ( 6,380 ) ( 50,048 ) ( 20,967 )
Consolidated operating income $ 60,247 $ 62,875 $ 196,392 $ 306,452
Depreciation and amortization:
Products & Healthcare Services $ 19,121 $ 18,868 $ 57,325 $ 56,874
Patient Direct 39,030 3,774 98,113 11,268
Consolidated depreciation and amortization $ 58,151 $ 22,642 $ 155,438 $ 68,142
Capital expenditures:
Products & Healthcare Services $ 9,743 $ 13,498 $ 38,804 $ 31,768
Patient Direct 39,706 446 76,344 857
Consolidated capital expenditures $ 49,449 $ 13,944 $ 115,148 $ 32,625
September 30,
2022 December 31, 2021
Total assets:
Products & Healthcare Services $ 2,952,570 $ 3,012,303
Patient Direct 2,509,242 468,536
Segment assets 5,461,812 3,480,839
Cash and cash equivalents 76,770 55,712
Consolidated total assets $ 5,538,582 $ 3,536,551
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The following table presents net revenue by geographic area, which were attributed based on the location from which we ship products or provide services:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net revenue:
United States $ 2,410,790 $ 2,380,794 $ 7,049,382 $ 6,900,222
International 86,611 121,381 354,986 417,947
Consolidated net revenue $ 2,497,401 $ 2,502,175 $ 7,404,368 $ 7,318,169
Note 15— Recent Accounting Pronouncements
On June 16, 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. This standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We are still evaluating the impact the adoption of ASU No. 2016-13 will have on our consolidated financial statements and related disclosures; however, we do not expect this to have a material impact. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief. These ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. These ASUs will have the same effective date and transition requirements as ASU No. 2016-13.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. Our material debt agreements no longer reference LIBOR as a benchmark rate. The transition did not have a material impact on our consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, to improve consistency by amending the FASB Accounting Standards Codification (the Codification) to include all disclosure guidance in the appropriate disclosure sections. This ASU also clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The amendments in this ASU do not change GAAP and, therefore, are not expected to result in a significant change in practice. We adopted ASU No. 2020-10 effective beginning January 1, 2021. Its adoption did not have a material impact on our consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC 606, Revenue from Contracts with Customers. At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the update such amounts were recognized by the acquiring company at fair value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. We adopted ASU 2021-08 prospectively, effective beginning January 1, 2022. Its adoption did not have a material impact on our consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. We adopted ASU No. 2021-10 effective beginning January 1, 2022. Its adoption did not have a material impact on our consolidated financial statements.