What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-05 · 129 added, 74 removed, 195 unchanged (51% of the section changed)

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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, 2022.

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, 2022.

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

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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.

Net loss per share was $0.32 for the three months ended March 31, 2023 as compared to net income per diluted share of $0.52 for the three months ended March 31, 2022.

Products & Healthcare Services segment operating income was $1.8 million for the three months ended March 31, 2023, compared to $89.1 million for the three months ended March 31, 2022.

The decreases reflected overall reduced hospital demand, including reliance on stockpiles and reduced 2019 novel coronavirus (COVID-19) related product purchases, price changes, particularly for gloves, and headwinds created by macroeconomic conditions, including inflationary pressures, partially offset by productivity gains derived from operating efficiencies.

Patient Direct segment operating income was $45.8 million for the three months ended March 31, 2023, compared to $15.8 million for the three months ended March 31, 2022.

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

Net loss per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.01 for the three months ended March 31, 2023.

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

Net (loss) per share was $(0.37) and $(0.70) for the three and six months ended June 30, 2023 as compared to net income per diluted share of $0.37 and $0.89 for the three and six months ended June 30, 2022.

The decreases reflected lower demand for personal protective equipment (PPE), including reduced COVID-19 related product purchases, in our Products & Healthcare Services segment, exit and realignment charges associated with our Operating Model Realignment Program, and inflationary pressures, partially offset by the inclusion of Apria in our results since the Acquisition Date, a reduction in acquisition-related charges, strong revenue growth in our Patient Direct segment, and productivity gains derived from operating efficiencies.

Net (loss) per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.01 and $0.02 for the three and six months ended June 30, 2023.

Products & Healthcare Services segment operating income was $2.9 million and $4.8 million for the three and six months ended June 30, 2023, compared to $61.2 million and $150 million for the three and six months ended June 30, 2022.

The decreases reflected changes in product sales mix, lower demand for PPE, including reduced COVID-19 related product purchases, and inflationary pressures, partially offset by productivity gains derived from operating efficiencies.

Patient Direct segment operating income was $59.1 million and $105 million for the three and six months ended June 30, 2023, compared to $52.3 million and $68.1 million for the three and six months ended June 30, 2022.

The increases were primarily the result of the inclusion of Apria in our results since the Acquisition Date and strong revenue growth, partially offset by inflationary pressures.

Refer to 'Results of Operations' for further detail of quantitative and qualitative drivers of our results.

Philips Respironics Recall

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Because we distribute these products and provide related home respiratory services and, in part, due to the substantial number of impacted devices, we have devoted, and will likely continue to devote, substantial time and resources to coordinating Recall-related activity and to supporting our home healthcare patients’ needs.

The Recall has caused us, and may continue to cause us, to incur significant costs, some or all of which may not be recoverable fro m 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 has caused us, and may continue to cause us, to incur significant costs, some or all of which may not be recoverable from the product manufacturer.

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 Philips 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.

While the equipment shortage in the industry has begun to ease for certain CPAP and BiLevel positive airway pressure devices, we do not know whether that will continue.

The Recall or other supply chain disruptions may have a future material adverse effect on our financial condition or results of operations, cash flows an d liquidity.

The Recall or other supply chain disruptions may have a f uture material adverse effect on our financial condition or results of operations, cash flows and liquidity.

O&M Halyard N95 Mask FDA Release

On April 5, 2023 we received a communication from the National Institute for Occupational Safety & Health (NIOSH) that products from one lot of a model (No.

On April 5, 2023 we received a communication from the NIOSH that products from one lot of a model (No.

46827) of surgical N95 respirator manufactured by O&M Halyard did not pass laboratory tests for fluid resistance and for filtration efficiency, and that products from one lot of another model (No.

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On April 12, 2023, the FDA recommended that consumers, health care providers, and facilities not use the two models (model numbers 46827 and 46727) of O&M Halyard surgical N95 respirators due to fluid resistance.

In addition, the FDA also

recommended against using certain of our surgical, procedure and pediatric face masks when fluid resistance is required.

In addition, the FDA also recommended against using certain of our surgical, procedure and pediatric face masks when fluid resistance is required.

On or about that date, we voluntarily stopped the sale in the U.S.

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Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

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Net revenue $ 2,563,226 $ 2,500,015 $ 63,211 2.5 %

The increase in net revenue in our Patient Direct segment for the three months ended March 31, 2023 was driven by the inclusion of Apria in our results since the Acquisition Date and continued strong performance in our Byram business.

The decrease in net revenue in our Products & Healthcare Services segment for the three months ended March 31, 2023 reflected overall reduced hospital demand, including reliance on stockpiles and reduced COVID-19 related product purchases, as well as price changes, particularly for gloves.

Foreign currency translation had an unfavorable impact on net revenue of $5.2 million for the three months ended March 31, 2023 as compared to the prior year.

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Products & Healthcare Services $ 3,846,212 $ 4,061,429 $ (215,217) (5.3) %

Patient Direct 1,239,863 845,538 394,325 46.6 %

Net revenue $ 5,086,075 $ 4,906,967 $ 179,108 3.7 %

The increase in net revenue for the three months ended June 30, 2023 was driven by double-digit growth in most of our Patient Direct segment product categories.

Products & Healthcare Services segment net revenue for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was relatively flat, driven by an approximate $107 million decline in PPE net revenue due to a decrease related to glove pricing of $70.5 million, and lower demand for PPE, which was more than offset by net revenue growth in other product categories.

The increase in net revenue for the six months ended June 30, 2023 was driven primarily by incremental Apria net revenue in the first quarter of 2023 of $308 million as compared to the first quarter of 2022 and double-digit growth in most of our Patient Direct segment product categories.

The decrease in Products & Healthcare Services segment net revenue for the six months ended June 30, 2023 was driven by an approximate $370 million decline in PPE net revenue due to a decrease related to glove pricing of $176 million, and lower demand for PPE, including reduced COVID-19 related product purchases, partially offset by net revenue growth in other product categories compared to the six months ended June 30, 2022.

Foreign currency translation had an unfavorable impact on net revenue of $1.5 million and $6.7 million for the three and six months ended June 30, 2023 as compared to the prior year periods.

Cost of goods sold.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Cost of goods sold $ 2,043,794 $ 1,967,510 $ 76,284 3.9 %

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Cost of goods sold $ 4,069,336 $ 4,001,014 $ 68,322 1.7 %

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.

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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 in our results since the Acquisition Date and changes in sales activity, including product mix.

The increase in cost of goods sold for the three months ended June 30, 2023 reflects higher costs of goods sold driven by changes in product sales mix and net revenue growth, partially offset by a favorable change in the last in, first out (LIFO) credit or provision of $6.7 million, as compared to the period year.

The increase in cost of goods sold for the six months ended June 30, 2023 was driven primarily by the incremental Apria cost of goods sold in the first quarter of 2023 of $114 million as compared to the first quarter of 2022 and net revenue growth in our Patient Direct segment, partially offset by a decline in Products & Healthcare Services segment net revenue of $215 million.

Foreign currency translation had a favorable impact on cost of goods sold of $0.6 million and $4.0 million for the three and six months ended June 30, 2023 as compared to the prior year periods.

Gross margin.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

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As a % of net revenue 20.26 % 21.30 %

Gross margin increase in the three months ended March 31, 2023 was driven by inclusion of Apria in our results since the Acquisition Date and sales mix, partially offset by overall reduced hospital demand, including reliance on stockpiles and reduced COVID-19 related product purchases, as well as price changes, particularly for gloves.

Foreign currency translation had an unfavorable impact on gross margin of $1.9 million for the three months ended March 31, 2023 as compared to the prior year.

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Gross margin $ 1,016,739 $ 905,953 $ 110,786 12.2 %

As a % of net revenue 19.99 % 18.46 %

The changes in gross margin for the three and six months ended June 30, 2023 was driven by the same factors impacting net revenue and cost of goods sold.

The gross margin for the six months ended June 30, 2023 includes incremental Apria gross margin in the first quarter of 2023 of $195 million as compared to the first quarter of 2022.

Foreign currency translation had an unfavorable impact on gross margin of $0.9 million and $2.7 million for the three and six months ended June 30, 2023 as compared to the prior year periods.

Operating expenses.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

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Other operating expense (income), net $ 2,397 $ (2,995) $ 5,392 180.0 %

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Distribution, selling and administrative expenses $ 903,752 $ 691,397 $ 212,355 30.7 %

As a % of net revenue 17.77 % 14.09 %

Acquisition-related charges and intangible amortization $ 44,392 $ 79,410 $ (35,018) (44.1) %

Exit and realignment charges $ 44,637 $ 2,896 $ 41,741 1,441.3 %

Other operating expense (income), net $ 3,312 $ (3,894) $ 7,206 185.1 %

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 in our Products & Healthcare Services segment.

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 inflationary pressures for the three months ended March 31, 2023, partially offset by operating efficiencies and productivity gains.

DS&A expenses also included a favorable impact for foreign currency translation of $0.8 million for the three months ended March 31, 2023.

Acquisition-related charges were $1.3 million for the three months ended March 31, 2023 and $31.9 million for the three months ended March 31, 2022 consisted primarily of costs related to the Apria Acquisition.

Intangible amortization was $20.9 million for the three months ended March 31, 2023 and related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions.

Intangible amortization was $10.3 million for the three months ended March 31, 2022 related primarily to intangible assets acquired in the Halyard and Byram acquisitions.

Exit and realignment charges were $15.7 million for the three months ended March 31, 2023, which consisted primarily of costs related to our operating model realignment program, including professional fees, severance and costs to streamline functions and processes.

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.

Other operating expense (income), net for the three months ended March 31, 2023 and 2022 includes the impact of foreign currency transaction losses.

The increase in DS&A expenses for the three months ended June 30, 2023 was driven primarily by incremental costs to support the $63 million, or 2.5%, net revenue growth, an increase of $9.2 million in teammate benefit costs including incentives, and inflationary pressures negatively impacting wages and occupancy costs, which increased approximately 5% and 11%, partially offset by productivity gains derived from operating efficiencies.

The increase in DS&A expenses for the six months ended June 30, 2023 was driven by Apria incremental DS&A expense in the first quarter of 2023 of $171 million as compared to the first quarter of 2022, Patient Direct net revenue growth, an increase of $12.3 million in teammate benefit costs including incentives, and inflationary pressures negatively impacting wages and occupancy costs, which increased approximately 5% and 10%, partially offset by productivity gains derived from operating efficiencies.

Foreign currency translation had a favorable impact on DS&A of $0.2 million and $1.1 million for the three and six months ended June 30, 2023 as compared to the prior year periods.

Acquisition-related charges were $1.3 million and $2.5 million for the three and six months ended June 30, 2023 and $6.4 million and $38.3 million for the three and six months ended June 30, 2022 consisting primarily of costs related to the Apria Acquisition.

The declines from the prior year periods reflect the incurrence of most of these costs within the first year after the Acquisition Date.

Intangible amortization was $20.9 million and $41.8 million for the three and six months ended June 30, 2023 and $30.9 million and $41.2 million for the three and six months ended June 30, 2022 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions.

Intangible amortization for the second quarter of 2023 declined as compared to the prior year primarily from purchase price accounting changes to the estimated value assigned to certain intangible assets.

Exit and realignment charges were $29.0 million and $44.6 million for the three and six months ended June 30, 2023.

These charges primarily related to our (1) Operating Model Realignment Program of $24.3 million and $39.3 million, including professional fees, severance, and other costs to streamline functions and processes, (2) IT restructuring charges such as converting certain divisions to a common information technology system of $3.4 million and $3.5 million and, (3) other costs associated with strategic initiatives of $1.3 million and $1.8 million for the three and six months ended June 30, 2023.

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.

The increases in other operating expense (income), net for the three and six months ended June 30, 2023 as compared to the prior year periods reflect $1.4 million and $2.5 million unfavorable changes in foreign currency transaction gains and losses, as compared to the prior year periods.

During the three and six months ended June 30, 2023 we incurred $2.9 million and $3.6 million of losses on sale of accounts receivable, inclusive of professional fees incurred to establish the agreement, under the RPA, through which we began executing sales during the second quarter of 2023.

Interest expense, net .

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

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Effective interest rate 6.93 % 5.26 %

Interest expense, net and the effective interest rate fo r the three months ended March 31, 2023 increased primarily due to the increase in debt associated with the Apria Acquisition, along with higher market interest rates.

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Interest expense, net $ 82,926 $ 47,858 $ 35,068 73.3 %

Effective interest rate 6.86 % 5.12 %

Interest expense, net and the effective interest rate fo r the three months ended June 30, 2023 increased primarily due to higher interest rates on our term loans, net of interest rate swaps, of $6.9 million, partially offset by lower average outstanding borrowings.

Interest expense, net fo r the six months ended June 30, 2023 increased due to higher average outstanding borrowings and higher interest rates on our term loans, net of interest rate swaps, of $25.8 million, and to higher average outstanding borrowings on our 2030 Unsecured Notes of $9.7 million.

See Note 6 in Notes to Consolidated Financial Statements.

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Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Other expense, net $ 1,072 $ 783 $ 289 36.9 %

Other expense, net for the three months ended March 31, 2023 and 2022 includes interest cost and net actuarial losses related to our retirement plans.

Six Months Ended

June 30, Change

(Dollars in thousands) 2023 2022 $ %

Other expense, net $ 2,458 $ 1,565 $ 893 57.1 %

Other expense, net for the three and six months ended June 30, 2023 and 2022 includes interest cost and net actuarial losses related to our retirement plans.

In addition, other expense, net for the three and six months ended June 30, 2023 includes the loss on extinguishment of debt, of $0.3 million and $0.8 million associated with the early retirement of indebtedness of $48.0 million and $73.0 million.

Income taxes.

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2023 2022 $ %

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Effective tax rate 8.8 % 25.6 %

The change in the effective tax rate for the three months ended March 31, 2023 compared to the same period in 2022 resulted primarily from changes in income and losses 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) 2023 2022 $ %

Income tax (benefit) provision $ (12,079) $ 18,837 $ (30,916) (164.1) %

Effective tax rate 18.7 % 21.7 %

The change in the effective tax rate for the three and six months ended June 30, 2023 compared to the same periods in 2022 resulted primarily from changes in income and losses.

Financial Condition, Liquidity and Capital Resources

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

March 31, 2023 December 31, 2022 Change

June 30, 2023 December 31, 2022 Change

(Dollars in thousands) $ %

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Accounts payable $ 1,194,173 $ 1,147,414 $ 46,759 4.1 %

(1) Based on period end accounts receivable and net revenue for the quarters ended March 31, 2023 and December 31, 2022.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended March 31, 2023 and December 31, 2022.

(1) Based on period end accounts receivable and net revenue for the quarters ended June 30, 2023 and December 31, 2022.

Consolidated DSO reflected the impact of the reduction in accounts receivable, net of allowances, due to sales of accounts receivable under the RPA.

Excluding the impact of the RPA, Consolidated DSO would have been 27.6 as of June 30, 2023.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended June 30, 2023 and December 31, 2022.

The decrease in inventory days is due to inventory management efforts in our Products & Healthcare Services segment.

Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows for the three months ended March 31, 2023 and 2022:

The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2023 and 2022:

(Dollars in thousands) 2023 2022

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Effect of exchange rate changes 196 (3,864)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (2,991) $ 155,988

Cash provided by operating activities in the first three months of 2023 reflected a net loss, as compared to net income in the first three months of 2022.

The increase in cash provided by operating activities in 2023 as compared to 2022 reflected changes in working capital and the inclusion of Apria in our results since the Acquisition Date.

Cash used for investing activities in the first three months of 2023 included capital expenditures of $51.5 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $17.3 million in proceeds related primarily to the sale of patient equipment.

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.

C ash used for financing activities in the first three months of 2023 included repayments of debt of $26.5 million.

We had no borrowings under our revolving credit facility on a net basis for the first three months of 2023 and made net repayments of $96.0 million under our amended Receivables Financing Agreement.

Payments for taxes related to the vesting of restricted stock awards, which are included in Other, net, were $5.8 million for the first three months of 2023.

C ash provided by financing activities in the first three months of 2022 included proceeds from borrowings of $1.7 billion related to the 6.625% senior notes due in April 2030 (the 2030 Unsecured Notes), Term Loan A facility (Term Loan A), and Term Loan B facility (Term Loan B).

We had borrowings under our revolving credit facility of $41.7 million for the first three months of 2022.

We also paid $33.7 million in financing costs in the first three months of 2022.

Payments for taxes related to the vesting of restricted stock awards were $35.7 million for the first three months of 2022.

Net increase in cash, cash equivalents and restricted cash $ 222,918 $ 994

Cash provided by operating activities in the first six months of 2023 reflected a net loss, as compared to net income in the first six months of 2022.

The increase in cash provided by operating activities in 2023 as compared to 2022 reflected changes in working capital including cash proceeds from the sale of accounts receivables, as described in Note 1 of Notes to Consolidated Financial Statements and the inclusion of Apria in our results since the Acquisition Date.

Cash used for investing activities in the first six months of 2023 included capital expenditures of $101.0 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $35.7 million in proceeds related primarily to the sale of patient equipment.

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.

C ash used for financing activities in the first six months of 2023 included repayments of debt of $78.3 million, including $65.0 million of unscheduled principal payments on the Term Loan A and the Term Loan B.

We had no borrowings under our revolving credit facility on a net basis for the first six months of 2023 and made net repayments of $96.0 million under our amended Receivables Financing Agreement.

Payments for taxes related to the vesting of restricted stock awards, which are included in Other, net, were $10.2 million for the first six months of 2023.

Cash used for financing activities in the first six months of 2022 included borrowings under our revolving credit facility, net and Receivables Financing Agreement of $30.0 million.

Gross issuances and repayments under our amended Receivable Financing Agreement 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.

We also paid $41.5 million in financing costs in the first six months of 2022.

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

Capital resources.

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The Receivables Financing Agreement matures in March 2025.

We had no borrowings at March 31, 2023 and $96.0 million outstanding at December 31, 2022 under our Receivables Financing Agreement.

At March 31, 2023 and December 31, 2022, we had maximum revolving borrowing capacity of $450 million and $354 million under our Receivable Financing Agreement.

We had no borrowings at June 30, 2023 and $96.0 million outstanding at December 31, 2022 under our Receivables Financing Agreement.

At June 30, 2023 and December 31, 2022, we had maximum revolving borrowing capacity of $450 million and $354 million under our Receivable Financing Agreement.

The Revolving Credit Agreement provides a revolving borrowing capacity of $450 million.

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

At March 31, 2023 and December 31, 2022, our Revolving Credit Agreement was undrawn and we had letters of credit, which reduce Revolver availability, totaling $27.9 million leaving $422 million available for borrowing.

We also had letters of credit and bank guarantees, which supports certain leased facilities as well as other normal business activities in the United States and Europe that were issued outside of the Revolving Credit Agreement for $2.0 million and $2.3 million as of March 31, 2023 and December 31, 2022.

At June 30, 2023 and December 31, 2022, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $27.9 million, leaving $422 million available for borrowing.

We also had letters of credit and bank guarantees which support certain leased facilities as well as other normal business activities in the United States and Europe that were issued outside of the Revolving Credit Agreement for $2.1 million and $2.3 million as of June 30, 2023 and December 31, 2022.

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 4.375% senior notes due in December 2024 (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.

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The terms of the applicable 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, 2023.

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, 2023 no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program.

We were in compliance with our debt covenants at June 30, 2023.

On March 14, 2023, we entered into a RPA, pursuant to which accounts receivable with an aggregate outstanding amount not to exceed $200 million are sold, on a limited-recourse basis, to a third-party financial institution (Purchaser) in exchange for cash.

During the three months ended June 30, 2023, we received net cash proceeds of $409 million from the sale of accounts receivable under its RPA which is included in cash provided by operating activities in the consolidated statements of cash flows.

As of June 30, 2023 there were a total of $115 million of uncollected accounts receivable that had been sold and removed from our consolidated balance sheet.

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

From time to time, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness

(including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms).

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

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

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

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

We believe cash generated by operating activities, available financing sources, and borrowings under the Receivables Financing Agreement and Revolving Credit Agreement, as well as cash on hand, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, debt repurchases and other cash requirements.

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

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 subject to repatriation totaled $29.2 million and $26.3 million at March 31, 2023 and December 31, 2022.

As of March 31, 2023, we are permanently reinvested in our foreign subsidiaries.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $44.1 million and $26.3 million at June 30, 2023 and December 31, 2022.

As of June 30, 2023, we are permanently reinvested in 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.

During the first three months of 2023, we have experienced continued inflationary pressure and higher costs as a result of the increasing cost of labor, occupancy and other administrative costs associated with the normal course of business.

During the first six months of 2023, we have experienced continued inflationary pressure and higher costs as a result of the increasing cost of labor, occupancy and other administrative costs associated with the normal course of business.

We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a limited basis.

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.

Our business is affected by seasonality, which historically has resulted in higher sales volume during our third and fourth quarters, ending September 30 and December 31.

Contractual obligations

We anticipate that the noncancellable obligations beyond 12 months related to outsourced information technology operations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, will no longer be material as a result of executed contract terminations, expected contract terminations, and insourcing of information technology operations.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for disclosure of other material contractual obligations.

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, 2023

Summarized Consolidated Statement of Operations - Guarantor Group Six Months Ended June 30, 2023

(Dollars in thousands)

3 unchanged sentences

Net loss (50,043)

(1) Includes $32 million in sales to non-guarantor subsidiaries for the three months ended March 31, 2023.

Summarized Consolidated Balance Sheets - Guarantor Group March 31, 2023 December 31, 2022

(1) Includes $63.6 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2023.

Summarized Consolidated Balance Sheets - Guarantor Group June 30, 2023 December 31, 2022

(Dollars in thousands)

8 unchanged sentences

Summarized financial information of the Collateral Group is as follows:

Summarized Consolidated Balance Sheets - Collateral Group March 31, 2023 December 31, 2022

Summarized Consolidated Balance Sheets - Collateral Group June 30, 2023 December 31, 2022

(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, 2022 and Note 14 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on March 31, 2023.

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 13 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on June 30, 2023.

Forward-looking Statements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis