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Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 181 added, 353 removed, 271 unchanged (66% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share data)

Net revenue $ 2,591,742 $ 2,497,401 $ 7,677,817 $ 7,404,368

Cost of goods sold

Gross margin 538,498 513,279 1,555,238 1,419,232

Distribution, selling and administrative expenses

Acquisition-related charges and intangible amortization

Exit and realignment charges 30,180 1,983 74,817 4,879

Other operating expense (income), net 1,677 ( 1,125 ) 4,991 ( 5,020 )

Exit and realignment charges, net

Other operating expense, net

Operating income

Interest expense, net

Other (income) expense, net ( 3,302 ) 783 ( 843 ) 2,347

(Loss) income before income taxes ( 10,984 ) 19,595 ( 75,723 ) 106,318

Income tax (benefit) provision ( 4,558 ) 7,098 ( 16,638 ) 25,937

Net (loss) income $ ( 6,426 ) $ 12,497 $ ( 59,085 ) $ 80,381

Net (loss) income per common share:

Basic $ ( 0.08 ) $ 0.17 $ ( 0.78 ) $ 1.08

Diluted $ ( 0.08 ) $ 0.16 $ ( 0.78 ) $ 1.05

Other expense, net

Loss before income taxes

Income tax benefit

Net loss per common share

See accompanying notes to consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands)

Net (loss) income $ ( 6,426 ) $ 12,497 $ ( 59,085 ) $ 80,381

Other comprehensive income (loss) net of tax:

Other comprehensive (loss) income net of tax:

Currency translation adjustments

1 unchanged sentence

Change in gains and losses on derivative instruments

Total other comprehensive loss, net of tax ( 8,962 ) ( 10,531 ) ( 9,100 ) ( 26,899 )

Comprehensive (loss) income $ ( 15,388 ) $ 1,966 $ ( 68,185 ) $ 53,482

Total other comprehensive (loss) income, net of tax

Comprehensive loss

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Balance Sheets

September 30, December 31,

(in thousands, except per share data)

2 unchanged sentences

Accounts receivable, net of allowances of $ 7,005 and $ 7,861

682,682 763,497

Merchandise inventories

1 unchanged sentence

Total current assets

Property and equipment, net of accumulated depreciation of $ 532,399 and $ 450,286

540,419 578,269

Property and equipment, net of accumulated depreciation and amortization of $ 546,326 and $ 546,397

Operating lease assets

Goodwill 1,635,010 1,636,705

Intangible assets, net

Other assets, net

Total assets $ 5,124,063 $ 5,386,283

Liabilities and equity

2 unchanged sentences

Accrued payroll and related liabilities

Current portion of long-term debt

Other current liabilities

1 unchanged sentence

Long-term debt, excluding current portion

Operating lease liabilities, excluding current portion of $ 85,149 and $ 76,805

225,208 215,469

Operating lease liabilities, excluding current portion

Deferred income taxes, net

4 unchanged sentences

authorized - 200,000 shares;

issued and outstanding - 76,499 shares and 76,279 shares as of September 30, 2023 and December 31, 2022

152,997 152,557

issued and outstanding - 76,449 shares and 76,546 shares

Paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Total equity 886,860 945,604

Total liabilities and equity

3 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

Operating activities:

Net (loss) income $ ( 59,085 ) $ 80,381

Adjustments to reconcile net (loss) income to cash provided by operating activities:

Adjustments to reconcile net loss to cash provided by operating activities:

Depreciation and amortization

Share-based compensation expense

(Benefit) provision for losses on accounts receivable ( 487 ) 5,289

Gain on extinguishment of debt ( 4,379 ) —

Deferred income tax (benefit) provision ( 16,315 ) 2,991

Provision (benefit) for losses on accounts receivable

Loss on extinguishment of debt

Deferred income tax benefit

Changes in operating lease right-of-use assets and lease liabilities

Gain on sale and dispositions of property and equipment

Changes in operating assets and liabilities, net of acquisitions:

Changes in operating assets and liabilities:

Accounts receivable

2 unchanged sentences

Net change in other assets and liabilities

Other, net 9,674 8,666

Cash provided by operating activities 628,945 238,045

Cash (used for) provided by operating activities

Investing activities:

Acquisition, net of cash acquired — ( 1,684,607 )

Additions to property and equipment

1 unchanged sentence

Proceeds from sale of property and equipment

Other, net ( 418 ) ( 1,670 )

Cash used for investing activities

2 unchanged sentences

Repayments under amended Receivables Financing Agreement

Repayments of debt ( 270,189 ) ( 3,000 )

Proceeds from issuance of debt — 1,691,000

Borrowings under revolving credit facility, net and Receivables Financing Agreement — 30,000

Financing costs paid — ( 42,602 )

Other, net 74 ( 41,813 )

Cash (used for) provided by financing activities ( 366,115 ) 1,560,585

Repayments of term loans

Cash provided by (used for) financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash 163,975 21,173

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Income taxes (received) paid, net $ ( 6,798 ) $ 33,568

Income taxes paid, net

Interest paid

5 unchanged sentences

Consolidated Statements of Changes in Equity

(in thousands, except per share data) Common

Outstanding Common

($ 2 par value )

Capital Retained

Earnings Accumulated

Comprehensive Loss Total

Comprehensive

(in thousands, except per share data)

Balance, December 31, 2023

Net loss — — — ( 24,418 ) — ( 24,418 )

Other comprehensive income — — — — 1,594 1,594

Share-based compensation expense, exercises and other ( 83 ) ( 166 ) 1,786 — — 1,620

Balance, March 31, 2023 76,196 152,391 420,680 385,590 ( 34,261 ) 924,400

Net loss — — — ( 28,241 ) — ( 28,241 )

Other comprehensive loss

Share-based compensation expense, exercises and other

Balance, June 30, 2023 76,440 152,880 421,993 357,349 ( 35,993 ) 896,229

Net loss — — — ( 6,426 ) — ( 6,426 )

Other comprehensive loss — — — — ( 8,962 ) ( 8,962 )

Share-based compensation expense, exercises and other 59 117 5,902 — — 6,019

Balance, September 30, 2023 76,499 $ 152,997 $ 427,895 $ 350,923 $ ( 44,955 ) $ 886,860

Balance, March 31, 2024

Balance, December 31, 2022

Net income — — — 39,279 — 39,279

Other comprehensive loss — — — — ( 598 ) ( 598 )

Other comprehensive income

Share-based compensation expense, exercises and other

Balance, March 31, 2023

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

See accompanying notes to consolidated financial statements.

6 unchanged sentences

The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc.

and the subsidiaries it controls (we, us, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S.

and the subsidiaries it controls (we, us, or our) and contain all adjustments necessary to conform with U.S.

generally accepted accounting principles (GAAP).

1 unchanged sentence

The results of operations for interim periods are not necessarily indicative of the results expected for the full year.

We report our business under two segments:

We report our business under two distinct segments:

Products & Healthcare Services and Patient Direct.

The Products & Healthcare Services segment includes our United States distribution division (Medical Distribution), outsourced logistics and value-added services, and Global Products division which manufactures and sources medical surgical products through our production and kitting operations.

The Products & Healthcare Services segment includes our United States (U.S.) distribution division (Medical Distribution), including outsourced logistics and value-added services and our Global Products division which manufactures and sources medical surgical products through our production and kitting operations.

The Patient Direct segment includes our home healthcare divisions (Byram and Apria).

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

6 unchanged sentences

Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash.

Restricted cash as of September 30, 2023 and December 31, 2022 includes cash held in an escrow account as required by the Centers for Medicare & Medicaid Services in conjunction with the Bundled Payments for Care Improvement initiatives related to wind-down costs of Fusion5.

Restricted cash as of September 30, 2023 also includes $ 18.6 million of cash deposits received subject to limitations on use until remitted to a third-party financial institution (the Purchaser), pursuant to the Master Receivables Purchase Agreement (RPA).

Restricted cash as of March 31, 2024 and December 31, 2023 includes cash held in an escrow account as required by the Centers for Medicare & Medicaid Services in conjunction with the Bundled Payments for Care Improvement initiatives related to wind-down costs of Fusion5, as well as $ 9.5 million and $ 13.5 million of cash deposits received subject to limitations on use until remitted to a third-party financial institution (the Purchaser), pursuant to the Master Receivables Purchase Agreement (RPA).

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, 2023 December 31, 2022

March 31, 2024

December 31, 2023

Cash and cash equivalents

Restricted cash included in Other current assets

Restricted cash included in Other assets, net — 16,718

Total cash, cash equivalents, and restricted cash

2 unchanged sentences

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 $ 158 million and $ 148 million for the three months ended September 30, 2023 and 2022 and $ 504 million and $ 299 million for the nine months ended September 30, 2023 and 2022 in revenue related to equipment we rent to 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 noncancelable lease term.

We recorded $ 147 million and $ 172 million for the three months ended March 31, 2024 and 2023 in revenue related to equipment we rent to patients.

Sales of Accounts Receivable

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

As of September 30, 2023, there were a total of $ 89.1 million of uncollected accounts receivable that had been sold and removed from our consolidated balance sheet.

We account for these transactions as sales in accordance with ASC 860, Transfers and Servicing, with the sold receivables removed from our consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, there were a total of $ 103 million and $ 124 million of uncollected accounts receivable, that had been sold and removed from our consolidated balance sheets.

We account for these transactions as sales with the sold receivables removed from our consolidated balance sheets.

Under the RPA, we provide certain servicing and collection actions on behalf of the Purchaser;

however, we do not maintain any beneficial interest in the accounts receivable sold.

The RPA is separate and distinct from the accounts receivable securitization program (the Receivables Financing Agreement) .

Proceeds from the sale of accounts receivable are recorded as an increase to cash and cash equivalents and a reduction to accounts receivable, net of allowances, in the consolidated balance sheets.

Cash received from the sale of accounts receivable, net of payments made to the Purchaser, is reflected in the change in accounts receivable within cash provided by operating activities in the consolidated statements of cash flows.

Total accounts receivable sold under the RPA were $ 482 million and $ 894 million for the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, we received net cash proceeds of $ 478 million and $ 888 million from the sale of accounts receivable under the RPA and collected $ 508 million and $ 805 million of the sold accounts receivable.

The losses on sale of accounts receivable are recorded in other operating expense (income), net in the consolidated statements of operations were $ 3.5 million and $ 7.1 million for the three and nine months ended September 30, 2023.

Cash received from the sale of accounts receivable, net of payments made to the Purchaser, is reflected as cash provided by operating activities in the consolidated statements of cash flows.

Total accounts receivable sold under the RPA were $ 515 million for the three months ended March 31, 2024.

During the three months ended March 31, 2024, we received net cash proceeds of $ 512 million from the sale of accounts receivable under the RPA and collected $ 536 million of the sold accounts receivable.

No accounts receivables were sold under the RPA for the three months ended March 31, 2023.

The losses on sale of accounts receivable, inclusive of professional fees incurred to establish the agreement, recorded in other operating expense, net in the consolidated statements of operations were $ 3.3 million and $ 0.8 million for the three months ended March 31, 2024 and 2023.

The RPA is separate and distinct from the accounts receivable securitization program (the Receivables Financing Agreement).

Note 2—Fair Value

10 unchanged sentences

Subsequent changes in fair value are recorded as adjustments to acquisition-related charges and intangible amortization within the consolidated statements of operations.

Note 3— Acquisition

On March 29, 2022 (the Acquisition Date), we completed the acquisition (the Apria Acquisition) of 100 % of Apria Inc.

(Apria) pursuant to the Agreement and Plan of Merger 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.

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

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

The following table presents the final 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 were determined 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.

Fair Value as of Acquisition Date

Assets acquired:

Current assets $ 139,560

Goodwill 1,251,347

Intangible assets 315,300

Other non-current assets 354,237

Total assets $ 2,060,444

Liabilities assumed:

Current liabilities $ 247,276

Noncurrent liabilities 128,561

Total liabilities 375,837

Fair value of net assets acquired, net of cash $ 1,684,607

Current assets acquired include $ 88.7 million in fair value of receivables, which reflects the approximate amount contractually owed.

We are amortizing the 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 $ 1.3 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 $ 33 million of the goodwill is deductible for income tax purposes.

The following table provides pro forma results of net revenue and net loss for the three and nine months ended September 30, 2022 as if Apria was acquired on January 1, 2022, based on the final purchase price allocation.

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, 2022 Nine Months Ended September 30, 2022

Net revenue $ 2,497,401 $ 7,681,481

Net income (loss) $ 6,422 $ ( 38,031 )

Pro forma net income of $ 6.4 million for the three months ended September 30, 2022 includes a pro forma adjustment for amortization of intangible assets of $ 6.1 million, net of tax.

Pro forma net loss of $ 38.0 million for the nine months ended September 30, 2022 includes pro forma adjustments for interest expense of $ 15.4 million, net of tax and amortization of intangible assets of $ 9.1 million, net of tax.

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.

Acquisition-related charges within acquisition-related charges and intangible amortization presented in our consolidated statements of operations were $ 9.4 million and $ 6.9 million for the three months ended September 30, 2023 and 2022 and $ 11.9 million and $ 45.2 million for the nine months ended September 30, 2023 and 2022.

Note 3—Goodwill and Intangible Assets

The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through September 30, 2023:

Patient Direct Products & Healthcare Services Consolidated

The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill at March 31, 2024:

Patient Direct

Carrying amount of goodwill, December 31, 2023

Acquisition adjustment 1,582 — 1,582

Currency translation adjustments

Carrying amount of goodwill, September 30, 2023

$ 1,535,252 $ 99,758 $ 1,635,010

As compared to the date of the most recent annual goodwill impairment test performed as of October 1, 2022, the fair value of our Global Products and Apria reporting units have been adversely impacted by unfavorable industry and macroeconomic conditions, including higher interest rates, inflation, pricing pressures and lower demand for certain product categories.

Adverse changes in these and other factors could result in future goodwill impairment.

Intangible assets subject to amortization at September 30, 2023 and December 31, 2022 were as follows:

September 30, 2023 December 31, 2022

Relationships Tradenames Other

Intangibles Customer

Relationships Tradenames Other

Carrying amount of goodwill, March 31, 2024

Intangible assets subject to amortization, which exclude indefinite-lived intangible assets, at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024

December 31, 2023

Relationships

Gross intangible assets

1 unchanged sentence

Net intangible assets

Weighted average useful life 13 years 10 years 6 years 13 years 10 years 6 years

At September 30, 2023 and December 31, 2022, $ 265 million and $ 308 million in net intangible assets were held in the Patient Direct segment and $ 117 million and $ 137 million were held in the Products & Healthcare Services segment.

Amortization expense for intangible assets was $ 20.8 million and $ 14.3 million for the three months ended September 30, 2023 and 2022 and $ 62.7 million and $ 55.5 million for the nine months ended September 30, 2023 and 2022.

As of September 30, 2023, based on the current carrying value of intangible assets subject to amortization, estimated amortization expense were as follows:

Weighted average useful life

At March 31, 2024 and December 31, 2023, $ 236 million and $ 250 million in net intangible assets were held in the Patient Direct segment and $ 107 million and $ 112 million were held in the Products & Healthcare Services segment.

Amortization expense for intangible assets was $ 20.3 million and $ 20.9 million for the three months ended March 31, 2024 and 2023.

As of March 31, 2024, based on the current carrying value of intangible assets subject to amortization, estimated amortization expense were as follows:

2024 (remainder)

Total future amortization

Note 4—Exit and Realignment Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain facilities, IT restructuring charges, and other strategic actions.

We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain facilities, IT strategic initiatives and other strategic actions.

These charges also include costs associated with our Operating Model Realignment Program, which include professional fees, severance and other costs to streamline functions and processes.

Exit and realignment charges were $ 30.2 million and $ 2.0 million for the three months ended September 30, 2023 and 2022 and $ 74.8 million and $ 4.9 million for the nine months ended September 30, 2023 and 2022.

Exit and realignment charges, net were $ 27.4 million and $ 15.7 million for the three months ended March 31, 2024 and 2023.

These amounts are excluded from our segments’ operating income.

We have incurred $ 27.8 million and $ 70.6 million in charges under our Operating Model Realignment Program and IT restructuring charges for the three and nine months ended September 30, 2023, which are included in the total exit and realignment charges above.

We expect to incur additional material costs relating to our Operating Model Realignment Program and IT restructuring charges, which we are not able to reasonably estimate.

The following table summarizes the activity related to exit and realignment cost accruals through September 30, 2023 and 2022:

During the three months ended March 31, 2024, exit and realignment charges, net included a gain of $ 7.4 million associated with the sale of our corporate headquarters and $ 34.7 million in charges under our Operating Model Realignment Program and IT strategic initiatives.

We expect to incur material future costs relating to our Operating Model Realignment Program and IT strategic initiatives, which we are not able to reasonably estimate.

The following table summarizes the activity related to exit and realignment cost accruals, which are classified as other current liabilities in our consolidated balance sheets, through March 31, 2024 and 2023:

Accrued exit and realignment costs, December 31, 2023

Provision for exit and realignment activities:

Severance 4,127

Professional fees

Vendor contract and lease termination costs 1,824

Cash payments

Accrued exit and realignment costs, March 31, 2024

Provision for exit and realignment activities:

Severance 505

Professional fees 22,953

Vendor contract and lease termination costs 1,707

Cash payments ( 20,196 )

Accrued exit and realignment costs, June 30, 2023 19,864

Provision for exit and realignment activities:

Severance 2,361

Professional fees 16,800

Vendor contract and lease termination costs 4,300

Cash payments ( 26,311 )

Accrued exit and realignment costs, September 30, 2023 $ 22,434

Accrued exit and realignment costs, December 31, 2022

Provision for exit and realignment activities:

Severance 811

Professional fees

Cash payments

Accrued exit and realignment costs, March 31, 2023

Provision for exit and realignment activities:

Severance 246

Cash payments ( 3,477 )

Accrued exit and realignment costs, June 30, 2022 822

Provision for exit and realignment activities:

Cash payments ( 1,693 )

Accrued exit and realignment costs, September 30, 2022 $ 380

In addition to the exit and realignment accruals in the preceding table, we also incurred $ 1.3 million of costs that were expensed as incurred for the three and nine months ended September 30, 2023, which primarily related to charges associated with a lease termination.

We 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.

In addition to the exit and realignment accruals in the preceding table and the $ 7.4 million gain associated with the sale of our corporate headquarters, we also incurred $ 6.5 million of costs that were expensed as incurred for the three months ended March 31, 2024, which primarily related to accelerated depreciation of certain assets held in our Products & Healthcare Services segment.

Debt, net of unamortized deferred financing costs, consists of the following:

September 30, 2023 December 31, 2022

Amount Estimated

Fair Value Carrying

Amount Estimated

March 31, 2024

December 31, 2023

4.375 % Senior Notes, due December 2024

$ 172,057 $ 167,658 $ 245,510 $ 237,772

Receivables Securitization Program — — 93,142 96,000

Term Loan A 414,829 415,984 490,816 485,000

Receivables Financing Agreement

4.500 % Senior Notes, due March 2029

472,576 393,219 492,762 396,625

Term Loan B 523,411 537,827 576,587 597,733

6.625 % Senior Notes, due April 2030

539,943 491,570 585,180 516,060

Finance leases and other

Total debt 2,146,037 2,029,479 2,500,874 2,346,067

Less current maturities

2 unchanged sentences

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.

We used $ 72.7 million of cash to repurchase $ 73.8 million aggregate principal of the 2024 Notes during the first nine months of 2023.

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 Receivables Financing Agreement.

The amended Receivables Financing Agreement has a maximum borrowing capacity of $ 450 million.

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 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.

The Receivables Financing Agreement has a maximum borrowing capacity of $ 450 million.

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, as further amended by the Fifth Amendment to the Receivables Financing Agreement).

1 unchanged sentence

The Receivables Financing Agreement matures in March 2025.

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

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

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).

We had $ 65.7 million in principal outstanding and no borrowings at March 31, 2024 and December 31, 2023 under our Receivables Financing Agreement.

At March 31, 2024 and December 31, 2023, we had maximum revolving borrowing capacity of $ 384 million and $ 450 million under our Receivables Financing Agreement.

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 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 the sum of either Term SOFR or the Base Rate and 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).

1 unchanged sentence

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

In addition to our scheduled principal payments of $ 6.3 million on the Term Loan A and $ 4.5 million on the Term Loan B, we made unscheduled principal payments of $ 72.5 million on Term Loan A and $ 52.5 million on Term Loan B during the nine months ended September 30, 2023.

On March 10, 2021, we issued $ 500 million 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 %.

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).

1 unchanged sentence

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.

We used $ 18.2 million of cash to repurchase $ 21.3 million aggregate principal of the 2029 Unsecured Notes during the first nine months of 2023.

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.

On March 29, 2022, we issued $ 600 million of 6.625 % senior unsecured 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 %.

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We may also redeem up to 40 % of the aggregate principal amount of the 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.

We used $ 43.5 million of cash to repurchase $ 47.8 million aggregate principal of the 2030 Unsecured Notes during the first nine months of 2023.

The 2029 Unsecured Notes and the 2030 Unsecured Notes are subordinated to any of our secured indebtedness, including indebtedness under our credit agreements.

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).

We have a revolving credit agreement with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (Revolving Credit Agreement) with a maximum borrowing capacity of $ 450 million.

The interest rate under our Revolving Credit Agreement is based on the Adjusted Term SOFR Rate (as defined in the Revolving Credit Agreement).

The Revolving Credit Agreement matures in March 2027.

At September 30, 2023 and December 31, 2022, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce revolver availability, totaling $ 27.4 million and $ 27.9 million, leaving $ 423 million and $ 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 $ 2.9 million and $ 2.3 million as of September 30, 2023 and December 31, 2022.

At March 31, 2024 and December 31, 2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $ 26.7 million and $ 27.4 million, leaving $ 423 million available for borrowing at the end of each period.

We also had letters of credit and bank guarantees which support certain leased facilities as well as other normal business activities in the U.S.

and Europe that were issued outside of the Revolving Credit Agreement for $ 3.0 million as of March 31, 2024 and December 31, 2023.

The Revolving Credit Agreement, the Credit Agreement, the Receivables Financing Agreement, the 2024 Notes, the 2029 Unsecured Notes and the 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 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 September 30, 2023.

As of September 30, 2023, scheduled future principal payments of debt, excluding finance leases and other, were as follows:

We were in compliance with our debt covenants at March 31, 2024.

As of March 31, 2024, scheduled future principal payments of debt, excluding finance leases and other, were as follows:

2024 (remainder)

Of the $ 195 million due in 2024, $ 179 million is due in December 2024.

Current maturities at September 30, 2023 include $ 18.8 million in principal payments on our Term Loan A, $ 6.0 million in principal payments on our Term Loan B, and $ 7.7 million in current portion of finance leases and other.

Current maturities at March 31, 2024 include $ 171 million in principal payments on our 2024 Notes, $ 25.0 million in principal payments on our Term Loan A, $ 6.0 million in principal payments on our Term Loan B, and $ 5.3 million in current portion of finance leases and other.

Note 6—Retirement Plans

We have a frozen noncontributory, unfunded retirement plan for certain retirees in the United States (U.S.

We have a frozen noncontributory, unfunded retirement plan for certain retirees in the U.S.

Retirement Plan).

As of September 30, 2023 and December 31, 2022, the accumulated benefit obligation of the U.S.

As of March 31, 2024 and December 31, 2023, the accumulated benefit obligation of the U.S.

Retirement Plan was $ 33.7 million and $ 34.1 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, 2023 and 2022 were as follows:

The components of net periodic benefit cost for the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Service cost $ 429 $ 603 $ 1,316 $ 1,853

Interest cost

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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, 2023:

Derivative Assets Derivative Liabilities

Notional Amount Maturity Date Classification Fair Value Classification Fair Value

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of March 31, 2024:

Derivative Assets

Derivative Liabilities

Maturity Date

Classification

Cash flow hedges

Interest rate swaps $ 350,000 March 2027 Other assets, net $ 16,406 Other liabilities $ —

Interest rate swaps

Other assets, net

Other liabilities

Economic (non-designated) hedges

Foreign currency contracts $ 78,161 October 2023 Other current assets $ 86 Other current liabilities $ 25

Foreign currency contracts

Other current assets

Other current liabilities

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2023:

Derivative Assets Derivative Liabilities

Notional Amount Maturity Date Classification Fair Value Classification Fair Value

Derivative Assets

Derivative Liabilities

Maturity Date

Classification

Cash flow hedges

Interest rate swaps $ 400,000 March 2027 Other assets, net $ 15,461 Other liabilities $ —

Interest rate swaps

Other assets, net

Other liabilities

Economic (non-designated) hedges

Foreign currency contracts $ 58,321 January 2023 Other current assets $ 440 Other current liabilities $ 42

Foreign currency contracts

Other current assets

Other current liabilities

The notional amount of the interest rate swaps represents the amount in effect at the end of the period.

Based on contractual terms, the notional amount will decrease in increments of $ 50 million on the last business day of March of each year until the maturity date.

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, 2023:

Amount of Gain Recognized in Other Comprehensive Income (Loss) Location of Gain 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 Gain Reclassified from Accumulated Other Comprehensive Loss into Income

Three months ended September 30, 2023

Nine months ended September 30, 2023

Three months ended September 30, 2023

Nine months ended September 30, 2023

Three months ended September 30, 2023

Nine months ended September 30, 2023

Interest rate swaps $ 3,621 $ 8,026 Interest expense, net $ ( 38,127 ) $ ( 121,053 ) $ 2,569 $ 7,080

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 amount of ineffectiveness associated with these contracts was immaterial for the periods presented.

For the three and nine months ended September 30, 2023, we recognized losses of $ 2.4 million and $ 3.3 million associated with our economic (non-designated) foreign currency contracts.

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.

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 expense (income), net for our foreign exchange contracts.

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three months ended March 31, 2024:

Amount of Gain Recognized in Other Comprehensive Income (Loss)

Location of Gain 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 Gain Reclassified from Accumulated Other Comprehensive Loss into Net Loss

Interest rate swaps

Interest expense, net

The amount of ineffectiveness associated with these contracts was immaterial for the period presented.

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three months ended March 31, 2023:

Amount of Loss Recognized in Other Comprehensive Income (Loss)

Location of Gain 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 Gain Reclassified from Accumulated Other Comprehensive Loss into Net Loss

Interest rate swaps

Interest expense, net

The amount of ineffectiveness associated with these contracts was immaterial for the period presented.

For the three months ended March 31, 2024 and 2023, we recognized a loss of $ 4.2 million and no gain (loss) associated with our economic (non-designated) foreign currency contracts.

Note 8—Income Taxes

The effective tax rate was 41.5 % and 22.0 % for the three and nine months ended September 30, 2023, compared to 36.2 % and 24.4 % in the same periods of 2022.

The change in these rates resulted primarily from changes in income and losses as well as the incremental income tax benefit recorded for foreign derived intangible income (FDII) in the three and nine months ended September 30, 2023.

The liability for unrecognized tax benefits was $ 22.8 million at September 30, 2023 and $ 22.5 million at December 31, 2022.

Included in the liability at September 30, 2023 and December 31, 2022 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.

The effective tax rate was 19.3 % for the three months ended March 31, 2024, compared to 27.7 % in the same period of 2023.

The change in these rates were primarily from changes in results of operations in the jurisdictions in which we operate and changes in forecasted results reflected in the tax rates.

The liability for unrecognized tax benefits was $ 22.8 million at March 31, 2024 and $ 22.7 million at December 31, 2023.

Included in the liability at March 31, 2024 and December 31, 2023 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.

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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 10— Net (Loss) Income per Common Share

The following summarizes the calculation of net (loss) income per common share attributable to common shareholders for the three and nine months ended September 30, 2023 and 2022:

Note 9—Net Loss per Common Share

The following summarizes the calculation of net loss per common share attributable to common shareholders for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share data)

Net (loss) income $ ( 6,426 ) $ 12,497 $ ( 59,085 ) $ 80,381

Weighted average shares outstanding - basic

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Weighted average shares outstanding - diluted

Net (loss) income per common share:

Basic $ ( 0.08 ) $ 0.17 $ ( 0.78 ) $ 1.08

Diluted $ ( 0.08 ) $ 0.16 $ ( 0.78 ) $ 1.05

Share-based awards for the three and nine months ended September 30, 2023 of approximately 1.5 million and 1.6 million shares were excluded from the calculation of net loss per diluted common share as the effect would be anti-dilutive.

Net loss per common share:

Share-based awards for the three months ended March 31, 2024 and 2023 of approximately 1.6 million and 1.7 million shares were excluded from the calculation of net loss per diluted common share as the effect would be anti-dilutive.

Note 10—Accumulated Other Comprehensive (Loss) Income

The following table shows the changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2023 and 2022:

Retirement Plans Currency

Adjustments Derivatives Total

Accumulated other comprehensive (loss) income, June 30, 2023 $ ( 7,212 ) $ ( 40,144 ) $ 11,363 $ ( 35,993 )

Other comprehensive (loss) income before reclassifications — ( 9,891 ) 3,621 ( 6,270 )

Income tax — — ( 941 ) ( 941 )

Other comprehensive (loss) income before reclassifications, net of tax — ( 9,891 ) 2,680 ( 7,211 )

Amounts reclassified from accumulated other comprehensive (loss) income 124 — ( 2,569 ) ( 2,445 )

Income tax 28 — 666 694

Amounts reclassified from accumulated other comprehensive (loss) income, net of tax 152 — ( 1,903 ) ( 1,751 )

Other comprehensive income (loss) 152 ( 9,891 ) 777 ( 8,962 )

Accumulated other comprehensive (loss) income, September 30, 2023 $ ( 7,060 ) $ ( 50,035 ) $ 12,140 $ ( 44,955 )

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) income, September 30, 2022 $ ( 13,823 ) $ ( 65,598 ) $ 11,931 $ ( 67,490 )

Retirement Plans Currency

Adjustments Derivatives Total

The following table shows the changes in accumulated other comprehensive (loss) income by component for the three months ended March 31, 2024 and 2023:

Accumulated other comprehensive (loss) income, December 31, 2023

Other comprehensive (loss) income before reclassifications — ( 9,940 ) 8,026 ( 1,914 )

Income tax — — ( 2,086 ) ( 2,086 )

Other comprehensive (loss) income before reclassifications, net of tax — ( 9,940 ) 5,940 ( 4,000 )

Amounts reclassified from accumulated other comprehensive (loss) income 370 — ( 7,080 ) ( 6,710 )

Income tax ( 229 ) — 1,839 1,610

Amounts reclassified from accumulated other comprehensive (loss) income, net of tax 141 — ( 5,241 ) ( 5,100 )

Other comprehensive income (loss) 141 ( 9,940 ) 699 ( 9,100 )

Accumulated other comprehensive (loss) income, September 30, 2023 $ ( 7,060 ) $ ( 50,035 ) $ 12,140 $ ( 44,955 )

Retirement Plans Currency

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 1,009 — 1,926 2,935

Income tax ( 235 ) — ( 501 ) ( 736 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 774 — 1,425 2,199

Other comprehensive income (loss) before reclassifications

Other comprehensive income (loss) before reclassifications, net of tax

Amounts reclassified from accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax

Other comprehensive income (loss)

Accumulated other comprehensive (loss) income, September 30, 2022 $ ( 13,823 ) $ ( 65,598 ) $ 11,931 $ ( 67,490 )

Accumulated other comprehensive (loss) income, March 31, 2024

Accumulated other comprehensive (loss) income, December 31, 2022

Other comprehensive income (loss) before reclassifications

Other comprehensive income (loss) before reclassifications, net of tax

Amounts reclassified from accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax

Other comprehensive (loss) income

Accumulated other comprehensive (loss) income, March 31, 2023

We include amounts reclassified out of accumulated other comprehensive (loss) income related to defined benefit pension plans as a component of net periodic pension cost recorded in Other expense, net.

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Products & Healthcare Services and Patient Direct.

The Products & Healthcare Services segment includes our U.S.

distribution division (Medical Distribution), including our outsourced logistics and value-added services businesses, and our Global Products division which manufactures and sources medical surgical products through our production and kitting operations.

The Patient Direct segment includes our home healthcare divisions (Byram and Apria).

We evaluate the performance of our segments based on their operating income excluding acquisition-related charges and intangible amortization and exit and realignment charges, along with other adjustments, 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.

We evaluate the performance of our segments based on their operating income excluding acquisition-related charges and intangible amortization and exit and realignment charges, net, along with other adjustments, 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.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Products & Healthcare Services

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Acquisition-related charges and intangible amortization

Exit and realignment charges ( 30,180 ) ( 1,983 ) ( 74,817 ) ( 4,879 )

Exit and realignment charges, net

Consolidated operating income

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Consolidated depreciation and amortization

Share-based compensation:

Products & Healthcare Services

Patient Direct

Consolidated share-based compensation

Capital expenditures:

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Consolidated capital expenditures

September 30, 2023 December 31, 2022

(1) Other share-based compensation expense is captured within exit and realignment charges, net or acquisition-related charges for the three months ended March 31, 2024 and 2023.

March 31, 2024

December 31, 2023

Total assets:

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Consolidated total assets

For the three months ended March 31, 2024 and 2023, non-cash adjustments to merchandise inventories valued at the lower of cost or market, with the approximate cost determined by the last-in, first-out (LIFO) method for distribution inventories in the U.S.

within our Products & Healthcare Services segment were $ 5.4 million and $ 4.9

The net book value of patient service equipment dispositions were $ 9.6 million and $ 9.0 million for the three months ended March 31, 2024 and 2023, within the Patient Direct segment.

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,

2023 2022 2023 2022

United States

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Note 12—Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (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.

Subsequent to the issuance of ASU No.

2016-13, the FASB issued various ASUs related to Credit Losses, Measurement of Credit Losses on Financial Instruments.

These ASUs do not change the core principle of the guidance in ASU No.

Instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard.

We adopted ASU No.

2016-13 and subsequent amendments beginning January 1, 2023.

The adoption did not have a material impact on our consolidated financial statements and related disclosures.

Note 14— Legal Proceedings

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.

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.

46727) did not pass fluid resistance testing, but did pass filtration efficiency testing.

Our investigation determined that a limited number of lots were potentially implicated by the results of the NIOSH particulate filtration testing on model 46827, and that the vast majority of the products in those lots remained in our possession and under our control.

Those lots have been segregated for disposal.

We also determined that a limited quantity of products from one lot did reach the market.

Although products from that lot passed internal and external follow-up testing for filtration efficiency, we initiated a voluntary recall of the lot on August 9, 2023 out of an abundance of caution.

O&M Halyard has confirmed to NIOSH that the particle filtration issue was isolated to the identified lots.

On April 12, 2023, the U.S.

Food and Drug Administration (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 concerns about fluid resistance performance.

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.

of the above-referenced surgical N95 respirators and similar models pending our investigation of the performance issues identified by the FDA and NIOSH.

Regulatory bodies in other non-U.S.

markets where we sell our facial protection products have inquired about the relevance of the FDA notification to products sold in their countries.

The FDA updated its recommendation on April 21, 2023, to permit use of the model 46727 of Halyard N95 respirators when fluid resistance is not required.

These items are included in our Products & Healthcare Services segment.

On September 29, 2023, the FDA updated its previous recommendation to consumers, health care providers and facilities regarding the above-referenced models of O&M Halyard surgical N95 respirators based on extensive testing and performance data provided by O&M Halyard.

Specifically, the FDA stated that both O&M Halyard respirator models could be used according to the product labeling for respiratory and fluid barrier protection to the wearer (excluding the one lot of products that O&M Halyard voluntarily recalled on August 9, 2023).

Following the FDA’s update, we published a user notice on our website announcing the resumption of sales and shipments of O&M Halyard surgical N95 respirators, noting that the data provided to the FDA and NIOSH demonstrated that our products provide the levels of particle filtration and fluid resistance for which they are rated.

NIOSH reviewed and concurred with the facts set forth in our user notice published on September 29, 2023.

We will continue to work with the FDA and NIOSH following the resolution of this matter to ensure that O&M Halyard products comply with regulatory requirements.

We are unable to reasonably estimate the amount of any possible loss or range of possible losses or predict the ultimate outcome of these matters.

However, there is a risk that these matters and any other safety concerns could have a material adverse effect on our results of operations, financial condition, or cash flows, including as a result of a significant volume of customer product returns and/or recall of products, implementation of corrective action plans, and/or other costly remedial actions in the US and elsewhere.

In addition, these matters could potentially have other negative impacts including:

government investigations and enforcement actions by the FDA or other US or international regulators or governmental entities;

the suspension or revocation of the authority to produce, distribute or sell products, and other sanctions;

losses due to patient claims, including product liability claims and lawsuits;

and customer claims related to their direct costs arising from supply disruption.

Other Litigation

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which will require disclosure of additional detailed information about a reportable segment’s expenses, including significant segment expenses regularly provided to the Chief Operating Decision Maker (CODM), the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment’s profit or loss.

This ASU is effective for us in annual periods beginning after December 15, 2023 and interim periods within annual years beginning after December 15, 2024.

The amendments in this ASU must be applied on a retrospective basis to all prior periods presented in the financial statements and early adoption is permitted.

We expect this ASU to only impact our disclosures with no impacts to our results of operations, financial condition and cash flows.

In December 2023, the FASB Issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which will require additional annual income tax disclosures, including disclosure of reconciling items by jurisdiction and nature to the extent those items exceed a specified threshold.

In addition, this ASU will require disclosure of income taxes paid, net of refunds received disaggregated by federal, state, and foreign and by jurisdiction if the amount is more than 5% of total income tax payments, net of refunds received.

The amendments in this ASU are effective for us in annual periods beginning after December 15, 2024.

The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted.

We expect this ASU to only impact our disclosures with no impacts to our results of operations, financial condition and cash flows.

Note 13—Commitments, Contingent Liabilities, and Legal Proceedings

Commitments include $ 48.4 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.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 for disclosure of other material contractual obligations.

We are party to various legal claims that are ordinary and incidental to our business, including ones related to commercial disputes, employment, workers’ compensation, product liability, regulatory and other matters.

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We establish reserves from time to time based upon periodic assessment of the potential outcomes of pending matters.

Based on current knowledge and the advice of counsel, we believe that the accrual as of September 30, 2023 for currently pending matters considered probable of loss, which is not material, is sufficient.

Based on current knowledge and the advice of counsel, we believe that the accrual as of March 31, 2024 for currently pending matters considered probable of loss, which is not material, is sufficient.

In addition, we believe that other currently pending matters are not reasonably possible to result in a material loss, as payment of the amounts claimed is remote, the claims are immaterial, individually and in the aggregate, or the claims are expected to be adequately covered by insurance, subject to policy limits, applicable deductibles, exclusions and insurer solvency.

Note 15— Commitments and Contingencies

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.

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 1. Financial Statements