Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Net income	$	28,604	$	65,896	$	67,884	$	135,486
Other comprehensive income (loss), net of tax:
Currency translation adjustments	(18,831)		(2,448)		(19,618)		(14,710)
Change in unrecognized net periodic pension costs	297		36		486		157
Change in gains and losses on derivative instruments	2,764		—		2,764		20,044
Total other comprehensive income (loss), net of tax	(15,770)		(2,412)		(16,368)		5,491
Comprehensive income	$	12,834	$	63,484	$	51,516	$	140,977

See accompanying notes to consolidated financial statements.

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 2017 2016
Net income $ 10,871
$ 29,831
$ 49,796
$ 81,682
Other comprehensive income (loss), net of tax:
Currency translation adjustments (net of income tax of $0 in 2017 and 2016) 12,254
1,401
40,151
2,443
Change in unrecognized net periodic pension costs (net of income tax of $220 and $665 in 2017 and $194 and $532 in 2016) 236
218
702
701
Other (net of income tax of $0 in 2017 and 2016) 94
82
288
119
Total other comprehensive income (loss), net of tax 12,584
1,701
41,141
3,263
Comprehensive income $ 23,455
$ 31,532
$ 90,937
$ 84,945

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Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)


	June 30,		December 31,
(in thousands, except per share data)	2022		2021
Assets
Current assets
Cash and cash equivalents	$	56,406	$	55,712
Accounts receivable, net of allowances of $14,922 and $18,003	743,853		681,564
Merchandise inventories	1,525,331		1,495,972
Other current assets	108,612		88,564
Total current assets	2,434,202		2,321,812
Property and equipment, net of accumulated depreciation of $373,954 and $334,500	595,888		317,235
Operating lease assets	278,291		194,006
Goodwill	1,656,308		390,185
Intangible assets, net	462,444		209,745
Other assets, net	128,145		103,568
Total assets	$	5,555,278	$	3,536,551
Liabilities and equity
Current liabilities
Accounts payable	$	1,137,337	$	1,001,959
Accrued payroll and related liabilities	97,829		115,858
Other current liabilities	334,198		226,204
Total current liabilities	1,569,364		1,344,021
Long-term debt, excluding current portion	2,565,613		947,540
Operating lease liabilities, excluding current portion	220,504		162,241
Deferred income taxes	107,181		35,310
Other liabilities	133,957		108,938
Total liabilities	4,596,619		2,598,050
Commitments and contingencies	0		0
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 76,171 shares and 75,433 shares	152,343		150,865
Paid-in capital	407,773		440,608
Retained earnings	455,502		387,619
Accumulated other comprehensive loss	(56,959)		(40,591)
Total equity	958,659		938,501
Total liabilities and equity	$	5,555,278	$	3,536,551

September 30, December 31,
(in thousands, except per share data) 2017 2016
Assets
Current assets
Cash and cash equivalents $ 98,415
$ 185,488
Accounts receivable, net of allowances of $14,609 and $13,538 732,756
606,084
Merchandise inventories 989,251
916,311
Other current assets 311,499
254,156
Total current assets 2,131,921
1,962,039
Property and equipment, net of accumulated depreciation of $224,970 and $201,399 203,587
191,718
Goodwill, net 690,230
414,936
Intangible assets, net 231,886
82,511
Other assets, net 76,532
66,548
Total assets $ 3,334,156
$ 2,717,752
Liabilities and equity
Current liabilities
Accounts payable $ 875,630
$ 750,750
Accrued payroll and related liabilities 31,998
45,051
Other current liabilities 296,663
238,837
Total current liabilities 1,204,291
1,034,638
Long-term debt, excluding current portion 917,256
564,583
Deferred income taxes 137,539
90,383
Other liabilities 71,286
68,110
Total liabilities 2,330,372
1,757,714
Commitments and contingencies

Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,249 shares and 61,031 shares 122,499
122,062
Paid-in capital 224,183
219,955
Retained earnings 683,444
685,504
Accumulated other comprehensive loss (26,342 ) (67,483 )
Total equity 1,003,784
960,038
Total liabilities and equity $ 3,334,156
$ 2,717,752

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
(in thousands)	2022		2021
Operating activities:
Net income	$	67,884	$	135,486
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	97,286		45,501
Share-based compensation expense	11,210		13,040
Loss on extinguishment of debt	—		40,433
Provision for losses on accounts receivable	4,512		15,777
Deferred income tax expense (benefit)	1,601		(11,293)
Changes in operating lease right-of-use assets and lease liabilities	606		826
Loss on sale and dispositions of property and equipment	226		—
Changes in operating assets and liabilities:
Accounts receivable	16,275		(57,256)
Merchandise inventories	(24,438)		(298,294)
Accounts payable	12,349		127,473
Net change in other assets and liabilities	(23,945)		(3,363)
Other, net	5,958		4,076
Cash provided by operating activities	169,524		12,406
Investing activities:
Acquisition, net of cash acquired	(1,684,607)		—
Additions to property and equipment	(62,236)		(14,630)
Additions to computer software	(3,463)		(4,051)
Proceeds from sale of property and equipment	5,846		22
Other, net	(839)		—
Cash used for investing activities	(1,745,299)		(18,659)
Financing activities:
Proceeds from issuance of debt	1,691,000		500,000
Borrowings under revolving credit facility, net and accounts receivable securitization program	30,000		5,000
Repayments of debt	(1,500)		(523,140)
Borrowings under amended accounts receivable securitization program	347,800		—
Repayments under amended accounts receivable securitization program	(402,800)		—
Financing costs paid	(41,479)		(12,868)
Cash dividends paid	—		(364)
Payment for termination of interest rate swaps	—		(15,434)
Other, net	(42,388)		(17,982)
Cash provided by (used for) financing activities	1,580,633		(64,788)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,864)		(1,718)
Net increase (decrease) in cash, cash equivalents and restricted cash	994		(72,759)
Cash, cash equivalents and restricted cash at beginning of period	72,035		134,506
Cash, cash equivalents and restricted cash at end of period	$	73,029	$	61,747
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds	$	25,782	$	68,030
Interest paid	$	32,417	$	17,768
Noncash investing activity:
Unpaid purchases of property and equipment at end of period	$	56,429	$	—

See accompanying notes to consolidated financial statements.

Nine Months Ended September 30,
(in thousands) 2017 2016
Operating activities:
Net income $ 49,796
$ 81,682
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 41,060
42,182
Share-based compensation expense 8,592
8,934
Provision for losses on accounts receivable 1,158
(216 )
Deferred income tax (benefit) expense (4,585 ) (3,233 )
Changes in operating assets and liabilities:
Accounts receivable (79,114 ) 5,023
Merchandise inventories (56,134 ) (5,066 )
Accounts payable 79,787
58,742
Net change in other assets and liabilities (40,634 ) (44,903 )
Other, net 5,719
1,366
Cash provided by operating activities 5,645
144,511
Investing activities:
Acquisition, net of cash acquired (366,569 ) —
Additions to property and equipment (24,963 ) (13,682 )
Additions to computer software and intangible assets (12,826 ) (7,081 )
Proceeds from sale of property and equipment 780
4,497
Cash used for investing activities (403,578 ) (16,266 )
Financing activities:
Change in bank overdraft —
21,753
Proceeds from debt issuance 250,000
—
Borrowing under revolving credit facility 117,200
—
Financing costs paid (1,798 ) —
Cash dividends paid (47,316 ) (47,802 )
Repurchases of common stock (5,000 ) (48,654 )
Other, net (7,363 ) (8,118 )
Cash provided by (used for) financing activities 305,723
(82,821 )
Effect of exchange rate changes on cash and cash equivalents 5,137
6,652
Net increase (decrease) in cash and cash equivalents (87,073 ) 52,076
Cash and cash equivalents at beginning of period 185,488
161,020
Cash and cash equivalents at end of period $ 98,415
$ 213,096
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 26,917
$ 57,996
Interest paid $ 19,951
$ 20,023

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(unaudited)


(in thousands, except per share data)	Common Shares Outstanding	Common Stock ($2 par value )		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance, December 31, 2021	75,433	$	150,865	$	440,608	$	387,619	$	(40,591)	$	938,501
Net income						39,279				39,279
Other comprehensive loss								(598)		(598)
Share-based compensation expense, exercises and other	653	1,307		(30,867)						(29,560)
Balance, March 31, 2022	76,086	152,172		409,741		426,898		(41,189)		947,622
Net income						28,604				28,604
Other comprehensive loss								(15,770)		(15,770)
Share-based compensation expense, exercises and other	85	171		(1,968)						(1,797)
Balance, June 30, 2022	76,171	$	152,343	$	407,773	$	455,502	$	(56,959)	$	958,659

Balance, December 31, 2020	73,472	$	146,944	$	436,597	$	167,022	$	(38,509)	$	712,054
Net income						69,589				69,589
Other comprehensive income								7,903		7,903
Dividends declared ($0.0025 per share)						(434)				(434)
Share-based compensation expense, exercises and other	1,628	3,256		(6,107)						(2,851)
Balance, March 31, 2021	75,100	150,200		430,490		236,177		(30,606)		786,261
Net income						65,896				65,896
Other comprehensive loss								(2,412)		(2,412)
Dividends declared ($0.0025 per share)						(187)				(187)
Share-based compensation expense, exercises and other	295	591		(2,130)						(1,539)
Balance, June 30, 2021	75,395	$	150,791	$	428,360	$	301,886	$	(33,018)	$	848,019

See accompanying notes to consolidated financial statements.

(in thousands, except per share data)
Common
Shares
Outstanding

Common
Stock
($ 2 par value )

Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive Income
(Loss)

Total
Equity
Balance December 31, 2015 62,803
$ 125,606
$ 211,943
$ 706,866
$ (51,825 ) $ 992,590
Net income 81,682
81,682
Other comprehensive loss 3,263
3,263
Dividends declared ($0.765 per share) (47,671 ) (47,671 )
Shares repurchased and retired (1,378 ) (2,757 ) (45,896 ) (48,653 )
Share-based compensation expense, exercises and other 274
549
4,923
5,472
Balance September 30, 2016 61,699
$ 123,398
$ 216,866
$ 694,981
$ (48,562 ) $ 986,683

Balance December 31, 2016 61,031
$ 122,062
$ 219,955
$ 685,504
$ (67,483 ) $ 960,038
Net income 49,796
49,796
Other comprehensive income 41,141
41,141
Dividends declared ($0.7725 per share) (47,169 ) (47,169 )
Shares repurchased and retired (155 ) (310 ) (4,687 ) (4,997 )
Share-based compensation expense, exercises and other 373
747
4,228
4,975
Balance September 30, 2017 61,249
$ 122,499
$ 224,183
$ 683,444
$ (26,342 ) $ 1,003,784

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Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share data, unless otherwise indicated)

Note 1—~~Basis~~Summary of ~~Presentation and Use of Estimates~~Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, our or ~~our)~~the Company) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year. The Clinical & Procedural Solutions (CPS) business segment has been renamed "Proprietary Products" effective January 1, 2017. Byram Healthcare (Byram), acquired on August 1, 2017, is included in the Domestic segment. There have been no other

To better reflect how we go to market as well as certain changes to the leadership team, organizational structure, budgeting and financial reporting processes which drive changes to segment ~~composition or~~reporting, we have organized our ~~method~~business into 2 distinct segments: Products & Healthcare Services and Patient Direct. Products & Healthcare Services provides distribution, outsourced logistics and value-added services, and manufactures and sources medical surgical products through our production and kitting operations. Patient Direct expands our business along the continuum of ~~measuring~~care through delivery of disposable medical supplies sold directly to patients and home health agencies and is a leading provider of integrated home healthcare equipment and related services in the United States. Beginning with the quarter ended March 31, 2022, we now report financial results using this 2 segment ~~operating earnings.~~structure and have recast prior year segment results on the same basis.

On March 29, 2022, we completed the acquisition of 100% of Apria, Inc. pursuant to the Agreement and Plan of Merger dated January 7, 2022, in exchange for approximately $1.7 billion, net of cash acquired. Refer to Note 3 for additional details.

Reclassifications

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

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash included in Other assets, net as of June 30, 2022 and December 31, 2021 primarily represents cash held in an escrow account as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) initiatives related to wind-down costs of Fusion5.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows.


	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	56,406	$	55,712
Restricted cash included in Other assets, net	16,623		16,323
Total cash, cash equivalents, and restricted cash	$	73,029	$	72,035

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense for financial reporting purposes is computed on a straight-line method over the estimated useful lives of the assets or, for capital leases and leasehold improvements, over the term of the lease, if shorter. In general, the estimated useful lives for computing depreciation and amortization are three to 15 years for machinery and equipment, five to 40 years for buildings, one to 10 years for patient equipment, and up to 15 years for leasehold and land improvements. Straight-line and accelerated methods of

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depreciation are used for income tax purposes. Normal maintenance and repairs are expensed as incurred, and renovations and betterments are capitalized. We suspend depreciation and amortization on assets that are held for sale. In addition, we record capital-related government grants earned as reductions to the cost of property and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of our consolidated statements of cash flows. Patient equipment consists of medical equipment rented to patients on a month-to-month basis. Patient equipment depreciation is classified in our consolidated statements of operations within cost of goods sold as the equipment is rented to patients as part of our primary operations within the Patient Direct segment.

Revenue Recognition

Our revenue is primarily generated from sales contracts with customers. Under most of our distribution and product sales arrangements, our performance obligations are limited to delivery of products to a customer upon receipt of a purchase order. For these arrangements, we recognize revenue at the point in time when shipment is completed, as control passes to the customer upon product receipt.

Revenue for activity-based fees and other services is recognized over time as activities are performed. Depending on the specific contractual provisions and nature of the performance obligation, revenue from services may be recognized on a straight-line basis over the term of the service, on a proportional performance model, based on level of effort, or when final deliverables have been provided.

Our contracts sometimes allow for forms of variable consideration including rebates, discounts, performance guarantees, and implicit price concessions. In these cases, we estimate the amount of consideration to which we will be entitled in exchange for transferring the product or service to the customer. Rebates and customer discounts are estimated based on contractual terms or historical experience and we maintain an accrual for rebates or discounts that have been earned but are unpaid. When we have implicit price concessions, we determine the variable consideration under the expected value method as part of determining the sales transaction price using historical reimbursement experience, historical sales returns, and other operating trends.

In most cases, we record revenue gross, as we are the primary obligor. When we act as an agent in a sales arrangement and do not bear a significant portion of inventory risks, primarily for our outsourced logistics business, we record revenue net of product cost. Sales taxes collected from customers and remitted to governmental authorities are excluded from revenues.

Within our Patient Direct segment, revenues are recognized under fee-for-service arrangements for equipment we rent to patients and sales of equipment, supplies and other items we sell to patients. Revenue that is generated from equipment that we rent to patients is primarily recognized over the noncancelable rental period, typically one month, and commences on delivery of the equipment to the patients. Revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including private insurers, prepaid health plans, Medicare, Medicaid and patients. Rental revenue, less estimated adjustments, is recognized as earned on a straight-line basis over the noncancellable lease term. We recorded $144 million and $151 million in revenue related to equipment we rent to patients for the three and six months ended June 30, 2022. Equipment rental revenue was not material in the prior year.

Note 2—Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable, ~~financing receivables,~~ accounts payable, and ~~financing payables included~~accrued payroll and related liabilities reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The carrying amount of restricted cash also approximates fair value due to its nature. The fair value of ~~long-term~~ debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). ~~We determine~~See Note 6 for the fair value of debt. The fair value of our ~~derivatives, if any,~~derivative contracts is determined based on ~~estimated amounts that would be received or paid~~the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to ~~terminate~~determine the ~~contracts at the reporting date based on current market prices for applicable currencies.~~present value of expected future cash flows. See Note 8 for the fair value of ~~long-term debt.~~derivatives.

Note 3—Acquisition

On ~~August 1, 2017,~~March 29, 2022 (the Acquisition Date), we completed the acquisition of ~~Byram Healthcare,~~100% of Apria, Inc. (Apria) pursuant to the Agreement and Plan of Merger (Apria Acquisition) dated January 7, 2022, in exchange for approximately $1.7 billion, net of $144 million of cash acquired. The purchase was funded with a combination of debt and cash on hand. At the time of the Apria Acquisition, each share of Apria’s common stock was converted into the right to receive $37.50 in cash. Apria is a leading ~~domestic distributor~~provider of ~~reimbursable medical supplies sold directly to patients~~integrated home healthcare equipment and ~~home health agencies.~~

~~The consideration was $367 million, net of cash acquired, which~~related services in the United States. This business is subject to final working capital adjustments with the seller. The purchase price was allocated on a preliminary basis to the underlying assets acquired and liabilities assumed based upon our current estimate of their fair values at the date of acquisition. The purchase price exceeded the preliminary estimated fair valuereported as part of the ~~net tangible and identifiable intangible assets by $263 million, which was allocated to goodwill.~~ Patient Direct segment.

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The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed recognized as of the ~~acquisition date.~~Acquisition Date. The fair value and useful lives of ~~intangibles from this acquisition was primarily determined by applying~~tangible and intangible assets acquired have been estimated based on a review of publicly available data for transactions involving companies deemed comparable to the ~~income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs.~~Company. The allocation of purchase price to assets and liabilities acquired is not yet ~~complete.~~complete, as valuations of tangible and intangible assets and liabilities are still in process.


	Preliminary Fair Value Originally Estimated as of Acquisition Date(1)		Differences Between Prior and the Current Periods Preliminary Fair Value Estimate		Preliminary Fair Value Currently Estimated as of Acquisition Date
Assets acquired:
Current assets	$	142,136	$	(2,209)	$	139,927
Goodwill	1,267,079		2,808		1,269,887
Intangible assets	295,466		—		295,466
Other non-current assets	371,320		1,468		372,788
Total assets	2,076,001		2,067		2,078,068
Liabilities assumed:
Current liabilities	241,266		2,741		244,007
Noncurrent liabilities	150,128		(674)		149,454
Total liabilities	391,394		2,067		393,461
Fair value of net assets acquired, net of cash	$	1,684,607	$	—	$	1,684,607

(1) As previously reported in our first quarter 2022 Form 10-Q.

~~Table~~Current assets acquired includes $89.3 million in fair value of ~~Contents~~

Preliminary Fair
Value Estimated as of
Acquisition Date
Assets acquired:
Current assets $ 62,902
Goodwill 263,155
Intangible assets 156,000
Noncurrent assets 3,615
Total assets 485,672
Liabilities assumed:
Current liabilities 72,397
Noncurrent liabilities 46,706
Total liabilities 119,103
Fair value of net assets acquired, net of cash $ 366,569

receivables, which reflects the approximate amount contractually owed. We are amortizing the preliminary fair value of acquired intangible assets, primarily customer ~~relationships~~contracts, trade names and ~~a tradename,~~payor and capitated relationships, over their estimated ~~remaining~~ weighted average useful lives of 10two to 15 years.

Goodwill of ~~$263 million,~~$1.3 billion, which we assigned to our ~~Domestic~~Patient Direct segment, consists largely of expected opportunities to expand into new markets and further develop a presence in the ~~non-acute market with direct to patient distribution capabilities.~~home healthcare business. None of the goodwill recognized is expected to be deductible for income tax purposes.

~~Pro~~The following table provides pro forma results of ~~operations for Byram has not been presented because the effects on~~net revenue and net (loss) income ~~were~~for the three and six months ended June 30, 2022 and 2021 as if Apria was acquired on January 1, 2021. The pro forma results below are not ~~material to our historic consolidated financial statements.~~

~~Acquisition-related expenses~~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 ~~current year consisted primarily~~future.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenue	$	2,500,015	$	2,775,739	$	5,184,080	$	5,377,547
Net income (loss)	$	28,604	$	86,472	$	(61,578)	$	160,606

Pro forma net loss of ~~transaction costs incurred to perform due diligence~~$61.6 million for the six months ended June 30, 2022 includes pro forma adjustments for interest expense of $20.8 million and ~~to analyze, negotiate and consummate the Byram acquisition, and costs to transition the acquired operations. We recognized pre-tax acquisition-related expenses~~amortization of ~~$3.1~~intangible assets of $20.3 million. The pro forma net loss also includes $39.4 million in ~~2017 related~~seller transaction expenses and stock compensation expense associated with $108 million owed to ~~these activities.~~

~~Note 4—Financing Receivables~~the holders of Apria stock awards in connection with the Apria Acquisition. Revenue and ~~Payables~~

~~At September 30, 2017 and December 31, 2016, we had financing receivables~~net loss of ~~$176.9 million and $156.5 million and related payables of $105.5 million and $110.0 million outstanding under our order-to-cash program and product financing arrangements, which were~~Apria since the Acquisition Date included ~~in other current assets and other current liabilities, respectively,~~ in the consolidated ~~balance sheets.~~statement of operations for the six months ended June 30, 2022 were $310 million and $30.3 million, respectively.

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Note 5—4—Goodwill and Intangible Assets

In connection with our new segment structure, which began in the first quarter of 2022, goodwill is now reported as part of Products & Healthcare Services or Patient Direct. There was no change to our underlying reporting units as part of that segment change and therefore no reallocation of goodwill. The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through ~~September~~June 30, ~~2017:~~2022:


	Products & Healthcare Services		Patient Direct		Consolidated
Carrying amount of goodwill, December 31, 2021	$	106,280	$	283,905	$	390,185
Acquisition	—		1,269,887		1,269,887
Currency translation adjustments	(3,764)		—		(3,764)
Carrying amount of goodwill, June 30, 2022	$	102,516	$	1,553,792	$	1,656,308

Domestic International Proprietary Products Consolidated
Carrying amount of goodwill, December 31, 2016 $ 180,006
$ 19,391
$ 215,539
$ 414,936
Acquisition (See Note 3) 263,155
—
—
263,155
Currency translation adjustments —
10,001
2,138
12,139
Carrying amount of goodwill, September 30, 2017 $ 443,161
$ 29,392
$ 217,677
$ 690,230

Intangible assets subject to amortization at ~~September~~June 30, ~~2017,~~2022 and December 31, ~~2016,~~2021 were as follows:

September 30, 2017 December 31, 2016

Customer
Relationships

Other
Intangibles
Customer
Relationships Other
Intangibles

Gross intangible assets $ 241,444
$ 41,483
$ 118,223
$ 4,045
Accumulated amortization (48,757 ) (2,284 ) (38,429 ) (1,328 )
Net intangible assets $ 192,687
$ 39,199
$ 79,794
$ 2,717


	June 30, 2022							December 31, 2021
		Customer Relationships		Tradenames		Other Intangibles			Customer Relationships		Tradenames		Other Intangibles
Gross intangible assets		$	273,030	$	156,936	$	271,518		$	275,526	$	90,000	$	43,189
Accumulated amortization		(157,804)		(39,238)		(41,998)			(146,168)		(33,242)		(19,560)
Net intangible assets		$	115,226	$	117,698	$	229,520		$	129,358	$	56,758	$	23,629
Weighted average useful life		10 years		11 years		5 years			10 years		11 years		8 years

At ~~September~~June 30, ~~2017, $163.5~~2022 and December 31, 2021, $150 million and $164 million in net intangible assets were held in the ~~Domestic~~Products & Healthcare Services segment ~~$10.2~~and $313 million and $45.7 million were held in the ~~International segment and $58.2 million were held in the Proprietary Products~~Patient Direct segment. Amortization expense for intangible assets was ~~$5.1~~$30.9 million and ~~$2.2~~$10.0 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 and ~~$9.7~~$41.2 million and ~~$6.6~~$20.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. At June 30, 2022, other intangibles includes preliminary estimated fair values of payor relationships, customer list and other intangible assets acquired as part of the Apria Acquisition.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is ~~$11.6~~approximately $63 million for the remainder of ~~2017, $24.6~~2022, $126 million for ~~2018, $24.7~~2023, $67 million for ~~2019, $24.7~~2024, $42 million for ~~2020, $24.4~~2025, $41 million for ~~2021~~2026 and ~~$23.5~~$38 million for ~~2022.~~2027.

Note 6—5—Exit and Realignment ~~Charges~~Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain distribution and outsourced logistics centers, administrative offices and warehouses, ~~in the United States~~our client engagement center and ~~Europe.~~IT restructuring charges. These charges also include costs associated with our strategic organizational realignment which include ~~management changes,~~leadership reorganization costs, certain professional fees, ~~and~~ costs to streamline administrative functions and ~~processes.~~processes and divestiture related costs.

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Exit and realignment charges by segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Domestic segment $ 3,880
$ 1,224
$ 12,421
$ 14,194
International segment 574
457
1,406
3,284
Proprietary Products segment 592
465
1,015
1,574
Total exit and realignment charges $ 5,046
$ 2,146
$ 14,842
$ 19,052


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Products & Healthcare Services	$	1,214	$	7,879	$	2,413	$	13,842
Patient Direct	—		745		483		745
Total exit and realignment charges	$	1,214	$	8,624	$	2,896	$	14,587

The following table summarizes the activity related to exit and realignment cost accruals through ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

2021:

Lease
Obligations

Severance and
Other
Total
Accrued exit and realignment costs, December 31, 2016 $ —
$ 2,238
$ 2,238
Provision for exit and realignment activities —
3,211
3,211
Change in estimate —
(304 ) (304 )
Cash payments —
(3,034 ) (3,034 )
Accrued exit and realignment costs, March 31, 2017 —
2,111
2,111
Provision for exit and realignment activities —
1,382
1,382
Change in estimate —
(18 ) (18 )
Cash payments —
(667 ) (667 )
Accrued exit and realignment costs, June 30, 2017 —
2,808
2,808
Provision for exit and realignment activities —
3,156
3,156
Cash payments —
(423 ) (423 )
Accrued exit and realignment costs, September 30, 2017 $ —
$ 5,541
$ 5,541

Accrued exit and realignment costs, December 31, 2015 $ 486
$ 1,840
$ 2,326
Provision for exit and realignment activities —
9,895
9,895
Cash payments, net of sublease income (486 ) (1,287 ) (1,773 )
Accrued exit and realignment costs, March 31, 2016 —
10,448
10,448
Provision for exit and realignment activities —
1,254
1,254
Cash payments, net of sublease income —
(7,087 ) (7,087 )
Accrued exit and realignment costs, June 30, 2016 —
4,615
4,615
Provision for exit and realignment activities —
725
725
Change in Estimate —
(268 ) (268 )
Cash payments, net of sublease income —
(2,066 ) (2,066 )
Accrued exit and realignment costs, September 30, 2016 $ —
$ 3,006
$ 3,006


	Total
Accrued exit and realignment costs, December 31, 2021	$	8,306
Provision for exit and realignment activities:
Severance	811
Other	871
Cash payments	(6,903)
Accrued exit and realignment costs, March 31, 2022	3,085
Provision for exit and realignment activities:
Severance	246
Other	968
Cash payments	(3,477)
Accrued exit and realignment costs, June 30, 2022	$	822

Accrued exit and realignment costs, December 31, 2020	$	3,146
Provision for exit and realignment activities:
Information system restructuring costs	1,029
Lease obligations	347
Other	781
Cash payments	(2,915)
Accrued exit and realignment costs, March 31, 2021	2,388
Provision for exit and realignment activities:
Information system restructuring costs	1,611
Lease obligations	(126)
Other	989
Cash payments	(2,302)
Accrued exit and realignment costs, June 30, 2021	$	2,560

In addition to the exit and realignment accruals in the preceding table, we also incurred ~~$1.9~~$6.2 million and $10.0 million of costs that were expensed as incurred for the three and six months ended ~~September~~June 30, ~~2017, including $1.7~~2021, which primarily includes $4.9 million and $8.0 million related to an increase in ~~information system restructuring costs, and $0.2 million in other costs. For the nine months ended September 30, 2017, we recognized $7.4 million~~reserves associated with certain retained assets of ~~costs that were expensed as incurred, including $4.5 million in asset write-downs, $1.9 million in information system restructuring costs and $1.0 million in other costs.~~

We incurred $1.7 million of costs that were expensed as incurred for the three months ended September 30, 2016, including $0.7 million in other facility costs, $0.5 million in labor costs, $0.4 million in information systems costs, and $0.1 million in other costs. For the nine months ended September 30, 2016, we recognized $7.4 million of costs that were expensed as incurred, including $3.6 million in consulting costs, $1.8 million in information system costs, $0.7 million in other facility costs, $0.5 million in labor costs, and $0.8 million in other costs.

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~~Note 7—Retirement Plans~~

We have a noncontributory, unfunded retirement plan for certain officers and other key employees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.

~~The components of net periodic benefit cost, which are included in distribution, selling and administrative expenses,~~Fusion5 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021.

Acquisition-related charges within acquisition-related and ~~2016,~~exit and realignment charges presented in our consolidated statements of operations were ~~as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Service cost $ 26
$ 27
$ 53
$ 70
Interest cost 474
508
1,422
1,523
Recognized net actuarial loss 456
412
1,367
1,236
Net periodic benefit cost $ 956
$ 947
$ 2,842
$ 2,829

~~Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.5~~$6.4 million and ~~$0.4~~$38.3 million for the three and six months ended ~~September~~June 30, ~~2017~~2022, which consisted primarily of costs related to the Apria acquisition. There were 0 acquisition-related charges included within acquisition-related and ~~2016~~exit and ~~$1.3 million~~ realignment charges presented in our consolidated statements of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016.~~2021.

We do not expect material additional costs in 2022 for activities that were initiated through June 30, 2022.

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Note 8—6—Debt

Debt consists of the following:


	June 30, 2022				December 31, 2021
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Receivables Securitization Program	$	171,503	$	175,000	$	197,026	$	200,000
4.375% Senior Notes, due December 2024	245,361		241,739		245,086		263,263
Term Loan A	489,789		500,000		—		—
4.500% Senior Notes, due March 2029	492,176		406,660		491,656		515,225
Term Loan B	577,746		595,508		—		—
6.625% Senior Notes, due March 2030	584,432		550,782		—		—
Finance leases and other	15,421		15,421		15,809		15,809
Total debt	2,576,428		2,485,110		949,577		994,297
Less current maturities	(10,815)		(10,815)		(2,037)		(2,037)
Long-term debt	$	2,565,613	$	2,474,295	$	947,540	$	992,260

We have ~~$275~~$246 million, ~~of 3.875% senior notes due 2021 (the “2021 Notes”)~~excluding deferred financing costs and ~~$275 million~~third party fees, of 4.375% senior notes due in 2024 (the ~~“2024 Notes”)~~2024 Notes), with interest payable semi-annually. ~~The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%.~~ 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 ~~2021 Notes and~~ 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. As

In March 2021, we issued $500 million, excluding deferred financing costs and third party fees, of ~~September 30, 2017 and December 31, 2016, the estimated fair value~~4.500% senior unsecured notes due in 2029 (the 2029 Unsecured Notes), with interest payable semi-annually (the Notes Offering). The 2029 Unsecured Notes were sold at 100% of the ~~2021 Notes was $280.1 million and $274.5 million and the estimated fair value~~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 ~~was $276.9 million~~redeemed, plus accrued and ~~$270.0 million, respectively.~~unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 10, 2021 (the Indenture). On or after March 31, 2024, we may redeem all or part of the 2029 Unsecured Notes at the applicable redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem up to 40% of the aggregate principal amount of the 2029 Unsecured Notes at any time prior to March 31, 2024, at a redemption price equal to 104.5% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

On ~~July 27, 2017,~~March 29, 2022, we completed the sale of $600 million in aggregate principal amount of our 6.625% senior notes due in 2030 (the 2030 Unsecured Notes), with interest payable semi-annually. The 2030 Unsecured Notes were sold at 100% of the principal amount with an effective yield of 6.625%.

We may redeem all or part of the 2030 Unsecured Notes, prior to April 1, 2025, at a price equal to 100% of the principal amount of the 2030 Unsecured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 29, 2022 (the New Indenture). From and after April 1, 2025, we may redeem all or part of the 2030 Unsecured Notes at the applicable redemption prices described in the New Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. We may also redeem up to 40% of the aggregate principal amount of 2030 Unsecured Notes at any time prior to April 1, 2025, at a redemption price equal to 106.625% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

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

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 2 new ~~Credit Agreement replacing the Amended Credit Agreement. The new agreement provides borrowing capacity of~~credit facilities (i) a $500 million Term Loan A facility (the Term Loan A), and (ii) a $600 million ~~and a $250 million term loan. We make principal payments under the term loan on a quarterly basis with the remaining outstanding principal due in five years. The revolving credit~~Term Loan B facility has a five-year maturity. The proceeds from the new borrowing were primarily used to fund the Byram acquisition which closed on August 1, 2017. Under the Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million.(the Term Loan B). The interest rate on the ~~Credit Agreement, which is subject to adjustment quarterly,~~Term Loan A is based on either the ~~London Interbank Offered Rate (LIBOR), the Federal Funds Rate~~Term SOFR or the ~~Prime~~Base Rate plus an ~~adjustment~~Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the

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Term SOFR or the ~~better~~Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029.

On March 29, 2022, we entered into an amendment to our revolving credit agreement, dated as of March 10, 2021 with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (Revolving Credit Agreement). The amendment (i) increased the aggregate revolving credit commitments under the Revolving Credit Agreement by $150 million, to an aggregate amount of $450 million and (ii) replaced the Eurocurrency Rate with the Adjusted Term SOFR Rate (each as defined in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027.

At June 30, 2022, we had no borrowings and letters of credit of $28.0 million under our revolving credit facility. At December 31, 2021, we had no borrowings and letters of credit of $9.4 million outstanding under our revolving credit facility. At June 30, 2022 and December 31, 2021, we had $422 million and $291 million available for borrowing under our revolving credit facility. We also had letters of credit and bank guarantees, which were issued outside of the revolving credit facility for $2.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

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

On March 29, 2022, we entered into an amendment to our accounts receivable securitization program (the Receivables Financing Agreement). Pursuant to the amended Receivables Financing Agreement, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $450 million outstanding at any time. The interest rate under the Receivables Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our ~~debt ratings or leverage ratio (Credit Spread) as defined by~~subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025.

The Revolving Credit Agreement, Term Loan A, Term Loan B, Receivables Financing Agreement, 2024 Notes, 2029 Unsecured Notes, and 2030 Unsecured Notes contain cross-default provisions which could result in the ~~Credit Agreement. We are charged a commitment fee~~acceleration of ~~between 12.5 and 25.0 basis points on~~payments due in the ~~unused portion~~event of default of any of the ~~facility.~~related agreements. The terms of the ~~Credit Agreement limit the amount of indebtedness that we may incur and~~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. Based on our leverage ratio at September 30, 2017, the interest rate under the credit facility is LIBOR plus 1.375%.~~

At September 30, 2017, we had borrowings of $117.2 million under the revolver and letters of credit of approximately $5.1 million outstanding under the Credit Agreement, leaving $477.7 million available for borrowing.acquisition or divestiture. We ~~also had a letter of credit outstanding for $1.3 million as of September 30, 2017 and $1.1 million at December 31, 2016, which supports our facilities leased in Europe.~~

~~The Credit Agreement and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we~~ were in compliance with our debt covenants at ~~September~~June 30, ~~2017.~~2022.

As of June 30, 2022, scheduled future principal payments of debt, excluding finance leases and other, were $3.0 million in 2022, $15.4 million in 2023, $274 million in 2024, $215 million in 2025, $43.5 million in 2026, $403 million in 2027, $6.0 million in 2028, $1.1 billion in 2029, and $600 million in 2030. Current maturities at June 30, 2022 include $3.1 million in principal payments on our Term Loan A, $6.0 million in principal payments on our Term Loan B and $1.7 million in current portion of finance leases.

Note 7—Retirement Plans

We have a frozen noncontributory, unfunded retirement plan for certain retirees in the United States (U.S. Retirement Plan). As of June 30, 2022 and December 31, 2021, the accumulated benefit obligation of the U.S. Retirement Plan was $49.0 million and $50.2 million. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective teammates.

The components of net periodic benefit cost for the three and six months ended June 30, 2022 and 2021 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Service cost	$	617	$	709	$	1,250	$	1,413
Interest cost	519		448		1,042		894
Recognized net actuarial loss	267		354		534		707
Net periodic benefit cost	$	1,403	$	1,511	$	2,826	$	3,014

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Note 8—Derivatives

We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.

We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.

We pay interest on our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we entered into an interest rate swap agreement whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreement are included in interest expense.

We determine the fair value of our foreign currency derivatives and interest rate swaps based on observable market-based inputs or unobservable inputs that are corroborated by market data. We do not view the fair value of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying exposure. All derivatives are carried at fair value in our consolidated balance sheets in other current assets and other current liabilities. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of June 30, 2022:


				Derivative Assets			Derivative Liabilities
	Notional Amount		Maturity Date	Classification	Fair Value		Classification	Fair Value
Cash flow hedges
Interest rate swaps	$	400,000	March 2027	Other assets	$	3,736	Other liabilities	$	—

Economic (non-designated) hedges
Foreign currency contracts	$	61,077	July 2022	Other current assets	$	5	Other current liabilities	$	227

In March 2021, we terminated the remaining $300 million in notional value of interest rate swaps concurrent with the debt financing transaction. The remaining balance of the fair value adjustments of $25.1 million, which related to these terminated interest rate swaps, within Accumulated other comprehensive loss was reclassified to Loss on extinguishment of debt within our consolidated statements of operations for the six months ended June 30, 2021.

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2021:

Derivative Assets

Derivative Liabilities

Notional Amount

Maturity Date

Classification

Fair Value

Classification

Fair Value

Economic (non-designated) hedges

Foreign currency contracts

9,700

January 2022

Other current assets

Other current liabilities

—

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The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 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 June 30, 2022		Six months ended June 30, 2022			Three months ended June 30, 2022		Six months ended June 30, 2022		Three months ended June 30, 2022		Six months ended June 30, 2022
Interest rate swaps	$	2,044	$	2,044	Interest expense, net	$	(35,839)	$	(47,858)	$	(1,692)	$	(1,692)

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 30, 2021:


	Amount of Gain Recognized in Other Comprehensive Income (Loss)				Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income	Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded				Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
	Three months ended June 30, 2021		Six months ended June 30, 2021			Three months ended June 30, 2021		Six months ended June 30, 2021		Three months ended June 30, 2021		Six months ended June 30, 2021
Interest rate swaps	$	—	$	2,426	Loss on extinguishment of debt	$	—	$	(40,433)	$	—	$	(25,518)

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

For the three and six months ended June 30, 2022 we recognized losses of $1.3 million and $1.4 million associated with our economic (non-designated) foreign currency contracts. For the three and six months ended June 30, 2021 we recognized losses of $0.6 million and $1.6 million associated with our economic (non-designated) foreign currency contracts.

We recorded the change in fair value of derivative instruments and the remeasurement adjustment of the foreign currency denominated asset or liability in other operating income, net for our foreign exchange contracts.

Note 9—Leases

The components of lease expense were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
	Classification	2022		2021		2022		2021
Operating lease cost	DS&A Expenses	$	24,501	$	14,705	$	40,601	$	28,791
Finance lease cost:
Amortization of lease assets	DS&A Expenses	295		182		626		421
Interest on lease liabilities	Interest expense, net	304		294		611		601
Total finance lease cost		599		476		1,237		1,022
Short-term lease cost	DS&A Expenses	1,039		225		1,155		483
Variable lease cost	DS&A Expenses	9,299		4,343		14,028		8,660
Total lease cost		$	35,438	$	19,749	$	57,021	$	38,956

Variable lease cost consists primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities which are paid as incurred.

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Supplemental balance sheet information is as follows:


	Classification	June 30, 2022		December 31, 2021
Assets:
Operating lease assets	Operating lease assets	$	278,291	$	194,006
Finance lease assets	Property and equipment, net	8,468		8,896
Total lease assets		$	286,759	$	202,902
Liabilities:
Current
Operating	Other current liabilities	$	69,650	$	41,817
Finance	Other current liabilities	1,691		2,037
Noncurrent
Operating	Operating lease liabilities, excluding current portion	220,504		162,241
Finance	Long-term debt, excluding current portion	11,429		11,314
Total lease liabilities		$	303,274	$	217,409

The gross value recorded under finance leases was $17.9 million and $20.6 million with associated accumulated amortization of $9.4 million and $11.7 million as of June 30, 2022 and December 31, 2021. Operating lease assets include $77.8 million in right-of-use assets and $79.6 million of operating lease liabilities associated with Apria as of June 30, 2022.

Other information related to leases was as follows:


	Six Months Ended June 30,
	2022		2021
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating and finance leases	$	39,256	$	28,471
Financing cash flows from finance leases	$	744	$	423

Right-of-use assets obtained in exchange for new operating and finance lease liabilities	$	49,641	$	54,640

Weighted average remaining lease term (years)
Operating leases	4.5		5.2
Finance leases	6.1		7.7

Weighted average discount rate
Operating leases	6.8%		8.8%
Finance leases	10.8%		12.4%

Maturities of lease liabilities as of June 30, 2022 were as follows:

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	Operating Leases		Finance Leases		Total
2022	$	45,195	$	1,351	$	46,546
2023	88,720		2,693		91,413
2024	74,905		2,641		77,546
2025	54,017		2,588		56,605
2026	37,149		2,506		39,655
Thereafter	54,088		4,774		58,862
Total lease payments	354,074		16,553		370,627
Less: Interest	(63,920)		(3,433)		(67,353)
Present value of lease liabilities	$	290,154	$	13,120	$	303,274

As of June 30, 2022, we had an estimated net $50 million cancellable commitment, which includes a potential lease, associated with a future site of a center of excellence for medical supplies and logistics in Morgantown, West Virginia.

Note 10—Income Taxes

The effective tax rate was ~~48.1%~~25.6% and ~~34.3%~~21.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to ~~36.3%~~21.8% and ~~37.3%~~23.2% in the same periods of ~~2016.~~2021. The ~~changes~~change in ~~the effective tax rate compared to 2016~~these rates resulted primarily from ~~a change~~the mixture of income and losses in ~~income mix among different tax rate~~ jurisdictions ~~and the effect of certain acquisition-related costs~~in which ~~were not deductible for tax purposes~~we operate, offset ~~on a year to date basis~~ by the ~~release of an~~incremental income tax ~~valuation allowance~~benefit associated with the vesting of restricted stock recorded in ~~Europe for $3.4 million during~~ the ~~second quarter of 2017.~~

six months ended June 30, 2022. The liability for unrecognized tax benefits was ~~$13.3~~$21.7 million at ~~September~~June 30, ~~2017,~~2022 and ~~$10.7~~$21.4 million at December 31, ~~2016.~~2021. Included in the liability at ~~September~~June 30, ~~2017~~2022 and December 31, 2021 were ~~$5.0~~$2.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied through the current date. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that we have adequately reserved for this matter and that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest, and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.

Table of Contents

Note ~~10—~~11—Net Income per Common Share

The following summarizes the calculation of net income per common share attributable to common shareholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share data) 2017 2016 2017 2016
Numerator:
Net income $ 10,871
$ 29,831
$ 49,796
$ 81,682
Less: income allocated to unvested restricted shares (279 ) (291 ) (738 ) (855 )
Net income attributable to common shareholders - basic 10,592
29,540
49,058
80,827
Add: undistributed income attributable to unvested restricted shares - basic —
80
16
216
Less: undistributed income attributable to unvested restricted shares - diluted —
(80 ) (16 ) (216 )
Net income attributable to common shareholders - diluted $ 10,592
$ 29,540
$ 49,058
$ 80,827
Denominator:
Weighted average shares outstanding - basic and diluted 59,849
61,015
60,010
61,405
Net income per share attributable to common shareholders:
Basic and diluted $ 0.18
$ 0.48
$ 0.82
$ 1.32


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net income	$	28,604	$	65,896	$	67,884	$	135,486

Weighted average shares outstanding - basic	74,710		72,818		74,158		72,474
Dilutive shares	1,587		2,987		2,011		2,791
Weighted average shares outstanding - diluted	76,297		75,805		76,169		75,265

Net income per common share:
Basic	$	0.38	$	0.90	$	0.92	$	1.87
Diluted	$	0.37	$	0.87	$	0.89	$	1.80

Note ~~11—Shareholders’~~12—Shareholders' Equity

Our Board of Directors has authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in December 2019. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and may be suspended or discontinued at any time. Purchases under the share repurchase program are made either

In May 2020, we entered into an equity distribution agreement, pursuant to ~~10b5-1 plans entered into by the company~~which we may offer and sell, from time to time, and/or during the company’s scheduled quarterly trading windows for officers and directors. During the nine months ended September 30, 2017, we repurchased in open-market transactions and retired approximately 0.2 million shares of our common stock ~~for~~having an aggregate offering price of ~~$5.0 million,~~ 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 ~~an average price per share of $32.27.~~for general corporate and working capital purposes. As of ~~September~~June 30, ~~2017, we have approximately $94.0~~2022, no shares were issued and $50.0 million ~~remaining~~of common stock remained available under the ~~repurchase~~at-the-market equity financing program. ~~We have elected to allocate any excess of share repurchase price over par value to retained earnings.~~

Note ~~12—~~13—Accumulated Other Comprehensive ~~Income (Loss)~~Loss

The following table shows the changes in accumulated other comprehensive ~~income (loss)~~loss by component for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	Retirement Plans		Currency Translation Adjustments		Derivatives		Total
Accumulated other comprehensive loss, March 31, 2022	$	(14,408)	$	(26,781)	$	—	$	(41,189)
Other comprehensive (loss) income before reclassifications	—		(18,831)		2,044		(16,787)
Income tax	—		—		(532)		(532)
Other comprehensive (loss) income before reclassifications, net of tax	—		(18,831)		1,512		(17,319)
Amounts reclassified from accumulated other comprehensive loss	386		—		1,692		2,078
Income tax	(89)		—		(440)		(529)
Amounts reclassified from accumulated other comprehensive loss, net of tax	297		—		1,252		1,549
Other comprehensive (loss) income	297		(18,831)		2,764		(15,770)
Accumulated other comprehensive (loss) gain, June 30, 2022	$	(14,111)	$	(45,612)	$	2,764	$	(56,959)

Retirement Plans
Currency
Translation
Adjustments
Other Total
Accumulated other comprehensive income (loss), June 30, 2017 $ (10,743 ) $ (28,348 ) $ 165
$ (38,926 )
Other comprehensive income (loss) before reclassifications —
12,254
94
12,348
Income tax —
—
—
—
Other comprehensive income (loss) before reclassifications, net of tax —
12,254
94
12,348
Amounts reclassified from accumulated other comprehensive income (loss) 456
—
—
456
Income tax (220 ) —
—
(220 )
Amounts reclassified from accumulated other comprehensive income (loss), net of tax 236
—
—
—
236
Other comprehensive income (loss) 236
12,254
94
12,584
Accumulated other comprehensive income (loss), September 30, 2017 $ (10,507 ) $ (16,094 ) $ 259
$ (26,342 )

Accumulated other comprehensive income (loss), June 30, 2016 $ (9,999 ) $ (40,186 ) $ (78 ) $ (50,263 )
Other comprehensive income (loss) before reclassifications —
1,401
82
1,483
Income tax —
—
—
—
Other comprehensive income (loss) before reclassifications, net of tax —
1,401
82
1,483
Amounts reclassified from accumulated other comprehensive income (loss) 412
—
—
412
Income tax (194 ) —
—
(194 )
Amounts reclassified from accumulated other comprehensive income (loss), net of tax 218
—
—
—
218
Other comprehensive income (loss) 218
1,401
82
1,701
Accumulated other comprehensive income (loss), September 30, 2016 $ (9,781 ) $ (38,785 ) $ 4
$ (48,562 )

Table of Contents

Retirement Plans
Currency
Translation
Adjustments
Other Total
Accumulated other comprehensive income (loss), December 31, 2016 $ (11,209 ) $ (56,245 ) $ (29 ) $ (67,483 )
Other comprehensive income (loss) before reclassifications

40,151
288
40,439
Income tax —
—
—
—
Other comprehensive income (loss) before reclassifications, net of tax —
40,151
288
40,439
Amounts reclassified from accumulated other comprehensive income (loss) 1,367
—
—
1,367
Income tax (665 ) —
—
(665 )
Amounts reclassified from accumulated other comprehensive income (loss), net of tax 702
—
—
702
Other comprehensive income (loss) 702
40,151
288
41,141
Accumulated other comprehensive income (loss), September 30, 2017 $ (10,507 ) $ (16,094 ) $ 259
$ (26,342 )

Accumulated other comprehensive income (loss), December 31, 2015 $ (10,482 ) $ (41,228 ) $ (115 ) $ (51,825 )
Other comprehensive income (loss) before reclassifications —
2,443
119
2,562
Income tax —
—
—
—
Other comprehensive income (loss) before reclassifications, net of tax —
2,443
119
2,562
Amounts reclassified from accumulated other comprehensive income (loss) 1,233
—
—
1,233
Income tax (532 ) —
—
(532 )
Amounts reclassified from accumulated other comprehensive income (loss), net of tax 701
—
—
701
Other comprehensive income (loss) 701
2,443
119
3,263
Accumulated other comprehensive income (loss), September 30, 2016 $ (9,781 ) $ (38,785 ) $ 4
$ (48,562 )


	Retirement Plans		Currency Translation Adjustments		Derivatives		Total
Accumulated other comprehensive loss, March 31, 2021	$	(18,326)	$	(12,280)	$	—	$	(30,606)
Other comprehensive loss before reclassifications	—		(2,448)		—		(2,448)
Income tax	—		—		—		—
Other comprehensive loss before reclassifications, net of tax	—		(2,448)		—		(2,448)
Amounts reclassified from accumulated other comprehensive loss	48		—		—		48
Income tax	(12)		—		—		(12)
Amounts reclassified from accumulated other comprehensive loss, net of tax	36		—		—		36
Other comprehensive income (loss)	36		(2,448)		—		(2,412)
Accumulated other comprehensive loss, June 30, 2021	$	(18,290)	$	(14,728)	$	—	$	(33,018)


	Retirement Plans		Currency Translation Adjustments		Derivatives		Total
Accumulated other comprehensive loss, December 31, 2021	$	(14,597)	$	(25,994)	$	—	$	(40,591)
Other comprehensive (loss) income before reclassifications	—		(19,618)		2,044		(17,574)
Income tax	—		—		(532)		(532)
Other comprehensive (loss) income before reclassifications, net of tax	—		(19,618)		1,512		(18,106)
Amounts reclassified from accumulated other comprehensive loss	635		—		1,692		2,327
Income tax	(149)		—		(440)		(589)
Amounts reclassified from accumulated other comprehensive loss, net of tax	486		—		1,252		1,738
Other comprehensive (loss) income	486		(19,618)		2,764		(16,368)
Accumulated other comprehensive (loss) gain, June 30, 2022	$	(14,111)	$	(45,612)	$	2,764	$	(56,959)


	Retirement Plans		Currency Translation Adjustments		Derivatives		Total
Accumulated other comprehensive loss, December 31, 2020	$	(18,447)	$	(18)	$	(20,044)	$	(38,509)
Other comprehensive (loss) income before reclassifications	—		(14,710)		2,426		(12,284)
Income tax	—		—		(611)		(611)
Other comprehensive (loss) income before reclassifications, net of tax	—		(14,710)		1,815		(12,895)
Amounts reclassified from accumulated other comprehensive loss	204		—		25,518		25,722
Income tax	(47)		—		(7,289)		(7,336)
Amounts reclassified from accumulated other comprehensive loss, net of tax	157		—		18,229		18,386
Other comprehensive income (loss)	157		(14,710)		20,044		5,491
Accumulated other comprehensive loss, June 30, 2021	$	(18,290)	$	(14,728)	$	—	$	(33,018)

We include amounts reclassified out of accumulated other comprehensive ~~income~~loss related to defined benefit pension plans as a component of net periodic pension cost recorded in ~~distribution, selling and administrative expenses. For the three and nine months ended September 30, 2017, we reclassified $0.5 million and $1.4 million~~Other expense, net.

Table of ~~actuarial net losses. For the three and nine months ended September 30, 2016, we reclassified $0.4 million and $1.2 million of actuarial net losses.~~Contents

Note ~~13—~~14—Segment Information

We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under ~~three~~2 segments: ~~Domestic, International~~Products & Healthcare Services and ~~Proprietary Products.~~Patient Direct. The ~~Domestic~~Products & Healthcare Services segment includes our United States distribution business (Medical Distribution), outsourced logistics and value-added services ~~business. Byram, acquired on August 1, 2017, is included in the Domestic segment.~~business, and Global Products which manufactures and sources medical surgical products through our production and kitting operations. The ~~International~~Patient Direct segment ~~consists of~~includes our ~~European distribution, logistics~~home healthcare businesses (Byram and ~~value-added services business. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing.~~Apria).

We evaluate the performance of our segments based on their operating ~~earnings~~income excluding intangible amortization and acquisition-related and exit and realignment charges ~~certain purchase price fair value adjustments, and other substantive items~~ 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 orand not meaningful. ~~We believe all inter-segment sales are at prices that approximate market.~~

The following tables present financial information by segment:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenue:
Products & Healthcare Services	$	1,927,388	$	2,255,820	$	4,061,429	$	4,365,265
Patient Direct	572,627		233,640		845,538		450,729
Consolidated net revenue	$	2,500,015	$	2,489,460	$	4,906,967	$	4,815,994

Operating income:
Products & Healthcare Services	$	61,243	$	101,229	$	150,325	$	251,647
Patient Direct	52,332		14,305		68,125		26,569
Intangible amortization	(30,888)		(10,026)		(41,156)		(20,052)
Acquisition-related and exit and realignment charges	(7,602)		(8,624)		(41,150)		(14,587)
Consolidated operating income	$	75,085	$	96,884	$	136,144	$	243,577

Depreciation and amortization:
Products & Healthcare Services	$	19,209	$	18,847	$	38,203	$	38,007
Patient Direct	53,952		3,753		59,083		7,494
Consolidated depreciation and amortization	$	73,161	$	22,600	$	97,286	$	45,501

Capital expenditures:
Products & Healthcare Services	$	18,418	$	11,806	$	29,061	$	18,270
Patient Direct	36,320		252		36,638		411
Consolidated capital expenditures	$	54,738	$	12,058	$	65,699	$	18,681

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net revenue:
Segment net revenue
Domestic $ 2,194,143
$ 2,287,233
$ 6,518,571
$ 6,954,687
International 96,661
83,751
287,555
255,861
Proprietary Products 124,542
132,705
392,654
409,022
Total segment net revenue $ 2,415,346
$ 2,503,689
$ 7,198,780
$ 7,619,570
Inter-segment revenue

Proprietary Products (81,385 ) (88,088 ) (270,339 ) (264,501 )
Total inter-segment revenue (81,385 ) (88,088 ) (270,339 ) (264,501 )
Consolidated net revenue $ 2,333,961
$ 2,415,601
$ 6,928,441
$ 7,355,069

Operating earnings (loss):
Domestic $ 36,056
$ 41,034
$ 102,812
$ 126,202
International (2,163 ) 1,382
(754 ) 3,402
Proprietary Products 9,102
14,340
26,040
41,866
Inter-segment eliminations 416
(449 ) (266 ) (905 )
Acquisition-related and exit and realignment charges (9,299 ) (2,739 ) (21,134 ) (19,974 )
Other⁽¹⁾
(4,441 ) —
(8,674 ) —
Consolidated operating earnings $ 29,671
$ 53,568
$ 98,024
$ 150,591

Depreciation and amortization:
Domestic $ 9,602
$ 7,360
$ 23,233
$ 22,399
International 4,304
4,259
12,072
13,125
Proprietary Products 1,947
2,218
5,755
6,658
Consolidated depreciation and amortization $ 15,853
$ 13,837
$ 41,060
$ 42,182

Capital expenditures:
Domestic $ 9,572
$ 3,071
$ 23,376
$ 10,274
International 3,206
3,223
11,659
8,053
Proprietary Products 718
1,009
2,754
2,436
Consolidated capital expenditures $ 13,496
$ 7,303
$ 37,789
$ 20,763


	September 30, 2017		December 31, 2016			June 30, 2022		December 31, 2021
Total assets:					Total assets:
Domestic	$	2,416,079	$	1,778,481
International	418,331		352,898
Proprietary Products	401,331		400,885
Products & Healthcare Services					Products & Healthcare Services	$	2,968,089	$	3,012,303
Patient Direct					Patient Direct	2,530,783		468,536
Segment assets	3,235,741		2,532,264		Segment assets	5,498,872		3,480,839
Cash and cash equivalents	98,415		185,488		Cash and cash equivalents	56,406		55,712
Consolidated total assets	$	3,334,156	$	2,717,752	Consolidated total assets	$	5,555,278	$	3,536,551

⁽¹⁾ ~~Software as a Service (SaaS) implementation costs associated with the upgrading of our global IT platforms in connection with the redesign of our global information system strategy.~~

~~Note 14—Condensed Consolidating Financial Information~~

The following ~~tables present condensed consolidating financial information for: Owens & Minor, Inc. (O&M);~~table presents net revenue by geographic area, which were attributed based on the guarantors of Owens & Minor, Inc.’s 2021 Notes and 2024 Notes, on a combined basis; and the non-guarantor subsidiaries of the 2021 Notes and 2024 Notes, on a combined basis. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several, and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.

Three Months Ended September 30, 2017
Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries
Eliminations Consolidated
Statements of Income
Net revenue $ —
$ 2,113,450
$ 264,765
$ (44,254 ) $ 2,333,961
Cost of goods sold —
1,919,049
157,439
(44,469 ) 2,032,019
Gross margin —
194,401
107,326
215
301,942
Distribution, selling and administrative expenses (117 ) 159,108
102,054
—
261,045
Acquisition-related and exit and realignment charges —
6,960
2,339
—
9,299
Other operating (income) expense, net —
448
1,479
—
1,927
Operating earnings (loss) 117
27,885
1,454
215
29,671
Interest expense (income), net 7,018
(1,184 ) 2,903
—
8,737
Income (loss) before income taxes (6,901 ) 29,069
(1,449 ) 215
20,934
Income tax (benefit) provision —
7,881
2,182
—
10,063
Equity in earnings of subsidiaries 17,772
—
—
(17,772 ) —
Net income (loss) 10,871
21,188
(3,631 ) (17,557 ) 10,871
Other comprehensive income (loss) 12,584
330
12,254
(12,584 ) 12,584
Comprehensive income (loss) $ 23,455
$ 21,518
$ 8,623
$ (30,141 ) $ 23,455
location from which

Three Months Ended September 30, 2016
Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries
Eliminations Consolidated
Statements of Income
Net revenue $ —
$ 2,287,335
$ 168,216
$ (39,950 ) $ 2,415,601
Cost of goods sold —
2,070,639
89,192
(40,505 ) 2,119,326
Gross margin —
216,696
79,024
555
296,275
Distribution, selling and administrative expenses (52 ) 169,451
71,906
—
241,305
Acquisition-related and exit and realignment charges —
2,237
502
—
2,739
Other operating income, net —
(1,205 ) (132 ) —
(1,337 )
Operating earnings (loss) 52
46,213
6,748
555
53,568
Interest expense (income), net 7,403
(1,345 ) 712
—
6,770
Income (loss) before income taxes (7,351 ) 47,558
6,036
555
46,798
Income tax (benefit) provision —
14,131
2,836
—
16,967
Equity in earnings of subsidiaries 37,182
—
—
(37,182 ) —
Net income (loss) 29,831
33,427
3,200
(36,627 ) 29,831
Other comprehensive income (loss) 1,701
299
1,402
(1,701 ) 1,701
Comprehensive income (loss) $ 31,532
$ 33,726
$ 4,602
$ (38,328 ) $ 31,532

Nine Months Ended September 30, 2017 Owens &
Minor, Inc. Guarantor
Subsidiaries Non-guarantor
Subsidiaries Eliminations Consolidated
Statements of Income
Net revenue $ —
$ 6,436,599
$ 635,900
$ (144,058 ) $ 6,928,441
Cost of goods sold —
5,845,789
369,596
(143,598 ) 6,071,787
Gross margin —
590,810
266,304
(460 ) 856,654
Distribution, selling and administrative expenses 434
480,765
254,154
—
735,353
Acquisition-related and exit and realignment charges —
17,084
4,050
—
21,134
Other operating (income) expense, net —
1,481
662
—
2,143
Operating earnings (loss) (434 ) 91,480
7,438
(460 ) 98,024
Interest expense (income), net 20,756
(2,777 ) 4,239
—
22,218
Income (loss) before income taxes (21,190 ) 94,257
3,199
(460 ) 75,806
Income tax (benefit) provision —
23,303
2,707
—
26,010
Equity in earnings of subsidiaries 70,986
—
—
(70,986 ) —
Net income (loss) 49,796
70,954
492
(71,446 ) 49,796
Other comprehensive income (loss) 41,141
990
40,151
(41,141 ) 41,141
Comprehensive income (loss) $ 90,937
$ 71,944
$ 40,643
$ (112,587 ) $ 90,937

Nine Months Ended September 30, 2016 Owens &
Minor, Inc. Guarantor
Subsidiaries Non-guarantor
Subsidiaries Eliminations Consolidated
Statements of Income
Net revenue $ —
$ 6,954,983
$ 516,131
$ (116,045 ) $ 7,355,069
Cost of goods sold —
6,305,489
273,927
(116,677 ) 6,462,739
Gross margin —
649,494
242,204
632
892,330
Distribution, selling and administrative expenses 838
504,984
221,122
—
726,944
Acquisition-related and exit and realignment charges —
15,888
4,086
—
19,974
Other operating income, net —
(3,952 ) (1,227 ) —
(5,179 )
Operating earnings (loss) (838 ) 132,574
18,223
632
150,591
Interest expense (income), net 21,134
(2,808 ) 1,998
—
20,324
Income (loss) before income taxes (21,972 ) 135,382
16,225
632
130,267
Income tax (benefit) provision —
40,237
8,348
—
48,585
Equity in earnings of subsidiaries 103,654
—
—
(103,654 ) —
Net income (loss) 81,682
95,145
7,877
(103,022 ) 81,682
Other comprehensive income (loss) 3,263
821
2,442
(3,263 ) 3,263
Comprehensive income (loss) $ 84,945
$ 95,966
$ 10,319
$ (106,285 ) $ 84,945

September 30, 2017
Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations Consolidated
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 11,456
$ 1,145
$ 85,814
$ —
$ 98,415
Accounts receivable, net 30,770
595,202
114,563
(7,779 ) 732,756
Merchandise inventories —
909,406
82,065
(2,220 ) 989,251
Other current assets 193
117,403
193,903
—
311,499
Total current assets 42,419
1,623,156
476,345
(9,999 ) 2,131,921
Property and equipment, net —
103,765
99,822
—
203,587
Goodwill, net —
180,006
510,224
—
690,230
Intangible assets, net —
10,100
221,786
—
231,886
Due from O&M and subsidiaries —
645,264
—
(645,264 ) —
Advances to and investment in consolidated subsidiaries 2,094,759
—
—
(2,094,759 ) —
Other assets, net —
43,521
33,011
—
76,532
Total assets $ 2,137,178
$ 2,605,812
$ 1,341,188
$ (2,750,022 ) $ 3,334,156
Liabilities and equity
Current liabilities
Accounts payable $ —
$ 768,780
$ 114,644
$ (7,794 ) $ 875,630
Accrued payroll and related liabilities —
18,615
13,383
—
31,998
Other current liabilities 7,127
110,580
178,956
—
296,663
Total current liabilities 7,127
897,975
306,983
(7,794 ) 1,204,291
Long-term debt, excluding current portion 545,830
6,743
364,683
—
917,256
Due to O&M and subsidiaries 580,437
—
65,002
(645,439 ) —
Intercompany debt —
138,890
—
(138,890 ) —
Deferred income taxes —
69,722
67,817
—
137,539
Other liabilities —
61,142
10,144
—
71,286
Total liabilities 1,133,394
1,174,472
814,629
(792,123 ) 2,330,372
Equity
Common stock 122,499
—
—
—
122,499
Paid-in capital 224,183
174,613
583,872
(758,485 ) 224,183
Retained earnings (deficit) 683,444
1,267,294
(41,539 ) (1,225,755 ) 683,444
Accumulated other comprehensive income (loss) (26,342 ) (10,567 ) (15,774 ) 26,341
(26,342 )
Total equity 1,003,784
1,431,340
526,559
(1,957,899 ) 1,003,784
Total liabilities and equity $ 2,137,178
$ 2,605,812
$ 1,341,188
$ (2,750,022 ) $ 3,334,156

December 31, 2016 Owens &
Minor, Inc. Guarantor
Subsidiaries Non-guarantor
Subsidiaries Eliminations Consolidated
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 38,015
$ 61,266
$ 86,207
$ —
$ 185,488
Accounts receivable, net —
526,170
90,016
(10,102 ) 606,084
Merchandise inventories —
856,566
61,505
(1,760 ) 916,311
Other current assets 106
86,907
167,143
—
254,156
Total current assets 38,121
1,530,909
404,871
(11,862 ) 1,962,039
Property and equipment, net —
97,725
93,993
—
191,718
Goodwill, net —
180,006
234,930
—
414,936
Intangible assets, net —
11,655
70,856
—
82,511
Due from O&M and subsidiaries —
573,395
—
(573,395 ) —
Advances to and investments in consolidated subsidiaries 2,044,963
—
—
(2,044,963 ) —
Other assets, net —
49,887
16,661
—
66,548
Total assets $ 2,083,084
$ 2,443,577
$ 821,311
$ (2,630,220 ) $ 2,717,752
Liabilities and equity
Current liabilities
Accounts payable $ —
$ 683,189
$ 75,512
$ (7,951 ) $ 750,750
Accrued payroll and related liabilities —
32,814
12,237
—
45,051
Other current liabilities 7,106
93,327
138,404
—
238,837
Total current liabilities 7,106
809,330
226,153
(7,951 ) 1,034,638
Long-term debt, excluding current portion 544,838
3,219
16,526
—
564,583
Due to O&M and subsidiaries 571,102
—
48,044
(619,146 ) —
Intercompany debt —
138,890
—
(138,890 ) —
Deferred income taxes —
70,280
20,103
—
90,383
Other liabilities —
60,578
7,532
—
68,110
Total liabilities 1,123,046
1,082,297
318,358
(765,987 ) 1,757,714
Equity —
Common stock 122,062
—
—
—
122,062
Paid-in capital 219,955
174,614
583,872
(758,486 ) 219,955
Retained earnings (deficit) 685,504
1,196,341
(42,032 ) (1,154,309 ) 685,504
Accumulated other comprehensive income (loss) (67,483 ) (9,675 ) (38,887 ) 48,562
(67,483 )
Total equity 960,038
1,361,280
502,953
(1,864,233 ) 960,038
Total liabilities and equity $ 2,083,084
$ 2,443,577
$ 821,311
$ (2,630,220 ) $ 2,717,752

Nine Months Ended September 30, 2017
Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries
Eliminations Consolidated
Statements of Cash Flows
Operating activities:
Net income (loss) $ 49,796
$ 70,954
$ 492
$ (71,446 ) $ 49,796
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Equity in earnings of subsidiaries (70,986 ) —
—
70,986
—
Depreciation and amortization —
23,281
17,779
—
41,060
Share-based compensation expense —
8,592
—
—
8,592
Provision for losses on accounts receivable —
(377 ) 1,535
—
1,158
Deferred income tax expense (benefit) —
(1,208 ) (3,377 ) —
(4,585 )
Changes in operating assets and liabilities:
Accounts receivable —
(68,655 ) (8,047 ) (2,412 ) (79,114 )
Merchandise inventories —
(52,840 ) (3,753 ) 459
(56,134 )
Accounts payable —
85,591
(8,217 ) 2,413
79,787
Net change in other assets and liabilities (65 ) (25,431 ) (15,138 ) —
(40,634 )
Other, net (1 ) 5,716
4
—
5,719
Cash provided by (used for) operating activities (21,256 ) 45,623
(18,722 ) —
5,645
Investing activities:

Acquisitions, net of cash acquired —
—
(366,569 ) —
(366,569 )
Additions to property and equipment —
(17,884 ) (7,079 ) —
(24,963 )
Additions to computer software and intangible assets —
(5,333 ) (7,493 ) —
(12,826 )
Proceeds from the sale of property and equipment —
198
582
—
780
Cash used for investing activities —
(23,019 ) (380,559 ) —
(403,578 )
Financing activities:
Change in intercompany advances 50,452
(87,278 ) 36,826
—
—
Proceeds from debt issuance —
—
250,000
—
250,000
Borrowing under revolving credit facility —
6,013
111,187
—
117,200
Financing costs paid —
—
(1,798 ) —
(1,798 )
Cash dividends paid (47,316 ) —
—
—
(47,316 )
Repurchases of common stock (5,000 ) —
—
—
(5,000 )
Other, net (3,439 ) (1,460 ) (2,464 ) —
(7,363 )
Cash provided by (used for) financing activities (5,303 ) (82,725 ) 393,751
—
305,723
Effect of exchange rate changes on cash and cash equivalents
—
—
5,137
—
5,137
Net increase (decrease) in cash and cash equivalents (26,559 ) (60,121 ) (393 ) —
(87,073 )
Cash and cash equivalents at beginning of period 38,015
61,266
86,207
—
185,488
Cash and cash equivalents at end of period $ 11,456
$ 1,145
$ 85,814
$ —
$ 98,415

Table of Contents

Nine Months Ended September 30, 2016
Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries
Eliminations Consolidated
Statements of Cash Flows
Operating activities:
Net income (loss) $ 81,682
$ 95,145
$ 7,877
$ (103,022 ) $ 81,682
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Equity in earnings of subsidiaries (103,654 ) —
—
103,654
—
Depreciation and amortization —
22,497
19,685
—
42,182
Share-based compensation expense —
8,934
—
—
8,934
Provision for losses on accounts receivable —
(84 ) (132 ) —
(216 )
Deferred income tax expense (benefit) —
(3,233 ) —
—
(3,233 )
Changes in operating assets and liabilities:
Accounts receivable —
14,107
(9,385 ) 301
5,023
Merchandise inventories —
(3,662 ) (771 ) (633 ) (5,066 )
Accounts payable —
55,060
3,982
(300 ) 58,742
Net change in other assets and liabilities 2,277
(512 ) (46,668 ) —
(44,903 )
Other, net 1,321
319
(274 ) —
1,366
Cash provided by (used for) operating activities (18,374 ) 188,571
(25,686 ) —
144,511
Investing activities:
Additions to property and equipment —
(7,337 ) (6,345 ) —
(13,682 )
Additions to computer software and intangible assets —
(2,937 ) (4,144 ) —
(7,081 )
Proceeds from the sale of property and equipment —
78
4,419
—
4,497
Cash used for investing activities —
(10,196 ) (6,070 ) —
(16,266 )
Financing activities:
Change in intercompany advances 172,057
(162,206 ) (9,851 ) —
—
Change in bank overdraft —
—
21,753
—
21,753
Cash dividends paid (47,802 ) —
—
—
(47,802 )
Repurchases of common stock (48,654 ) —
—
—
(48,654 )
Other, net (4,027 ) (1,782 ) (2,309 ) —
(8,118 )
Cash provided by (used for) financing activities 71,574
(163,988 ) 9,593
—
(82,821 )
Effect of exchange rate changes on cash and cash equivalents
—
—
6,652
—
6,652
Net increase (decrease) in cash and cash equivalents 53,200
14,387
(15,511 ) —
52,076
Cash and cash equivalents at beginning of period 103,284
5,614
52,122
—
161,020
Cash and cash equivalents at end of period $ 156,484
$ 20,001
$ 36,611
$ —
$ 213,096
we ship products or provide services.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenue:
United States	$	2,376,573	$	2,336,673	$	4,638,592	$	4,519,428
International	123,442		152,787		268,375		296,566
Consolidated net revenue	$	2,500,015	$	2,489,460	$	4,906,967	$	4,815,994

Note 15—Recent Accounting Pronouncements

On ~~January 1, 2017, we adopted~~June 16, 2016, the FASB issued ASU No. ~~2016-09,~~ 2016-13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. This standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We are still evaluating the impact the adoption of ASU No. 2016-13 will have on our consolidated financial statements and related disclosures; however, we do not expect this to have a material impact. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU 2018-19, Codification Improvements to ~~Employee Share-Based Payment Accounting.~~ Topic 326, Financial Instruments - Credit Losses and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief. These ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. These ASUs will have the same effective date and transition requirements as ASU No. 2016-13.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. Our material debt agreements no longer reference LIBOR as a benchmark rate. The transition did not have a material impact on our consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, to improve consistency by amending the FASB Accounting Standards Codification (the Codification) to include all disclosure guidance in the appropriate disclosure sections. This ASU also clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The amendments in this ~~updated guidance included changes~~ASU do not change GAAP and, therefore, are not expected to simplify the Codification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classificationresult in a significant change in practice. We adopted ASU No. 2020-10 effective beginning January 1, 2021. Its adoption did not have a material impact on the statement of cash flows. As a result of this adoption, we recognized $0.1 million and $0.3 million in excess tax benefits in the income statement for the three and nine months ended September 30, 2017. our consolidated financial statements.

In addition, we recorded these tax benefits related to stock based compensation for the nine month period in operating activities in the statements of cash flows and reclassified $0.7 million from financing activities in the prior period to conform to this presentation.

~~In May 2014,~~October 2021, the FASB issued an ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC 606, Revenue from Contracts with ~~Customers~~.Customers. At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the update such amounts were recognized by the acquiring company at fair value. The amended guidance eliminates industry specific guidance and applies to all companies. Revenue will be recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customeramendments in an amount that reflects the consideration to which the entity expects to be entitled for that good or service. Revenue from a contract that contains multiple performance obligations is allocated to each performance obligation generally on a relative standalone selling price basis. Amended guidance was issued on: principal versus agent considerations, shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good, clarification on how an entity should evaluate the collectibility threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The amended guidance also requires additional quantitative and qualitative disclosures. These amended standardsthis ASU are ~~all~~ effective for usfiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. We adopted ASU 2021-08 prospectively, effective beginning January 1, ~~2018 and allow for either full retrospective~~2022. Its adoption ~~or modified retrospective adoption (cumulative effect). We~~did not have substantially completed our evaluation of the amended guidance, including identification of revenue streams and customer contract reviews. Our revenue is primarily distribution revenue, which we recognize at the time shipment is completed and title passes to the customer. Although we are continuing to assess the impact of the amended guidance, includinga material impact on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires certain annual disclosures ~~we generally anticipate~~about transactions with a government that ~~the timing of recognition of distribution revenue will be substantially unchanged under the amended guidance.~~are accounted for by applying a grant or contribution accounting model by analogy. We ~~intend to use the modified retrospective method of adoption. We are finalizing~~adopted ASU No. 2021-10 effective beginning January 1, 2022. Its adoption did not have a material impact on our ~~evaluation of how the guidance may require changes to our business processes, systems and controls to support the additional required disclosures.~~consolidated financial statements.

~~There has been no change in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Note 16—Subsequent Events~~

On October 31, 2017, we entered into a Purchase Agreement to acquire the Surgical and Infection Prevention (“S&IP”) business of Halyard Health, Inc. ("Halyard") for $710 million in cash, subject to certain adjustments as provided in the Purchase Agreement. Halyard’s S&IP business is a leading global provider of medical supplies and solutions for the prevention of healthcare-associated infections across the acute and alternate site channels. The transaction, which has been approved by the boards of directors of both companies, is expected to close in the first quarter of 2018, subject to customary closing conditions and regulatory approvals, including Hart-Scott-Rodino.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, ~~2016.~~2021. 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,

Table of Contents

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, ~~2016.~~2021.

Overview

Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare ~~services company that connects the world of medical products~~solutions company. To better reflect how we go to market as well as certain changes to the ~~point of care. We report under three~~leadership team, organizational structure, budgeting and financial reporting processes, we have organized our business ~~units: Domestic, International~~into two distinct segments: Products & Healthcare Services and ~~Proprietary~~Patient Direct. Products ~~(formerly Clinical~~ & ~~Procedural Solutions (CPS) which has been renamed "Proprietary Products" effective January 1, 2017). Domestic is our U.S.~~Healthcare Services provides distribution, outsourced logistics and value-added services, ~~business. Byram, acquired on August 1, 2017,~~and manufactures and sources medical surgical products through our production and kitting operations. Patient Direct expands our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies and is ~~included~~a leading provider of integrated home healthcare equipment and related services in the Domestic segment. International is our European distribution, logistics and value-added services business. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing. Segment financial information is provided in Note 13 of Notes to Consolidated Financial Statements included in this quarterly report.

~~Financial highlights.~~ The following table provides a reconciliation of reported operating earnings, net income and net income per diluted common share to non-GAAP measures used by management. In the second quarter of 2017 we began to exclude acquisition-related intangible amortization from our non-GAAP measures, alongUnited States. Beginning with the ~~previously excluded items. Intangible amortization amounts are highly dependent on the size~~quarter ended March 31, 2022, we now report financial results using this two segment structure and ~~frequency of acquisitions and are being excluded to~~

~~allow for a more consistent comparison with forecasted, current and historical~~have recast prior year segment results ~~and the results of our peers. Prior period amounts have been recast~~ on the same basis.

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands except per share data) 2017 2016 2017 2016
Operating earnings, as reported (GAAP) $ 29,671
$ 53,568
$ 98,024
$ 150,591
Acquisition-related and exit and realignment charges ⁽¹⁾
9,299
2,739
21,134
19,974
Acquisition-related intangible amortization ⁽²⁾
5,071
2,489
9,737
7,552
Other ⁽³⁾
4,441
—
8,674
—
Operating earnings, adjusted (non-GAAP) (Adjusted Operating Earnings) $ 48,482
$ 58,796
$ 137,569
$ 178,117

Net income, as reported (GAAP) $ 10,871
$ 29,831
$ 49,796
$ 81,682
Acquisition-related and exit and realignment charges ⁽¹⁾
9,299
2,739
21,134
19,974
Income tax expense (benefit) ⁽⁴⁾
(2,854 ) (1,015 ) (7,367 ) (6,615 )
Acquisition-related intangible amortization ⁽²⁾
5,071
2,489
9,737
7,552
Income tax expense (benefit) ⁽⁴⁾
(1,601 ) (645 ) (2,993 ) (1,956 )
Other ⁽³⁾
4,441
—
8,674
—
Income tax expense (benefit) ⁽⁴⁾
(973 ) —
(2,465 ) —
Net income, adjusted (non-GAAP) (Adjusted Net Income) $ 24,254
$ 33,399
$ 76,516
$ 100,637

Net income per diluted common share, as reported (GAAP) $ 0.18
$ 0.48
$ 0.82
$ 1.32
Acquisition-related and exit and realignment charges, per diluted common share ⁽¹⁾
0.11
0.03
0.23
0.21
Acquisition-related intangible amortization, per diluted common share ⁽²⁾
0.06
0.03
0.11
$ 0.09
Other, per diluted common share ⁽³⁾
0.05
—
0.10
—
Net income per diluted common share, adjusted (non-GAAP)(Adjusted EPS) $ 0.40
$ 0.54
$ 1.26
$ 1.62

On March 29, 2022 (the Acquisition Date), we completed the acquisition of 100% of Apria, Inc. (Apria) pursuant to the Agreement and Plan of Merger (Apria Acquisition) dated January 7, 2022, in exchange for approximately $1.7 billion. The purchase was funded with a combination of debt and cash on hand. At the time of the Apria Acquisition, each share of Apria’s common stock was converted into the right to receive $37.50 in cash. Apria is a leading provider of integrated home healthcare equipment and related services in the United States. This business is reported as part of the Patient Direct segment.

Net income per diluted share was ~~$0.18~~$0.37 and ~~$0.82~~$0.89 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, a decrease of $0.30 and $0.50 when~~2022 as compared to ~~the same periods of 2016. Adjusted EPS (non-GAAP) was $0.40~~$0.87 and ~~$1.26~~$1.80 for the three and ~~nine~~six months ended ~~September~~June 30, 2017, a decrease of $0.14 and $0.36 compared to prior year. Net income in the year to date period of 2017 benefitted by $3.4 million or $0.06 per share from the release of an income tax valuation allowance in Europe during the second quarter. Domestic2021. Products & Healthcare Services segment operating ~~earnings were $36.1 million in the quarter and $102.8 million for the year to date period compared to $41.0~~income was $61.2 million and $126.2 million in the prior year comparative periods. The declines were largely a result of provider margin compression, the exit of a large customer in 2016 and lower income from manufacturer product price changes on a year to date basis. We expect the current trend of increased gross margin pressure to continue. The International segment operating losses were $2.2 million for the quarter and $0.8 million year to date, compared to operating earnings of $1.4 million and $3.4 million in the prior year. The change compared to prior year resulted primarily from increased costs to support new business. Proprietary Products operating earnings were $9.1 million and $26.0 million, reflecting decreases of $5.2 million and $15.8 million as a result of lower revenues compared to prior year and increased production costs.

~~Use of Non-GAAP Measures~~

Adjusted operating earnings, adjusted net income and adjusted EPS are an alternative view of performance used by management, and we believe that investors' understanding of our performance is enhanced by disclosing these performance measures. In general, the measures exclude items and charges that (i) management does not believe reflect our core business and relate more to strategic, multi-year corporate activities; or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Management uses these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.

Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our

~~competitors. However, the non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.~~

The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.

~~(1) Acquisition-related charges were $4.3 million and $6.3~~$150 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, compared to ~~$0.6~~$101 million and $0.9 million for the same periods of 2016. Current year charges were primarily transaction and transition costs associated with the acquisition of Byram and the upcoming Halyard S&IP transaction. The prior year amounts related primarily to costs incurred to settle certain obligations and address other on-going matters associated with the acquisitions of ArcRoyal and Medical Action.

~~Exit and realignment charges were $5.0 million and $14.8~~$252 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. Current year charges~~2021. The decreases were ~~associated with severance~~primarily the result of lower hospital demand, the reduction of glove cost pass through, and headwinds created by macroeconomic conditions, including accelerating inflationary pressures, supply chain issues, and rising interest rates, partially offset by operating efficiencies and productivity gains derived from ~~reduction in force and other employee costs associated with~~ the establishment of our new client engagement centers, the write-down of information system assets which are no longer used and other IT restructuring charges. Expenses associated with the establishment of the client engagement center will continue to be recorded throughout 2017. Exit and realignment charges were $2.1Owens & Minor business system. Patient Direct segment operating income was $52.3 million and ~~$19.1~~$68.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. These included severance activities (including our voluntary employee separation program~~2022, compared to $14.3 million and $26.6 million for the three and six months ended June 30, 2021. The increase was primarily the result of the inclusion of Apria in the ~~first quarter of 2016),~~Patient Direct segment since the Acquisition Date, strong revenue growth in our Byram business, leveraging our fixed costs, and ~~other costs associated with our strategic organizational realignment which include certain professional fees and costs~~operating efficiencies, partially offset by accelerating inflationary pressures. Net income per diluted share was unfavorably impacted as compared to ~~streamline administrative functions and processes in~~ the ~~United States and Europe. More information about these charges is provided in Note 6 of Notes to Consolidated Financial Statements included in this quarterly report.~~

(2) Acquisition-related intangible amortization includes amortization of certain intangible assets established during purchase accounting for business combinations. These amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted, current and historical results and the results of our peers. We have begun to exclude these charges from our non-GAAP results in the second quarter of 2017 and thus prior year ~~amounts have been recast on the same basis.~~

~~(3) Includes software as a service (SaaS) implementation costs associated with the upgrading of our global IT platforms~~by foreign currency translation in ~~connection with the redesign of our global information system strategy.~~

~~(4) These charges have been tax effected in the preceding table by determining the income tax rate depending on~~ the amount of ~~charges incurred~~$0.05 and $0.08 for the three and six months ended June 30, 2022.

COVID-19 Update

We are closely monitoring the impact of the 2019 novel coronavirus (COVID-19), including its variants and sub-variants, on all aspects of our business, including our customers, teammates, suppliers, vendors and distribution channels. We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in ~~different tax jurisdictions~~the best interests of our teammates, customers, suppliers and shareholders.

We are unable to predict the timing of the pandemic and the ~~deductibility~~full impact that COVID-19 will have on our future operating results, financial position and cash flows due to numerous variables and continued uncertainties. Transportation and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in certain locations, including within Asia. Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs from supply chain challenges. Although we have experienced growth in sales volumes for certain of our products (such as personal protective equipment (PPE)) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic.

Philips Respironics Recall

In June 2021, one of Apria's suppliers, Philips Respironics, announced a voluntary recall (Recall) for continuous and non-continuous ventilators (certain continuous positive airway pressure (CPAP), BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those ~~charges~~devices. The Food and Drug Administration (FDA) has since identified this as a Class I recall, the most serious category of recall. Because we distribute these products and provide related home respiratory services and, in part, due to the substantial number of impacted devices, we will likely devote substantial time and resources to coordinating recall-related activity and to supporting our home healthcare patients’ needs. This Recall may cause us to incur significant costs, some or all of which may not be recoverable from the product manufacturer. The Recall may

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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 ~~income tax purposes.~~impacted patients and new devices for new patients, patient hesitancy to use respiratory devices generally or other reasons.

We are closely monitoring the impact of the Recall on our business and the uncertainty surrounding the availability and supply of CPAP and ventilators due to the Recall. There is an equipment shortage in the industry and the Recall or other supply chain disruptions may have a future material adverse effect on our financial condition or results of operations, cash flows and liquidity.

Results of Operations

Net revenue.

Three Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Domestic $ 2,194,143
$ 2,287,233
$ (93,090 ) (4.1 )%
International 96,661
83,751
12,910
15.4 %
Proprietary Products 124,542
132,705
(8,163 ) (6.2 )%
Inter-segment (81,385 ) (88,088 ) 6,703
(7.6 )%
Net revenue $ 2,333,961
$ 2,415,601
$ (81,640 ) (3.4 )%

Nine Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Domestic $ 6,518,571
$ 6,954,687
$ (436,116 ) (6.3 )%
International 287,555
255,861
31,694
12.4 %
Proprietary Products 392,654
409,022
(16,368 ) (4.0 )%
Inter-segment (270,339 ) (264,501 ) (5,838 ) 2.2 %
Net revenue $ 6,928,441
$ 7,355,069
$ (426,628 ) (5.8 )%


	Three Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Products & Healthcare Services	$	1,927,388	$	2,255,820	$	(328,432)	(14.6)	%
Patient Direct	572,627		233,640		338,987		145.1	%
Net revenue	$	2,500,015	$	2,489,460	$	10,555	0.4	%

~~Consolidated~~


	Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Products & Healthcare Services	$	4,061,429	$	4,365,265	$	(303,836)	(7.0)	%
Patient Direct	845,538		450,729		394,809		87.6	%
Net revenue	$	4,906,967	$	4,815,994	$	90,973	1.9	%

The increase in net revenue ~~declined~~in our Patient Direct segment for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, primarily as a result~~2022 was driven by the ~~exit~~acquisition of ~~a large domestic customer~~Apria on March 29, 2022 and continued strong performance in ~~2016, lower growth with existing domestic customers and one less sales day compared to prior year.~~our Byram ~~contributed $80.3 million~~business. The decrease in net revenue ~~to the Domestic~~in our Products & Healthcare Services segment for the ~~quarter~~three and ~~year to date. The~~

~~increase in~~six months ended June 30, 2022 reflected lower hospital demand and the ~~International segment was driven by growth with existing customers and new business as well as a favorable foreign~~reduction of glove cost pass through. Foreign currency translation had an unfavorable impact on net revenue of ~~$2.8~~$12.6 million and $21.1 million for the ~~quarter but offset by an unfavorable impact of $12.4 million year to date. A decrease in sales of our sourced products contributed~~three and six months ended June 30, 2022 as compared to the ~~year over year change in the Proprietary Products segment.~~prior year.

Cost of goods sold.


	Three Months Ended September 30,				Change						Three Months Ended June 30,				Change
(Dollars in thousands)	2017		2016		$			%		(Dollars in thousands)	2022		2021		$		%
Cost of goods sold	$	2,032,019	$	2,119,326	$	(87,307	)	(4.1	)%	Cost of goods sold	$	1,967,510	$	2,089,392	$	(121,882)	(5.8)	%


	Nine Months Ended September 30,				Change						Six Months Ended June 30,				Change
(Dollars in thousands)	2017		2016		$			%		(Dollars in thousands)	2022		2021		$		%
Cost of goods sold	$	6,071,787	$	6,462,739	$	(390,952	)	(6.0	)%	Cost of goods sold	$	4,001,014	$	3,973,175	$	27,839	0.7	%

Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory ~~loss and carry all credit risk associated with sales.~~loss. These are sometimes referred to as distribution ~~including products sold through Byram, or buy/sell~~ contracts. Cost of goods sold also includes direct and certain indirect labor, depreciation of certain property and equipment, product costs, and material and overhead ~~costs associated with our Proprietary Products business. There is no cost~~costs. Cost of goods sold ~~associated with our fee-for-service business. As a result~~compared to prior year reflects the inclusion of Apria since the ~~decrease~~Acquisition Date, changes in sales activity, including product mix, accelerating inflationary pressures, and supply chain issues.

Gross margin.

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	Three Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Gross margin	$	532,505		$	400,068		$	132,437	33.1	%
As a % of net revenue	21.30		%	16.07		%


	Six Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Gross margin	$	905,953		$	842,819		$	63,134	7.5	%
As a % of net revenue	18.46		%	17.50		%

Gross margin increase in the three and six months ended June 30, 2022 was driven by inclusion of Apria in the Patient Direct segment since the Acquisition Date and sales mix, partially offset by lower hospital demand, the reduction of glove cost pass through, ~~our distribution business, cost~~accelerating inflationary pressures, and supply chain issues. Foreign currency translation had an unfavorable impact on gross margin of ~~goods sold decreased from prior year by $87.3~~$6.9 million and ~~$391.0~~$10.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~2022 as compared to the prior year.

~~Gross margin.~~

Three Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Gross margin $ 301,942
$ 296,275
$ 5,667
1.9 %
As a % of net revenue 12.94 % 12.27 %

Nine Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Gross margin $ 856,654
$ 892,330
$ (35,676 ) (4.0 )%
As a % of net revenue 12.36 % 12.13 %

Gross margin for the quarter included positive contribution from Byram and a change in revenue mix offset by the impact of overall lower revenues, a decline in provider margin and lower income from manufacturer product price changes (on a year to date basis). The impact of foreign currency translation was favorable for the quarter by $2.3 million and unfavorable by $6.1 million for the year to date. With increasing customer cost pressures and competitive dynamics in healthcare, we believe the current trend of increased gross margin pressure will continue.

Operating expenses.


	Three Months Ended September 30,						Change					Three Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$		%		(Dollars in thousands)	2022			2021			$		%
Distribution, selling and administrative expenses	$	261,045		$	241,305		$	19,740	8.2	%	Distribution, selling and administrative expenses	$	452,813		$	294,096		$	158,717	54.0	%
As a % of net revenue	11.18		%	9.99		%					As a % of net revenue	18.11		%	11.81		%
Acquisition-related and exit and realignment charges											Acquisition-related and exit and realignment charges	$	7,602		$	8,624		$	(1,022)	(11.9)	%
Other operating (income) expense, net	$	1,927		$	(1,337	)	$	3,264	(244.1	)%	Other operating (income) expense, net	$	(2,995)		$	464		$	(3,459)	(745.5)	%


	Six Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Distribution, selling and administrative expenses	$	732,553		$	586,796		$	145,757	24.8	%
As a % of net revenue	14.93		%	12.18		%
Acquisition-related and exit and realignment charges	$	41,150		$	14,587		$	26,563	182.1	%
Other operating (income) expense, net	$	(3,894)		$	(2,141)		$	(1,753)	(81.9)	%

Nine Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Distribution, selling and administrative expenses $ 735,353
$ 726,944
$ 8,409
1.2 %
As a % of net revenue 10.61 % 9.88 %
Other operating (income) expense, net $ 2,143
$ (5,179 ) $ 7,322
(141.4 )%

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.~~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. ~~The costs to convert new customers to~~Overall DS&A expenses were affected by inclusion of Apria in our ~~information systems are included in DS&A~~results since the Acquisition Date, and ~~are generally incurred prior to the recognition of revenues from the new customers.~~

~~Excluding Byram, DS&A as a percentage of revenue was 10.55% and 10.40%~~accelerating inflationary pressures for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. Overall expenses reflected decreased sales activity in the quarter and year to date, benefits of cost control~~2022, partially offset by operating efficiencies and productivity ~~initiatives,~~gains derived from the Owens & Minor business system, and changes in accrued incentive compensation. DS&A expenses also included a favorable impact for foreign currency translation ~~impact~~ of ~~$6.2~~$1.5 million ~~year~~and $2.4 million for the three and six months ended June 30, 2022.

Acquisition-related charges were $6.4 million and $38.3 million for the three and six months ended June 30, 2022 as compared to ~~date. These were offset~~no acquisition-related charges for the three and six months ended June 30, 2021. Acquisition-related charges in ~~part by increased~~2022 consisted primarily of costs ~~to support new business and unfavorable foreign currency translation impacts of $2.3 million in the quarter. As a percentage of net revenue, the increases~~ related to the ~~large customer loss~~Apria acquisition. Exit and realignment charges were $1.2 million and $2.9 million for the three and six months ended June 30, 2022, which consisted primarily of severance and other charges associated with the reorganization of our segments. Exit and realignment charges were $8.6 million and $14.6 million for the three and six months ended June 30, 2021 and consisted primarily of an increase in ~~2016.~~reserves associated with certain retained assets of Fusion5, IT restructuring charges and other costs related to the reorganization of the U.S. operations.

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

Interest expense, net.


	Three Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Interest expense, net	$	35,839		$	11,540		$	24,299	210.6	%
Effective interest rate	5.26		%	4.30		%


	Six Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Interest expense, net	$	47,858		$	25,212		$	22,646	89.8	%
Effective interest rate	5.12		%	4.94		%

Interest expense, net and the effective interest rate for the three and six months ended June 30, 2022 increased primarily due to ~~software~~the increase in debt associated with the Apria Acquisition on March 29, 2022. See Note 6 in Notes to Consolidated Financial Statements.

Loss on extinguishment of debt.


	Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Loss on extinguishment of debt	$	—	$	40,433	$	(40,433)	(100.0)	%

Loss on extinguishment of debt for the six months ended June 30, 2021 includes the write-off of deferred financing costs and third party fees associated with the debt financing in March 2021 of $15.3 million and amounts reclassified from accumulated other comprehensive loss as a ~~service implementation expenses which were not incurred in 2016.~~

~~A discussion~~result of the ~~acquisition-related~~termination of our interest rate swaps of $25.1 million.

Other expense, net.


	Three Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Other expense, net	$	783	$	1,028	$	(245)	(23.8)	%


	Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Other expense, net	$	1,565	$	1,598	$	(33)	(2.1)	%

Other expense, net for the three and ~~exit~~six months ended June 30, 2022 and ~~realignment charges is included above~~2021 represents interest cost and net actuarial losses related to our retirement plans.

Income taxes.

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	Three Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Income tax provision	$	9,859		$	18,420		$	(8,561)	(46.5)	%
Effective tax rate	25.6		%	21.8		%


	Six Months Ended June 30,						Change
(Dollars in thousands)	2022			2021			$		%
Income tax provision	$	18,837		$	40,848		$	(22,011)	(53.9)	%
Effective tax rate	21.7		%	23.2		%

The change in the ~~Overview section.~~

~~Interest expense, net.~~

Three Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Interest expense, net $ 8,737
$ 6,770
$ 1,967
29.1 %
Effective interest rate 4.15 % 4.76 %

Nine Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Interest expense, net $ 22,218
$ 20,324
$ 1,894
9.3 %
Effective interest rate 4.52 % 4.79 %

~~The increase in interest expense and change in~~ effective ~~interest~~tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were a result of the borrowings under our new Credit Agreement entered in July 2017.~~

~~Income taxes.~~

Three Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Income tax provision $ 10,063
$ 16,967
$ (6,904 ) (40.7 )%
Effective tax rate 48.1 % 36.3 %

Nine Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Income tax provision $ 26,010
$ 48,585
$ (22,575 ) (46.5 )%
Effective tax rate 34.3 % 37.3 %

~~The changes in the effective tax rate~~2022 compared to ~~2016~~the same periods in 2021 resulted primarily from ~~a change~~the mixture of income and losses in ~~income mix among different tax rate~~ jurisdictions ~~and the effect of certain acquisition-related costs~~in which ~~were not deductible for tax purposes~~we operate offset ~~on a year to date basis~~ by the ~~release of an~~incremental income tax ~~valuation allowance~~benefit associated with the vesting of restricted stock recorded in ~~Europe for $3.4 million during~~ the ~~second quarter of 2017.~~six months ended June 30, 2022.

Financial Condition, Liquidity and Capital Resources

Financial condition. We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory ~~turnover.~~days. We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility or receivables securitization program, or a combination thereof of approximately ~~$25~~$27 million.

The majority of our cash and cash equivalents are held in cash depository accounts with major banks in the United States, Europe, and ~~Europe or invested in high-quality, short-term liquid investments.~~Asia. Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, ~~collection~~collections of accounts receivable, and ~~payment~~payments to suppliers. ~~Changes in shipping terms with certain of our suppliers have contributed to increased inventory and accounts payable and had an unfavorable impact on inventory turnover.~~


	September 30, 2017		December 31, 2016				Change								June 30, 2022						December 31, 2021				Change
(Dollars in thousands)						$				%		(Dollars in thousands)								$					%
Cash and cash equivalents	$	98,415		$	185,488			$	(87,073	)		(46.9	)%	Cash and cash equivalents				$	56,406					$	55,712			$	694				1.2	%
Accounts and notes receivable, net of allowances	$	732,756	$	606,084			$	126,672			20.9	%
Accounts receivable, net of allowances													Accounts receivable, net of allowances			$	743,853					$	681,564			$	62,289			9.1		%
Consolidated DSO ⁽¹⁾	27.6		23.1										Consolidated DSO (1)		26.0						24.6
Merchandise inventories	$	989,251	$	916,311			$	72,940			8.0	%	Merchandise inventories		$	1,525,331					$	1,495,972			$	29,359			2.0		%
Consolidated inventory turnover ⁽²⁾	8.1		9.2
Inventory days (2)													Inventory days (2)		70.5						64.7
Accounts payable	$	875,630	$	750,750			$	124,880			16.6	%	Accounts payable		$	1,137,337					$	1,001,959			$	135,378			13.5		%

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

(2) Based on ~~average annual inventory~~period end merchandise inventories and ~~annualized~~ cost of goods sold for the ~~quarter~~quarters ended ~~September~~June 30, ~~2017~~2022 and ~~year ended~~ December 31, ~~2016~~2021.

Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

2021:

(Dollars in thousands) 2017 2016
Net cash provided by (used for):
Operating activities $ 5,645
$ 144,511
Investing activities (403,578 ) (16,266 )
Financing activities 305,723
(82,821 )
Effect of exchange rate changes 5,137
6,652
Increase (decrease) in cash and cash equivalents $ (87,073 ) $ 52,076


(Dollars in thousands)	2022		2021
Net cash provided by (used for):
Operating activities	$	169,524	$	12,406
Investing activities	(1,745,299)		(18,659)
Financing activities	1,580,633		(64,788)
Effect of exchange rate changes	(3,864)		(1,718)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	994	$	(72,759)

Cash provided by operating activities ~~was $5.6 million~~ in the first ~~nine~~six months of ~~2017, compared to $144.5 million in the same period of 2016. The decrease in~~2022 and 2021 reflected cash ~~from operating activities for the first nine months of 2017 compared to the same period in 2016 was primarily due to unfavorable~~generated by net income along with changes in working ~~capital including inventory and accounts receivable balances.~~capital.

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Cash used for investing activities ~~was $403.6 million~~ in the first ~~nine~~six months of ~~2017, compared to $16.3~~2022 included cash paid for the acquisition of Apria of $1.7 billion and capital expenditures of $65.7 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software. Cash used for investing activities in the ~~same period~~first six months of ~~2016. Investing activities in 2017 and 2016 related to~~2021 included capital expenditures of $18.7 million for our strategic and operational efficiency initiatives ~~particularly initiatives relating to information technology enhancements~~associated with property and ~~optimizing our distribution network. Cash~~equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

Cash used for ~~investing activities in 2017 also includes the acquisition of Byram Healthcare for $367 million.~~

~~Cash provided by~~ financing activities in the first ~~nine~~six months of ~~2017 was $305.7~~2022 included borrowings under our revolving credit facility, net and accounts receivable securitization program of $30.0 million compared to ~~cash used~~net repayments of ~~$82.8~~$5.0 million infor the same period of ~~2016. During~~2021. Gross issuances and repayments under our amended accounts receivable securitization program were $347.8 million and $402.8 million for the first ~~nine~~six months of ~~2017,~~2022. We also had proceeds from borrowings of $1.7 billion related to the 2030 Unsecured Notes, Term Loan A, and Term Loan B for the first six months of 2022, compared to $500 million related to the 2029 Unsecured Notes for the first six months of 2021. We also paid $41.5 million in financing costs in the first six months of 2022, as compared to $12.9 million for the same period of 2021. Payments for taxes related to the vesting of restricted stock awards were $44.4 million and $19.1 million for the first six months of 2022 and 2021, which are included in Other, net. Financing activities in the first six months of 2021 included repayments of $523 million on our previous Term Loan A-2 and previous Term Loan B. In addition, we paid ~~dividends of $47.3~~$15.4 million ~~(compared~~ to ~~$47.8~~terminate the remaining $300 million in 2016), repurchased common stock under a share repurchase program for $5.0 million (compared to $48.7 million in 2016) and borrowed on our new Credit Agreement ($250 million term loan and $117.2 million on our revolving credit facility). There were no borrowings innotional value of interest rate swaps during the ~~prior year period.~~first six months of 2021.

Capital resources. Our sources of liquidity include cash and cash equivalents, ~~and~~ a revolving credit ~~facility. On July 27, 2017, we entered into a new Credit Agreement replacing the Amended Credit Agreement~~facility with ~~Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., Bank of America, N.A.~~an administrative and collateral agent and a syndicate of financial institutions, as lenders (the Revolving Credit Agreement), and a receivables securitization program. The Revolving Credit Agreement provides a revolving borrowing capacity of $450 million. We have $1.1 billion in outstanding term loans under a term loan credit agreement (the Credit Agreement). The ~~Credit Agreement provides borrowing capacity of $600 million and a $250 million term loan. We make principal payments under the term loan~~interest rate on ~~a quarterly basis with the remaining outstanding principal due in five years. The~~our revolving credit facility ~~has~~is based on a ~~five-year maturity. Under~~spread over a benchmark rate (as described in the Revolving Credit Agreement). The Revolving Credit Agreement ~~we have the ability to request two one-year extensions and to request an increase~~matures in ~~aggregate commitments by up to $200 million.~~March 2026. The interest rate on the ~~Credit Agreement, which is subject to~~

~~adjustment quarterly,~~Term Loan A facility (Term Loan A) is based on either the ~~London Interbank Offered Rate (LIBOR), the Federal Funds Rate~~Term SOFR or the ~~Prime~~Base Rate plus an ~~adjustment~~Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B facility (Term Loan B) is based on either the ~~better~~Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029.

At June 30, 2022, we had no borrowings and letters of credit of $28.0 million outstanding under our ~~debt ratings or leverage ratio (Credit Spread) as defined by the~~Revolving Credit Agreement. At December 31, 2021, we had no borrowings and letters of credit of $9.4 million outstanding under our Revolving Credit Agreement. At June 30, 2022 and December 31, 2021, we had $422 million and $291 million, available for borrowing under our Revolving Credit Agreement. We ~~are charged a commitment fee~~also had letters of ~~between 12.5~~credit and ~~25.0 basis points on the unused portion~~bank guarantees, which were issued outside of the ~~facility.~~Revolving Credit Facility for $2.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

On March 29, 2022, we entered into an amendment to our accounts receivable securitization program (the Receivables Financing Agreement). Pursuant to the amended Receivables Financing Agreement, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $450 million outstanding at any time. The interest rate under the Receivables Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025.

The Revolving Credit Agreement, Term Loan A, Term Loan B, Receivables Financing Agreement, 2024 Notes, 2029 Unsecured Notes, and 2030 Unsecured Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements. The terms of the ~~Credit Agreement limit the amount of indebtedness that we may incur and~~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.~~acquisition or divestiture. We were in compliance with our debt covenants at June 30, 2022.

In May 2020, we entered into an equity distribution agreement, pursuant to which we may ~~utilize~~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 ~~revolving credit facility~~net proceeds from the sale of our securities offered by this program for ~~long-term strategic growth, capital expenditures,~~ the repayment of indebtedness and/or for general corporate and

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working capital purposes. As of June 30, 2022 no shares were issued and ~~general corporate purposes. If~~$50.0 million of common stock remained available under the at-the-market equity financing program.

We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure. From time to time, we ~~were unable~~may enter into transactions to ~~access~~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 ~~revolving credit facility, it could impact our~~debt’s terms). Our ability to ~~fund these needs. Based on our leverage ratio at September 30, 2017, the interest rate under the credit facility is LIBOR plus 1.375%.~~

At September 30, 2017, we had borrowings of $117.2 million and letters of credit of approximately $5.1 million outstanding under the Credit Agreement, leaving $477.7 million available for borrowing. We also have a $1.3 million letter of credit outstanding as of September 30, 2017 and December 31, 2016 which supports our facilities leased in Europe.

We have $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”). The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. Interest on the 2021 Notes and 2024 Notes is payable semiannually in arrears, which commenced on March 15, 2015 and December 15, 2014, respectively. We have the option to redeem the 2021 Notes and 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 Treasury Rate plus 30 basis points.

In the third quarter of 2017, we paid cash dividends on our outstanding common stock at the rate of $0.2575 per share, which represents a 1.0% increase over the rate of $0.255 per share paid in the third quarter of 2016. We anticipate continuing to pay quarterly cash dividends in the future. However, the payment of future dividends remains within the discretion of the Board of Directors andconsummate any such transaction will depend ~~upon~~on prevailing market conditions, our ~~results of operations, financial condition, capital~~liquidity requirements, contractual restrictions and other factors.

~~In October 2016,~~ We cannot provide any assurance as to if or when we will consummate any such transactions or the ~~Board~~terms of Directors authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in December 2019. The program is intended to offset shares issued in conjunction with our stock incentive plan and return capital to shareholders, and may be suspended or discontinued at any time. During the first nine months of 2017, we repurchased approximately 0.2 million shares for $5.0 million under this program. At September 30, 2017, the remaining amount authorized for repurchase under this program was $94.0 million.

We earn a portion of our operating earnings in foreign jurisdictions outside the U.S., which we consider to be indefinitely reinvested. Accordingly, no U.S. federal and state income taxes and withholding taxes have been provided on these earnings. Our cash, cash-equivalents, short-term investments, and marketable securities held by our foreign subsidiaries totaled $60.7 million and $82.1 million as of September 30, 2017 and December 31, 2016. We do not intend, nor do we foresee a need, to repatriate these funds or other assets held outside the U.S. In the future, should we require more capital to fund discretionary activities in the U.S. than is generated by our domestic operations and is available through our borrowings, we could elect to repatriate cash or other assets from foreign jurisdictions that have previously been considered to be indefinitely reinvested.such transaction.

We believe available financing sources, including cash generated by operating activities and borrowings under the Revolving Credit Agreement and ~~other committed financing,~~Receivables Financing Agreement, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, ~~payments of quarterly cash dividends, share~~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 totaled $23.0 million and $26.9 million at June 30, 2022 and December 31, 2021. We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand. We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2022. As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for Thailand. We will continue to evaluate our foreign earnings repatriation policy in 2022 for all our foreign subsidiaries.

Impact of Inflation

The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation. We have recently experienced inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business. The increase in cost of raw materials and finished goods are due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. Additionally, it is not certain that we will be able to pass elevated costs onto customers in an effort to offset inflationary pressures. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results.

Guarantor and Collateral Group Summarized Financial Information

We are providing the following information in compliance with Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and Rule 13-02 of Regulation S-X, of with respect to our 2024 Notes. See Note 6 of the accompanying consolidated financial statements for additional information regarding the terms of the 2024 Notes.

The following tables present summarized financial information for Owens & Minor, Inc. and the guarantors of Owens & Minor, Inc.’s 2024 Notes (together, "the Guarantor Group"), on a combined basis with intercompany balances and transactions between entities in the Guarantor Group eliminated. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several.

Summarized financial information of the Guarantor Group is as follows:


Summarized Consolidated Statement of Operations - Guarantor Group	Six Months Ended June 30, 2022
(Dollars in thousands)
Net revenue(1)	$	4,771,148
Gross margin	839,511
Operating income	100,937
Net income	48,825

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

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Summarized Consolidated Balance Sheets - Guarantor Group	June 30, 2022		December 31, 2021
(Dollars in thousands)
Total current assets	$	1,648,833	$	1,449,917
Total assets	4,915,785		2,807,581
Current liabilities	1,643,705		1,399,499
Total liabilities	4,464,205		2,422,542

The following tables present summarized financial information for Owens & Minor, Inc. and the subsidiaries of Owens & Minor, Inc.’s 2024 Notes pledged that constitute a substantial portion of collateral (together, "the Collateral Group"), on a combined basis with intercompany balances and transactions between entities in the Collateral Group eliminated. The pledged subsidiaries are 100% owned by Owens & Minor, Inc. No trading market for the subsidiaries included in the Collateral Group exists.

Summarized financial information of the Collateral Group is as follows:


Summarized Consolidated Balance Sheets - Collateral Group	June 30, 2022		December 31, 2021
(Dollars in thousands)
Total current assets	$	1,718,358	$	1,514,724
Total assets	4,839,246		2,729,455
Current liabilities	1,567,372		1,341,691
Total liabilities	4,423,123		2,398,694

The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our consolidated statements of operations.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and Note 15 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the ~~quarterly~~ period ended on ~~September~~June 30, ~~2017.~~2022.

Forward-looking Statements

Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to:

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

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

•our ability to retain existing and attract new customers in a market characterized by consolidation among significant ~~customer consolidation~~customers, health insurers and/or other industry participants, and intense cost-containment initiatives;

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•our dependence on sales to certain customers or the loss or material reduction in purchases by key customers;

•our dependence on distribution of product of certain suppliers;

•our ability to successfully identify, manage or integrate acquisitions;

•our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, changes in regulatory conditions, deteriorating economic conditions, adverse tax consequences, and other risks of operating in international markets;

•the risk that problems may arise in successfully integrating the businesses of Apria and the Company, which may result in the combined company not operating as effectively and efficiently as expected and the risk that the combined company may be unable to achieve the anticipated synergies or cost savings, or it may take longer than expected to achieve those synergies;

•the effect of our acquisition of Apria and any developments relating thereto on our relationships with customers, suppliers and other third parties, as well as our operating results and business;

•uncertainties related to and our ability to adapt to changes in government regulations, including healthcare laws and ~~regulations (including the Affordable Care Act);~~regulations;

•risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate;

•uncertainties related to general economic, regulatory and business conditions;

•our ability to successfully implement our strategic initiatives;

•the availability of and modifications to existing supplier funding programs and our ability to meet the terms to qualify for certain of these programs;

~~our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product;~~

~~the ability of customers and suppliers to meet financial commitments due to us;~~

~~changes in manufacturer preferences between direct sales and wholesale distribution;~~

~~changing trends in customer profiles and ordering patterns and our ability to meet customer demand for additional value-added services;~~

~~our ability to manage operating expenses and improve operational efficiencies in response to changing customer profiles;~~

~~our ability to meet performance targets specified by customer contracts under contractual commitments;~~

~~availability of and our ability to access special inventory buying opportunities;~~

~~the ability of business partners and financial institutions to perform their contractual responsibilities;~~

•the effect of price volatility in the commodities markets, including fuel price fluctuations, on our operating costs and supplier product prices;

•our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product;

•the ability of customers and suppliers to meet financial commitments due to us;

•changes in manufacturer preferences between direct sales and wholesale distribution;

•changing trends in customer profiles and ordering patterns and our ability to meet customer demand for additional value-added services;

•our ability to manage operating expenses and improve operational efficiencies in response to changing customer profiles;

•our ability to meet performance targets specified by customer contracts under contractual commitments;

•availability of and our ability to access special inventory buying opportunities;

•the ability of business partners and financial institutions to perform their contractual responsibilities;

•our ability to continue to obtain financing, obtain financing at reasonable rates and to manage financing costs and interest rate ~~risk;~~risk, and our ability to refinance, extend or repay our substantial indebtedness;

•the risk that information systems are interrupted or damaged or fail for any extended period of time, that new information systems are not successfully implemented or integrated, or that there is a data security breach in our information systems;

•we depend on reimbursements by payors, which could lead to delays and uncertainties in the reimbursement process;

•the home healthcare industry is highly competitive and fragmented, with limited barriers to entry which may make it susceptible to vertical integration by manufacturers, payors, providers (such as hospital systems) or disruptive new entrants;

•the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets;

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•our ability to timely or adequately respond to technological advances in the medical supply ~~industry;~~and home healthcare industries and/or product and therapy innovations may make the services we currently provide obsolete or less competitive;

•our failure to adequately insure against losses, including from substantial claims and litigation, could have an adverse impact on our operations, financial condition, or prospects;

•recalls of any of our products, either voluntarily or at the direction of the Food and Drug Administration or another governmental authority, or safety risks or the discovery of serious safety issues with our products;

•our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions;

•reductions in Medicare, Medicaid and commercial payor reimbursement rates could have a material adverse effect on our results of operations and financial condition;

•the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims;

•adverse changes in U.S. and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals;

•our ability to successfully implement the expense reduction and productivity and efficiency initiatives;

•our ability to continue to comply with the terms and conditions of Apria’s Corporate Integrity Agreement; and

•other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021 and our Form 10-Q for the three months ended March 31, 2022.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to price risk for our raw materials, the most significant of which relates to the cost of polypropylene and nitrile used in the manufacturing processes of our Products & Healthcare Services segment. Prices of the commodities underlying these raw materials are volatile and have fluctuated significantly in recent years and in the future may contribute to fluctuations in our results of operations. The ability to hedge these commodity prices is limited.

We are exposed to risks of changes in shipping and freight costs, including container and other third party fees associated with the transportation of our products. Shipping and freight costs have fluctuated significantly in recent years and in the future may contribute to changes in our results of operations.

In the normal course of business, we are exposed to foreign currency translation and transaction risks. Our business transactions outside of the United States are denominated in the euro, Malaysian ringgit, Mexican peso, Thai baht and other currencies. We may use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.

We are exposed to market risk from changes in interest rates related to our borrowing under our Revolving Credit Agreement and Receivables Financing Agreement. Excluding deferred financing costs and third party fees, we had $500 million in borrowings under our Term Loan A, $600 million in borrowings under our Term Loan B, no borrowings under our revolving credit ~~facility. We had $117.2~~facility, $175 million in ~~outstanding~~ borrowings under our Receivables Financing Agreementand ~~approximately $5.1~~$28.0 million in letters of credit under the ~~revolving credit facility~~Revolving Credit Agreement at ~~September~~June 30, ~~2017. A hypothetical~~2022. After considering the effects of an interest rate swap agreement entered into during April 2022, we estimate an increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately ~~$0.1~~$8.8 million per year ~~for every $10 million of~~based on our borrowings outstanding ~~borrowings under the revolving credit facility.~~at June 30, 2022.

Due to the nature and pricing of our ~~Domestic~~Products & Healthcare Services segment distribution services, we are exposed to potential volatility in fuel prices. Our strategies for helping to mitigate our exposure to changing domestic fuel prices ~~has~~have included ~~entering into leases for~~using trucks with improved fuel efficiency. We benchmark our domestic diesel fuel purchase prices against the U.S. Weekly Retail On-Highway Diesel Prices (benchmark) as quoted by the U.S. Energy Information Administration. The benchmark averaged ~~$2.58~~$4.92 and $3.06 per gallon in the first ~~nine~~six months of ~~2017, a increase from $2.25 per gallon in the first nine months of 2016.~~2022 and 2021. Based on our fuel consumption in the first ~~nine~~six months of ~~2017,~~2022, we estimate that every 10 cents per gallon increase in the benchmark would directly reduce our ~~Domestic segment~~ operating ~~earnings~~income by approximately ~~$0.3~~$0.4 million on an annualized basis.

~~In the normal course of business, we~~We are also indirectly exposed to ~~foreign currency translation~~increased shipping and ~~transaction risks. Our business transactions outside~~freight costs, including container and other third party fees associated with the transportation of ~~the United States are primarily denominated~~our products due to

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changes in fuel prices. Changes in fuel prices have contributed to significant shipping and freight costs in recent years and in the ~~Euro and British Pound. We~~future may ~~use foreign currency forwards, swaps and options, where possible,~~contribute to ~~manage~~changes in our risk related to certain foreign currency fluctuations. However, we believe that our foreign currency transaction risks are low since our revenues and expenses are typically denominated in the same currency.results of operations.

Item 4. Controls and Procedures

We carried out an evaluation, with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2022. There ~~has been~~was no change in our internal control over financial reporting that occurred during the ~~quarter ended September 30, 2017,~~period of this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In connection with the Apria Acquisition, we are currently evaluating the acquired processes, information technology systems and other components of internal controls over financial reporting as part of our integration activities which may result in periodic changes. Such changes will be disclosed as required by applicable SEC guidance.

SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year ~~of an~~following such acquisition. In the ~~third~~first quarter of ~~2017,~~2022, we acquired ~~Byram Healthcare.~~Apria, Inc. This acquisition represented ~~$477 million~~$2.0 billion of total assets and ~~$80.3~~$310 million of revenues as of and for the ~~three~~six months ended ~~September~~June 30, ~~2017.~~2022. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting of ~~these acquisitions.~~Apria, Inc.

Part II. Other Information

Item 1. Legal Proceedings

Certain legal proceedings pending against us are described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021. Through ~~September~~June 30, ~~2017,~~2022, there have been no material developments in any legal proceedings reported in such Annual Report.

Item 1A. Risk Factors

Certain risk factors that we believe could affect our business and prospects are described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021 and our Form 10-Q for the three months ended March 31, 2022. Through ~~September~~June 30, ~~2017, we have added the following risk factors. There~~2022, there have been no ~~other~~ material changes in the risk factors described in such Annual ~~Report.~~Report and First Quarter 2022 Form 10-Q.

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~~We are subject to stringent regulatory and licensing requirements~~

We are required to comply with extensive and complex laws and regulations at the federal, state and local government levels. Among these laws are the federal Anti-kickback Statute, the federal Stark Law, the False Claims Act and similar state laws relating to healthcare fraud and abuse. The requirements of these laws are complex and subject to varying interpretations, and it is possible that regulatory authorities could challenge our policies and practices. If we fail to comply with these laws, we could be subject to federal or state government investigations or ~~qui tam~~ actions (false claims cases initiated by private parties purporting to act on behalf of federal or state governments), which could result in civil or criminal sanctions, including the loss of licenses or the ability to participate in Medicare, Medicaid and other federal and state healthcare programs. Such sanctions and damages could adversely affect our results of operations and financial condition.

Our Byram business is a Medicare-certified supplier and participates in state Medicaid programs. Failure to comply with applicable standards and regulations could result in civil or criminal sanctions, including the loss of our ability to participate in Medicare, Medicaid and other federal and state healthcare programs.

We collect, handle and maintain patient-identifiable health information and other sensitive personal and financial information, which are subject to federal, state and foreign laws that regulate the use and disclosure of such information. Regulations currently in place continue to evolve, and new laws in this area could further restrict our ability to collect, handle and maintain personal or patient information, or could require us to incur additional compliance costs, either of which could have an adverse impact on our results of operations. Violations of federal, state or foreign laws concerning privacy and data protection could subject us to civil or criminal penalties, breach of contract claims, costs for remediation and harm to our reputation.

Compliance with the terms and conditions of Byram’s Corporate Integrity Agreement requires significant resources and, if we fail to comply, we could be subject to penalties or excluded from participation in government healthcare programs, which could seriously harm our results of operations, liquidity and financial results.

Prior to its acquisition by Owens & Minor, Byram entered into a five-year Corporate Integrity Agreement beginning April 2016 with the Office of Inspector General of the United States Department of Health and Human Services (“OIG”). The Corporate Integrity Agreement provides that Byram shall, among other things, establish and maintain a compliance program, including a corporate compliance officer and committee, a code of conduct, comprehensive compliance policies and procedures, training and monitoring, a review process for certain arrangements between Byram and referral sources, a compliance hotline, an open door policy and a disciplinary process for compliance violations. The Corporate Integrity Agreement further provides that Byram shall provide periodic reports to the OIG, complete certain regular certifications and engage an Independent Review Organization to perform reviews of certain arrangements between Byram and referral sources.

Failing to meet the Corporate Integrity Agreement obligations could have material adverse consequences for Byram including monetary penalties for each instance of non-compliance. In addition, in the event of an uncured material breach or deliberate violation of the Corporate Integrity Agreement, we could be excluded from participation in Federal healthcare programs, or other significant penalties, which could seriously harm our results of operations, liquidity and financial results.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

In October 2016, our Board of Directors authorized a share repurchase program of up to $100 million of the company’s outstanding common stock to be executed at the discretion of management over a three-year period. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and may be suspended or discontinued at any time. Purchases under the share repurchase program are made eitherMay 2020, we entered into an equity distribution agreement, pursuant to ~~10b5-1 plans entered into by the company~~which we may offer and sell, from time to time, ~~and/or during~~shares of our common stock having an aggregate offering price of up to $50.0 million. We intend to use the ~~company’s scheduled quarterly trading windows for officers and directors. We did not repurchase any shares~~net proceeds from the sale of our securities offered by this program for the ~~three months ended September~~repayment of indebtedness and/or for general corporate and working capital purposes. As of June 30, ~~2017.~~2022, no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program.

Item 6. Exhibits

(a)Exhibits


~~(a)~~2.1	~~Exhibits~~	Agreement and Plan of Merger, dated as of January 7, 2022, by and among Owens & Minor, Inc., StoneOak Merger Sub Inc. and Apria, Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed with the SEC on January 10, 2022, File No. 001-09810).

3.1		Amended and Restated Bylaws of the Company effective June 1, 2022 (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 3.1, dated June 1, 2022)

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~~31.1~~4.1						Indenture dated March 29, 2022 by and among the Company, the guarantors named therein and Regions Bank, as trustee (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 4.1, dated March 29, 2022)

4.2						Form of Global Note for the 6.625% Senior Notes due 2030 (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 4.2, dated March 29, 2022)

4.3						Seventh Supplemental Indenture dated as of March 29, 2022, by and among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 4.3, dated March 29, 2022)

4.4						First Supplemental Indenture dated as of March 29, 2022, by and among the Company, the guarantors named therein and Regions Bank, as trustee, to the Indenture dated as of March 10, 2021 (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 4.4, dated March 29, 2022)

4.5						First Supplemental Indenture dated as of March 29, 2022, by and among the Company, the guarantors named therein and Regions Bank, as trustee, to the Indenture dated of March 29, 2022 (incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 4.5, dated March 29, 2022)

10.1						Amendment No. 3 to the Owens & Minor, Inc. 2018 Stock Incentive Plan - (incorporated herein by reference to our Form 10-Q, Exhibit 10.7, dated May 3, 2022)

22.1						List of Guarantor Subsidiaries

22.2						List of Subsidiaries Pledged as Collateral

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

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104						Cover Page Interactive Data File (formatted as inline iXBRL and contained in Exhibit 101)

* Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We hereby undertake to furnish copies of such omitted materials supplementally upon request by the SEC.

** Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Owens & Minor, Inc.
			(Registrant)

Date:		August 3, 2022	~~Owens & Minor, Inc.~~/s/ Edward A. Pesicka
			~~(Registrant)~~Edward A. Pesicka
			President, Chief Executive Officer & Director
~~Date:~~		~~November 1, 2017~~	~~/s/ Paul C. Phipps~~
Date:		August 3, 2022	~~Paul C. Phipps~~/s/ Andrew G. Long
			Andrew G. Long
			Executive Vice President & Chief ~~Executive Officer~~

~~Date:~~	~~November 1, 2017~~	~~/s/ Richard A. Meier~~
		~~Richard A. Meier~~
		~~Executive Vice President, Chief~~ Financial Officer ~~& President, International~~



Virginia			54-1701843
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

9120 Lockwood Boulevard ~~Mechanicsville, Virginia~~	Mechanicsville	Virginia	23116
(Address of principal executive offices)			(Zip Code)

Post Office Box 27626, Richmond, Virginia			23261-7626
(Mailing address of principal executive offices)			(Zip Code)



Large accelerated filer	x☒	Accelerated filer	o☐
Non-accelerated filer	o☐ (Do not check if a smaller reporting company)	Smaller reporting company	o☐
Emerging growth company	o☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			o☐



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Part I. Financial Information				Page

~~Part I. Financial Information~~		~~Page~~

Item 1.	Financial Statements		3
		Consolidated Statements of ~~Income—~~Operations—Three and ~~Nine~~S ix Months Ended ~~September~~ June 30 ~~2017~~, 2022 and ~~2016~~2021		3
		Consolidated Statements of Comprehensive ~~Income—~~Income —Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021		4
		Consolidated Balance Sheets—~~September 30, 2017~~June 3 0 , 2022 and December 31, ~~2016~~2021		5
		Consolidated Statements of Cash Flows—~~Nine~~Six Months Ended ~~September~~June 30 ~~2017~~, 2022 and ~~2016~~2021		65
		Consolidated Statements of Changes in Equity—~~Nine~~ Three and Six Months Ended ~~September~~June 30 ~~2017~~, 2022 and ~~2016~~2021		7
		Notes to Consolidated Financial Statements		8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2322
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3132
Item 4.		Controls and Procedures		3133
Part II. Other Information

Item 1.		Legal Proceedings		3133
Item 1A.		Risk Factors		3133
Item 2.		Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		3233
Item 6.		Exhibits		~~Exhibits~~	33



	September 30,			December 31,
(in thousands, except per share data)	2017			2016
Assets
Current assets
Cash and cash equivalents	$	98,415		$	185,488
Accounts receivable, net of allowances of $14,609 and $13,538	732,756			606,084
Merchandise inventories	989,251			916,311
Other current assets	311,499			254,156
Total current assets	2,131,921			1,962,039
Property and equipment, net of accumulated depreciation of $224,970 and $201,399	203,587			191,718
Goodwill, net	690,230			414,936
Intangible assets, net	231,886			82,511
Other assets, net	76,532			66,548
Total assets	$	3,334,156		$	2,717,752
Liabilities and equity
Current liabilities
Accounts payable	$	875,630		$	750,750
Accrued payroll and related liabilities	31,998			45,051
Other current liabilities	296,663			238,837
Total current liabilities	1,204,291			1,034,638
Long-term debt, excluding current portion	917,256			564,583
Deferred income taxes	137,539			90,383
Other liabilities	71,286			68,110
Total liabilities	2,330,372			1,757,714
Commitments and contingencies
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,249 shares and 61,031 shares	122,499			122,062
Paid-in capital	224,183			219,955
Retained earnings	683,444			685,504
Accumulated other comprehensive loss	(26,342		)	(67,483		)
Total equity	1,003,784			960,038
Total liabilities and equity	$	3,334,156		$	2,717,752




(in thousands, except per share data)	Common Shares Outstanding		Common Stock ($ 2 par value )			Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance December 31, 2015	62,803		$	125,606		$	211,943	$	706,866		$	(51,825	)	$	992,590
Net income								81,682						81,682
Other comprehensive loss											3,263			3,263
Dividends declared ($0.765 per share)								(47,671		)				(47,671		)
Shares repurchased and retired	(1,378	)	(2,757		)			(45,896		)				(48,653		)
Share-based compensation expense, exercises and other	274		549			4,923								5,472
Balance September 30, 2016	61,699		$	123,398		$	216,866	$	694,981		$	(48,562	)	$	986,683

Balance December 31, 2016	61,031		$	122,062		$	219,955	$	685,504		$	(67,483	)	$	960,038
Net income								49,796						49,796
Other comprehensive income											41,141			41,141
Dividends declared ($0.7725 per share)								(47,169		)				(47,169		)
Shares repurchased and retired	(155	)	(310		)			(4,687		)				(4,997		)
Share-based compensation expense, exercises and other	373		747			4,228								4,975
Balance September 30, 2017	61,249		$	122,499		$	224,183	$	683,444		$	(26,342	)	$	1,003,784



	Lease Obligations			Severance and Other			Total
Accrued exit and realignment costs, December 31, 2016	$	—		$	2,238		$	2,238
Provision for exit and realignment activities	—			3,211			3,211
Change in estimate	—			(304		)	(304		)
Cash payments	—			(3,034		)	(3,034		)
Accrued exit and realignment costs, March 31, 2017	—			2,111			2,111
Provision for exit and realignment activities	—			1,382			1,382
Change in estimate	—			(18		)	(18		)
Cash payments	—			(667		)	(667		)
Accrued exit and realignment costs, June 30, 2017	—			2,808			2,808
Provision for exit and realignment activities	—			3,156			3,156
Cash payments	—			(423		)	(423		)
Accrued exit and realignment costs, September 30, 2017	$	—		$	5,541		$	5,541

Accrued exit and realignment costs, December 31, 2015	$	486		$	1,840		$	2,326
Provision for exit and realignment activities	—			9,895			9,895
Cash payments, net of sublease income	(486		)	(1,287		)	(1,773		)
Accrued exit and realignment costs, March 31, 2016	—			10,448			10,448
Provision for exit and realignment activities	—			1,254			1,254
Cash payments, net of sublease income	—			(7,087		)	(7,087		)
Accrued exit and realignment costs, June 30, 2016	—			4,615			4,615
Provision for exit and realignment activities	—			725			725
Change in Estimate	—			(268		)	(268		)
Cash payments, net of sublease income	—			(2,066		)	(2,066		)
Accrued exit and realignment costs, September 30, 2016	$	—		$	3,006		$	3,006



Three Months Ended September 30, 2017	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	2,113,450		$	264,765		$	(44,254	)	$	2,333,961
Cost of goods sold	—			1,919,049			157,439			(44,469		)	2,032,019
Gross margin	—			194,401			107,326			215			301,942
Distribution, selling and administrative expenses	(117		)	159,108			102,054			—			261,045
Acquisition-related and exit and realignment charges	—			6,960			2,339			—			9,299
Other operating (income) expense, net	—			448			1,479			—			1,927
Operating earnings (loss)	117			27,885			1,454			215			29,671
Interest expense (income), net	7,018			(1,184		)	2,903			—			8,737
Income (loss) before income taxes	(6,901		)	29,069			(1,449		)	215			20,934
Income tax (benefit) provision	—			7,881			2,182			—			10,063
Equity in earnings of subsidiaries	17,772			—			—			(17,772		)	—
Net income (loss)	10,871			21,188			(3,631		)	(17,557		)	10,871
Other comprehensive income (loss)	12,584			330			12,254			(12,584		)	12,584
Comprehensive income (loss)	$	23,455		$	21,518		$	8,623		$	(30,141	)	$	23,455



Three Months Ended September 30, 2016	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	2,287,335		$	168,216		$	(39,950	)	$	2,415,601
Cost of goods sold	—			2,070,639			89,192			(40,505		)	2,119,326
Gross margin	—			216,696			79,024			555			296,275
Distribution, selling and administrative expenses	(52		)	169,451			71,906			—			241,305
Acquisition-related and exit and realignment charges	—			2,237			502			—			2,739
Other operating income, net	—			(1,205		)	(132		)	—			(1,337		)
Operating earnings (loss)	52			46,213			6,748			555			53,568
Interest expense (income), net	7,403			(1,345		)	712			—			6,770
Income (loss) before income taxes	(7,351		)	47,558			6,036			555			46,798
Income tax (benefit) provision	—			14,131			2,836			—			16,967
Equity in earnings of subsidiaries	37,182			—			—			(37,182		)	—
Net income (loss)	29,831			33,427			3,200			(36,627		)	29,831
Other comprehensive income (loss)	1,701			299			1,402			(1,701		)	1,701
Comprehensive income (loss)	$	31,532		$	33,726		$	4,602		$	(38,328	)	$	31,532



Nine Months Ended September 30, 2017	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	6,436,599		$	635,900	$	(144,058	)	$	6,928,441
Cost of goods sold	—			5,845,789			369,596		(143,598		)	6,071,787
Gross margin	—			590,810			266,304		(460		)	856,654
Distribution, selling and administrative expenses	434			480,765			254,154		—			735,353
Acquisition-related and exit and realignment charges	—			17,084			4,050		—			21,134
Other operating (income) expense, net	—			1,481			662		—			2,143
Operating earnings (loss)	(434		)	91,480			7,438		(460		)	98,024
Interest expense (income), net	20,756			(2,777		)	4,239		—			22,218
Income (loss) before income taxes	(21,190		)	94,257			3,199		(460		)	75,806
Income tax (benefit) provision	—			23,303			2,707		—			26,010
Equity in earnings of subsidiaries	70,986			—			—		(70,986		)	—
Net income (loss)	49,796			70,954			492		(71,446		)	49,796
Other comprehensive income (loss)	41,141			990			40,151		(41,141		)	41,141
Comprehensive income (loss)	$	90,937		$	71,944		$	40,643	$	(112,587	)	$	90,937



Nine Months Ended September 30, 2016	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	6,954,983		$	516,131		$	(116,045	)	$	7,355,069
Cost of goods sold	—			6,305,489			273,927			(116,677		)	6,462,739
Gross margin	—			649,494			242,204			632			892,330
Distribution, selling and administrative expenses	838			504,984			221,122			—			726,944
Acquisition-related and exit and realignment charges	—			15,888			4,086			—			19,974
Other operating income, net	—			(3,952		)	(1,227		)	—			(5,179		)
Operating earnings (loss)	(838		)	132,574			18,223			632			150,591
Interest expense (income), net	21,134			(2,808		)	1,998			—			20,324
Income (loss) before income taxes	(21,972		)	135,382			16,225			632			130,267
Income tax (benefit) provision	—			40,237			8,348			—			48,585
Equity in earnings of subsidiaries	103,654			—			—			(103,654		)	—
Net income (loss)	81,682			95,145			7,877			(103,022		)	81,682
Other comprehensive income (loss)	3,263			821			2,442			(3,263		)	3,263
Comprehensive income (loss)	$	84,945		$	95,966		$	10,319		$	(106,285	)	$	84,945



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands except per share data)	2017			2016			2017			2016
Operating earnings, as reported (GAAP)	$	29,671		$	53,568		$	98,024		$	150,591
Acquisition-related and exit and realignment charges ⁽¹⁾	9,299			2,739			21,134			19,974
Acquisition-related intangible amortization ⁽²⁾	5,071			2,489			9,737			7,552
Other ⁽³⁾	4,441			—			8,674			—
Operating earnings, adjusted (non-GAAP) (Adjusted Operating Earnings)	$	48,482		$	58,796		$	137,569		$	178,117

Net income, as reported (GAAP)	$	10,871		$	29,831		$	49,796		$	81,682
Acquisition-related and exit and realignment charges ⁽¹⁾	9,299			2,739			21,134			19,974
Income tax expense (benefit) ⁽⁴⁾	(2,854		)	(1,015		)	(7,367		)	(6,615		)
Acquisition-related intangible amortization ⁽²⁾	5,071			2,489			9,737			7,552
Income tax expense (benefit) ⁽⁴⁾	(1,601		)	(645		)	(2,993		)	(1,956		)
Other ⁽³⁾	4,441			—			8,674			—
Income tax expense (benefit) ⁽⁴⁾	(973		)	—			(2,465		)	—
Net income, adjusted (non-GAAP) (Adjusted Net Income)	$	24,254		$	33,399		$	76,516		$	100,637

Net income per diluted common share, as reported (GAAP)	$	0.18		$	0.48		$	0.82		$	1.32
Acquisition-related and exit and realignment charges, per diluted common share ⁽¹⁾	0.11			0.03			0.23			0.21
Acquisition-related intangible amortization, per diluted common share ⁽²⁾	0.06			0.03			0.11			$	0.09
Other, per diluted common share ⁽³⁾	0.05			—			0.10			—
Net income per diluted common share, adjusted (non-GAAP)(Adjusted EPS)	$	0.40		$	0.54		$	1.26		$	1.62