10-Q 1 tmb-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from                      to                     

Commission file number 1-9810

Owens & Minor, Inc.

(Exact name of Registrant as specified in its charter)

Virginia

54-1701843

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

9120 Lockwood Boulevard

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)

Registrant’s telephone number, including area code (804723-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common Stock, $2 par value per share

OMI

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

    

Smaller reporting company

Emerging growth company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  

The number of shares of Owens & Minor, Inc.’s common stock outstanding as of April 26, 2024 was 76,499,288 shares.

Owens & Minor, Inc. and Subsidiaries

Index

Part I. Financial Information

Page

Item 1.

Financial Statements

3

Consolidated Statements of Operations—Three Months Ended March 31, 2024 and 2023

3

Consolidated Statements of Comprehensive Loss—Three Months Ended March 31, 2024 and 2023

4

Consolidated Balance Sheets—March 31, 2024 and December 31, 2023

5

Consolidated Statements of Cash Flows— Three Months Ended March 31, 2024 and 2023

6

Consolidated Statements of Changes in Equity— Three Months Ended March 31, 2024 and 2023

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

Part II. Other Information

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

2

Part I. Financial Information

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

    

Three Months Ended

March 31, 

(in thousands, except per share data)

    

2024

    

2023

Net revenue

$

2,612,680

$

2,522,849

Cost of goods sold

 

2,077,151

 

2,025,542

Gross profit

 

535,529

 

497,307

Distribution, selling and administrative expenses

 

477,613

 

448,722

Acquisition-related charges and intangible amortization

 

20,313

 

22,188

Exit and realignment charges, net

27,356

15,674

Other operating expense, net

 

551

 

916

Operating income

 

9,696

 

9,807

Interest expense, net

 

35,655

 

42,198

Other expense, net

 

1,153

 

1,387

Loss before income taxes

 

(27,112)

 

(33,778)

Income tax benefit

 

(5,226)

 

(9,360)

Net loss

$

(21,886)

$

(24,418)

Net loss per common share

 

  

 

  

Basic

$

(0.29)

$

(0.32)

Diluted

$

(0.29)

$

(0.32)

See accompanying notes to consolidated financial statements.

3

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(unaudited)

    

Three Months Ended

March 31, 

(in thousands)

2024

    

2023

Net loss

$

(21,886)

$

(24,418)

Other comprehensive (loss) income net of tax:

 

 

Currency translation adjustments

 

(13,266)

 

5,118

Change in unrecognized net periodic pension costs

 

235

 

(147)

Change in gains and losses on derivative instruments

 

1,412

 

(3,377)

Total other comprehensive (loss) income, net of tax

 

(11,619)

 

1,594

Comprehensive loss

$

(33,505)

$

(22,824)

See accompanying notes to consolidated financial statements.

4

Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

    

March 31, 

December 31, 

(in thousands, except per share data)

2024

    

2023

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

244,866

$

243,037

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

 

669,861

 

598,257

Merchandise inventories

 

1,144,597

 

1,110,606

Other current assets

 

177,020

 

150,890

Total current assets

 

2,236,344

 

2,102,790

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

 

501,385

 

543,972

Operating lease assets

 

349,984

 

296,533

Goodwill

 

1,635,368

 

1,638,846

Intangible assets, net

 

342,593

 

361,835

Other assets, net

 

142,319

 

149,346

Total assets

$

5,207,993

$

5,093,322

Liabilities and equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

1,218,817

$

1,171,882

Accrued payroll and related liabilities

 

79,480

 

116,398

Current portion of long-term debt

207,658

206,904

Other current liabilities

 

427,136

 

396,701

Total current liabilities

 

1,933,091

 

1,891,885

Long-term debt, excluding current portion

 

1,946,005

 

1,890,598

Operating lease liabilities, excluding current portion

 

276,327

 

222,429

Deferred income taxes, net

 

34,437

 

41,652

Other liabilities

 

123,265

 

122,592

Total liabilities

 

4,313,125

 

4,169,156

Commitments and contingencies

 

  

 

  

Equity

 

  

 

  

Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 76,449 shares and 76,546 shares

 

152,897

 

153,092

Paid-in capital

 

438,587

 

434,185

Retained earnings

 

346,821

 

368,707

Accumulated other comprehensive loss

 

(43,437)

 

(31,818)

Total equity

 

894,868

 

924,166

Total liabilities and equity

$

5,207,993

$

5,093,322

See accompanying notes to consolidated financial statements.

5

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

    

Three Months Ended March 31, 

(in thousands)

2024

    

2023

Operating activities:

Net loss

$

(21,886)

$

(24,418)

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

 

  

 

  

Depreciation and amortization

 

74,095

 

70,926

Share-based compensation expense

 

6,866

 

6,463

Provision (benefit) for losses on accounts receivable

 

181

 

(521)

Loss on extinguishment of debt

 

 

564

Deferred income tax benefit

 

(3,659)

 

(591)

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

 

1,139

 

(225)

Gain on sale and dispositions of property and equipment

 

(15,619)

 

(8,269)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(75,144)

 

5,240

Merchandise inventories

 

(35,412)

 

45,832

Accounts payable

 

52,926

 

23,082

Net change in other assets and liabilities

 

(39,617)

 

36,483

Other, net

 

3,168

 

3,832

Cash (used for) provided by operating activities

 

(52,962)

 

158,398

Investing activities:

 

  

 

  

Additions to property and equipment

 

(45,997)

 

(46,150)

Additions to computer software

 

(3,411)

 

(5,340)

Proceeds from sale of property and equipment

 

49,538

 

17,306

Other

 

(2,000)

 

Cash used for investing activities

 

(1,870)

 

(34,184)

Financing activities:

 

  

 

  

Borrowings under amended Receivables Financing Agreement

 

205,000

 

232,100

Repayments under amended Receivables Financing Agreement

 

(139,300)

 

(328,100)

Repayments of term loans

 

(4,625)

 

(26,500)

Other, net

 

(7,755)

 

(4,989)

Cash provided by (used for) financing activities

 

53,320

 

(127,489)

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

 

(618)

 

284

Net decrease in cash, cash equivalents and restricted cash

 

(2,130)

 

(2,991)

Cash, cash equivalents and restricted cash at beginning of period

 

272,924

 

86,185

Cash, cash equivalents and restricted cash at end of period

$

270,794

$

83,194

Supplemental disclosure of cash flow information:

 

  

 

  

Income taxes paid, net

$

2,365

$

2,405

Interest paid

$

18,211

$

32,536

Noncash investing activity:

 

  

 

  

Unpaid purchases of property and equipment and computer software at end of period

$

69,368

$

64,658

See accompanying notes to consolidated financial statements.

6

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(unaudited)

    

    

Common

    

    

    

Accumulated

    

Common 

Stock

Other

Shares 

($2 par

Paid-In

Retained

Comprehensive

Total

(in thousands, except per share data)

Outstanding

value)

Capital

Earnings

Loss

Equity

Balance, December 31, 2023

 

76,546

$

153,092

$

434,185

$

368,707

$

(31,818)

$

924,166

Net loss

 

 

 

 

(21,886)

 

 

(21,886)

Other comprehensive loss

 

 

 

 

 

(11,619)

 

(11,619)

Share-based compensation expense, exercises and other

 

(97)

 

(195)

 

4,402

 

 

 

4,207

Balance, March 31, 2024

 

76,449

$

152,897

$

438,587

$

346,821

$

(43,437)

$

894,868

Balance, December 31, 2022

 

76,279

$

152,557

$

418,894

$

410,008

$

(35,855)

$

945,604

Net loss

 

 

 

 

(24,418)

 

 

(24,418)

Other comprehensive income

 

 

 

 

 

1,594

 

1,594

Share-based compensation expense, exercises and other

 

(83)

 

(166)

 

1,786

 

 

 

1,620

Balance, March 31, 2023

 

76,196

$

152,391

$

420,680

$

385,590

$

(34,261)

$

924,400

See accompanying notes to consolidated financial statements.

7

Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

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

Note 1—Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, or our) and contain all adjustments 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.

We report our business under two distinct segments: Products & Healthcare Services and Patient Direct. The Products & Healthcare Services segment includes our United States (U.S.) distribution division (Medical Distribution), including outsourced logistics and value-added services and our Global Products division which manufactures and sources medical surgical products through our production and kitting operations. The Patient Direct segment includes our home healthcare divisions (Byram and Apria).

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in North America, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash as of March 31, 2024 and December 31, 2023 includes cash held in an escrow account as required by the Centers for Medicare & Medicaid Services in conjunction with the Bundled Payments for Care Improvement initiatives related to wind-down costs of Fusion5, as well as $9.5 million and $13.5 million of cash deposits received subject to limitations on use until remitted to a third-party financial institution (the Purchaser), pursuant to the Master Receivables Purchase Agreement (RPA).

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

    

March 31, 2024

    

December 31, 2023

Cash and cash equivalents

$

244,866

$

243,037

Restricted cash included in Other current assets

 

25,928

 

29,887

Total cash, cash equivalents, and restricted cash

$

270,794

$

272,924

Rental Revenue

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,

8

Medicaid and patients. Rental revenue, less estimated adjustments, is recognized as earned on a straight-line basis over the noncancelable lease term. We recorded $147 million and $172 million for the three months ended March 31, 2024 and 2023 in revenue related to equipment we rent to patients.

Sales of Accounts Receivable

On March 14, 2023, we entered into the RPA, pursuant to which accounts receivable with an aggregate outstanding amount not to exceed $200 million are sold, on a limited-recourse basis, to the Purchaser in exchange for cash. As of March 31, 2024 and December 31, 2023, there were a total of $103 million and $124 million of uncollected accounts receivable, that had been sold and removed from our consolidated balance sheets. We account for these transactions as sales with the sold receivables removed from our consolidated balance sheets. Under the RPA, we provide certain servicing and collection actions on behalf of the Purchaser; however, we do not maintain any beneficial interest in the accounts receivable sold.

Proceeds from the sale of accounts receivable are recorded as an increase to cash and cash equivalents and a reduction to accounts receivable, net of allowances, in the consolidated balance sheets. Cash received from the sale of accounts receivable, net of payments made to the Purchaser, is reflected as cash provided by operating activities in the consolidated statements of cash flows. Total accounts receivable sold under the RPA were $515 million for the three months ended March 31, 2024. During the three months ended March 31, 2024, we received net cash proceeds of $512 million from the sale of accounts receivable under the RPA and collected $536 million of the sold accounts receivable. No accounts receivables were sold under the RPA for the three months ended March 31, 2023. The losses on sale of accounts receivable, inclusive of professional fees incurred to establish the agreement, recorded in other operating expense, net in the consolidated statements of operations were $3.3 million and $0.8 million for the three months ended March 31, 2024 and 2023. The RPA is separate and distinct from the accounts receivable securitization program (the Receivables Financing Agreement).

Note 2—Fair Value

Fair value is determined based on assumptions that a market participant would use in pricing an asset or liability. The assumptions used are in accordance with a three-tier hierarchy, defined by GAAP, that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the use of present value and other valuation techniques in the determination of fair value (Level 3).

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued payroll and related liabilities reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). See Note 5 for the fair value of debt. The fair value of our derivative contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 7 for the fair value of derivatives.

9

Our acquisitions may include contingent consideration as part of the purchase price. The fair value of contingent consideration is estimated as of the acquisition date and at the end of each subsequent reporting period based on the present value of the contingent payments to be made using a weighted probability of possible payments (Level 3). Subsequent changes in fair value are recorded as adjustments to acquisition-related charges and intangible amortization within the consolidated statements of operations.

Note 3—Goodwill and Intangible Assets

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

    

    

Products &

    

Healthcare

Patient Direct

Services

Consolidated

Carrying amount of goodwill, December 31, 2023

$

1,535,252

$

103,594

$

1,638,846

Currency translation adjustments

 

 

(3,478)

 

(3,478)

Carrying amount of goodwill, March 31, 2024

$

1,535,252

$

100,116

$

1,635,368

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

March 31, 2024

December 31, 2023

    

Customer

    

    

Other

    

Customer

    

    

Other

Relationships

Tradenames

 Intangibles

Relationships

Tradenames

Intangibles

Gross intangible assets

$

397,193

$

202,000

$

73,055

$

433,750

$

202,000

$

73,958

Accumulated amortization

 

(213,793)

 

(74,544)

 

(43,318)

 

(236,791)

 

(69,655)

 

(41,427)

Net intangible assets

$

183,400

$

127,456

$

29,737

$

196,959

$

132,345

$

32,531

Weighted average useful life

 

14 years

 

10 years

 

6 years

 

13 years

 

10 years

 

6 years

At March 31, 2024 and December 31, 2023, $236 million and $250 million in net intangible assets were held in the Patient Direct segment and $107 million and $112 million were held in the Products & Healthcare Services segment. Amortization expense for intangible assets was $20.3 million and $20.9 million for the three months ended March 31, 2024 and 2023.

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

Year

    

2024 (remainder)

$

44,080

2025

 

54,389

2026

 

50,036

2027

 

41,687

2028

 

32,008

Thereafter

118,393

Total future amortization

$

340,593

10

Note 4—Exit and Realignment Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain facilities, IT strategic initiatives and other strategic actions. These charges also include costs associated with our Operating Model Realignment Program, which include professional fees, severance and other costs to streamline functions and processes.

Exit and realignment charges, net were $27.4 million and $15.7 million for the three months ended March 31, 2024 and 2023. These amounts are excluded from our segments’ operating income.

During the three months ended March 31, 2024, exit and realignment charges, net included a gain of $7.4 million associated with the sale of our corporate headquarters and $34.7 million in charges under our Operating Model Realignment Program and IT strategic initiatives. We expect to incur material future costs relating to our Operating Model Realignment Program and IT strategic initiatives, which we are not able to reasonably estimate.

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

    

Total

Accrued exit and realignment costs, December 31, 2023

$

20,047

Provision for exit and realignment activities:

 

  

Severance

 

184

Professional fees

 

25,625

Other

 

2,493

Cash payments

 

(11,728)

Accrued exit and realignment costs, March 31, 2024

$

36,621

Accrued exit and realignment costs, December 31, 2022

$

969

Provision for exit and realignment activities:

 

  

Severance

 

4,127

Professional fees

9,012

Other

 

2,535

Cash payments

 

(5,546)

Accrued exit and realignment costs, March 31, 2023

$

11,097

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

11

Note 5—Debt

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

    

March 31, 2024

    

December 31, 2023

    

Carrying 

    

Estimated

    

Carrying

    

Estimated 

Amount

Fair Value

Amount

Fair Value

4.375% Senior Notes, due December 2024

$

171,306

$

169,816

$

171,232

$

168,754

Receivables Financing Agreement

 

64,438

 

65,700

 

 

Term Loan A

 

385,003

 

389,513

 

387,591

 

390,668

4.500% Senior Notes, due March 2029

 

473,162

 

438,337

 

472,869

 

422,647

Term Loan B

 

502,481

 

518,722

 

503,212

 

518,293

6.625% Senior Notes, due April 2030

 

540,947

 

547,661

 

540,445

 

529,472

Finance leases and other

 

16,326

 

16,326

 

22,153

 

22,153

Total debt

 

2,153,663

 

2,146,075

 

2,097,502

 

2,051,987

Less current maturities

 

(207,658)

 

(207,658)

 

(206,904)

 

(206,904)

Long-term debt

$

1,946,005

$

1,938,417

$

1,890,598

$

1,845,083

We have $171 million of 4.375% senior notes due in December 2024 (the 2024 Notes), with interest payable semi-annually. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. We have the option to redeem the 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the applicable Benchmark Treasury Rate (as defined in the Indenture which governs the 2024 Notes) plus 30 basis points.

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

The Receivables Financing Agreement has a maximum borrowing capacity of $450 million. The interest rate under the Receivables Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement, as further amended by the Fifth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our accounts receivable balances are sold to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025.

We had $65.7 million in principal outstanding and no borrowings at March 31, 2024 and December 31, 2023 under our Receivables Financing Agreement. At March 31, 2024 and December 31, 2023, we had maximum revolving borrowing capacity of $384 million and $450 million under our Receivables Financing Agreement.

On March 29, 2022, we entered into a term loan credit agreement with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (the Credit Agreement) that provides for two credit facilities (i) a $500 million Term Loan A facility (the Term Loan A), and (ii) a $600 million Term Loan B facility (the Term Loan B). The interest rate on the Term Loan A is based on the sum of either Term SOFR or the Base Rate and an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029.

On March 10, 2021, we issued $500 million of 4.500% senior unsecured notes due in March 2029 (the 2029 Unsecured Notes), with interest payable semi-annually (the Notes Offering). The 2029 Unsecured Notes were sold at

12

100% of the principal amount with an effective yield of 4.500%. We may redeem all or part of the 2029 Unsecured Notes prior to March 31, 2024, at a price equal to 100% of the principal amount of the 2029 Unsecured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 10, 2021 (the Indenture). On or after March 31, 2024, we may redeem all or part of the 2029 Unsecured Notes at the applicable redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem up to 40% of the aggregate principal amount of the 2029 Unsecured Notes at any time prior to March 31, 2024, at a redemption price equal to 104.5% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

On March 29, 2022, we issued $600 million of 6.625% senior unsecured notes due in April 2030 (the 2030 Unsecured Notes), with interest payable semi-annually. The 2030 Unsecured Notes were sold at 100% of the principal amount with an effective yield of 6.625%. 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 the 2030 Unsecured Notes at any time prior to April 1, 2025, at a redemption price equal to 106.625% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

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

We have a revolving credit agreement with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (Revolving Credit Agreement) with a maximum borrowing capacity of $450 million. The interest rate under our Revolving Credit Agreement is based on the Adjusted Term SOFR Rate (as defined in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027.

At March 31, 2024 and December 31, 2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $26.7 million and $27.4 million, leaving $423 million available for borrowing at the end of each period. We also had letters of credit and bank guarantees which support certain leased facilities as well as other normal business activities in the U.S. and Europe that were issued outside of the Revolving Credit Agreement for $3.0 million as of March 31, 2024 and December 31, 2023.

The Revolving Credit Agreement, the Credit Agreement, the Receivables Financing Agreement, the 2024 Notes, the 2029 Unsecured Notes and the 2030 Unsecured Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements. The terms of the applicable credit agreements also require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture. We were in compliance with our debt covenants at March 31, 2024.

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

Year

    

2024 (remainder)

$

194,572

2025

 

106,075

2026

 

43,500

2027

 

305,375

2028

 

6,000

2029

 

965,654

2030

 

552,189

13

Of the $195 million due in 2024, $179 million is due in December 2024. Current maturities at March 31, 2024 include $171 million in principal payments on our 2024 Notes, $25.0 million in principal payments on our Term Loan A, $6.0 million in principal payments on our Term Loan B, and $5.3 million in current portion of finance leases and other.

Note 6—Retirement Plans

We have a frozen noncontributory, unfunded retirement plan for certain retirees in the U.S. (U.S. Retirement Plan). As of March 31, 2024 and December 31, 2023, the accumulated benefit obligation of the U.S. Retirement Plan was $33.7 million and $34.1 million. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective teammates.

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

Three Months Ended

March 31, 

    

2024

    

2023

Service cost

$

458

$

441

Interest cost

645

710

Recognized net actuarial loss

 

81

 

123

Net periodic benefit cost

$

1,184

$

1,274

Note 7—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 on our term loans, 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, net.

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

14

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

    

    

    

    

    

Notional 

    

    

Derivative Assets

    

Derivative Liabilities

    

Amount

    

Maturity Date

    

Classification

    

Fair Value

    

Classification

    

Fair Value

Cash flow hedges

  

  

 

  

 

  

  

 

  

Interest rate swaps

$

300,000

March 2027

 

Other assets, net

$

10,356

Other liabilities

$

Economic (non-designated) hedges

 

  

  

 

  

 

  

  

 

  

Foreign currency contracts

$

69,335

April 2024

 

Other current assets

$

129

Other current liabilities

$

44

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

    

    

    

    

    

Notional 

    

    

Derivative Assets

    

Derivative Liabilities

    

Amount

    

Maturity Date

    

Classification

    

Fair Value

    

Classification

    

Fair Value

Cash flow hedges

  

  

  

  

  

  

Interest rate swaps

$

350,000

March 2027

 

Other assets, net

$

8,447

Other liabilities

$

Economic (non-designated) hedges

 

  

  

 

  

 

  

  

 

  

Foreign currency contracts

$

78,436

January 2024

 

Other current assets

$

1,043

Other current liabilities

$

The notional amount of the interest rate swaps represents the amount in effect at the end of the period. Based on contractual terms, the notional amount will decrease in increments of $50 million on the last business day of March of each year until the maturity date.

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

Amount of Gain Recognized in Other Comprehensive Income (Loss)

Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income

Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded

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

Interest rate swaps

$

4,557

 

Interest expense, net

$

(35,655)

$

2,649

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

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

Amount of Loss Recognized in Other Comprehensive Income (Loss)

Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income

Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded

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

Interest rate swaps

$

(2,387)

 

Interest expense, net

$

(42,198)

$

2,176

15

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

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

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

Note 8—Income Taxes

The effective tax rate was 19.3% for the three months ended March 31, 2024, compared to 27.7% in the same period of 2023. The change in these rates were primarily from changes in results of operations in the jurisdictions in which we operate and changes in forecasted results reflected in the tax rates.

The liability for unrecognized tax benefits was $22.8 million at March 31, 2024 and $22.7 million at December 31, 2023. Included in the liability at March 31, 2024 and December 31, 2023 were $2.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. 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 for all years subject to the NOPAs. 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.

Note 9—Net Loss per Common Share

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

Three Months Ended

March 31, 

(in thousands, except per share data)

    

2024

    

2023

Net loss

$

(21,886)

$

(24,418)

Weighted average shares outstanding - basic

 

76,319

 

75,177

Dilutive shares

 

 

Weighted average shares outstanding - diluted

 

76,319

 

75,177

Net loss per common share:

Basic

$

(0.29)

$

(0.32)

Diluted

$

(0.29)

$

(0.32)

16

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

Note 10—Accumulated Other Comprehensive (Loss) Income

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

    

    

Currency

    

    

Retirement

Translation

Plans

Adjustments

Derivatives

Total

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

$

(5,115)

$

(32,954)

$

6,251

$

(31,818)

Other comprehensive income (loss) before reclassifications

 

234

 

(13,266)

 

4,557

 

(8,475)

Income tax

 

(59)

 

 

(1,185)

 

(1,244)

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

 

175

 

(13,266)

 

3,372

 

(9,719)

Amounts reclassified from accumulated other comprehensive income (loss)

 

81

 

 

(2,649)

 

(2,568)

Income tax

 

(21)

 

 

689

 

668

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

 

60

 

 

(1,960)

 

(1,900)

Other comprehensive income (loss)

 

235

 

(13,266)

 

1,412

 

(11,619)

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

$

(4,880)

$

(46,220)

$

7,663

$

(43,437)

    

    

Currency

    

    

Retirement

Translation