VSE (VSEC) - 2022 Q3 - Quarterly Report

PART I. Financial Information This section encompasses the company's comprehensive financial statements and management's detailed analysis of its financial performance and operational results ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements for VSE Corporation and its subsidiaries, including balance sheets, income statements, comprehensive income statements, stockholders' equity statements, cash flow statements, and accompanying notes, for the periods ended September 30, 2022, and December 31, 2021 (for balance sheet) or September 30, 2021 (for income/cash flow statements) Unaudited Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Assets | | | | Total current assets | $513,338 | $463,993 | | Total assets | $957,526 | $918,558 | | Liabilities & Equity | | | | Total current liabilities | $180,326 | $179,964 | | Long-term debt, less current portion | $288,531 | $270,407 | | Total liabilities | $512,098 | $501,225 | | Total stockholders' equity | $445,428 | $417,333 | | Total liabilities and stockholders' equity | $957,526 | $918,558 | Unaudited Consolidated Statements of Income This section outlines the company's financial performance over periods, reporting revenues, expenses, and net income Consolidated Statements of Income Highlights (in thousands, except per share) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $242,487 | $200,582 | $715,439 | $540,675 | | Operating income | $17,272 | $13,892 | $43,337 | $10,781 | | Net income | $9,419 | $9,021 | $23,211 | $1,766 | | Basic earnings per share | $0.74 | $0.71 | $1.82 | $0.14 | | Diluted earnings per share | $0.73 | $0.71 | $1.81 | $0.14 | | Dividends declared per share | $0.10 | $0.09 | $0.30 | $0.27 | Unaudited Consolidated Statements of Comprehensive Income This section presents the company's total comprehensive income, including net income and other comprehensive income items Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $9,419 | $9,021 | $23,211 | $1,766 | | Change in fair value of interest rate swap agreements, net of tax | $5,352 | $173 | $5,528 | $836 | | Other comprehensive income, net of tax | $5,352 | $173 | $5,528 | $836 | | Comprehensive income | $14,771 | $9,194 | $28,739 | $2,602 | Unaudited Consolidated Statements of Stockholders' Equity This section details changes in the company's equity, reflecting net income, dividends, and other equity transactions Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Sep 30, 2022 (3 Months) | Jun 30, 2022 (3 Months) | Sep 30, 2022 (9 Months) | Dec 31, 2021 (9 Months) | | :----------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $445,428 | $431,283 | $445,428 | $417,333 | | Net income | $9,419 | — | $23,211 | — | | Stock-based compensation | $655 | — | $3,195 | — | | Other comprehensive income, net of tax | $5,352 | — | $5,528 | — | | Dividends declared | $(1,281) | — | $(3,839) | — | Unaudited Consolidated Statements of Cash Flows This section reports the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,206) | $(30,523) | | Net cash used in investing activities | $(3,181) | $(59,839) | | Net cash provided by financing activities | $6,959 | $90,367 | | Net (decrease) increase in cash and cash equivalents | $(428) | $5 | | Cash and cash equivalents at end of period | $90 | $383 | Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures and explanations for the unaudited consolidated financial statements, covering the company's operations, recent acquisitions, revenue recognition, debt structure, earnings per share, commitments, segment performance, fair value measurements, and income taxes 1. Nature of Operations and Basis of Presentation This note describes VSE Corporation's business segments and the accounting principles applied in preparing the financial statements - VSE Corporation is a diversified aftermarket products and services company, operating in three segments: Aviation, Fleet, and Federal and Defense[23] - The company early adopted ASU 2021-08, 'Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' in Q1 2022, applying it prospectively to new business combinations[27] 2. Acquisitions This note details the company's recent acquisitions, including Global Parts Group and HAECO Special Services, and their financial impact - Acquired Global Parts Group, Inc. in July 2021 for $40 million, including $2 million in contingent consideration, with final earn-out payment settled in Q3 2022. Global Parts' results are included in the Aviation segment[28][31] - Acquired HAECO Special Services, LLC in March 2021 for $14.8 million, with its operating results included in the Federal and Defense segment[32] 3. Revenue This note provides a breakdown of the company's revenues by customer type and revenue type, along with contract asset and liability information Revenues by Customer (in thousands) | Customer Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Commercial | $127,258 | $94,163 | $376,640 | $218,544 | | DoD | $60,733 | $60,862 | $173,381 | $173,501 | | Other government | $54,496 | $45,557 | $165,418 | $148,630 | | Total | $242,487 | $200,582 | $715,439 | $540,675 | Revenues by Type (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Repair | $28,979 | $18,714 | $77,308 | $56,051 | | Distribution | $138,400 | $114,678 | $420,152 | $282,031 | | Cost Plus Contract | $40,158 | $26,775 | $105,290 | $65,139 | | Fixed Price Contract | $18,430 | $25,729 | $59,069 | $82,090 | | T&M Contract | $16,520 | $14,686 | $53,620 | $55,364 | | Total | $242,487 | $200,582 | $715,439 | $540,675 | - Unbilled receivables increased to $44.1 million as of September 30, 2022, from $31.9 million as of December 31, 2021. Contract liabilities increased to $7.7 million from $7.1 million over the same period[42] - Revenues from products and services transferred at a point in time accounted for approximately 57% and 59% of total revenues for the three and nine months ended September 30, 2022, respectively[43] - As of September 30, 2022, the aggregate transaction price allocated to unsatisfied performance obligations was $199 million, with 96% expected to be satisfied within one year[44] 4. Debt This note outlines the company's long-term debt composition, interest rates, and recent amendments to its bank loan agreement Long-term Debt Composition (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Bank credit facility - term loan | $48,925 | $60,175 | | Bank credit facility - revolver loans | $250,305 | $226,559 | | Principal amount of long-term debt | $299,230 | $286,734 | | Less debt issuance costs | $(1,537) | $(2,165) | | Total long-term debt | $297,693 | $284,569 | | Less current portion | $(9,162) | $(14,162) | | Long-term debt, less current portion | $288,531 | $270,407 | - Interest rates on outstanding debt ranged from 6.13% to 8.50% as of September 30, 2022, with an effective interest rate of 6.42%[49] - Interest expense, net, increased by 73% to $4.8 million for the three months ended September 30, 2022, and by 45% to $12.3 million for the nine months ended September 30, 2022, compared to the prior year periods[13][50] - On October 7, 2022, the company amended its loan agreement, extending the maturity date to October 7, 2025, resetting the term loan to $100 million, modifying quarterly amortization payments to $2.5 million, increasing the maximum Total Funded Debt to EBITDA Ratio to 4.50x, and changing the benchmark rate from LIBOR to SOFR[52][53] 5. Earnings Per Share This note presents the calculation of basic and diluted earnings per share, including weighted-average shares outstanding Weighted-Average Shares Outstanding for EPS Calculation | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic weighted average common shares outstanding | 12,797,727 | 12,704,165 | 12,772,731 | 12,496,646 | | Diluted weighted average common shares outstanding | 12,834,084 | 12,774,636 | 12,816,319 | 12,573,076 | 6. Commitments and Contingencies This note discloses the company's involvement in legal claims, lawsuits, and government audits, assessing their potential financial impact - The company is involved in various claims and lawsuits, none of which are expected to have a material adverse effect on its financial position, results of operations, or cash flows[57] - Government audits and investigations are ongoing, but the company believes their outcome will not materially affect its financial results[58] 7. Business Segments and Customer Information This note provides detailed financial performance data for the Aviation, Fleet, and Federal and Defense operating segments - The company operates under three reportable segments: Aviation (aftermarket repair and distribution), Fleet (parts, inventory management, e-commerce for commercial and government), and Federal and Defense (MRO and logistics for military and federal agencies)[59][60][63] Segment Revenues and Operating Income (in thousands) | Segment | 3 Months Ended Sep 30, 2022 (Revenue) | 3 Months Ended Sep 30, 2021 (Revenue) | 9 Months Ended Sep 30, 2022 (Revenue) | 9 Months Ended Sep 30, 2021 (Revenue) | | :------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Aviation | $102,625 | $73,124 | $300,934 | $165,010 | | Fleet | $64,754 | $60,268 | $196,526 | $173,072 | | Federal and Defense | $75,108 | $67,190 | $217,979 | $202,593 | | Total revenues | $242,487 | $200,582 | $715,439 | $540,675 | | | | | | | | Segment | 3 Months Ended Sep 30, 2022 (Operating Income) | 3 Months Ended Sep 30, 2021 (Operating Income) | 9 Months Ended Sep 30, 2022 (Operating Income) | 9 Months Ended Sep 30, 2021 (Operating Income) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Aviation | $10,017 | $3,719 | $24,089 | $(18,885) | | Fleet | $6,539 | $5,387 | $18,286 | $15,128 | | Federal and Defense | $1,939 | $5,386 | $3,803 | $17,410 | | Corporate/unallocated expenses | $(1,223) | $(600) | $(2,841) | $(2,872) | | Operating income | $17,272 | $13,892 | $43,337 | $10,781 | 8. Fair Value Measurements This note details financial assets and liabilities measured at fair value, including interest rate swaps and earn-out obligations Financial Assets and Liabilities Measured at Fair Value (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------------------- | :----------- | :----------- | | Non-COLI assets held in Deferred Supplemental Compensation Plan | $515 | $598 | | Interest rate swaps (asset) | $7,131 | — | | Interest rate swaps (liability) | — | $234 | | Earn-out obligation - short-term | — | $1,000 | | Earn-out obligation - long-term | — | $250 | - On July 22, 2022, the company executed two SOFR-based forward-starting fixed interest rate swaps with a fixed rate of 2.8% for $150 million of floating rate debt, designated as cash flow hedges[68] - The earn-out obligation for the Global Parts acquisition, initially $2.0 million, was fully settled during the three months ended September 30, 2022[70] 9. Income Taxes This note explains the company's effective tax rates and the factors influencing them, such as book expense related to COLI assets - The effective tax rate was 24.4% for the three months and 25.2% for the nine months ended September 30, 2022, higher than the prior year periods (18.8% and 23.4%, respectively)[73] - The higher effective tax rate in 2022 was primarily due to book expense related to the decline in value of Company Owned Life Insurance (COLI) assets, which was reversed for tax purposes[73] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and results of operations, highlighting its business overview, recent acquisitions, the impact of COVID-19, segment-specific business trends, consolidated and segment operating results, bookings, backlog, liquidity, capital resources, market risks, and critical accounting policies for the periods presented Business Overview This section provides an overview of VSE Corporation's aftermarket products and services across its three operating segments - VSE Corporation provides aftermarket repair services, parts distribution, logistics, supply chain management, and consulting services for land, sea, and air transportation assets to government and commercial markets[74] - Operations are conducted within three reportable segments: Aviation, Fleet, and Federal and Defense[75] Recent Acquisitions This section refers to detailed information on recent acquisitions provided in the notes to the consolidated financial statements - Information regarding recent acquisitions is detailed in Note 2 to the Consolidated Financial Statements[76] Impact of the COVID-19 Pandemic This section discusses the ongoing effects of the COVID-19 pandemic on the global economy and the company's operational performance - The COVID-19 pandemic continues to affect the global economy, but the company has seen continued improvement in operating results during the nine months ended September 30, 2022, with all facilities remaining operational[77] Business Trends This section analyzes key business trends and strategic initiatives within the Aviation, Fleet, and Federal and Defense segments Aviation Segment Business Trends This section highlights revenue growth drivers, distribution agreements, and market recovery within the Aviation segment - Aviation segment revenue increased 40% year-over-year to $103 million in Q3 2022, driven by recovery in demand and growth initiatives[79] - Distribution revenue grew 105% and repair revenue grew 38% year-over-year during the first nine months of 2022, benefiting from new distribution initiatives and commercial market recovery[80] - Secured key multi-year distribution agreements, including new international markets, and the Global Parts acquisition is broadening product lines and client base[81] Fleet Segment Business Trends This section discusses revenue growth from commercial customers and e-commerce, alongside plans for new distribution infrastructure - Fleet segment revenue is increasing from commercial fleet customers and e-commerce fulfillment sales, with commercial revenue growing approximately 23% in Q3 and 50% in the first nine months of 2022 year-over-year[83] - A new distribution warehouse and e-commerce fulfillment center in Olive Branch, Mississippi, is planned to double the current warehouse footprint and expand product offerings, with operations expected to commence in early 2023[83] Federal and Defense Segment Business Trends This section outlines the segment's focus on contract backlog, program optimization, and performance in U.S. Navy and Army work - The Federal and Defense segment is focusing on building contract backlog and optimizing legacy programs, with strong revenue performance in U.S. Navy work offsetting anticipated declines in U.S. Army work due to program completions[84] Results of Operations This section provides a detailed analysis of the company's consolidated and segment-specific financial performance, including revenues and operating income Consolidated Results of Operations This section presents a comprehensive overview of the company's overall financial performance, including revenues, operating income, and net income Consolidated Results of Operations (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $242,487 | $200,582 | $41,905 | 21 % | $715,439 | $540,675 | $174,764 | 32 % | | Costs and operating expenses | $225,215 | $186,690 | $38,525 | 21 % | $672,102 | $529,894 | $142,208 | 27 % | | Operating income | $17,272 | $13,892 | $3,380 | 24 % | $43,337 | $10,781 | $32,556 | 302 % | | Interest expense, net | $4,818 | $2,780 | $2,038 | 73 % | $12,299 | $8,476 | $3,823 | 45 % | | Income before income taxes | $12,454 | $11,112 | $1,342 | 12 % | $31,038 | $2,305 | $28,733 | 1,247 % | | Provision for income taxes | $3,035 | $2,091 | $944 | 45 % | $7,827 | $539 | $7,288 | 1,352 % | | Net income | $9,419 | $9,021 | $398 | 4 % | $23,211 | $1,766 | $21,445 | 1,214 % | - Consolidated revenues increased by 21% for the three months and 32% for the nine months ended September 30, 2022, driven by growth across all segments[85][86] - Operating income increased by 24% for the three months and 302% for the nine months ended September 30, 2022, primarily due to strong performance in the Aviation and Fleet segments[88][89] - Interest expense, net, increased due to higher average interest rates on borrowings[90] - The effective tax rate increased to 24.4% (3 months) and 25.2% (9 months) in 2022, mainly due to book expense from the decline in COLI asset value[91] Segment Operating Results This section details the financial performance of each operating segment: Aviation, Fleet, and Federal and Defense Aviation Segment Results This section analyzes the Aviation segment's revenue and operating income growth, driven by distribution and repair services Aviation Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $102,625 | $73,124 | $29,501 | 40 % | $300,934 | $165,010 | $135,924 | 82 % | | Operating income (loss) | $10,017 | $3,719 | $6,298 | 169 % | $24,089 | $(18,885) | $42,974 | 228 % | | Profit (loss) percentage | 9.8 % | 5.1 % | | | 8.0 % | (11.4 %) | | | - Aviation segment revenue growth was driven by a 35% increase in distribution revenue and a 55% increase in repair revenue for the three months ended September 30, 2022[92] - Operating income significantly increased due to new distribution programs, higher margin repair revenue, and contributions from the Global Parts acquisition, also benefiting from the absence of a $23.7 million inventory provision recognized in the prior year[98][99] Fleet Segment Results This section examines the Fleet segment's revenue and operating income performance, primarily from commercial and government sales Fleet Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $64,754 | $60,268 | $4,486 | 7 % | $196,526 | $173,072 | $23,454 | 14 % | | Operating income | $6,539 | $5,387 | $1,152 | 21 % | $18,286 | $15,128 | $3,158 | 21 % | | Profit percentage | 10.1 % | 8.9 % | | | 9.3 % | 8.7 % | | | - Fleet segment revenues increased due to a 22.7% growth in commercial customer sales and 6.3% growth in other government sales for the three months ended September 30, 2022, partially offset by a 93.3% decrease in DoD sales[100] - Operating income increased by 21% for both the three and nine months ended September 30, 2022, driven by increased commercial fleet customer and e-commerce fulfillment sales[104] Federal and Defense Segment Results This section reviews the Federal and Defense segment's revenue and operating income, noting program shifts and contract impacts Federal and Defense Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $75,108 | $67,190 | $7,918 | 12 % | $217,979 | $202,593 | $15,386 | 8 % | | Operating income | $1,939 | $5,386 | $(3,447) | (64)% | $3,803 | $17,410 | $(13,607) | (78)% | | Profit percentage | 2.6 % | 8.0 % | | | 1.7 % | 8.6 % | | | - Revenues increased due to Foreign Military Sales (FMS) program with the U.S. Navy, partially offset by declines in U.S. Army work[107] - Operating income decreased by 64% for the three months and 78% for the nine months ended September 30, 2022, primarily due to the completion of a U.S. Army program, a shift to lower-margin cost-type contracts, and a $3.5 million loss on a fixed-price, non-DoD contract with a foreign customer[109][110][111] Bookings and Funded Backlog This section provides information on bookings and funded contract backlog, particularly for the Federal and Defense segment - Bookings for Aviation and Fleet segments occur at the time of sale, so backlog is not an indicator of future revenues for these segments[112] Federal and Defense Segment Bookings and Backlog (in millions) | Metric | 2022 (9 Months) | 2021 (9 Months) | | :-------------------- | :-------------- | :-------------- | | Bookings | $250 | $234 | | Revenues | $218 | $203 | | Funded Contract Backlog | $199 | $218 | - Federal and Defense segment bookings increased 7% year-over-year to $250 million, while total funded backlog decreased 9% year-over-year to $199 million as of September 30, 2022[113] Liquidity and Capital Resources This section details the company's liquidity sources, capital structure, and cash flow activities, including a recent bank loan amendment that extended maturity and modified terms, and discusses the impact of operating, investing, and financing activities on cash Liquidity This section outlines the company's internal and external sources of liquidity, including operating activities and bank loan facilities - Primary internal liquidity sources are operating activities, influenced by revenues, inventory, receivables, payables, and profitability[115] - External financing is primarily from a bank loan agreement with a $350 million maximum credit for revolving loans and letters of credit, and an aggregate limit of $100 million for incremental increases[116] - As of September 30, 2022, the company had $48.9 million in term loan borrowings, $250.3 million in revolving loan borrowings, $1.2 million in letters of credit, and approximately $98 million of unused bank loan commitments[116] Bank Loan Amendment This section details the recent amendment to the company's bank loan agreement, including maturity extension and covenant modifications - On October 7, 2022, a fourth amendment to the loan agreement extended the maturity date to October 7, 2025, reset the term loan to $100.0 million, modified quarterly amortization payments to $2.50 million, increased the maximum total leverage ratio to 4.50x, and changed the benchmark rate from LIBOR to SOFR[118] Maximum Total Funded Debt to EBITDA Ratio | Testing Period | Maximum Total Funded Debt to EBITDA Ratio | | :--------------------------------------------------- | :---------------------------------------- | | From Fourth Amendment Effective Date through Jun 30, 2023 | 4.50 to 1.00 | | From Jul 1, 2023 through Dec 31, 2023 | 4.25 to 1.00 | | From Jan 24, 2024 through Jun 30, 2024 | 4.00 to 1.00 | | From Jul 1, 2024 through Sep 30, 2024 | 3.75 to 1.00 | | From Oct 1, 2024 and thereafter | 3.50 to 1.00 | Cash Flows This section summarizes the company's cash flow activities from operations, investing, and financing, and their impact on cash balances Summary of Cash Flows (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,206) | $(30,523) | | Net cash used in investing activities | $(3,181) | $(59,839) | | Net cash provided by financing activities | $6,959 | $90,367 | | Net (decrease) increase in cash and cash equivalents | $(428) | $5 | - Cash used in operating activities decreased by $26.3 million, primarily due to lower inventory purchases and timing of vendor payments, partially offset by increased accounts receivable[120] - Cash used in investing activities decreased by $56.7 million, mainly due to $53.2 million less cash paid for acquisitions compared to the prior year[121] - Cash provided by financing activities decreased by $83.4 million, primarily due to $52.0 million from a public common stock offering in the prior year and overall lower net debt borrowings[122] - The company paid cash dividends totaling $3.8 million ($0.30 per share) during the nine months ended September 30, 2022, continuing its dividend payments since 1973[123] Other Obligations and Commitments This section confirms no material changes to the company's other obligations and commitments since the last annual report - There have been no material changes to other obligations and commitments from those disclosed in the 2021 Annual Report on Form 10-K[124] Inflation and Pricing This section states no material changes to the company's disclosures regarding inflation and pricing from the prior annual report - There have been no material changes to the disclosure on inflation and pricing from the most recently filed Annual Report on Form 10-K[125] Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements that could impact financial condition - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition or results of operations[126] Disclosures About Market Risk This section details the company's exposure to market risks, particularly interest rate risk, and its hedging strategies - The company is exposed to interest rate risk due to variable interest rates on its bank loan agreement and uses interest rate swap agreements to manage this risk[127] - In July 2022, two SOFR-based forward-starting fixed interest rate swaps for $150 million of floating rate debt were executed, with the reference rate changing from LIBOR to SOFR as part of a loan agreement amendment in October 2022[128] Critical Accounting Policies, Estimates and Judgments This section highlights the significant accounting policies and estimates used in preparing the financial statements - The preparation of financial statements requires significant estimates and assumptions, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes[130] - There have been no significant changes in critical accounting estimates during the nine months ended September 30, 2022, from those disclosed in the 2021 Annual Report on Form 10-K[132] Recently Issued Accounting Pronouncements This section refers to the notes to financial statements for details on recently issued accounting standards - For a description of recently announced accounting standards, refer to Note 1, 'Nature of Business and Significant Accounting Policies — Recent Accounting Pronouncements,' in Item 1 of this report[133] ITEM 3. Quantitative and Qualitative Disclosures About Market Risks This section refers to the 'Disclosures About Market Risk' section within Management's Discussion and Analysis of Financial Condition and Results of Operations for detailed information on market risks - Refer to 'Disclosures About Market Risk' in Item 2 for quantitative and qualitative disclosures about market risks[134] ITEM 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and states that there have been no material changes in internal control over financial reporting during the reported quarter - As of September 30, 2022, the company's disclosure controls and procedures were evaluated and deemed effective by management, including the CEO and CFO[135] - There have been no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[136] PART II. Other Information This section provides additional disclosures on legal proceedings, risk factors, equity sales, and required exhibits ITEM 1. Legal Proceedings This section states that there are no material legal proceedings to report for the period - There are no legal proceedings to report[139] ITEM 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There have been no material changes to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K[140] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that the company did not purchase any of its equity securities during the reporting period - The company did not purchase any of its equity securities during the period covered by this report[141] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Fourth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement and various certifications - Exhibit 10.1 is the Fourth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement, dated October 7, 2022[143] - Includes Section 302 CEO and CFO Certifications (Exhibits 31.1, 31.2) and Section 906 CEO and CFO Certifications (Exhibits 32.1, 32.2)[143] Signatures This section contains the signatures of the company's principal executive officer and principal financial and accounting officer, certifying the filing of the report - The report is signed by John A. Cuomo, Director, Chief Executive Officer and President, and Stephen D. Griffin, Senior Vice President and Chief Financial Officer[147][148]