NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Background and Basis of Presentation
Avanos Medical, Inc. is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients’ quality of life. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today’s most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. We develop, manufacture and market clinically superior solutions in more than 90 countries. References herein to “Avanos,” “Company,” “we,” “our” and “us” refer to Avanos Medical, Inc. and its consolidated subsidiaries.
Interim Financial Statements
We prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and the condensed consolidated financial statements in this Form 10-Q should be read in conjunction with the Form 10-K. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.
Use of Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Our estimates are subject to uncertainties associated with supply chain disruptions, which have caused volatility and adverse effects in global markets. Actual results could differ from these estimates, and the effect of any change could be material to our financial statements. Changes in these estimates are recorded when known.
Recently Adopted Accounting Pronouncements
Effective January 1, 2022, we adopted Accounting Standards Update (“ASU”) No. 2021-04, Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU requires accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity-classified after the modification or exchange based on the economic substance of the modification or exchange. The accounting is determined based on whether the transaction was done to issue equity, issue or modify debt or for other reasons. Adoption of this ASU did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU pertains to acquired revenue contracts with customers in a business combination and addresses diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU is to be applied prospectively for years beginning after December 15, 2022. Adoption of this ASU is not expected to have a material effect on our financial position, results of operations or cash flows.
Note 2. Business Acquisition
On January 20, 2022, we acquired all of the equity voting interests and completed the acquisition of OrthogenRx, Inc. (“OrthogenRx”), which is focused on the development and commercialization of treatments for knee pain caused by osteoarthritis. We expect the acquisition of OrthogenRx will enhance our chronic pain portfolio. The initial purchase price was $130 million less working capital adjustments and up to $30 million payable in contingent cash consideration based on OrthogenRx’s growth in net sales during 2022 and 2023. The purchase price was funded by available cash on hand and the proceeds of borrowings, including from the incurrence of a new incremental tranche of term loans of $125.0 million, under the Company’s existing senior secured revolving credit facility, which is described further in Note 5, “Debt.” The accompanying condensed consolidated income statement for the three months ended March 31, 2022 includes $14.7 million of net sales from OrthogenRx since the acquisition date. In the three months ended March 31, 2022, we incurred $1.0 million of costs in connection with the OrthogenRx acquisition, which are included in “Selling and general expenses.”
We accounted for the OrthogenRx acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price paid was allocated to the underlying net assets in proportion to their respective fair values. Any excess of the purchase price over the estimated fair values was recorded as goodwill. Fair values of assets acquired and liabilities assumed were determined using discounted cash flow analyses and the fair value of the contingent cash consideration was estimated using a Monte Carlo simulation. The acquisition accounting is not yet complete and amounts assigned to assets acquired and liabilities assumed are provisional, based on the information, facts and circumstances known at the acquisition date. Accordingly, adjustments may be made to the provisional amounts as we complete our analysis. The provisional purchase price allocation, net of cash acquired, is shown in the table below (in millions):
| | | | | |
Accounts receivable, net | $ | 14.5 | |
Inventory | 2.8 | |
Other current assets | 0.4 | |
Accounts payable | (5.4) | |
Other current liabilities | (13.0) | |
Contingent consideration | (9.2) | |
Other non-current assets (liabilities) | (9.5) | |
Deferred tax liability | (23.7) | |
Identifiable intangible assets | 135.6 | |
Goodwill | 24.2 | |
Total | $ | 116.7 | |
Goodwill arising from the OrthogenRx acquisition is not fully tax deductible. The identifiable intangible assets relating to the OrthogenRx acquisition include the following (in millions, except years):
| | | | | | | | |
| Identifiable Intangible Asset Amount | Weighted Average Useful Lives (Years) |
Trademarks | $ | 1.3 | | 10 |
Other | 134.3 | | 14 |
Total | $ | 135.6 | | |
Other intangible assets are primarily related to the OrthogenRx products that we currently market and distribute, combined into one composite intangible asset that includes customer relationships and exclusive distribution rights.
The following unaudited pro forma financial information is presented in the table below for the three months ended March 31, 2022 and 2021 as if the acquisitions had occurred on January 1 of the year prior to the acquisition date (in millions, except per share amounts): | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 (Unaudited) | | 2021 (Unaudited) |
Net sales | $ | 199.7 | | | $ | 195.2 | |
| | | |
Net income (loss) | $ | 8.0 | | | $ | (7.2) | |
| | | |
Earnings per share: | | | |
Basic | $ | 0.17 | | | $ | (0.15) | |
Diluted | $ | 0.17 | | | $ | (0.15) | |
The pro forma financial information has been adjusted to include the effects of the acquisition, including acquisition-related costs, amortization of acquired intangibles and related tax effects. The pro-forma financial information is not necessarily indicative of the results of operations that would have been achieved.
Note 3. Supplemental Balance Sheet Information
Accounts Receivable
Accounts receivable consist of the following (in millions): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Accounts receivable | $ | 154.5 | | | $ | 122.0 | |
Income tax receivable | 13.0 | | | 13.0 | |
Allowances and doubtful accounts: | | | |
Doubtful accounts | (5.6) | | | (3.6) | |
Sales discounts | (0.3) | | | (0.2) | |
Accounts receivable, net | $ | 161.6 | | | $ | 131.2 | |
Losses on receivables are estimated based on known troubled accounts and historical experience. Receivables are considered impaired and written off when it is probable that payments due will not be collected. Our provision for doubtful accounts was $0.3 million for the three months ended March 31, 2022 compared to a net benefit of $0.4 million for the three months ended March 31, 2021.
Inventories
Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consists of the following (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| LIFO | | Non- LIFO | | Total | | LIFO | | Non- LIFO | | Total |
Raw materials | $ | 43.3 | | | $ | 1.7 | | | $ | 45.0 | | | $ | 45.6 | | | $ | 2.1 | | | $ | 47.7 | |
Work in process | 34.0 | | | — | | | 34.0 | | | 33.2 | | | — | | | 33.2 | |
Finished goods | 61.4 | | | 18.4 | | | 79.8 | | | 55.7 | | | 15.9 | | | 71.6 | |
Supplies and other | — | | | 7.2 | | | 7.2 | | | — | | | 6.8 | | | 6.8 | |
| 138.7 | | | 27.3 | | | 166.0 | | | 134.5 | | | 24.8 | | | 159.3 | |
Excess of FIFO or weighted-average cost over LIFO cost | (8.4) | | | — | | | (8.4) | | | (9.0) | | | — | | | (9.0) | |
Total | $ | 130.3 | | | $ | 27.3 | | | $ | 157.6 | | | $ | 125.5 | | | $ | 24.8 | | | $ | 150.3 | |
As of March 31, 2022, our inventory allowance was $5.3 million consisting of $2.9 million for Halyard-branded inventory and $2.4 million for inventory obsolescence.
Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Land | $ | 1.1 | | | $ | 1.1 | |
Buildings and leasehold improvements | 49.2 | | | 48.0 | |
Machinery and equipment | 224.8 | | | 223.2 | |
Construction in progress | 33.4 | | | 32.0 | |
| 308.5 | | | 304.3 | |
Less accumulated depreciation | (141.6) | | | (136.2) | |
Total | $ | 166.9 | | | $ | 168.1 | |
Depreciation expense was $5.4 million for the three months ended March 31, 2022 compared to $5.5 million for the three months ended March 31, 2021.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows (in millions): | | | | | |
| Goodwill |
Balance, December 31, 2021 | $ | 801.6 | |
Goodwill acquired (a) | 24.2 | |
Currency translation adjustment | 0.2 | |
Balance, March 31, 2022 | $ | 826.0 | |
____________________________________________
(a)We acquired $24.2 million of goodwill in conjunction with the acquisition of OrthogenRx described in Note 2, “Business Acquisition.”
Intangible assets subject to amortization consist of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Trademarks | $ | 92.5 | | | $ | (65.0) | | | $ | 27.5 | | | $ | 90.9 | | | $ | (64.0) | | | $ | 26.9 | |
Patents and acquired technologies | 278.8 | | | (187.3) | | | 91.5 | | | 271.7 | | | (177.7) | | | 94.0 | |
Other | 187.9 | | | (35.8) | | | 152.1 | | | 61.2 | | | (40.9) | | | 20.3 | |
Total | $ | 559.2 | | | $ | (288.1) | | | $ | 271.1 | | | $ | 423.8 | | | $ | (282.6) | | | $ | 141.2 | |
In the three months ended March 31, 2022, we acquired $135.6 million of identified intangibles in conjunction with the acquisition of OrthogenRx, as described in Note 2, “Business Acquisition.” Amortization expense for intangible assets is included in “Costs of products sold” and “Selling and general expenses” and was $5.7 million for the three months ended March 31, 2022 compared to $4.2 million for the three months ended March 31, 2021.
Amortization expense for the remainder of 2022 and the following four years and thereafter is estimated as follows (in millions):
| | | | | | | | |
| | Amount |
Remainder of 2022 | | $ | 24.7 | |
2023 | | 29.9 | |
2024 | | 29.9 | |
2025 | | 29.3 | |
2026 | | 22.7 | |
Thereafter | | 134.6 | |
Total | | $ | 271.1 | |
Accrued Expenses
Accrued expenses consist of the following (in millions): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Accrued rebates and customer incentives | $ | 36.2 | | | $ | 24.5 | |
Accrued salaries and wages | 23.3 | | | 29.3 | |
Accrued taxes and other | 2.7 | | | 3.0 | |
Other | 12.4 | | | 11.3 | |
Total | $ | 74.6 | | | $ | 68.1 | |
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
Accrued compensation and benefits | $ | 4.5 | | | $ | 4.4 | |
Other (a) | 23.5 | | | 4.7 | |
Total | $ | 28.0 | | | $ | 9.1 | |
__________________________________________________
(a)For March 31, 2022, amounts relate to liabilities associated with OrthogenRx acquisition as described in Note 2, “Business Acquisition.”
Note 4. Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1: Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3: Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| Fair Value Hierarchy Level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Assets | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 104.3 | | | $ | 104.3 | | | $ | 118.5 | | | $ | 118.5 | |
Liabilities | | | | | | | | | |
Senior secured revolving credit facility | 2 | | $ | 130.0 | | | $ | 130.0 | | | $ | 130.0 | | | $ | 130.0 | |
Tranche A Term Loans | 2 | | 124.4 | | | 124.4 | | | — | | | — | |
Contingent consideration related to acquisition | 3 | | 9.2 | | | 9.2 | | | — | | | — | |
Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature. The fair value of amounts borrowed under our senior secured revolving credit facility and Tranche A Terms Loans approximates carrying value because borrowings are subject to a variable rate as described in Note 5, “Debt.” The fair value amount of the contingent consideration was determined using a Monte Carlo simulation using assumptions regarding net sales volatility, discount rate and others. See further discussion of the acquisition of OrthogenRx in Note 2, “Business Acquisition.”
Note 5. Debt
As of March 31, 2022 and December 31, 2021, our respective debt balances were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted-Average Interest Rate | | Maturity | | March 31, 2022 | | December 31, 2021 |
Senior secured revolving credit facility | 1.77 | % | | 2023 | | $ | 130.0 | | | $ | 130.0 | |
Tranche A Term Loans | 1.89 | % | | 2023 | | 125.0 | | | — | |
Total Debt | | | | | 255.0 | | | 130.0 | |
Unamortized debt issuance costs | | | | | (0.6) | | | — | |
Total Debt, net | | | | | $ | 254.4 | | | $ | 130.0 | |
We have a senior secured revolving credit facility under our existing credit agreement that matures on October 30, 2023 which allows for borrowings up to $250.0 million, with a letter of credit sub-facility in an amount of $25.0 million.
Borrowings under the senior secured revolving credit facility bear interest, at our option, at either (i) an adjusted term SOFR rate, plus a margin ranging between 1.50% to 2.25% per annum, depending on our consolidated total leverage ratio, or (ii) the
base rate plus a margin ranging between 0.50% to 1.25% per annum, depending on our consolidated total leverage ratio. The unused portion of our senior secured revolving credit facility is subject to a commitment fee equal to (i) 0.25% per annum, when our consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.375% per annum, otherwise.
On January 20, 2022, we incurred $125.0 million of term loans (the “Tranche A Term Loans”) under an incremental agreement dated as of December 22, 2021, which supplemented the existing credit agreement. The proceeds of the Tranche A Term Loans were used to fund a portion of the purchase price and to pay fees and expenses related to the OrthogenRx acquisition, which is described further in Note 2, “Business Acquisition.”
The unpaid principal amount of the Tranche A Term Loans is due and payable by the Company upon the maturity of the existing credit agreement on October 30, 2023. We have the right to voluntarily prepay the Tranche A Term Loans from time to time in accordance with the existing credit agreement. Interest on the Tranche A Term Loans is payable at the same rates set forth above for the senior secured revolving credit facility. The Tranche A Term Loans, together with all other obligations owing under the existing credit agreement including the senior secured revolving credit facility, are secured by substantially all the assets of the Company and certain of its subsidiaries located in the United States and a certain percentage of the capital stock of the Company’s foreign subsidiaries. The other terms and conditions of the Tranche A Term Loans are governed by the existing credit agreement (as amended, including as supplemented by the incremental agreement).
To the extent we remain in compliance with certain financial covenants in our credit agreement, we have the ability to access our senior secured revolving credit facility. As of March 31, 2022 and December 31, 2021, we were in compliance with the covenants under the senior secured revolving credit facility. As of March 31, 2022, we had $130.0 million of borrowings and letters of credit of $1.2 million outstanding under the senior secured revolving credit facility.
Note 6. Accumulated Other Comprehensive Income
The changes in the components of Accumulated Other Comprehensive Income (“AOCI”), net of tax, are as follows (in millions):
| | | | | | | | | | | | | | | |
| Unrealized Translation | | | | | | Accumulated Other Comprehensive Loss |
Balance, December 31, 2021 | $ | (33.8) | | | | | | | $ | (33.8) | |
Other comprehensive income (loss) | 1.7 | | | | | | | 1.7 | |
Balance, March 31, 2022 | $ | (32.1) | | | | | | | $ | (32.1) | |
The net changes in the components of AOCI, including the tax effect, are as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Unrealized translation | $ | 1.7 | | | $ | (4.2) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Change in AOCI | $ | 1.7 | | | $ | (4.2) | | | | | |
Note 7. Stock-Based Compensation
Stock-based compensation expense is included in “Cost of products sold,” “Research and development,” and “Sales and general expenses.” Stock-based compensation expense for the three months ended March 31, 2022 and 2021 is shown in the table below (in millions):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Stock options | $ | 0.4 | | | $ | 0.6 | |
Time-based restricted share units | 2.6 | | | 1.8 | |
Performance-based restricted share units | 0.7 | | | 0.6 | |
Employee stock purchase plan | 0.1 | | | 0.1 | |
Total stock-based compensation | $ | 3.8 | | | $ | 3.1 | |
Note 8. Commitments and Contingencies
Legal Matters
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters. Under the terms of the distribution agreement we entered into with Kimberly-Clark Corporation (“Kimberly-Clark”) prior to our 2014 spin-off from Kimberly-Clark, legal proceedings, claims and other liabilities that are primarily related to our business are our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters. For the three months ended March 31, 2022, expenses associated with such indemnification-related matters were not material, compared to $22.5 million in the three months ended March 31, 2021. Expenses incurred were included in “Other expense, net.”
Government Investigation
In June 2015, we were served with a subpoena from the Department of Veterans Affairs Office of the Inspector General (“VA OIG”) seeking information related to the design, manufacture, testing, sale and promotion of MicroCool and other surgical gowns produced by the Company. In July 2015, we became aware that the VA OIG subpoena and an earlier VA OIG subpoena served on Kimberly-Clark requesting information about gown sales to the federal government were related to a United States Department of Justice (“DOJ”) investigation. In May 2016, April 2017 and September 2018, we received additional subpoenas from the DOJ seeking further information related to the Company’s surgical gowns.
On July 6, 2021, we entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ that resolved their criminal investigation related to our MicroCool surgical gowns. Pursuant to the terms of the DPA, in July 2021 the Company made a payment of $22.2 million. We continue to comply with the terms of the DPA.
Patent Litigation
We operate in an industry characterized by extensive patent litigation. Competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products.
At any given time, we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
General
While we maintain general and professional liability, product liability and other insurance, our insurance policies may not cover all of these matters and may not fully cover liabilities arising out of these matters. In addition, we may be obligated to indemnify our directors and officers against these matters.
We record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. For any matters that are reasonably possible to result in loss and for which no possible loss or range of loss is disclosed in this Form 10-Q, management has determined that it is unable to estimate the possible loss or range of loss because, in each case, at least the following facts applied: (a) the matter is at an early stage of the proceedings; (b) the damages are indeterminate, unspecified or determined to be immaterial; and (c) significant factual issues have yet to be resolved. At present, although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate resolution of any pending legal proceeding to which we are a party will not have a material adverse effect on our business, financial condition, results of operations or liquidity.
Environmental Compliance
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations. We believe we are operating in compliance with, or are taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.
Note 9. Earnings Per Share (“EPS”)
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method.
The calculation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 is set forth in the following table (in millions, except per share amounts): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net income (loss) | $ | 5.8 | | | $ | (7.6) | | | | | |
| | | | | | | |
Weighted Average Shares Outstanding: | | | | | | | |
Basic weighted average shares outstanding | 47.4 | | | 48.0 | | | | | |
Dilutive effect of stock options and restricted share unit awards | 0.4 | | | — | | | | | |
Diluted weighted average shares outstanding | 47.8 | | | 48.0 | | | | | |
Earnings (Loss) Per Share: | | | | | | | |
Basic | $ | 0.12 | | | $ | (0.16) | | | | | |
Diluted | $ | 0.12 | | | $ | (0.16) | | | | | |
Restricted share units (“RSUs”) contain provisions allowing for the equivalent of any dividends paid on common stock during the restricted period to be reinvested into additional RSUs at the then fair market value of the common stock on the date the dividends are paid. Such awards are to be included in the EPS calculation under the two-class method. Currently, we do not anticipate any cash dividends for the foreseeable future and our outstanding RSU awards are not material in comparison to our weighted average shares outstanding. Accordingly, all EPS amounts reflect shares as if they were fully vested and the disclosures associated with the two-class method are not presented herein.
For the three months ended March 31, 2022, 1.5 million of potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive.
Note 10. Business and Products Information
We conduct our business in one operating and reportable segment that provides our medical device products to healthcare providers and patients in more than 90 countries with manufacturing facilities in the United States and Mexico.
We provide a portfolio of innovative product offerings focused on chronic care and pain management to improve patient outcomes and reduce the cost of care. Our management evaluates net sales by product category within our single reportable segment as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Chronic Care: | | | | | | | |
Digestive health | $ | 81.4 | | | $ | 78.1 | | | | | |
Respiratory health | 38.0 | | | 43.0 | | | | | |
Total Chronic Care | 119.4 | | | 121.1 | | | | | |
Pain Management: | | | | | | | |
Acute pain | $ | 38.7 | | | $ | 37.1 | | | | | |
Interventional pain | 39.3 | | | 22.5 | | | | | |
Total Pain Management | 78.0 | | | 59.6 | | | | | |
Total Net Sales | $ | 197.4 | | | $ | 180.7 | | | | | |
Chronic care is a portfolio of products that include the following:
•Digestive health products such as our Mic-Key enteral feeding tubes, Corpak patient feeding solutions and NeoMed neonatal and pediatric feeding solutions.
•Respiratory health products such as our closed airway suction systems and other airway management devices marketed under the Ballard, Microcuff and Endoclear brands.
Pain management is a portfolio of non-opioid pain solutions including:
•Acute pain products such as On-Q and ambIT surgical pain pumps and Game Ready cold and compression therapy systems.
•Interventional pain solutions, which provide minimally invasive pain relief therapies, such as our Coolief pain therapy and OrthogenRx’s pain relief injection products.
Liabilities for estimated returns, rebates and incentives are presented in the table below (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Accrued rebates | $ | 26.3 | | | $ | 14.3 | |
Accrued customer incentives | 9.9 | | | 10.2 | |
Accrued rebates and customer incentives | 36.2 | | | 24.5 | |
Accrued sales returns(a) | 0.1 | | | 0.1 | |
Total estimated liabilities | $ | 36.3 | | | $ | 24.6 | |
__________________________________________________
(a)Accrued sales returns are included in “Other” in the accrued expenses table in Note 3, “Supplemental Balance Sheet Information.”
Due to the nature of our business, we receive purchase orders for products under supply agreements which are normally fulfilled within three to four weeks. Our performance obligations under purchase orders are satisfied and revenue is recognized at a point in time, which is upon shipment or upon delivery of our products, depending on shipping terms. Accordingly, we normally do not have transactions that give rise to material unfulfilled performance obligations.
Note 11. Share Repurchase Program
On December 15, 2021, we announced that our Board of Directors had approved a share repurchase program authorizing us to repurchase up to $30 million of our common stock. We established a pre-arranged trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The Rule 10b5-1 trading plan permits common stock to be repurchased over a twelve-month period.
Repurchases of our common stock under the 10b5-1 trading plan during the three months ended March 31, 2022 were as summarized in the table below. At March 31, 2022, no additional shares of our common stock remained to be repurchased under the share repurchase program.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares Repurchased | | Aggregate Purchase Price (in millions) | | | | Amount Remaining in Program for Purchase (in millions) |
First Quarter 2022 | | Program to Date | | | Average Price per Share | |
588,293 | | | 911,433 | | | $ | 19.3 | | | $ | 32.85 | | | $ | — | |