Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the information in this document contains, or has incorporated by reference, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “believe,” “anticipate,” “expect,” “plan,” “predict,” “estimate,” “will be” or other similar words and phrases, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including, but not limited to, changes in oil and gas prices, changes in the energy markets, customer demand for our products, significant changes in the size of our customers, difficulties encountered in integrating mergers and acquisitions, general volatility in the capital markets, disruptions caused by COVID-19, changes in applicable government regulations, increased borrowing costs, geopolitical conditions (including the Ukraine conflict and its regional and global impact) or any litigation arising out of or related thereto, impairments in long-lived assets and worldwide economic activity. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Form 10-K, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments.
Company Overview
We are a global distributor to the oil and gas and industrial markets with a legacy of over 150 years. We operate primarily under the DistributionNOW and DNOW brands. Through a network of approximately 175 locations and approximately 2,300 employees worldwide, we offer a complementary suite of digital procurement channels that, in conjunction with our locations, provides products to the energy and industrial markets around the world.
Additionally, through our growing DigitalNOW® platform, customers can leverage world-class technology across ecommerce, data management and supply chain optimization applications to solve a wide array of complex operational and product sourcing challenges to assist in maximizing their return on assets.
Our energy product offering is consumed throughout all sectors of the energy industry – from upstream drilling and completion, exploration and production, midstream infrastructure development to downstream petroleum refining and petrochemicals – as well as in other industries, such as chemical processing, mining, utilities and renewables. The industrial distribution end markets include engineering and construction firms that perform capital and maintenance projects for their end user clients. We also provide supply chain and materials management solutions to the same markets where we sell products.
Our global product offering includes consumable maintenance, repair and operating (“MRO”) supplies, pipe, valves, fittings, flanges, gaskets, fasteners, electrical, instrumentation, artificial lift, pumping solutions, valve actuation and modular process, measurement and control equipment. We also offer procurement, warehouse and inventory management solutions as part of our supply chain and materials management offering. We have developed expertise in providing application systems, work processes, parts integration, optimization solutions and after-sales support.
Our solutions include outsourcing portions or entire functions of our customers’ procurement, warehouse and inventory management, logistics, point of issue technology, project management, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our SAP Enterprise Resource Planning (“ERP”) system and other technologies to streamline our customers’ purchasing process, from requisition to procurement to payment, by digitally managing workflow, improving approval routing and providing robust reporting functionality.
We support land and offshore operations for all the major oil and gas producing regions around the world through our network of locations. Our key markets, beyond North America, include South America, the North Sea, the Middle East, Asia Pacific, portions of the former Soviet Union and Africa. Products sold through our locations support greenfield expansion upstream capital projects, midstream infrastructure and transmission and MRO consumables used in day-to-day production. We provide downstream energy and industrial products for petroleum refining, chemical processing, liquefied natural gas terminals, power generation utilities operations and customer on-site locations.
We stock or sell approximately 300,000 stock keeping units through our branch network. Our supplier network consists of thousands of vendors in approximately 40 countries. From our operations in approximately 20 countries we sell to customers operating in approximately 80 countries. The supplies and equipment stocked by each of our branches are customized to meet varied and changing local customer demands. The breadth and scale of our offering enhances our value proposition to our customers, suppliers and shareholders.
15
We employ advanced information technologies, including a common ERP platform across most of our business, to provide complete procurement, warehouse and inventory management and logistics coordination to our customers around the globe. Having a common ERP platform allows immediate visibility into our inventory assets, operations and financials worldwide, enhancing decision making and efficiency.
Demand for our products is driven primarily by the level of oil and gas drilling, completions, servicing, production, transmission, refining and petrochemical activities. It is also influenced by the global supply and demand for energy, the economy in general and geopolitics. Several factors drive spending, such as investment in energy infrastructure, the North American conventional and shale plays, market expectations of future developments in the oil, natural gas, liquids, refined products, petrochemical, plant maintenance and other industrial and energy sectors.
We have expanded globally, through acquisitions and organic investments, into Australia, Azerbaijan, Brazil, Canada, China, Colombia, Egypt, England, India, Indonesia, Kazakhstan, Kuwait, Netherlands, Norway, Oman, Scotland, Singapore, the United Arab Emirates and the United States (“U.S.”).
Summary of Reportable Segments
We operate through three reportable segments: U.S., Canada and International. The segment data included in our Management’s Discussion and Analysis are presented on a basis consistent with our internal management reporting. Segment information appearing in Note 7 “Business Segments” of the notes to the unaudited consolidated financial statements (Part I, Item 1 of this Form 10-Q) is also presented on this basis.
United States
We have approximately 115 locations in the U.S., which are geographically positioned to best serve the upstream, midstream and downstream energy and industrial markets.
We offer higher value solutions in key product lines in the U.S. which broaden and deepen our customer relationships and related product line value. Examples of these include artificial lift, pumps, valves and valve actuation, process and production equipment, fluid transfer products, measurement and controls, spoolable and coated steel-pipe and composite pipe, along with many other products required by our customers, which enable them to focus on their core business while we manage varying degrees of their supply chain. We also provide additional value to our customers through the engineering, design, construction, assembly, fabrication and optimization of products and equipment essential to the safe and efficient production, transportation and processing of oil and gas.
Canada
We have a network of approximately 40 locations in the Canadian oilfield, predominantly in the oil rich provinces of Alberta, Saskatchewan, Manitoba and other targeted locations across the country. Our Canada segment primarily serves energy exploration, production, mining and drilling business, offering customers many of the same products and value-added solutions that we perform in the U.S. In Canada, we also provide training for, and supervise the installation of, jointed and spoolable composite pipe. This product line is supported by inventory, as well as product and installation expertise to serve our customers.
International
We operate in approximately 20 countries and serve the needs of our international customers from approximately 20 locations outside the U.S. and Canada, which are strategically located in major oil and gas development areas. Our approach in these markets is similar to our approach in North America, as our customers turn to us to provide products and supply chain solutions support closer to their drilling and exploration activities. Our long legacy of operating in many international regions, combined with significant expansion into several key markets, provides a competitive advantage as few of our competitors have a presence in most of the global energy producing regions.
16
Basis of Presentation
All significant intercompany transactions and accounts have been eliminated. The unaudited consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of SEC Regulation S-X. The principles for interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements included in the Company’s most recent Annual Report on Form 10-K. In the opinion of our management, the consolidated financial statements include all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full year.
Operating Environment Overview
Our results are dependent on, among other factors, the level of worldwide oil and gas drilling and completions, well remediation activity, crude oil and natural gas prices, capital spending by oilfield service companies and drilling contractors, and the worldwide oil and gas inventory levels. Key industry indicators for the second quarter of 2022 and 2021 and the first quarter of 2022 include the following:
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% |
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% |
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|
|
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|
|
|
2Q22 v |
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|
2Q22 v |
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|
2Q22* |
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2Q21* |
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|
2Q21 |
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1Q22* |
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|
1Q22 |
|
Active Drilling Rigs: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
716 |
|
|
|
451 |
|
|
|
58.8 |
% |
|
|
633 |
|
|
|
13.1 |
% |
Canada |
|
|
114 |
|
|
|
73 |
|
|
|
56.2 |
% |
|
|
198 |
|
|
|
(42.4 |
%) |
International |
|
|
816 |
|
|
|
734 |
|
|
|
11.2 |
% |
|
|
823 |
|
|
|
(0.9 |
%) |
Worldwide |
|
|
1,646 |
|
|
|
1,258 |
|
|
|
30.8 |
% |
|
|
1,654 |
|
|
|
(0.5 |
%) |
|
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|
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|
|
|
West Texas Intermediate Crude Prices (per barrel) |
|
$ |
108.72 |
|
|
$ |
66.09 |
|
|
|
64.5 |
% |
|
$ |
94.45 |
|
|
|
15.1 |
% |
Natural Gas Prices ($/MMBtu) |
|
$ |
7.48 |
|
|
$ |
2.94 |
|
|
|
154.4 |
% |
|
$ |
4.66 |
|
|
|
60.5 |
% |
Hot-Rolled Coil Prices (steel) ($/short ton) |
|
$ |
1,372.67 |
|
|
$ |
1,460.30 |
|
|
|
(6.0 |
%) |
|
$ |
1,383.09 |
|
|
|
(0.8 |
%) |
* Averages for the quarters indicated. See sources on following page.
17
The following table details the U.S., Canadian and international rig activity and West Texas Intermediate oil prices for the past nine quarters ended June 30, 2022:
Sources: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.doe.gov); Hot-Rolled Coil Prices: SteelBenchmarker Hot Roll Coil USA (www.steelbenchmarker.com)
The worldwide quarterly average rig count declined 0.5% (from 1,654 rigs to 1,646 rigs) and the U.S. increased 13.1% (from 633 rigs to 716 rigs) in the second quarter of 2022 compared to the first quarter of 2022. The average price per barrel of West Texas Intermediate Crude increased 15.1% (from $94.45 per barrel to $108.72 per barrel), and natural gas prices increased 60.5% (from $4.66 per MMBtu to $7.48 per MMBtu) in the second quarter of 2022 compared to the first quarter of 2022. The average price per short ton of Hot-Rolled Coil declined 0.8% (from $1,383.09 per short ton to $1,372.67 per short ton) in the second quarter of 2022 compared to the first quarter of 2022.
U.S. rig count at July 15, 2022 was 756 rigs, up 40 rigs from the second quarter 2022 average. The price for West Texas Intermediate Crude was $99.59 per barrel at July 15, 2022, down 8.4% from the second quarter 2022 average. The price for natural gas was $6.60 per MMBtu at July 15, 2022, down 11.8% from the second quarter 2022 average. The price for Hot-Rolled Coil was $1,015.00 per short ton at July 11, 2022, down 26.1% from the second quarter 2022 average.
18
Executive Summary
For the three and six months ended June 30, 2022, the Company generated net income of $26 million and $56 million on $539 million and $1,012 million in revenue, respectively. For the three and six months ended June 30, 2022, revenue increased $139 million or 34.8% and increased $251 million or 33.0%, respectively, and net income increased $28 million and $68 million, respectively, when compared to the corresponding periods of 2021.
For the three and six months ended June 30, 2022, the Company generated an operating profit of $29 million and $52 million, respectively, compared to an operating profit of nil and operating loss of $8 million, respectively, for the corresponding periods of 2021.
Outlook
Our outlook for the Company remains tied to crude oil and natural gas commodity prices, global oil and gas drilling and completions activity, oil and gas spending, and global demand for oil, its refined petroleum products, crude oil, natural gas liquids and natural gas production and decline rates. Crude oil and natural gas prices as well as crude oil and natural gas storage levels are primary catalysts for determining customer activity.
Continuing to the date of this filing, uncertainty still exists concerning the effects of the COVID-19 pandemic and its impact on the economy and global oil and gas demand as countries and regions address varying caseloads. In addition, the invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased the level of economic and political uncertainty. Amid these dynamics, we will continue to support our customers, optimize our operations, advance our strategic goals and manage the Company based on market conditions. To navigate this environment, we have undergone a significant cost transformation by taking decisive actions to cut costs, accelerate structural changes and deploy various technologies to optimize processes, increase productivity and continue to support our customers and grow revenue. We will continue to adapt and position the Company for the market ahead. As conditions evolve, our response may result in various charges in future periods.
We see the rise in energy transition investments as an opportunity for us to supply many of the current products and services we provide, as well as an opportunity to partner and source from new suppliers to expand our offering, to meet our customers’ needs for their energy transition investments. A number of our larger customers are leading the investments in energy transition projects where we expect to continue to supply them while expanding our offerings to meet their changing requirements. We are also targeting new customers that are not traditional oil and gas customers, but are those that will play a part in the future of energy transition.
Results of Operations
Operating results by reportable segment are as follows (in millions):
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|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
408 |
|
|
$ |
296 |
|
|
$ |
742 |
|
|
$ |
548 |
|
Canada |
|
72 |
|
|
|
51 |
|
|
|
154 |
|
|
|
109 |
|
International |
|
59 |
|
|
|
53 |
|
|
|
116 |
|
|
|
104 |
|
Total revenue |
$ |
539 |
|
|
$ |
400 |
|
|
$ |
1,012 |
|
|
$ |
761 |
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
32 |
|
|
$ |
(3 |
) |
|
$ |
46 |
|
|
$ |
(16 |
) |
Canada |
|
6 |
|
|
|
2 |
|
|
|
13 |
|
|
|
6 |
|
International |
|
(9 |
) |
|
|
1 |
|
|
|
(7 |
) |
|
|
2 |
|
Total operating profit (loss) |
$ |
29 |
|
|
$ |
— |
|
|
$ |
52 |
|
|
$ |
(8 |
) |
United States
For the three and six months ended June 30, 2022, revenue was $408 million and $742 million, an increase of $112 million or 37.8% and an increase of $194 million or 35.4%, respectively, when compared to the corresponding periods of 2021. For the three and six months ended June 30, 2022, the increases were primarily driven by the strengthening in U.S. drilling and completions activity.
For the three and six months ended June 30, 2022, the U.S. generated an operating profit of $32 million and $46 million, an improvement of $35 million and $62 million, respectively, when compared to the corresponding periods of 2021. For the three months and six months ended June 30, 2022, operating profit increased primarily due to the increase in revenue discussed above, coupled with improved product margins.
19
Canada
For the three and six months ended June 30, 2022, revenue was $72 million and $154 million, an increase of $21 million or 41.2% and $45 million or 41.3%, respectively, when compared to the corresponding periods of 2021. For the three and six months ended June 30, 2022, the increases were primarily driven by the increase in Canadian rig count.
For the three and six months ended June 30, 2022, Canada generated an operating profit of $6 million and $13 million, an increase of $4 million and $7 million, respectively, when compared to the corresponding periods of 2021. For the three and six months ended June 30, 2022, operating profit increased primarily due to the increases in revenue discussed above, partially offset by reductions in the Canada Emergency Wage Subsidy.
International
For the three and six months ended June 30, 2022, revenue was $59 million and $116 million, an increase of $6 million or 11.3% and $12 million or 11.5%, respectively, when compared to the corresponding periods of 2021. For the three and six months ended June 30, 2022, the increases were primarily driven by the increase in International rig count and stronger project activity, partially offset by unfavorable foreign exchange rate impacts.
For the three and six months ended June 30, 2022, the International segment generated an operating loss of $9 million and $7 million, a decline of $10 million and $9 million, respectively, when compared to the corresponding periods of 2021. As of June 30, 2022, we substantially completed the liquidation of various foreign subsidiaries in Russia, Latin America and the Middle East. For the three and six months ended June 30, 2022, these liquidations resulted in a reclassification of $10 million foreign currency translation losses into earnings, reflected in impairment and other charges in the consolidated statements of operations.
Cost of products
For the three and six months ended June 30, 2022, cost of products was $411 million and $777 million, respectively, compared to $315 million and $601 million, respectively, for the corresponding periods of 2021. For the three and six months ended June 30, 2022, the increases were primarily due to the increases in revenue in the periods. Cost of products includes the cost of inventory sold and related items, such as vendor consideration, inventory allowances, amortization of intangibles and inbound and outbound freight.
Warehousing, selling and administrative expenses
For the three and six months ended June 30, 2022, warehousing, selling and administrative expenses were $89 million and $173 million, respectively, compared to $85 million and $164 million, respectively, for the corresponding periods of 2021. For the three and six months ended June 30, 2022, the increases were primarily driven by reductions in government wage subsidies and bad debt recoveries realized in the corresponding periods of 2021. Warehousing, selling and administrative expenses include branch location, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as corporate general selling and administrative expenses.
Impairment and other charges
For the three and six months ended June 30, 2022, impairment and other charges were $10 million in both periods, compared to nil and $4 million, respectively, for the corresponding periods of 2021. For the six months ended June 30, 2022, the Company recognized approximately $10 million of foreign currency translation losses as a result of substantially completing the liquidation of certain foreign subsidiaries in the International segment.
Other income (expense)
For the three and six months ended June 30, 2022, the Company recognized expense of $1 million and income of $9 million, respectively, compared to other expenses of $1 million and $2 million, respectively, for the corresponding periods of 2021. For the three months ended June 30, 2022, other expense was primarily related to unfavorable foreign exchange rate impacts. For the six months ended June 30, 2022, other income was primarily attributable to a benefit of approximately $13 million related to the decrease of contingent consideration liability associated with a prior year acquisition.
20
Income tax provision
The effective tax rates for the three and six months ended June 30, 2022, were 7.1% and 8.2%, respectively, compared to (88.9%) and (14.8%), respectively, for the corresponding periods of 2021. In general, the effective tax rate differs from the U.S. statutory rate due to recurring items, such as differing tax rates on income earned in foreign jurisdictions, nondeductible expenses, state income taxes and the change in valuation allowance recorded against deferred tax assets. For the three and six months ended June 30, 2022, the effective tax rate was primarily driven by the recognition of tax expense from earnings in Canada offset by current year realization of deferred tax assets and corresponding release of valuation allowance in the U.S., as well as impairment charges incurred as a result of substantially completing the liquidation of certain foreign subsidiaries with no associated tax benefit.
21
Non-GAAP Financial Measure and Reconciliation
In an effort to provide investors with additional information regarding our results of operations as determined by GAAP, we disclose non-GAAP financial measures. The primary non-GAAP financial measure we disclose is earnings before interest, taxes, depreciation and amortization, excluding other costs (“EBITDA excluding other costs”). This financial measure excludes the impact of certain amounts and is not calculated in accordance with GAAP. A reconciliation of this non-GAAP financial measure, to its most comparable GAAP financial measure, is included below.
We use EBITDA excluding other costs internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental information regarding the Company’s ongoing economic performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results. In an effort to better align with management’s evaluation of the Company’s performance and to facilitate comparison of our results to those of peer companies, beginning for the year ended December 31, 2021, EBITDA excluding other costs excludes non-cash stock-based compensation expense. Prior periods presented have been adjusted to conform with the current period presentation.
The following table sets forth the reconciliations of EBITDA excluding other costs to the most comparable GAAP financial measures (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
GAAP net income (loss) (1) |
|
$ |
26 |
|
|
$ |
(2 |
) |
|
$ |
56 |
|
|
$ |
(12 |
) |
Interest, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Income tax provision |
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
|
|
2 |
|
Depreciation and amortization |
|
|
5 |
|
|
|
6 |
|
|
|
9 |
|
|
|
12 |
|
Other costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
4 |
|
Other (2) |
|
|
12 |
|
|
|
1 |
|
|
|
1 |
|
|
|
5 |
|
EBITDA excluding other costs |
|
$ |
47 |
|
|
$ |
8 |
|
|
$ |
75 |
|
|
$ |
11 |
|
EBITDA % excluding other costs (3) |
|
|
8.7 |
% |
|
|
2.0 |
% |
|
|
7.4 |
% |
|
|
1.4 |
% |
(1)We believe that net income (loss) is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA excluding other costs. EBITDA excluding other costs measures the Company’s operating performance without regard to certain expenses. EBITDA excluding other costs is not a presentation made in accordance with GAAP and the Company’s computation of EBITDA excluding other costs may vary from others in the industry. EBITDA excluding other costs has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.
(2)For the three months ended June 30, 2022, Other primarily included approximately $10 million of impairment and other charges related to the reclassification of accumulated foreign currency translation losses due to the substantial liquidation of certain foreign subsidiaries, as well as, approximately $2 million in separation and transaction-related charges, which were included in operating profit. For the six months ended June 30, 2022, Other primarily included approximately $10 million of impairment and other charges discussed above, as well as, approximately $4 million in separation and transaction-related charges, partially offset by a benefit of approximately $13 million related to the decrease of contingent consideration liability, which was included in other income.
(3)EBITDA % excluding other costs is defined as EBITDA excluding other costs divided by Revenue.
22
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We expect resources to be available to reinvest in existing businesses, strategic acquisitions and capital expenditures to meet short and long-term objectives. We believe that cash on hand, cash generated from expected results of operations and amounts available under our revolving credit facility will be sufficient to fund operations, anticipated working capital needs and other cash requirements, including capital expenditures.
As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $232 million and $313 million, respectively. As of June 30, 2022, $88 million of our cash and cash equivalents were maintained in the accounts of our various foreign subsidiaries. During the first six months of 2022, we repatriated $10 million from our Canadian operations. The Company makes a determination each period concerning its intent and ability to indefinitely reinvest the cash held by its foreign subsidiaries. The Company has not recorded deferred income taxes on undistributed foreign earnings that it considers to be indefinitely reinvested. Future changes to our indefinite reinvestment assertion could result in additional taxes (withholding and/or state taxes), offset by any available foreign tax credits.
We maintain a $500 million five-year senior secured revolving credit facility that will mature on December 14, 2026. Availability under the revolving credit facility is determined by a borrowing base comprised of eligible receivables, eligible inventory and certain pledged deposits in the U.S. and Canada. As of June 30, 2022, we had no borrowings against our revolving credit facility, and had approximately $454 million in availability (as defined in the Credit Agreement) resulting in the excess availability (as defined in the Credit Agreement) of 99%, subject to certain restrictions. Availability excluding certain cash deposits was approximately $342 million. Borrowings that result in the excess availability dropping below the greater of 10% of the borrowing base or $40 million are conditioned upon compliance with or waiver of a minimum fixed charge ratio (as defined in the Credit Agreement). The credit facility contains usual and customary affirmative and negative covenants for credit facilities of this type including financial covenants. As of June 30, 2022, we were in compliance with all covenants. We continuously monitor compliance with debt covenants. A default, if not waived or amended, would prevent us from taking certain actions, such as incurring additional debt.
We are often party to certain transactions that require off-balance sheet arrangements such as standby letters of credit and performance
bonds and guarantees that are not reflected in our consolidated balance sheets. These arrangements are made in our normal course of
business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of
operations, liquidity or cash flows.
The following table summarizes our net cash flows provided by (used in) operating activities, investing activities and financing activities for the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Net cash provided by (used in) operating activities |
|
$ |
(51 |
) |
|
$ |
4 |
|
Net cash provided by (used in) investing activities |
|
|
(25 |
) |
|
|
(98 |
) |
Net cash provided by (used in) financing activities |
|
|
— |
|
|
|
(1 |
) |
Operating Activities
For the six months ended June 30, 2022, net cash used in operating activities was $51 million compared to $4 million provided by operating activities in the corresponding period of 2021. For the six months ended June 30, 2022, net cash used in operating activities was primarily due to a net increase in working capital as a result of growing market activity, partially offset by improved operating results.
Investing Activities
For the six months ended June 30, 2022, net cash used in investing activities was $25 million compared to $98 million used in investing activities in the corresponding period of 2021. For the six months ended June 30, 2022, net cash used in investing activities was primarily due to a business acquisition of $21 million and capital expenditures.
Financing Activities
For the six months ended June 30, 2022, net cash used in financing activities was nil compared to $1 million used in financing activities in the corresponding period of 2021. For the six months ended June 30, 2022, the activity was attributed to the Company making payments of $2 million relating to its finance lease arrangements offset by cash received from the exercise of stock options.
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Other
For the six months ended June 30, 2022, the effect of the change in exchange rates on cash and cash equivalents was a decrease of $5 million compared to an increase of $1 million for the corresponding period of 2021.
Capital Spending
We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and the usage of the available portion of the revolving credit facility. There can be no assurance that additional financing will be available at terms acceptable to us.
Share Repurchase Program
On August 3, 2022, the Company’s board of directors approved a share repurchase program, under which the Company is authorized to purchase up to $80 million of its outstanding common stock through December 31, 2024.
Critical Accounting Policies and Estimates
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K. In preparing the financial statements, the Company makes assumptions, estimates and judgments that affect the amounts reported. The Company periodically evaluates its estimates and judgments that are most critical in nature, which are related to allowance for doubtful accounts, inventory reserves, goodwill and long-lived assets, contingent consideration, purchase price allocation of acquisitions, vendor consideration and income taxes. Its estimates are based on historical experience and on its future expectations that the Company believes are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
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