UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2019



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

For the transition period from to

Commission file number 1-9810

Owens & Minor, Inc.

(Exact name of Registrant as specified in its charter)



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

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

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

Registrant’s telephone number, including area code ~~(804)~~ (804) 723-7000

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $2 par value per share	OMI	New York Stock Exchange

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

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

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



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

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

The number of shares of Owens & Minor, Inc.’s common stock outstanding as of ~~October 27, 2017,~~July 31, 2019, was ~~61,249,613~~62,958,021 shares.

~~Table of Contents~~

Owens & Minor, Inc. and Subsidiaries

Index



Part I. Financial Information		Page

Item 1.	Financial Statements	3
	Consolidated Statements of ~~Income—Three~~Income (Loss) —Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	3
	Consolidated Statements of Comprehensive ~~Income—Three~~Income (Loss) —Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	4
	Consolidated Balance Sheets—~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018	5
	Consolidated Statements of Cash Flows—~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	6
	Consolidated Statements of Changes in Equity—~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. Other Information
Item 1.	Legal Proceedings	31
Item 4. 1A.	~~Controls and Procedures~~Risk Factors	31
~~Part II. Other Information~~
Item 1. 2.	~~Legal Proceedings~~	31
~~Item 1A.~~	~~Risk Factors~~	31
~~Item 2.~~	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	31
Item 6.	Exhibits	32
~~Item 6.~~	~~Exhibits~~	33

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Income (Loss)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share data) 2017 2016 2017 2016
Net revenue $ 2,333,961
$ 2,415,601
$ 6,928,441
$ 7,355,069
Cost of goods sold 2,032,019
2,119,326
6,071,787
6,462,739
Gross margin 301,942
296,275
856,654

892,330
Distribution, selling, and administrative expenses 261,045
241,305
735,353
726,944
Acquisition-related and exit and realignment charges 9,299
2,739
21,134
19,974
Other operating (income) expense, net 1,927
(1,337 ) 2,143
(5,179 )
Operating earnings 29,671
53,568
98,024
150,591
Interest expense, net 8,737
6,770
22,218
20,324
Income before income taxes 20,934
46,798
75,806
130,267
Income tax provision 10,063
16,967
26,010
48,585
Net income $ 10,871
$ 29,831
$ 49,796
$ 81,682
Net income per common share:
Basic and diluted $ 0.18
$ 0.48
$ 0.82
$ 1.32
Cash dividends per common share $ 0.2575
$ 0.255
$ 0.7725
$ 0.765



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2019			2018			2019			2018
Net revenue	$	2,484,200		$	2,458,271		$	4,945,587		$	4,830,850
Cost of goods sold	2,115,773			2,133,277			4,218,736			4,181,170
Gross margin	368,427			324,994			726,851			649,680
Distribution, selling and administrative expenses	345,892			308,775			684,595			593,136
Goodwill and intangible asset impairment charges	—			165,447			—			165,447
Acquisition-related and exit and realignment charges	5,655			24,930			10,645			39,690
Other operating (income) expense, net	736			(2,107		)	775			(759		)
Operating income (loss)	16,144			(172,051		)	30,836			(147,834		)
Interest expense, net	27,682			18,571			56,783			28,824
Loss before income taxes	(11,538		)	(190,622		)	(25,947		)	(176,658		)
Income tax benefit	(1,062		)	(7,845		)	(1,375		)	(2,032		)
Net loss	$	(10,476	)	$	(182,777	)	$	(24,572	)	$	(174,626	)

Net loss per common share: basic and diluted	$	(0.18	)	$	(3.07	)	$	(0.41	)	$	(2.92	)

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

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



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Net loss	$	(10,476	)	$	(182,777	)	$	(24,572	)	$	(174,626	)
Other comprehensive income (loss), net of tax:
Currency translation adjustments (net of income tax of $0 in 2019 and 2018)	7,452			(20,678		)	3,245			(11,757		)
Change in unrecognized net periodic pension costs (net of income tax of $63 and $126 in 2019 and $149 and $286 in 2018)	197			374			394			754
Net unrealized loss on derivative instruments and other (net of income tax of $2,662 and $3,641 in 2019 and $68 in 2018)	(5,262		)	(122		)	(7,675		)	(116		)
Total other comprehensive income (loss), net of tax	2,387			(20,426		)	(4,036		)	(11,119		)
Comprehensive loss	$	(8,089	)	$	(203,203	)	$	(28,608	)	$	(185,745	)

Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)


	September 30,			December 31,			June 30,			December 31,
(in thousands, except per share data)	2017			2016			2019			2018
Assets
Current assets
Cash and cash equivalents	$	98,415		$	185,488		$	91,339		$	103,367
Accounts receivable, net of allowances of $14,609 and $13,538	732,756			606,084
Accounts receivable, net of allowances of $21,456 and $19,618							843,343			823,418
Merchandise inventories	989,251			916,311			1,237,713			1,290,103
Other current assets	311,499			254,156			302,234			321,690
Total current assets	2,131,921			1,962,039			2,474,629			2,538,578
Property and equipment, net of accumulated depreciation of $224,970 and $201,399	203,587			191,718
Goodwill, net	690,230			414,936
Property and equipment, net of accumulated depreciation of $297,297 and $270,105							389,933			386,723
Operating lease assets							206,199			—
Goodwill							407,651			414,122
Intangible assets, net	231,886			82,511			311,027			321,764
Other assets, net	76,532			66,548			106,632			112,601
Total assets	$	3,334,156		$	2,717,752		$	3,896,071		$	3,773,788
Liabilities and equity
Current liabilities
Accounts payable	$	875,630		$	750,750		$	1,039,074		$	1,109,589
Accrued payroll and related liabilities	31,998			45,051			47,284			48,203
Other current liabilities	296,663			238,837			384,040			314,219
Total current liabilities	1,204,291			1,034,638			1,470,398			1,472,011
Long-term debt, excluding current portion	917,256			564,583			1,624,692			1,650,582
Operating lease liabilities, excluding current portion							161,785			—
Deferred income taxes	137,539			90,383			49,507			50,852
Other liabilities	71,286			68,110			92,788			81,924
Total liabilities	2,330,372			1,757,714			3,399,170			3,255,369
Commitments and contingencies
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,249 shares and 61,031 shares	122,499			122,062
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,964 shares and 62,294 shares							125,928			124,588
Paid-in capital	224,183			219,955			244,756			238,773
Retained earnings	683,444			685,504			175,865			200,670
Accumulated other comprehensive loss	(26,342		)	(67,483		)	(49,648		)	(45,612		)
Total equity	1,003,784			960,038			496,901			518,419
Total liabilities and equity	$	3,334,156		$	2,717,752		$	3,896,071		$	3,773,788

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2019			2018
Operating activities:
Net income	$	49,796		$	81,682
Adjustments to reconcile net income to cash provided by operating activities:
Net loss							$	(24,572	)	$	(174,626	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	41,060			42,182			58,902			43,813
Share-based compensation expense	8,592			8,934			8,093			6,140
Goodwill and intangible asset impairment charges							—			165,447
Provision for losses on accounts receivable	1,158			(216		)	6,534			2,867
Deferred income tax (benefit) expense	(4,585		)	(3,233		)
Deferred income tax benefit							(14,597		)	(6,172		)
Changes in operating lease right-of-use assets and lease liabilities							(616		)	—
Changes in operating assets and liabilities:
Accounts receivable	(79,114		)	5,023			(23,346		)	(30,357		)
Merchandise inventories	(56,134		)	(5,066		)	52,346			5,211
Accounts payable	79,787			58,742			(71,704		)	47,260
Net change in other assets and liabilities	(40,634		)	(44,903		)	32,226			(14,629		)
Other, net	5,719			1,366			5,748			1,299
Cash provided by operating activities	5,645			144,511			29,014			46,253
Investing activities:
Acquisition, net of cash acquired	(366,569		)	—
Acquisitions, net of cash acquired							—			(733,433		)
Additions to property and equipment	(24,963		)	(13,682		)	(21,020		)	(19,816		)
Additions to computer software and intangible assets	(12,826		)	(7,081		)
Additions to computer software							(4,511		)	(10,238		)
Proceeds from sale of property and equipment	780			4,497			339			12
Cash used for investing activities	(403,578		)	(16,266		)	(25,192		)	(763,475		)
Financing activities:
Change in bank overdraft	—			21,753
Proceeds from debt issuance	250,000			—
Borrowing under revolving credit facility	117,200			—
Proceeds from issuance of debt							—			695,750
Borrowings under revolving credit facility							19,900			101,000
Repayments of debt							(24,788		)	(6,250		)
Financing costs paid	(1,798		)	—			(4,313		)	(27,697		)
Cash dividends paid	(47,316		)	(47,802		)	(4,918		)	(32,284		)
Repurchases of common stock	(5,000		)	(48,654		)
Other, net	(7,363		)	(8,118		)	(1,934		)	(3,670		)
Cash provided by (used for) financing activities	305,723			(82,821		)
Cash (used for) provided by financing activities							(16,053		)	726,849
Effect of exchange rate changes on cash and cash equivalents	5,137			6,652			203			4,039
Net increase (decrease) in cash and cash equivalents	(87,073		)	52,076
Net (decrease) increase in cash and cash equivalents							(12,028		)	13,666
Cash and cash equivalents at beginning of period	185,488			161,020			103,367			104,522
Cash and cash equivalents at end of period	$	98,415		$	213,096		$	91,339		$	118,188
Supplemental disclosure of cash flow information:
Income taxes paid, net	$	26,917		$	57,996
Income taxes paid, net of refunds							$	(13,929	)	$	12,318
Interest paid	$	19,951		$	20,023		$	53,183		$	24,848

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(unaudited)

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

Common
Stock
($ 2 par value )

Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive Income
(Loss)

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

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



(in thousands, except per share data)	Common Shares Outstanding	Common Stock ($2 par value )		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, December 31, 2017	61,476	$	122,952	$	226,937	$	690,674		$	(25,084	)	$	1,015,479
Net income						8,151						8,151
Other comprehensive income									9,307			9,307
Dividends declared ($0.26 per share)						(16,027		)				(16,027		)
Share-based compensation expense, exercises and other	336	672		1,336								2,008
Balance, March 31, 2018	61,812	$	123,624	$	228,273	$	682,798		$	(15,777	)	$	1,018,918
Net income						(182,777		)				(182,777		)
Other comprehensive loss									(20,426		)	(20,426		)
Dividends declared ($0.26 per share)						(16,175		)				(16,175		)
Share-based compensation expense, exercises and other	529	1,057		1,611								2,668
Balance, June 30, 2018	62,341	$	124,681	$	229,884	$	483,846		$	(36,203	)	$	802,208

Balance, December 31, 2018	62,294	$	124,588	$	238,773	$	200,670		$	(45,612	)	$	518,419
Net loss						(14,096		)				(14,096		)
Other comprehensive loss									(6,423		)	(6,423		)
Dividends declared ($0.0025 per share)						(119		)				(119		)
Share-based compensation expense, exercises and other	642	1,284		2,774								4,058
Balance, March 31, 2019	62,936	$	125,872	$	241,547	$	186,455		$	(52,035	)	$	501,839
Net loss						(10,476		)				(10,476		)
Other comprehensive income									2,387			2,387
Dividends declared ($0.0025 per share)						(114		)				(114		)
Share-based compensation expense, exercises and other	28	56		3,209								3,265
Balance, June 30, 2019	62,964	$	125,928	$	244,756	$	175,865		$	(49,648	)	$	496,901

Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, unless otherwise indicated)

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

Basis of Presentation

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

Reclassifications

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

Use of Estimates

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

Note 2—Fair Value

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

Note 3—Acquisition

On ~~August 1, 2017,~~April 30, 2018 (the Acquisition Date), we completed the acquisition of ~~Byram Healthcare, a leading domestic distributor~~substantially all of ~~reimbursable medical supplies sold directly to patients~~Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and ~~home health agencies.~~

~~The consideration was $367~~Infection Prevention (S&IP) business, the name “Halyard Health” (and all variations of that name and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash ~~acquired, which~~acquired. The Halyard business is ~~subject to final working capital adjustments with~~a leading global provider of medical supplies and solutions for the ~~seller. The purchase price was allocated on a preliminary basis to the underlying assets acquired~~prevention of healthcare associated infections across acute care and ~~liabilities assumed based upon our current estimate of their fair values at the date of acquisition. The purchase price exceeded the preliminary estimated fair value~~non-acute care markets. This business is reported as part of the ~~net tangible and identifiable intangible assets by $263 million, which was allocated to goodwill.~~ Global Products segment.

The following table presents the ~~preliminary estimated~~ fair value of the assets acquired and liabilities assumed recognized as of the ~~acquisition date.~~Acquisition Date. The fair value of intangibles from this acquisition was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs. ~~The allocation of purchase price to assets and liabilities acquired is not yet complete.~~

Table of Contents


	Preliminary Fair Value Estimated as of Acquisition Date		Preliminary Fair Value Originally Estimated as of Acquisition Date ⁽¹⁾		Differences Between Prior and Current Period Fair Value			Fair Value as of Acquisition Date
Assets acquired:
Current assets	$	62,902	$	330,870	$	—		$	330,870
Goodwill	263,155		130,217		(4,675		)	125,542
Intangible assets	156,000		191,230		13,000			204,230
Noncurrent assets	3,615
Other noncurrent assets			218,387		5,616			224,003
Total assets	485,672		870,704		13,941			884,645
Liabilities assumed:
Current liabilities	72,397		92,438		741			93,179
Noncurrent liabilities	46,706		20,217		13,200			33,417
Total liabilities	119,103		112,655		13,941			126,596
Fair value of net assets acquired, net of cash	$	366,569	$	758,049	$	—		$	758,049

⁽¹⁾As previously reported in our 2018 Form 10-K.

We are amortizing the ~~preliminary~~ fair value of acquired intangible assets, primarily customer relationships, a trade name and ~~a tradename,~~other intellectual property, over their estimated ~~remaining~~ weighted average useful lives of 10eight to 12 years.

Goodwill of ~~$263~~$126 million, which we assigned to our ~~Domestic~~Global Products segment, consists largely of expected opportunities to expand into new markets and further develop a presence in the ~~non-acute market with direct to patient distribution capabilities.~~medical products segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

~~Pro~~The unaudited pro forma results of ~~operations~~net revenue for ~~Byram has~~the three and six months ended June 30, 2018 as if Halyard was acquired on January 1, 2018 were $2,528,271 and $5,110,850, respectively. The pro forma results of net loss and net loss per common share have not been ~~presented~~represented because the effects ~~on revenue and net income~~ were not material to our historic consolidated financial statements.

~~Acquisition-related expenses~~ Accordingly, the pro forma results noted above are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the current year consisted primarily of transaction costs incurred to perform due diligence and to analyze, negotiate and consummate the Byram acquisition, and costs to transition the acquired operations. We recognized pre-tax acquisition-related expenses of $3.1 million in 2017 related to these activities.future.

Note 4—Financing Receivables and Payables

At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, we had financing receivables of ~~$176.9~~$194.7 million and ~~$156.5~~$183.3 million, respectively, and related payables of ~~$105.5~~$92.0 million and ~~$110.0~~$100.3 million, respectively, outstanding under our order-to-cash program, ~~and product financing arrangements,~~ which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.

Note 5—Goodwill and Intangible Assets

The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through ~~September~~June 30, ~~2017:~~2019:



	Global Solutions		Global Products			Consolidated
Carrying amount of goodwill, December 31, 2018	$	283,905	$	130,217		$	414,122
Currency translation adjustments	—		(1,796		)	(1,796		)
Acquisition	—		(4,675		)	(4,675		)
Carrying amount of goodwill, June 30, 2019	$	283,905	$	123,746		$	407,651

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

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Intangible assets at ~~September~~June 30, ~~2017,~~2019 and December 31, ~~2016,~~2018, were as follows:


	September 30, 2017						December 31, 2016						June 30, 2019									December 31, 2018
	Customer Relationships			Other Intangibles			Customer Relationships			Other Intangibles			Customer Relationships			Tradenames			Other Intangibles			Customer Relationships			Tradenames			Other Intangibles

Gross intangible assets	$	241,444		$	41,483		$	118,223		$	4,045		$	284,452		$	90,000		$	45,685		$	267,510		$	97,000		$	42,930
Accumulated amortization	(48,757		)	(2,284		)	(38,429		)	(1,328		)	(89,713		)	(12,338		)	(7,059		)	(72,947		)	(8,544		)	(4,185		)
Net intangible assets	$	192,687		$	39,199		$	79,794		$	2,717		$	194,739		$	77,662		$	38,626		$	194,563		$	88,456		$	38,745
Weighted average useful life													10 years			11 years			8 years			10 years			11 years			8 years

At ~~September~~June 30, ~~2017, $163.5~~2019, $96.9 million in net intangible assets were held in the ~~Domestic~~Global Solutions segment ~~$10.2~~and $214.1 million were held in the ~~International segment and $58.2 million were held in the Proprietary~~Global Products segment. Amortization expense for intangible assets was ~~$5.1~~$13.1 million and ~~$2.2~~$9.4 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and ~~$9.7~~$23.5 million and ~~$6.6~~$15.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018, respectively.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is ~~$11.6~~$22.0 million for the remainder of ~~2017, $24.6 million for 2018, $24.7 million for~~ 2019, ~~$24.7~~$43.0 million for 2020, ~~$24.4~~$41.3 million for 2021, ~~and $23.5~~$40.4 million for ~~2022.~~2022, $39.2 million for 2023 and $35.3 million for 2024.

Note 6—Leases

We adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019. We elected to use the adoption date as our date of initial application and thus have not restated comparative prior periods. We elected the ‘package of practical expedients’, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.

The adoption of the new standard resulted in the recording of operating lease assets and lease liabilities of approximately $197 million and $201 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net loss and had no impact on cash flows.

We enter into non-cancelable agreements to lease most of our office and warehouse facilities with remaining terms generally ranging from one to 20 years. Certain leases include renewal options, generally for one to five-year increments. The exercise of lease renewal options is at our sole discretion. Our lease terms may include those options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We also lease some of our transportation and material handling equipment for terms generally ranging from three to 10 years. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of right-of-use assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. We use the implicit rate when readily determinable. The operating lease asset also includes adjustments for any lease payments made and lease incentives.

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The components of lease expense were as follows:



	Classification	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	Distribution, selling and administrative expenses	$	16,802	$	34,239
Finance lease cost:
Amortization of lease assets	Distribution, selling and administrative expenses	455		1,211
Interest on lease liabilities	Interest expense, net	299		633
Total finance lease cost		754		1,844
Total lease cost		$	17,556	$	36,083

Short-term lease costs and variable lease costs are immaterial.

Supplemental balance sheet information is as follows:



	Classification	As of June 30, 2019
Assets:
Operating lease assets	Operating lease assets	$	206,199
Finance lease assets	Property and equipment, net	13,084
Total lease assets		$	219,283
Liabilities:
Current
Operating	Other current liabilities	$	48,892
Finance	Other current liabilities	2,679
Noncurrent
Operating	Operating lease liabilities, excluding current portion	161,785
Finance	Long-term debt, excluding current portion	14,704
Total lease liabilities		$	228,060

Other information related to leases was as follows:



	Six months ended June 30, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating and finance leases	$	34,742
Financing cash flows from finance leases	$	1,143

Right-of-use assets obtained in exchange for new operating and finance lease liabilities	$	28,694

Weighted average remaining lease term (years)
Operating leases	6.1
Finance leases	8.1

Weighted average discount rate
Operating leases	12.0		%
Finance leases	9.3		%

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Maturities of lease liabilities as of June 30, 2019 were as follows:



	Operating Leases			Finance Leases			Total
2019 (remainder)	$	40,239		$	2,262		$	42,501
2020	63,545			3,186			66,731
2021	54,918			2,631			57,549
2022	34,568			2,436			37,004
2023	23,968			2,314			26,282
Thereafter	86,009			11,455			97,464
Total lease payments	303,247			24,284			327,531
Less: Interest	(92,570		)	(6,901		)	(99,471		)
Present value of lease liabilities	$	210,677		$	17,383		$	228,060

At December 31, 2018, future minimum annual payments under non-cancelable lease agreements with original terms in excess of one year, and including payments required under operating leases for facilities we have vacated, were as follows:



	Total
2019	$	64,082
2020	53,138
2021	42,480
2022	26,445
2023	19,895
Thereafter	45,708
Total minimum payments	$	251,748

Rent expense for all operating leases for the year ended December 31, 2018 was $78.3 million.

Note 7—Derivatives

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

We use a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in cash flows. We account for the designated foreign exchange forward contracts as cash flow hedges. These foreign exchange forward contracts generally have maturities up to 12 months and the counterparties to the transactions are typically large international financial institutions.

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

We pay interest under our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we entered into interest rate swaps during the third quarter of 2018 whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreements are included in interest expense.

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

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The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of June 30, 2019:



				Derivative Assets			Derivative Liabilities
	Notional Amount		Maturity Date	Classification	Fair Value		Classification	Fair Value
Cash flow hedges
Interest rate swaps	$	450,000	May 2022 and 2025	Other assets, net	$	—	Other liabilities	$	18,770
Foreign currency contracts	$	4,515	September 2019 to December 2019	Other assets, net	$	258	Other liabilities	$	—

Economic (non-designated) hedges
Foreign currency contracts	$	15,874	July 2019 to August 2019	Other assets, net	$	342	Other liabilities	$	—

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of income (loss) for the three and six months ended June 30, 2019:



	Amount of Gain/(Loss) Recognized in Other Comprehensive Income (Loss)						Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Total Amount of Income/(Expense) Line Items Presented in the Consolidated Statement of Income in Which the Effects are Recorded						Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019				Three Months Ended June 30, 2019			Six Months Ended June 30, 2019			Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Interest rate swaps	$	(8,162	)	$	(12,577	)	Interest expense, net	$	(27,682	)	$	(56,783	)	$	(361	)	$	(682	)
Foreign currency contracts	$	191		$	636		Cost of goods sold	$	(2,115,773	)	$	(4,218,736	)	$	314		$	57

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

For the three and six months ended June 30, 2019, we recognized gains of $0.5 million and $1.0 million, respectively, associated with our economic (non-designated) foreign currency contracts.

The total notional values of derivatives that were designated and qualified for our foreign currency cash flow hedging program was $12.6 million as of June 30, 2018. We record the change in fair value of derivative instruments and the remeasurement adjustment on the foreign currency denominated asset or liability in acquisition-related and exit and realignment charges for contracts assumed with the Halyard acquisition and in other operating expense, net for all other foreign exchange contracts.

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Note 8—Exit and Realignment ~~Charges~~Costs

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

Exit and realignment charges by segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were as follows:

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Global Solutions segment	$	1,902	$	1,737	$	2,595	$	4,444
Global Products segment	80		—		214		(29		)
Total exit and realignment charges	$	1,982	$	1,737	$	2,809	$	4,415

The following table summarizes the activity related to exit and realignment cost and related accruals through ~~September~~June 30, ~~2017~~2019 and ~~2016:~~

2018:

Lease
Obligations

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

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



	Total ⁽¹⁾
Accrued exit and realignment costs, December 31, 2018	$	8,214
Provision for exit and realignment activities:
Severance	360
Information system restructuring costs	515
Other	83
Change in estimate	(127		)
Cash payments	(3,079		)
Accrued exit and realignment costs, March 31, 2019	$	5,966
Provision for exit and realignment activities:
Severance	1,008
Information system restructuring costs	948
Other	27
Cash payments	(2,569		)
Accrued exit and realignment costs, June 30, 2019	$	5,380

Accrued exit and realignment costs, December 31, 2017	$	11,972
Provision for exit and realignment activities:
Severance	2,295
Information system restructuring costs	177
Other	230
Change in estimate	(23		)
Cash payments	(6,886		)
Accrued exit and realignment costs, March 31, 2018	$	7,765
Provision for exit and realignment activities:
Severance	(415		)
Information system restructuring costs	1,079
Other	1,072
Cash payments	(6,358		)
Accrued exit and realignment costs, June 30, 2018	$	3,143

~~In addition to the~~⁽¹⁾The accrued exit and realignment ~~accruals in the preceding table, we also incurred $1.9 million of~~ costs ~~that were expensed as incurred for the three months ended September~~at June 30, ~~2017, including $1.7 million in~~2019 and 2018 related primarily to accrued information system restructuring costs and $0.2 million in other costs. For the nine months ended September 30, 2017, we recognized $7.4 million of costs that were expensed as incurred, including $4.5 million in asset write-downs, $1.9 million in information system restructuring costs and $1.0 million in other costs.accrued severance.

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

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Note 7—9—Retirement Plans

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

The components of net periodic benefit cost, which are included in distribution, selling and administrative expenses, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Service cost	$	26	$	27	$	53	$	70	$	387	$	18	$	761	$	38
Interest cost	474		508		1,422		1,523		600		419		1,200		838
Recognized net actuarial loss	456		412		1,367		1,236		260		522		520		1,044
Net periodic benefit cost	$	956	$	947	$	2,842	$	2,829	$	1,247	$	959	$	2,481	$	1,920

Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled ~~$0.5 million and $0.4~~$0.6 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and ~~$1.3~~$1.2 million and $1.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018, respectively.

Note 8—10—Debt

Debt consists of the following:



	June 30, 2019						December 31, 2018
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
3.875% Senior Notes, $275 million par value, due September 2021	$	273,835		$	237,738		$	273,577		$	207,001
4.375% Senior Notes, $275 million par value, due December 2024	273,141			203,808			272,972			174,859
Term A Loans, due July 2022	398,615			405,337			422,422			422,422
Term B Loan, due April 2025	481,579			419,331			483,327			385,284
Revolver	230,000			230,000			210,100			210,100
Finance leases and other	21,792			21,792			18,774			18,774
Total debt	1,678,962			1,518,006			1,681,172			1,418,440
Less current maturities	(54,270		)	(54,270		)	(30,590		)	(30,590		)
Long-term debt	$	1,624,692		$	1,463,736		$	1,650,582		$	1,387,850

We have $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points. As of September 30, 2017 and December 31, 2016, the estimated fair value of the 2021 Notes was $280.1 million and $274.5 million and the estimated fair value of the 2024 Notes was $276.9 million and $270.0 million, respectively.

~~On July 27, 2017, we entered into a new~~ Credit Agreement ~~replacing the Amended Credit Agreement. The new agreement provides~~(amended February 2019) with a borrowing capacity of ~~$600~~$400 million and ~~a $250 million~~ term loan. We make principal payments under the term loan on a quarterly basis with the remaining outstanding principal due in five years. The revolving credit facility has a five-year maturity. The proceeds from the new borrowing were primarily used to fund the Byram acquisition which closed on August 1, 2017. Under the Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million.loans. The interest rate on ~~the Credit Agreement, which is subject to adjustment quarterly,~~our revolving credit facility and Term A loans is based on the ~~London Interbank Offered~~Eurocurrency Rate, ~~(LIBOR),~~ the Federal Funds Rate or the Prime Rate, plus an adjustment based on ~~the better of~~ our ~~debt ratings or leverage ratio (Credit Spread)~~Consolidated Total Leverage Ratio as defined by the Credit Agreement. Our credit spread at June 30, 2019 was Eurocurrency Rate plus 3.5%. Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement). We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Credit Agreement ~~limit the amount of indebtedness that we may incur and require~~requires us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition. ~~Based~~

We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on ~~our leverage ratio at September 30, 2017,~~behalf of the ~~interest rate~~holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 65% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loan, if as of the date that is 91 days prior to the maturity date of the Company’s 2021 Notes or the 2024 Notes, respectively, all outstanding amounts owing under the 2021 Notes or the 2024 Notes, respectively, have not been paid in full then the Termination Date (as defined in the Credit

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Agreement) of the revolving credit facility, Term A loans and Term B loan shall be the date that is ~~LIBOR plus 1.375%.~~91 days prior to the maturity date of the 2021 Notes.

At ~~September~~June 30, ~~2017,~~2019 and December 31, 2018, we had ~~borrowings of $117.2 million under the revolver and~~ letters of credit of ~~approximately $5.1~~$11.7 million and $15.2 million, respectively, outstanding under the Credit ~~Agreement, leaving $477.7 million available for borrowing.~~Agreement. We also had ~~a letter~~letters of credit and bank guarantees outstanding for ~~$1.3~~$6.1 million and $7.7 million as of ~~September~~June 30, ~~2017~~2019 and ~~$1.1 million at~~ December 31, ~~2016,~~2018, respectively, which supports ~~our~~certain facilities leased as well as other normal business activities in the United States and Europe.

The Credit Agreement and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at ~~September~~June 30, ~~2017.~~2019.

As of June 30, 2019, scheduled future principal payments of debt were $24.8 million in 2019, $49.6 million in 2020, $324.7 million in 2021, $528.8 million in 2022, $5.0 million in 2023, and $748.8 million thereafter.

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Note 9—11—Income Taxes

The effective tax rate was ~~48.1%~~9.2% and ~~34.3%~~5.3% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~36.3%~~4.1% and ~~37.3%~~1.2% in the same periods of ~~2016.~~2018. The ~~changes in the effective tax rate compared to 2016 resulted primarily from a~~ change in these rates resulted from the mixture of income ~~mix among different tax rate~~and losses in jurisdictions in which the company operates, including those of which require a full valuation allowance, and the ~~effect of certain acquisition-related costs which were not deductible for tax purposes offset on a year to date basis by the release of an~~incremental income tax ~~valuation allowance in Europe for $3.4 million during~~expense associated with the ~~second quarter~~vesting of ~~2017.~~

restricted stock. The liability for unrecognized tax benefits was ~~$13.3~~$11.5 million at ~~September~~June 30, ~~2017,~~2019 and ~~$10.7~~$9.6 million at December 31, ~~2016.~~2018. Included in the liability at ~~September~~June 30, ~~2017~~2019 and December 31, 2018 were ~~$5.0~~$3.4 million and $1.9 million, respectively, of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

Note ~~10—~~12—Net ~~Income~~Loss per Common Share

The following summarizes the calculation of net income per common share attributable to common shareholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018:



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss attributable to common shareholders - basic and diluted	$	(10,476	)	$	(182,777	)	$	(24,572	)	$	(174,626	)
Denominator:
Weighted average shares outstanding - basic and diluted	59,805			59,750			60,403			60,022
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.18	)	$	(3.07	)	$	(0.41	)	$	(2.92	)

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

Note ~~11—~~13—Shareholders’ Equity

Our Board of Directors ~~has~~ authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a ~~three-year~~3-year period, expiring in December 2019. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and may be suspended or discontinued at any time. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. ~~During~~Our Credit Agreement contains restrictions on the ~~nine months ended September 30, 2017, we repurchased in open-market transactions~~amount and ~~retired approximately 0.2 million~~timing of share repurchase activity. This includes prohibiting share repurchases should a default under the Credit Agreement exist prior to or immediately after any share repurchases. We did not repurchase any shares of our common stock ~~for an aggregate of $5.0 million, or an average price per share of $32.27.~~during the six months ended June 30, 2019 and 2018. As of ~~September~~June 30, ~~2017,~~2019, we have approximately $94.0 million in remaining authorization available under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

1316

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Note ~~12—~~14—Accumulated Other Comprehensive Income (Loss)

The following table shows the changes in accumulated other comprehensive income (loss) by component for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:

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

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



	Retirement Plans			Currency Translation Adjustments			Derivatives and Other			Total
Accumulated other comprehensive loss, March 31, 2019	$	(7,949	)	$	(36,758	)	$	(7,328	)	$	(52,035	)
Other comprehensive income (loss) before reclassifications	—			7,452			(7,971		)	(519		)
Income tax	—			—			2,678			2,678
Other comprehensive income (loss) before reclassifications, net of tax	—			7,452			(5,293		)	2,159
Amounts reclassified from accumulated other comprehensive income (loss)	260			—			47			307
Income tax	(63		)	—			(16		)	(79		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	197			—			31			228
Other comprehensive income (loss)	197			7,452			(5,262		)	2,387
Accumulated other comprehensive loss, June 30, 2019	$	(7,752	)	$	(29,306	)	$	(12,590	)	$	(49,648	)


	Retirement Plans			Currency Translation Adjustments			Other			Total			Retirement Plans			Currency Translation Adjustments			Derivatives and Other			Total
Accumulated other comprehensive income (loss), December 31, 2016	$	(11,209	)	$	(56,245	)	$	(29	)	$	(67,483	)
Accumulated other comprehensive income (loss), March 31, 2018													$	(11,686	)	$	(4,264	)	$	173		$	(15,777	)
Other comprehensive income (loss) before reclassifications				40,151			288			40,439			—			(20,678		)	(190		)	(20,868		)
Income tax	—			—			—			—			—			—			68			68
Other comprehensive income (loss) before reclassifications, net of tax	—			40,151			288			40,439			—			(20,678		)	(122		)	(20,800		)
Amounts reclassified from accumulated other comprehensive income (loss)	1,367			—			—			1,367			523			—			—			523
Income tax	(665		)	—			—			(665		)	(149		)	—			—			(149		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	702			—			—			702			374			—			—			374
Other comprehensive income (loss)	702			40,151			288			41,141			374			(20,678		)	(122		)	(20,426		)
Accumulated other comprehensive income (loss), September 30, 2017	$	(10,507	)	$	(16,094	)	$	259		$	(26,342	)

Accumulated other comprehensive income (loss), December 31, 2015	$	(10,482	)	$	(41,228	)	$	(115	)	$	(51,825	)
Other comprehensive income (loss) before reclassifications	—			2,443			119			2,562
Income tax	—			—			—			—
Other comprehensive income (loss) before reclassifications, net of tax	—			2,443			119			2,562
Amounts reclassified from accumulated other comprehensive income (loss)	1,233			—			—			1,233
Income tax	(532		)	—			—			(532		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	701			—			—			701
Other comprehensive income (loss)	701			2,443			119			3,263
Accumulated other comprehensive income (loss), September 30, 2016	$	(9,781	)	$	(38,785	)	$	4		$	(48,562	)
Accumulated other comprehensive income (loss), June 30, 2018													$	(11,312	)	$	(24,942	)	$	51		$	(36,203	)

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	Retirement Plans			Currency Translation Adjustments			Derivatives and Other			Total
Accumulated other comprehensive loss, December 31, 2018	$	(8,146	)	$	(32,551	)	$	(4,915	)	$	(45,612	)
Other comprehensive income (loss) before reclassifications	—			3,245			(11,941		)	(8,696		)
Income tax	—			—			3,831			3,831
Other comprehensive income (loss) before reclassifications, net of tax	—			3,245			(8,110		)	(4,865		)
Amounts reclassified from accumulated other comprehensive income (loss)	520			—			625			1,145
Income tax	(126		)	—			(190		)	(316		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	394			—			435			829
Other comprehensive income (loss)	394			3,245			(7,675		)	(4,036		)
Accumulated other comprehensive loss, June 30, 2019	$	(7,752	)	$	(29,306	)	$	(12,590	)	$	(49,648	)



	Retirement Plans			Currency Translation Adjustments			Derivatives and Other			Total
Accumulated other comprehensive income (loss), December 31, 2017	$	(12,066	)	$	(13,185	)	$	167		$	(25,084	)
Other comprehensive income (loss) before reclassifications	—			(11,757		)	(184		)	(11,941		)
Income tax	—			—			68			68
Other comprehensive income (loss) before reclassifications, net of tax	—			(11,757		)	(116		)	(11,873		)
Amounts reclassified from accumulated other comprehensive income (loss)	1,040			—			—			1,040
Income tax	(286		)	—			—			(286		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	754			—			—			754
Other comprehensive income (loss)	754			(11,757		)	(116		)	(11,119		)
Accumulated other comprehensive income (loss), June 30, 2018	$	(11,312	)	$	(24,942	)	$	51		$	(36,203	)

We include amounts reclassified out of accumulated other comprehensive income (loss) related to defined benefit pension plans as a component of net periodic pension cost recorded in distribution, selling and administrative expenses. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, we reclassified ~~$0.5~~$0.2 million and ~~$1.4~~$0.4 million, respectively, of actuarial net losses. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, we reclassified $0.4 million and ~~$1.2~~$0.8 million, respectively, of actuarial net losses.

Note ~~13—~~15—Segment Information

We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under ~~three~~two segments: ~~Domestic, International~~Global Solutions and ~~Proprietary~~Global Products. The ~~Domestic~~Global Solutions segment includes our United States ~~distribution, logistics~~ and ~~value-added services business. Byram, acquired on August 1, 2017, is included in the Domestic segment. The International segment consists of our~~ European distribution, logistics and value-added services business. ~~Proprietary~~Global Products ~~provides product-related solutions, including~~manufactures and sources medical surgical products through our production and ~~procedural~~ kitting ~~and sourcing.~~operations. The Halyard business, acquired on April 30, 2018, is part of Global Products.

We evaluate the performance of our segments based on their operating ~~earnings~~income excluding intangible amortization, acquisition-related and exit and realignment charges, certain purchase price fair value adjustments, and other substantive items that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis.

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Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading orand not meaningful. We believe all inter-segment sales are at prices that approximate market.

The following tables present financial information by segment:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net revenue:
Segment net revenue
Global Solutions	$	2,241,965		$	2,290,173		$	4,476,111		$	4,631,295
Global Products	363,889			279,588			710,974			400,875
Total segment net revenue	2,605,854			2,569,761			5,187,085			5,032,170
Inter-segment revenue
Global Products	(121,654		)	(111,490		)	(241,498		)	(201,320		)
Total inter-segment revenue	(121,654		)	(111,490		)	(241,498		)	(201,320		)
Consolidated net revenue	$	2,484,200		$	2,458,271		$	4,945,587		$	4,830,850

Operating income (loss):
Global Solutions	$	19,454		$	23,977		$	40,525		$	60,593
Global Products	17,949			22,489			25,673			33,717
Inter-segment eliminations	(729		)	167			1,017			(75		)
Goodwill and intangible asset impairment charges	—			(165,447		)	—			(165,447		)
Intangible amortization	(13,106		)	(9,374		)	(23,466		)	(15,781		)
Acquisition-related and exit and realignment charges	(5,655		)	(24,930		)	(10,645		)	(39,690		)
Other ⁽¹⁾	(1,769		)	(18,933		)	(2,268		)	(21,151		)
Consolidated operating income (loss)	$	16,144		$	(172,051	)	$	30,836		$	(147,834	)

Depreciation and amortization:
Global Solutions	$	14,936		$	15,854		$	31,049		$	31,635
Global Products	15,246			10,048			27,853			12,178
Consolidated depreciation and amortization	$	30,182		$	25,902		$	58,902		$	43,813

Capital expenditures:
Global Solutions	$	7,372		$	14,544		$	18,748		$	28,146
Global Products	3,880			1,350			6,783			1,908
Consolidated capital expenditures	$	11,252		$	15,894		$	25,531		$	30,054

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

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

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

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

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

September 30, 2017 December 31, 2016
Total assets:
Domestic $ 2,416,079
$ 1,778,481
International 418,331
352,898
Proprietary Products 401,331
400,885
Segment assets 3,235,741
2,532,264
Cash and cash equivalents 98,415
185,488
Consolidated total assets $ 3,334,156
$ 2,717,752

⁽¹⁾Other consists of Software as a Service (SaaS) implementation costs associated with ~~the upgrading of our~~significant global IT platforms in connection with the redesign of our global information system ~~strategy.~~strategy and incremental charge to cost of goods sold from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value.

~~Note 14—Condensed Consolidating Financial Information~~

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

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

Guarantor
Subsidiaries

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

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

Guarantor
Subsidiaries

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

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

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

September 30, 2017
Owens &
Minor, Inc.

Guarantor
Subsidiaries

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

Table of Contents



	June 30, 2019		December 31, 2018
Total assets:
Global Solutions	$	2,695,167	$	2,618,759
Global Products	1,109,565		1,051,662
Segment assets	3,804,732		3,670,421
Cash and cash equivalents	91,339		103,367
Consolidated total assets	$	3,896,071	$	3,773,788

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

The following table presents net revenue by geographic area, which were attributed based on the location from which we ship products or provide services.



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net revenue:
United States	$	2,270,768	$	2,248,728	$	4,574,680	$	4,494,564
International	213,432		209,543		370,907		336,286
Consolidated net revenue	$	2,484,200	$	2,458,271	$	4,945,587	$	4,830,850

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

Guarantor
Subsidiaries

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

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

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

Guarantor
Subsidiaries

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

Note ~~15—~~16—Recent Accounting Pronouncements

On ~~January 1, 2017, we adopted ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ The amendments in this updated guidance included changes to simplify the Codification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. As a result of this adoption, we recognized $0.1 million and $0.3 million in excess tax benefits in the income statement for the three and nine months ended September 30, 2017. In addition, we recorded these tax benefits related to stock based compensation for the nine month period in operating activities in the statements of cash flows and reclassified $0.7 million from financing activities in the prior period to conform to this presentation.

~~In May 2014,~~June 16, 2016, the FASB issued an ASU ~~Revenue from Contracts with Customers. The amended guidance eliminates industry specific guidance~~No. 2016-13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and ~~applies to all companies. Revenue~~certain other instruments that are not measured at fair value through net earnings. This standard will be recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled for that good or service. Revenue from a contract that contains multiple performance obligations is allocated to each performance obligation generally on a relative standalone selling price basis. Amended guidance was issued on: principal versus agent considerations, shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good, clarification on how an entity should evaluate the collectibility threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The amended guidance also requires additional quantitative and qualitative disclosures. These amended standards are all effective for usfiscal years beginning ~~January 1, 2018~~after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact the adoption of ASU No. 2016-13 will have on our consolidated financial statements and ~~allow for either full retrospective adoption or modified retrospective adoption (cumulative effect)~~related disclosures. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief. ~~We have substantially completed our evaluation~~These ASUs do not change the core principle of the ~~amended~~ guidance ~~including identification~~in ASU 2016-13. Instead these amendments are intended to clarify and improve operability of ~~revenue streams~~certain topics included within the credit losses standard. These ASUs will have the same effective date and ~~customer contract reviews. Our revenue is primarily distribution revenue,~~transition requirements as ASU 2016-13.

In August 2018, the SEC adopted a final rule under SEC Release No. 33-10532, Disclosure Update and Simplification that amends certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments also expanded the disclosure requirements on the analysis of shareholders' equity for interim financial statements, in which ~~we recognize at~~registrants must now analyze changes in shareholders’ equity, in the ~~time shipment is completed~~form of reconciliation, for the current and ~~title passes to the customer. Although we are continuing to assess the impact~~comparative year-to-date periods, with subtotals for each interim period. This final rule was effective on November 5, 2018. As of the ~~amended guidance,~~first quarter of 2019, the Company has adopted all relevant disclosure requirements, including ~~impact on financial disclosures, we generally anticipate that~~ the timing of recognition of distribution revenue will be substantially unchanged under the amended guidance. We intend to use the modified retrospective method of adoption. We are finalizing our evaluation of how the guidance may require changes to our business processes, systems and controls to support the additional requiredshareholders’ equity interim disclosures.

There ~~has~~have been no ~~change~~further changes in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Note 16—Subsequent Events~~

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

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

The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, ~~2016.~~2018. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Overview

Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company with integrated technologies, products and services ~~company~~aligned to deliver significant and sustained value for healthcare providers and manufacturers across the continuum of care.

On April 30, 2018 (the Acquisition Date), we acquired substantially all of Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and Infection Prevention business, the name “Halyard Health” (and all variations of that ~~connects the world~~name

Table of Contents

and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash acquired. The Halyard business is a leading global provider of medical ~~products~~supplies and solutions for the prevention of healthcare associated infections across acute care and non-acute care markets. This business is reported as part of the Global Products segment.

We entered into transition services agreements with Avanos pursuant to which they and we will provide to each other various transitional services, including, but not limited to, facilities, product supply, financial and business services, procurement, human resources, research and development, regulatory affairs and quality assurance, sales and marketing, information technology and other support services. The services under the ~~point~~transition services agreements generally commenced on the Acquisition Date and terminate within 18 months thereafter.

Table of care. We report under three business units: Domestic, International and Proprietary Products (formerly Clinical & Procedural Solutions (CPS) which has been renamed "Proprietary Products" effective January 1, 2017). Domestic is our U.S. distribution, logistics and value-added services business. Byram, acquired on August 1, 2017, is included in the Domestic segment. International is our European distribution, logistics and value-added services business. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing. Segment financial information is provided in Note 13 of Notes to Consolidated Financial Statements included in this quarterly report.Contents

Financial highlights. The following table provides a reconciliation of reported operating ~~earnings,~~income, net income and net income per diluted common share to non-GAAP measures used by management. In the second quarter of 2017 we began to exclude acquisition-related intangible amortization from our non-GAAP measures, along with the previously excluded items. Intangible amortization amounts are highly dependent on the size and frequency of acquisitions and are being excluded to

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

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

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

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



	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands except per share data)	2019			2018			2019			2018
Operating income (loss), as reported (GAAP)	$	16,144		$	(172,051	)	$	30,836		$	(147,834	)
Intangible amortization ⁽¹⁾	13,106			9,374			23,466			15,781
Goodwill and intangible asset impairment charges⁽⁵⁾	—			165,447			—			165,447
Acquisition-related and exit and realignment charges⁽²⁾	5,655			24,930			10,645			39,690
Fair value adjustments related to purchase accounting⁽⁶⁾	—			18,059			—			18,059
Other ⁽³⁾	1,768			874			2,267			3,092
Operating income, adjusted (non-GAAP) (Adjusted Operating Income)	$	36,673		$	46,633		$	67,214		$	94,235
Operating income (loss) as a percent of revenue (GAAP)	0.65		%	(7.00		)%	0.62		%	(3.06		)%
Adjusted operating income as a percent of revenue (non-GAAP)	1.48		%	1.90		%	1.36		%	1.95		%

Net loss, as reported (GAAP)	$	(10,476	)	$	(182,777	)	$	(24,572	)	$	(174,626	)
Intangible amortization ⁽¹⁾	13,106			9,374			23,466			15,781
Income tax expense (benefit) ⁽⁷⁾	(2,605		)	(2,519		)	(4,269		)	(4,075		)
Goodwill and intangible asset impairment charges⁽⁵⁾	—			165,447			—			165,447
Income tax expense (benefit) ⁽⁷⁾	—			(2,060		)	—			(2,060		)
Acquisition-related and exit and realignment charges⁽²⁾	5,655			24,930			10,645			39,690
Income tax expense (benefit) ⁽⁷⁾	(995		)	(6,693		)	(1,755		)	(10,268		)
Fair value adjustments related to purchase accounting⁽⁶⁾	—			18,059			—			18,059
Income tax expense (benefit) ⁽⁷⁾	—			(4,950		)	—			(4,950		)
Write-off of deferred financing costs ⁽⁴⁾	—			—			2,003			—
Income tax expense (benefit) ⁽⁷⁾	—			—			(313		)	—
Other ⁽³⁾	1,768			874			2,267			3,092
Income tax expense (benefit) ⁽⁷⁾	(282		)	(242		)	(337		)	(474		)
Net income, adjusted (non-GAAP) (Adjusted Net Income)	$	6,171		$	19,443		$	7,135		$	45,616

Net loss per diluted common share, as reported (GAAP)	$	(0.18	)	$	(3.07	)	$	(0.41	)	$	(2.92	)
Intangible amortization ⁽¹⁾	0.18			0.12			0.32			0.19
Goodwill and intangible asset impairment charges⁽⁵⁾	—			2.73			—			2.73
Acquisition-related and exit and realignment charges⁽²⁾	0.08			0.31			0.15			0.49
Fair value adjustments related to purchase accounting⁽⁶⁾	—			0.22			—			0.22
Write-off of deferred financing costs ⁽⁴⁾	—			—			0.03			—
Other ⁽³⁾	0.02			0.01			0.03			0.04
Net income per diluted common share, adjusted (non-GAAP) (Adjusted EPS)	$	0.10		$	0.32		$	0.12		$	0.75

Net ~~income~~loss per diluted share was ~~$0.18~~$(0.18) and ~~$0.82~~$(0.41) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, a decrease of $0.30 and $0.50 when compared to the same periods of 2016.~~2019. Adjusted EPS (non-GAAP) was ~~$0.40~~$0.10 and ~~$1.26~~$0.12 for the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2017, a decrease~~2019. Global Solutions operating income of $0.14 and $0.36 compared to prior year. Net income in the year to date period of 2017 benefitted by $3.4 million or $0.06 per share from the release of an income tax valuation allowance in Europe during the second quarter. Domestic segment operating earnings were $36.1$19.5 million in the quarter and ~~$102.8~~$40.5 million ~~for the year to date period compared to $41.0 million~~year-to-date reflected lower revenues, continued pressure on distribution margins, and ~~$126.2~~higher transportation expenses. Global Products operating income was $17.9 million in the ~~prior year comparative periods. The declines were largely a result~~quarter (decreased $4.5 million from 2018) and was $25.7 million year-to-date (decreased $8.0 million from 2018).

Table of provider margin compression, the exit of a large customer in 2016 and lower income from manufacturer product price changes on a year to date basis. We expect the current trend of increased gross margin pressure to continue. The International segment operating losses were $2.2 million for the quarter and $0.8 million year to date, compared to operating earnings of $1.4 million and $3.4 million in the prior year. The change compared to prior year resulted primarily from increased costs to support new business. Proprietary Products operating earnings were $9.1 million and $26.0 million, reflecting decreases of $5.2 million and $15.8 million as a result of lower revenues compared to prior year and increased production costs.Contents

Use of Non-GAAP Measures

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

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

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

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

The following items have been excluded in our non-GAAP financial measures:

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

Exit and realignment charges were $5.0 million and $14.8 million for the three and nine months ended September 30, 2017. Current year charges were associated with severance from reduction in force and other employee costs associated with the establishment of our new client engagement centers, the write-down of information system assets which are no longer used and other IT restructuring charges. Expenses associated with the establishment of the client engagement center will continue to be recorded throughout 2017. Exit and realignment charges were $2.1 million and $19.1 million for the three and nine months ended September 30, 2016. These included severance activities (including our voluntary employee separation program in the first quarter of 2016), and other costs associated with our strategic organizational realignment which include certain professional fees and costs to streamline administrative functions and processes in the United States and Europe. More information about these charges is provided in Note 6 of Notes to Consolidated Financial Statements included in this quarterly report.

~~(2) Acquisition-related intangible~~Intangible amortization includes amortization of ~~certain~~ intangible assets established during purchase accounting for business combinations. These amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted, current and historical results and the results of our peers. ~~We have begun~~

⁽²⁾ Acquisition-related charges were $3.7 million and $7.8 million for the three and six months ended June 30, 2019, compared to ~~exclude these charges from our non-GAAP results in the second quarter of 2017~~$23.2 million and ~~thus prior year amounts have been recast on~~$35.3 million for the same ~~basis.~~period of 2018. Acquisition-related charges in 2019 and 2018 consist primarily of transition and transaction costs for the Halyard transaction.

Exit and realignment charges were $2.0 million and $2.8 million for the three and six months ended June 30, 2019. Amounts in 2019 were associated with severance costs, the establishment of our client engagement centers, and IT restructuring charges. Exit and realignment charges were $1.7 million and $4.4 million for the three and six months ended June 30, 2018. Amounts in 2018 were associated with the establishment of our client engagement centers.

^{(3) Includes software} Other consists of Software as a ~~service~~Service (SaaS) implementation costs associated with ~~the upgrading of our~~significant global IT platforms in connection with the redesign of our global information system strategy.

⁽⁴⁾Write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement.

⁽⁵⁾Goodwill and intangible assets impairment charges in 2018 included in our Global Products segment were $149 million and $16.5 million, respectively.

⁽⁶⁾The second quarter of 2018 included an incremental charge to cost of goods sold from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the Halyard acquisition.

⁽⁷⁾These charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes.

Results of Operations

Net revenue.

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

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

~~Consolidated net~~



	Three Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			%
Global Solutions	$	2,241,965		$	2,290,173		$	(48,208	)	(2.1	)%
Global Products	363,889			279,588			84,301			30.2	%
Inter-segment	(121,654		)	(111,490		)	(10,164		)	(9.1	)%
Net revenue	$	2,484,200		$	2,458,271		$	25,929		1.1	%

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	Six Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			%
Global Solutions	$	4,476,111		$	4,631,295		$	(155,184	)	(3.4	)%
Global Products	710,974			400,875			310,099			77.4	%
Inter-segment	(241,498		)	(201,320		)	(40,178		)	(20.0	)%
Net revenue	$	4,945,587		$	4,830,850		$	114,737		2.4	%

Net revenue ~~declined for both the three and nine months ended September 30, 2017,~~increased year over year primarily as a result of the ~~exit~~acquisition of ~~a large domestic customer~~Halyard in ~~2016, lower growth with existing domestic customers and one less~~April 2018. Halyard sales ~~day compared to prior year. Byram contributed $80.3~~from January through April 2019 were $255 million ~~in revenue to the Domestic segment for the quarter and year to date. The~~

~~increase in the International segment was driven by growth with existing customers and new business as well~~(net of $71 million of intercompany sales). Lower distribution revenues as a ~~favorable foreign currency translation impact~~result of ~~$2.8 million for the quarter but offset by an unfavorable impact of $12.4 million year~~customer non-renewals, primarily resulting from service issues prior to ~~date. A decrease in sales of our sourced products~~early 2019, contributed to the year over year change in the ~~Proprietary Products segment.~~Global Solutions segment, which was partially offset by sales growth from Byram.

Cost of goods sold.


	Three Months Ended September 30,				Change					Three Months Ended June 30,			Change
(Dollars in thousands)	2017		2016		$			%		2019		2018	$			%
Cost of goods sold	$	2,032,019	$	2,119,326	$	(87,307	)	(4.1	)%	$	2,115,773	2,133,277	$	(17,504	)	(0.8	)%


	Nine Months Ended September 30,				Change					Six Months Ended June 30,				Change
(Dollars in thousands)	2017		2016		$			%		2019		2018		$		%
Cost of goods sold	$	6,071,787	$	6,462,739	$	(390,952	)	(6.0	)%	$	4,218,736	$	4,181,170	$	37,566	0.9	%

Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory ~~loss and carry all credit risk associated with sales.~~loss. These are sometimes referred to as distribution ~~including products sold through Byram, or buy/sell~~ contracts. Cost of goods sold also includes direct and certain indirect labor, material and overhead costs associated with our ~~Proprietary~~Global Products business. There is no cost of goods sold associated with our fee-for-service ~~business. As a result~~arrangements. Cost of ~~the decrease~~goods sold compared to prior year reflects changes in sales activity, ~~through our distribution business, cost of goods sold decreased from prior year by $87.3 million and $391.0 million for~~including sales mix.

Gross margin.



	Three Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$		%
Gross margin	$	368,427		$	324,994		$	43,433	13.4	%
As a % of net revenue	14.83		%	13.22		%



	Six Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$		%
Gross margin	$	726,851		$	649,680		$	77,171	11.9	%
As a % of net revenue	14.70		%	13.45		%

Gross margin in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~

~~Gross margin.~~

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

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

~~Gross margin for the quarter~~2019, included ~~positive contribution~~contributions from Halyard, strong revenue growth with Byram, and ~~a change in revenue mix~~increased fee-for-service revenues, which were partially offset by the impact ~~of overall~~from lower distribution revenues, a decline in ~~provider margin~~distribution margins, and ~~lower income~~unfavorable impact from ~~manufacturer product price changes (on a year to date basis). The impact of~~ foreign currency translation ~~was favorable for the quarter by $2.3~~of $5.5 million and ~~unfavorable by $6.1~~$10.9 million, ~~for the year to date. With increasing customer cost pressures and competitive dynamics in healthcare, we believe the current trend of increased~~respectively. In addition, Global Products gross margin ~~pressure will continue.~~was impacted by lower fixed cost absorption partially offset by favorability in commodity prices.

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Operating expenses.

Three Months Ended September 30, Change
(Dollars in thousands) 2017 2016 $ %
Distribution, selling and administrative expenses $ 261,045
$ 241,305
$ 19,740
8.2 %
As a % of net revenue 11.18 % 9.99 %

Other operating (income) expense, net $ 1,927
$ (1,337 ) $ 3,264
(244.1 )%



	Three Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$		%
Distribution, selling and administrative expenses	$	345,892		$	308,775		$	37,117	12.0	%
As a % of net revenue	13.92		%	12.56		%
Other operating expense (income), net	$	736		$	(2,107	)	$	2,843	134.9	%


	Nine Months Ended September 30,						Change				Six Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$		%		2019			2018			$		%
Distribution, selling and administrative expenses	$	735,353		$	726,944		$	8,409	1.2	%	$	684,595		$	593,136		$	91,459	15.4	%
As a % of net revenue	10.61		%	9.88		%					13.84		%	12.28		%
Other operating (income) expense, net	$	2,143		$	(5,179	)	$	7,322	(141.4	)%
Other operating expense (income), net											$	775		$	(759	)	$	1,534	202.1	%

Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and logistics services and all costs associated with our fee-for-service arrangements. Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers. ~~The costs~~

Overall DS&A expenses compared to ~~convert~~prior year reflected increased expenses to support the Halyard business, strong revenue growth with Byram, and fee-for-service arrangements within Manufacturer Solutions, higher transportation expenses, and increased expenses incurred for the development of new ~~customers to our information systems are included in DS&A~~customer solutions, partially offset by favorable impacts for foreign currency translation of $5.0 million and ~~are generally incurred prior to the recognition of revenues from the new customers.~~

~~Excluding Byram, DS&A as a percentage of revenue was 10.55% and 10.40%~~$10.5 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017. Overall expenses reflected decreased sales activity in the quarter and year to date, benefits of cost control and productivity initiatives, and a favorable foreign currency translation impact of $6.2 million year to date. These were offset in part by increased costs to support new business and unfavorable foreign currency translation impacts of $2.3 million in the quarter. As a percentage of net revenue, the increases related to the large customer loss in 2016.2019.

The ~~changes~~change in other operating ~~(income)~~ expense (income), net ~~were~~was attributed primarily to higher software as a service implementation expenses ~~which were not incurred~~ in ~~2016.~~the quarter and lower foreign currency transactional gains compared to prior year.

A discussion of the acquisition-related and exit and realignment charges is included above in the Overview section.

Interest expense, ~~net.~~net.



	Three Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$		%
Interest expense, net	$	27,682		$	18,571		$	9,111	49.1	%
Effective interest rate	6.94		%	5.01		%



	Six Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$		%
Interest expense, net	$	56,783		$	28,824		$	27,959	97.0	%
Effective interest rate	6.63		%	4.64		%

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

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

~~The~~Interest expense in the second quarter and year-to-date 2019 was higher than prior year primarily as a result of borrowings under our revolving credit facility and term loans entered into in the second quarter of 2018 and the increase in interest rates. In addition, interest expense ~~and change in effective interest rate for~~year-to-date included $2.0 million related to write-off of deferred financing costs associated with the ~~three and nine months ended September 30, 2017 were~~revolving credit facility as a result of the ~~borrowings under our new Credit Agreement entered~~debt amendment in ~~July 2017.~~February 2019. See Note 10 in Notes to Consolidated Financial Statements.

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Income taxes.


	Three Months Ended September 30,						Change					Three Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$			%		2019			2018			$		%
Income tax provision	$	10,063		$	16,967		$	(6,904	)	(40.7	)%
Income tax benefit												$	(1,062	)	$	(7,845	)	$	6,783	86.5	%
Effective tax rate	48.1		%	36.3		%						9.2		%	4.1		%


	Nine Months Ended September 30,						Change					Six Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$			%		2019			2018			$		%
Income tax provision	$	26,010		$	48,585		$	(22,575	)	(46.5	)%
Income tax benefit												$	(1,375	)	$	(2,032	)	$	657	32.3	%
Effective tax rate	34.3		%	37.3		%						5.3		%	1.2		%

The ~~changes~~change in the effective tax ~~rate~~rates compared to ~~2016~~2018 resulted ~~primarily~~ from the mixture of income and losses in jurisdictions in which the Company operates, including those of which require a ~~change in income mix among different tax rate jurisdictions~~full valuation allowance, and the ~~effect of certain acquisition-related costs which were not deductible for tax purposes offset on a year to date basis by the release of an~~incremental income tax ~~valuation allowance in Europe for $3.4 million during~~expense associated with the ~~second quarter~~vesting of ~~2017.~~restricted stock.

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Financial Condition, Liquidity and Capital Resources

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

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


	September 30, 2017		December 31, 2016				Change						June 30, 2019				December 31, 2018		Change
(Dollars in thousands)	September 30, 2017					$				%						$			%
Cash and cash equivalents	$	98,415	December 31, 2016	$	185,488			$	(87,073	)		(46.9	June 30, 2019	)%	$	91,339	December 31, 2018		$	103,367		$	(12,028	)	(11.6	)%
Accounts and notes receivable, net of allowances	$	732,756	$	606,084			$	126,672			20.9	%
Accounts receivable, net of allowances													$	843,343			$	823,418	$	19,925		2.4	%
Consolidated DSO ⁽¹⁾	27.6		23.1										29.1				28.5
Merchandise inventories	$	989,251	$	916,311			$	72,940			8.0	%	$	1,237,713			$	1,290,103	$	(52,390	)	(4.1	)%
Consolidated inventory turnover ⁽²⁾	8.1		9.2										6.9				7.4
Accounts payable	$	875,630	$	750,750			$	124,880			16.6	%	$	1,039,074			$	1,109,589	$	(70,515	)	(6.4	)%

(1) Based on period end accounts receivable and net revenue for the quarter

(2) Based on average annual inventory and ~~annualized cost~~costs of goods sold for the quarter ended ~~September~~June 30, ~~2017~~2019 and year ended December 31, ~~2016~~2018

Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:


(Dollars in thousands)	2017			2016			2019			2018
Net cash provided by (used for):
Operating activities	$	5,645		$	144,511		$	29,014		$	46,253
Investing activities	(403,578		)	(16,266		)	(25,192		)	(763,475		)
Financing activities	305,723			(82,821		)	(16,053		)	726,849
Effect of exchange rate changes	5,137			6,652			203			4,039
Increase (decrease) in cash and cash equivalents	$	(87,073	)	$	52,076
Net (decrease) increase in cash and cash equivalents							$	(12,028	)	$	13,666

Cash provided by operating activities ~~was $5.6 million~~ in the first ~~nine~~six months of ~~2017, compared to $144.5 million~~2019 reflected fluctuations in ~~the same period of 2016. The decrease in cash from operating activities for the first nine months of 2017 compared to the same period in 2016 was primarily due to unfavorable~~net income along with changes in working ~~capital including inventory and accounts receivable balances.~~capital.

Cash used for investing activities ~~was $403.6 million~~ in the first ~~nine~~six months of ~~2017, compared to $16.3 million in the same period of 2016. Investing activities in 2017 and 2016 related to~~2019 included capital expenditures of $25.5 million for our strategic and operational efficiency initiatives, particularly initiatives relating to ~~information technology enhancements~~capital expenditures of property and ~~optimizing our distribution network.~~equipment and capitalized software. Cash used for investing activities in ~~2017 also includes~~2018 primarily included cash paid for the Halyard acquisition offset by the final purchase price settlement with the seller of Byram ~~Healthcare~~ for ~~$367~~$6.2 million.

Cash (used for) provided by financing activities included dividend payments of $4.9 million in the first ~~nine~~six months of ~~2017 was $305.7 million,~~2019, compared to ~~cash used of $82.8~~$32.3 million in the same period of ~~2016. During~~2018. In the first ~~nine~~six months of ~~2017, we paid dividends~~2019 and 2018, cash (used for) provided by financing activities included proceeds from borrowings of ~~$47.3~~$19.9 million ~~(compared to $47.8~~and $101.0 million ~~in 2016), repurchased common stock~~ under ~~a share repurchase program for $5.0 million (compared to $48.7 million in 2016) and borrowed on our new Credit Agreement ($250 million term loan and $117.2 million on~~ our revolving credit ~~facility). There were no borrowings~~facility. Financing activities in the ~~prior year period.~~first six months of 2019 and 2018 also included the repayment of $24.8 million and $6.3 million in borrowings on our Credit Agreement. We also paid $4.3 million in financing costs related to the Fourth Amendment to the Credit Agreement in February 2019. In 2018, we borrowed $661.8 million in term loans and $101.0 million under our revolving credit facility to fund the Halyard acquisition.

Capital resources. Our sources of liquidity include cash and cash equivalents and a revolving credit ~~facility. On July 27, 2017, we entered into a new~~facility under our Credit Agreement ~~replacing the Amended Credit Agreement~~(amended February 2019) with Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., Bank of America, N.A. and a syndicate of financial institutions (the Credit Agreement). The Credit Agreement provides a borrowing capacity of ~~$600~~$400 million and ~~a $250~~$902 million outstanding in term loan. We make principal payments under the term loan on a quarterly basis with the remaining outstanding principal due in five years. The revolving credit facility has a five-year maturity. Under the Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million.loans. The interest rate on ~~the Credit Agreement, which is subject to~~

~~adjustment quarterly,~~our revolving credit facility and Term A loans is based on the ~~London Interbank Offered~~Eurocurrency Rate, ~~(LIBOR),~~ the Federal Funds Rate or the Prime Rate, plus an adjustment based on ~~the better of~~ our ~~debt ratings or leverage ratio (Credit Spread)~~Consolidated Total Leverage Ratio as defined by the Credit Agreement. Our credit spread at June 30, 2019 was Eurocurrency Rate plus 3.5%. Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement). We are charged a commitment fee of between 12.5

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and 25.0 basis points on the unused portion of the facility. The terms of the Credit Agreement ~~limit the amount of indebtedness that we may incur and require~~requires us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.

We ~~may utilize~~also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 65% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loan, if as of the date that is 91 days prior to the maturity date of the Company’s 2021 Notes or the 2024 Notes, respectively, all outstanding amounts owing under the 2021 Notes or the 2024 Notes, respectively, have not been paid in full then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility, ~~for long-term strategic growth, capital expenditures, working capital~~Term A loans and ~~general corporate purposes. If we were unable~~Term B loan shall be the date that is 91 days prior to ~~access~~ the ~~revolving credit facility, it could impact our ability to fund these needs. Based on our leverage ratio at September 30, 2017,~~maturity date of the ~~interest rate under the credit facility is LIBOR plus 1.375%.~~2021 Notes.

At ~~September~~June 30, ~~2017,~~2019 and December 31, 2018, we had borrowings of ~~$117.2~~$230 million and $210.1 million, respectively, under the revolver and letters of credit of ~~approximately $5.1~~$11.7 million and $15.2 million, respectively, outstanding under the Credit Agreement ~~leaving $477.7~~along with $550 million ~~available for borrowing.~~in Senior Notes. We also ~~have a $1.3 million letter~~had letters of credit and bank guarantees outstanding for $6.1 million and $7.7 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018, respectively, which supports ~~our~~certain facilities leased as well as other normal business activities in the United States and Europe.

~~We have $275 million~~The second quarter dividend of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”). The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. Interest on the 2021 Notes and 2024 Notes is payable semiannually in arrears, which commenced on March 15, 2015 and December 15, 2014, respectively. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points.

~~In the third quarter of 2017, we paid cash dividends on our outstanding common stock at the rate of $0.2575~~$0.0025 per share ~~which represents a 1.0% increase over the rate of $0.255 per share~~was paid in ~~the third quarter of 2016. We anticipate continuing to pay quarterly cash dividends in the future. However, the~~June 2019. The payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements, current and future limitations under our Credit Agreement (as amended) and other factors.

~~In October 2016, the~~Our Board of Directors authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in December 2019. The program is intended to offset shares issued in conjunction with our stock incentive plan and return capital to shareholders, and may be suspended or discontinued at any time. ~~During~~However, our Credit Agreement contains restrictions on the ~~first nine months~~amount and timing of ~~2017, we repurchased approximately 0.2 million~~share repurchase activity. This includes prohibiting share repurchases should a default under the Credit Agreement exist prior to or immediately after any share repurchases. We did not repurchase any shares ~~for $5.0 million under this program.~~during 2019. At ~~September~~June 30, ~~2017,~~2019, the remaining amount authorized for repurchase under this program was $94.0 million.

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

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement, ~~and other committed financing,~~ will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, share repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.

We earn a portion of our operating income in foreign jurisdictions outside the United States. Prior to the reporting period in which the Tax Cuts and Jobs Act (the Act) was enacted we considered foreign earnings to be indefinitely reinvested and provided no United States federal and state taxes or withholding taxes on those earnings. Our cash and cash equivalents held by our foreign subsidiaries totaled $59.9 million at June 30, 2019 and $64.9 million at December 31, 2018. Upon enactment, the Act imposes a tax on our total post-1986 foreign earnings at various tax rates. The Company has recognized an amount for this one-time transition tax. The Company continues to remain permanently reinvested in its foreign subsidiaries, with the exception of a subsidiary in Thailand. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities in which we assert permanent reinvestment. Management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2019. As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for Thailand. The Company will continue to evaluate its foreign earnings repatriation policy during 2019 for all other foreign subsidiaries in which we operate.

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Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 and Note 1516 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on ~~September~~June 30, ~~2017.~~

2019.

Forward-looking Statements

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

competitive pressures in the marketplace, including intense pricing pressure;

our ability to retain existing and attract new customers in a market characterized by significant customer consolidation and intense cost-containment initiatives;

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

our dependence on distribution of product of certain suppliers;

our ability to successfully identify, manage or integrate ~~acquisitions;~~acquisitions, including our ability to successfully integrate the S&IP business into our operations and to realize the anticipated benefits and synergies from the S&IP acquisition;

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

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

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

uncertainties related to general economic, regulatory and business conditions;

our ability to successfully implement our strategic initiatives;

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

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

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

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

changes in manufacturer preferences between direct sales and wholesale distribution;

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

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

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

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

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

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

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

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

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

our ability to timely or adequately respond to technological advances in the medical supply industry;

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

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

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

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

the potentially adverse impact of the United Kingdom’s planned withdrawal from the European Union; and

other factors ~~described~~detailed from time to time in ~~“Item 1A. Risk Factors” of our Annual Report on Form 10-K for~~ the ~~year ended December 31, 2016.~~reports we file with the SEC.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates related to our borrowing under our Credit Agreement. However, we enter into interest rate swap agreements to manage our exposure to interest rate changes. We had $902 million in borrowings under our term loans, $230 million in borrowings under our revolving credit ~~facility. We had $117.2 million in outstanding borrowings~~facility and ~~approximately $5.1~~$12 million in letters of credit under the ~~revolving credit facility~~Credit Agreement at ~~September~~June 30, ~~2017. A hypothetical~~2019. After considering the effects of interest rate swap agreements entered into during July 2018, we estimate an increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately ~~$0.1~~$7 million per year ~~for every $10 million of~~based on our borrowings outstanding ~~borrowings under~~and the ~~revolving credit facility.~~effective interest rates at June 30, 2019.

Due to the nature and pricing of our ~~Domestic~~Global Solutions segment distribution services, we are exposed to potential volatility in fuel prices. Our strategies for helping to mitigate our exposure to changing domestic fuel prices ~~has~~have included ~~entering into leases for~~using trucks with improved fuel efficiency. We benchmark our domestic diesel fuel purchase prices against the U.S. Weekly Retail On-Highway Diesel Prices (benchmark) as quoted by the U.S. Energy Information Administration. The benchmark averaged ~~$2.58~~$3.07 per gallon and $3.10 in the first ~~nine~~six months of ~~2017, a increase from $2.25 per gallon in the first nine months of 2016.~~2019 and 2018, respectively. Based on our fuel consumption in the first ~~nine~~six months of ~~2017,~~2019, we estimate that every 10 cents per gallon increase in the benchmark would reduce our ~~Domestic~~Global Solutions segment operating ~~earnings~~income by approximately ~~$0.3~~$0.4 million on an annualized basis.

In the normal course of business, we are exposed to foreign currency translation and transaction risks. Our business transactions outside of the United States are primarily denominated in the ~~Euro~~euro, British pound and ~~British Pound.~~Thai baht. We may use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations. ~~However, we believe that~~

We are subject to price risk for our ~~foreign currency transaction risks are low since our revenues~~raw materials, the most significant of which relates to the cost of polypropylene and ~~expenses are typically denominated~~nitrile used in the ~~same currency.~~manufacturing processes of our Global Products segment. Prices of the commodities underlying these raw materials are volatile and have fluctuated significantly in recent years and in the future may contribute to fluctuations in our results of operations. The ability to hedge these commodity prices is limited.

Item 4. Controls and Procedures

We carried out an evaluation, with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~ 2019.

In connection with the Halyard acquisition, we entered into transition services agreements with Avanos pursuant to which they and we will provide to each other various transitional services, including, but not limited to, facilities, product supply, financial and business services, procurement, human resources, regulatory affairs and quality assurance, sales and marketing, information technology and other support services for a period of up to 18 months after the closing date. Management has established controls to mitigate the risk over financial reporting and will continue to monitor and evaluate the

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sufficiency of the controls. We are currently evaluating the acquired processes, information technology systems and other components of internal controls over financial reporting as part of the Company's integration activities which may result in periodic changes to our internal control over financial reporting. Such changes will be disclosed as required by applicable SEC guidance.

There ~~has been~~was no change in our internal control over financial reporting that occurred during the ~~quarter ended September 30, 2017,~~period of this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~SEC guidance permits~~ We implemented internal controls to ensure we adequately assessed the ~~exclusion of an evaluation~~adoption impact of the ~~effectiveness of a registrant's disclosure controls~~new lease standard, and ~~procedures as they relate~~its related amendments, on our consolidated financial statements. There were no significant changes to ~~the~~our internal control over financial reporting for an acquired business during the year of an acquisition. In the third quarter of 2017, we acquired Byram Healthcare. This acquisition represented $477 million of total assets and $80.3 million of revenues as of and for the three months ended September 30, 2017. Management's evaluation and conclusion asdue to the ~~effectiveness~~adoption of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting of these acquisitions.new standard.

Part II. Other Information

Item 1. Legal Proceedings

Certain legal proceedings pending against us are described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. Through ~~September~~June 30, ~~2017,~~2019, there have been no material developments in any legal proceedings reported in such Annual Report.

Item 1A. Risk Factors

Certain risk factors that we believe could affect our business and prospects are described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. Through ~~September~~June 30, ~~2017, we have added the following risk factors. There~~2019, there have been no ~~other~~ material changes in the risk factors described in such Annual Report.

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

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

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

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

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

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

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

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

In October 2016, our Board of Directors authorized a share repurchase program of up to $100 million of the company’s outstanding common stock to be executed at the discretion of management over a three-year period. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and may be suspended or discontinued at any time. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. We did not repurchase any shares for the ~~three~~six months ended ~~September~~June 30, ~~2017.~~2019.

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Item 6. Exhibits


(a)	Exhibits




10.1		Executive Separation Agreement and General Release, dated as of June 26, 2019, by and between Stuart Morris-Hipkins and Owens & Minor, Inc.

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

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

		* Certain exhibits and schedules been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the SEC.
		** Management contract or compensatory plan or arrangement

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SIGNATURES

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



		Owens & Minor, Inc.
		(Registrant)

Date:	~~November 1, 2017~~August 7, 2019	/s/ ~~Paul C. Phipps~~Edward A. Pesicka
		~~Paul C. Phipps~~Edward A. Pesicka
		President & Chief Executive Officer

Date:	~~November 1, 2017~~August 7, 2019	/s/ ~~Richard A. Meier~~Robert K. Snead
		~~Richard A. Meier~~Robert K. Snead
		Executive Vice President & Chief Financial Officer ~~& President, International~~

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

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



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



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

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



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



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



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



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