TableTable of Contents

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 SeptemberJune 30, 20172020
OR
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)

Virginia54-1701843
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
9120 Lockwood Boulevard
Mechanicsville, Virginia
MechanicsvilleVirginia23116
(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) 723-7000
        Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $2 par value per shareOMINew 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 filerx☐Accelerated filero☒
Non-accelerated filer
o☐  (Do not check if a smaller reporting company)
Smaller reporting companyo☒
Emerging growth companyo☐
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, 2020, was 61,249,613 63,781,275 shares.




T
Tableable of Contents

Owens & Minor, Inc. and Subsidiaries
Index
 
Page
Part I. Financial Information
Page
Item 1.
3
3
4
5
6
7
8
Item 2.
2322
Item 3.
3130
Item 4.
3130
Item 1.
3130
Item 1A.
31
Item 2.
3231
Item 6.
Exhibits31
33

2


T
Tableable of Contents

Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of IncomeOperations
(unaudited)
 
 Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands, except per share data)2020201920202019
Net revenue$1,807,719  $2,376,705  $3,930,412  $4,727,544  
Cost of goods sold1,538,312  2,090,187  3,392,445  4,164,407  
Gross margin269,407  286,518  537,967  563,137  
Distribution, selling and administrative expenses241,734  264,215  495,782  519,326  
Acquisition-related and exit and realignment charges6,054  5,390  12,118  10,254  
Other operating (income) expense, net(577) 1,014  (2,886) 1,056  
Operating income22,196  15,899  32,953  32,501  
Interest expense, net21,605  26,048  44,948  51,506  
Other (income) expense, net(4,552) 731  294  3,464  
Income (loss) from continuing operations before income taxes5,143  (10,880) (12,289) (22,469) 
Income tax provision (benefit)4,982  (1,146) (3,541) (1,816) 
Income (loss) from continuing operations, net of tax161  (9,734) (8,748) (20,653) 
Loss from discontinued operations, net of tax(55,788) (742) (58,203) (3,919) 
Net loss$(55,627) $(10,476) $(66,951) $(24,572) 
Income (loss) from continuing operations per common share: basic and diluted$—  $(0.16) $(0.14) $(0.34) 
Loss from discontinued operations per common share: basic and diluted(0.91) (0.01) (0.96) (0.07) 
Net loss per common share: basic and diluted$(0.91) $(0.17) $(1.10) $(0.41) 
See accompanying notes to consolidated financial statements.
3
 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 sold2,032,019
 2,119,326
 6,071,787
 6,462,739
Gross margin301,942
 296,275
 856,654

892,330
Distribution, selling, and administrative expenses261,045
 241,305
 735,353
 726,944
Acquisition-related and exit and realignment charges9,299
 2,739
 21,134
 19,974
Other operating (income) expense, net1,927
 (1,337) 2,143
 (5,179)
Operating earnings29,671
 53,568
 98,024
 150,591
Interest expense, net8,737
 6,770
 22,218
 20,324
Income before income taxes20,934
 46,798
 75,806
 130,267
Income tax provision10,063
 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

Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive IncomeLoss
(unaudited)
 
 Three Months Ended June 30,Six Months Ended
June 30,
(in thousands)2020201920202019
Net loss$(55,627) $(10,476) $(66,951) $(24,572) 
Other comprehensive income (loss), net of tax:
Currency translation adjustments (net of income tax of $0 in 2020 and 2019)30,008  7,452  1,830  3,245  
Change in unrecognized net periodic pension costs (net of income tax of $44 and $88 in 2020, and $63 and $126 in 2019)595  197  765  394  
Net unrealized loss on derivative instruments and other (net of income tax benefit of $238 and $4,064 in 2020, and $2,662 and $3,641 in 2019)(76) (5,262) (11,473) (7,675) 
Total other comprehensive income (loss), net of tax30,527  2,387  (8,878) (4,036) 
Comprehensive loss$(25,100) $(8,089) $(75,829) $(28,608) 
See accompanying notes to consolidated financial statements.
4
 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 tax12,584
 1,701
 41,141
 3,263
Comprehensive income$23,455
 $31,532
 $90,937
 $84,945

Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
June 30,December 31,
(in thousands, except per share data)20202019
Assets
Current assets
Cash and cash equivalents$101,276  $67,030  
Accounts receivable, net of allowances of $23,319 and $21,015633,647  674,706  
Merchandise inventories1,040,861  1,146,192  
Other current assets175,244  79,372  
Current assets of discontinued operations—  439,983  
Total current assets1,951,028  2,407,283  
Property and equipment, net of accumulated depreciation of $264,169 and $245,718297,033  315,427  
Operating lease assets142,200  142,219  
Goodwill391,670  393,181  
Intangible assets, net262,539  285,018  
Other assets, net93,316  99,956  
Total assets$3,137,786  $3,643,084  
Liabilities and equity
Current liabilities
Accounts payable$824,131  $808,035  
Accrued payroll and related liabilities54,445  53,584  
Other current liabilities317,658  231,029  
Current liabilities of discontinued operations—  323,511  
Total current liabilities1,196,234  1,416,159  
Long-term debt, excluding current portion1,269,854  1,508,415  
Operating lease liabilities, excluding current portion117,800  117,080  
Deferred income taxes41,430  40,550  
Other liabilities117,306  98,726  
Total liabilities2,742,624  3,180,930  
Commitments and contingencies
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 63,737 shares and 62,843 shares127,474  125,686  
Paid-in capital258,733  251,401  
Retained earnings70,540  137,774  
Accumulated other comprehensive loss(61,585) (52,707) 
Total equity395,162  462,154  
Total liabilities and equity$3,137,786  $3,643,084  
See accompanying notes to consolidated financial statements.
5
 September 30, December 31,
(in thousands, except per share data)2017 2016
Assets   
Current assets   
Cash and cash equivalents$98,415
 $185,488
Accounts receivable, net of allowances of $14,609 and $13,538732,756
 606,084
Merchandise inventories989,251
 916,311
Other current assets311,499
 254,156
Total current assets2,131,921
 1,962,039
Property and equipment, net of accumulated depreciation of $224,970 and $201,399203,587
 191,718
Goodwill, net690,230
 414,936
Intangible assets, net231,886
 82,511
Other assets, net76,532
 66,548
Total assets$3,334,156
 $2,717,752
Liabilities and equity   
Current liabilities   
Accounts payable$875,630
 $750,750
Accrued payroll and related liabilities31,998
 45,051
Other current liabilities296,663
 238,837
Total current liabilities1,204,291
 1,034,638
Long-term debt, excluding current portion917,256
 564,583
Deferred income taxes137,539
 90,383
Other liabilities71,286
 68,110
Total liabilities2,330,372
 1,757,714
Commitments and contingencies
 
Equity   
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,249 shares and 61,031 shares122,499
 122,062
Paid-in capital224,183
 219,955
Retained earnings683,444
 685,504
Accumulated other comprehensive loss(26,342) (67,483)
Total equity1,003,784
 960,038
Total liabilities and equity$3,334,156
 $2,717,752


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Six Months Ended June 30,
(in thousands)20202019
Operating activities:
Net loss$(66,951) $(24,572) 
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization48,804  58,902  
Share-based compensation expense7,814  8,093  
Loss on divestiture65,472  —  
Provision for losses on accounts receivable7,589  6,534  
Deferred income tax expense (benefit)4,269  (14,597) 
Changes in operating lease right-of-use assets and lease liabilities(1,029) (616) 
Changes in operating assets and liabilities:
Accounts receivable37,154  (23,346) 
Merchandise inventories107,083  52,346  
Accounts payable16,395  (71,704) 
Net change in other assets and liabilities(76,289) 32,226  
Other, net146  5,748  
Cash provided by operating activities150,457  29,014  
Investing activities:
Proceeds from divestiture133,000  —  
Additions to property and equipment(8,733) (21,020) 
Additions to computer software(3,409) (4,511) 
Proceeds from sale of property and equipment69  339  
Proceeds from cash surrender value of life insurance policies6,032  —  
Cash provided by (used for) investing activities126,959  (25,192) 
Financing activities:
Proceeds from issuance of debt150,000  —  
(Repayments) borrowings under revolving credit facility(47,900) 19,900  
Repayments of debt(258,005) (24,788) 
Financing costs paid(10,367) (4,313) 
Cash dividends paid(311) (4,918) 
Other, net(4,479) (1,934) 
Cash used for financing activities(171,062) (16,053) 
Effect of exchange rate changes on cash and cash equivalents5,412  203  
Net increase (decrease) in cash, cash equivalents and restricted cash111,766  (12,028) 
Cash, cash equivalents and restricted cash at beginning of period84,687  103,367  
Cash, cash equivalents and restricted cash at end of period$196,453  $91,339  
Supplemental disclosure of cash flow information:
Income taxes paid (received), net of refunds$5,975  $(13,929) 
Interest paid$43,840  $53,183  

See accompanying notes to consolidated financial statements.
6
 Nine Months Ended September 30,
(in thousands)2017 2016
Operating activities:   
Net income$49,796
 $81,682
Adjustments to reconcile net income to cash provided by operating activities:   
Depreciation and amortization41,060
 42,182
Share-based compensation expense8,592
 8,934
Provision for losses on accounts receivable1,158
 (216)
Deferred income tax (benefit) expense(4,585) (3,233)
Changes in operating assets and liabilities:   
Accounts receivable(79,114) 5,023
Merchandise inventories(56,134) (5,066)
Accounts payable79,787
 58,742
Net change in other assets and liabilities(40,634) (44,903)
Other, net5,719
 1,366
Cash provided by operating activities5,645
 144,511
Investing activities:   
Acquisition, net of cash acquired(366,569) —
Additions to property and equipment(24,963) (13,682)
Additions to computer software and intangible assets(12,826) (7,081)
Proceeds from sale of property and equipment780
 4,497
Cash used for investing activities(403,578) (16,266)
Financing activities:   
Change in bank overdraft—
 21,753
Proceeds from debt issuance250,000
 —
Borrowing under revolving credit facility117,200
 —
Financing costs paid(1,798) —
Cash dividends paid(47,316) (47,802)
Repurchases of common stock(5,000) (48,654)
Other, net(7,363) (8,118)
Cash provided by (used for) financing activities305,723
 (82,821)
Effect of exchange rate changes on cash and cash equivalents5,137
 6,652
Net increase (decrease) in cash and cash equivalents(87,073) 52,076
Cash and cash equivalents at beginning of period185,488
 161,020
Cash and cash equivalents at end of period$98,415
 $213,096
Supplemental disclosure of cash flow information:   
Income taxes paid, net$26,917
 $57,996
Interest paid$19,951
 $20,023


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 Loss		Total
Equity
Balance, December 31, 201862,294  $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 other642  1,284  2,774  4,058  
Balance, March 31, 201962,936  125,872  241,547  186,455  (52,035) 501,839  
Net loss(10,476) (10,476) 
Other comprehensive income2,387  2,387  
Dividends declared ($0.0025 per share)(114) (114) 
Share-based compensation expense, exercises and other28  56  3,209  3,265  
Balance, June 30, 201962,964  $125,928  $244,756  $175,865  $(49,648) $496,901  
Balance, December 31, 201962,843  $125,686  $251,401  $137,774  $(52,707) $462,154  
Net loss(11,324) (11,324) 
Other comprehensive loss(39,405) (39,405) 
Dividends declared ($0.0025 per share)(127) (127) 
Share-based compensation expense, exercises and other42  84  4,956  5,040  
Balance, March 31, 202062,885  125,770  256,357  126,323  (92,112) 416,338  
Net loss(55,627) (55,627) 
Other comprehensive income30,527  30,527  
Dividends declared ($0.0025 per share)(156) (156) 
Share-based compensation expense, exercises and other852  1,704  2,376  4,080  
Balance, June 30, 202063,737  $127,474  $258,733  $70,540  $(61,585) $395,162  
See accompanying notes to consolidated financial statements.
7
  
(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, 201562,803
 $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 other274
 549
 4,923
     5,472
Balance September 30, 201661,699
 $123,398
 $216,866
 $694,981
 $(48,562) $986,683
            
Balance December 31, 201661,031
 $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 other373
 747
 4,228
     4,975
Balance September 30, 201761,249
 $122,499
 $224,183
 $683,444
 $(26,342) $1,003,784


Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, unless otherwise indicated)
Note 1—BasisSummary of Presentation and Use of EstimatesSignificant 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 Movianto businessrepresents a component that met accounting requirements to be classified as discontinued operations and held-for-sale beginning December 31, 2019. In accordance with GAAP, the results of operations and financial position of the Movianto business are presented as discontinued operations through June 18, 2020 (the Divestiture Date) and, as such, have been excluded from continuing operations for all periods presented. With the exception of Note 3, the Notes to Consolidated Financial Statements reflect the continuing operations of Owens & Minor, Inc. and its subsidiaries. See Note 3 for additional information regarding discontinued operations. 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 the 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.
Cash, Cash Equivalents and Restricted Cash
        Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash included in Other current assets represents $78.9 million held in a designated account as of June 30, 2020 as required by the Fifth Amendment to the Credit Agreement, which stipulates that the cash proceeds from the sale of the Movianto business is to be used to repay the 2021 Notes or the Term Loans. Restricted cash included in Other assets, net as of June 30, 2020 represents $16.3 million held in an escrow account as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) Advanced Program.
        The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows.
June 30, 2020December 31, 2019
Cash and cash equivalents$101,276  $67,030  
Restricted cash included in Other current assets78,854  —  
Restricted cash included in Other assets, net16,323  16,261  
Cash of discontinued operations—  1,396  
Total cash, cash equivalents and restricted cash$196,453  $84,687  

Note 2—Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable financing receivables,and accounts payable and financing payables includedreported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The carrying amount of restricted cash also approximates fair value due to its nature. 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 determineSee Note 6 for the fair value of our derivatives, if any,debt. The fair value of interest rate swaps and foreign currency contracts is determined based on estimated amounts that would be received or paidthe present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to terminatedetermine the contracts at the reporting date based on current market prices for applicable currencies.present value of expected future cash flows. See Note 8 for the fair value of long-term debt.derivatives.
8


Note 3—AcquisitionDiscontinued Operations
On August 1, 2017,June 18, 2020, we completed the acquisitionpreviously announced divestiture of Byram Healthcare,our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million. We concluded that the Movianto business met the criteria for discontinued operations as of December 31, 2019 and through the Divestiture Date, as the intention to sell represented a leading domestic distributorstrategic shift and the criteria for held-for-sale were met. Movianto was previously reported in the Global Solutions segment.
Accordingly, the results of reimbursable medical supplies sold directly to patients and home health agencies.
The consideration was $367 million,operations from the Movianto business are reported in the accompanying consolidated statements of operations as Loss from discontinued operations, net of cash acquired, which is subject totax for the three and six months ended June 30, 2020 and 2019, and the related assets and liabilities are classified as held-for-sale as of December 31, 2019 in the accompanying balance sheet. We are working with the Buyer on a final working capital adjustments with the seller. The purchase price was allocated onadjustment that could result in a preliminary basisbenefit in an amount up to the underlying assets acquired and liabilities assumed based upon$42 million. There is no benefit of any such adjustment reflected in our current estimateconsolidated financial statements as of their fair values at the date of acquisition. The purchase price exceeded the preliminary estimated fair value of the net tangible and identifiable intangible assets by $263 million, which was allocated to goodwill. June 30, 2020.

The following table presentssummarizes the preliminary estimated fair valuefinancial results of our discontinued operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Net revenue$104,417  $107,495  $226,759  $218,043  
Cost of goods sold21,817  25,585  53,923  54,330  
Gross margin82,600  81,910  172,836  163,713  
Distribution, selling, and administrative expenses76,560  80,954  157,512  163,997  
Loss on divestiture56,392  —  65,472  —  
Acquisition-related and exit and realignment charges4,554  265  4,825  391  
Other operating expense (income), net73  (285) (388) (472) 
Operating income (loss)(54,979) 976  (54,585) (203) 
Interest expense, net1,424  1,635  3,144  3,275  
Loss from discontinued operations before income taxes(56,403) (659) (57,729) (3,478) 
Income tax (benefit) provision from discontinued operations(615) 83  474  441  
Loss from discontinued operations, net of tax$(55,788) $(742) $(58,203) $(3,919) 

We suspended depreciation and amortization on assets that are held-for-sale, including right-of-use assets recorded in accordance with ASU No. 2016-02, for the three and six months ended June 30, 2020.

All revenue and expense included in discontinued operations during the three and six months ended June 30, 2020 relates to activity through the Divestiture Date. No revenue or expense have been recorded in discontinued operations related to the disposal group subsequent to the Divestiture Date.

We have entered into transition services agreements with a subsidiary of the assets acquiredBuyer, pursuant to which we and liabilities assumed recognized asa subsidiary of the acquisition date.Buyer will provide to each other various transitional services. Certain transition service arrangement costs and reimbursements were recorded during the three and six months ended June 30, 2020. These amounts were immaterial for the period ended June 30, 2020.

9


        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.

8


 Preliminary Fair
Value Estimated as of
Acquisition Date
Assets acquired: 
Current assets$62,902
Goodwill263,155
Intangible assets156,000
Noncurrent assets3,615
Total assets485,672
Liabilities assumed: 
Current liabilities72,397
Noncurrent liabilities46,706
Total liabilities119,103
Fair value of net assets acquired, net of cash$366,569
We are amortizing the preliminary fair value of acquired intangible assets, primarily customer relationships and a tradename, over their estimated remaining weighted average useful lives of 10 years.
Goodwill of $263 million, which we assigned to our Domestic segment, consists largely of expected opportunities to expand into the non-acute market with direct to patient distribution capabilities. None of the goodwill recognized is expected to be deductible for income tax purposes.
Pro forma results of operations for Byram has not been presented because the effectsdiscontinued Movianto business reflected on revenue and net income were not material to our historic consolidated financial statements.
Acquisition-related expenses 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.
Note 4—Financing Receivables and Payables
At September 30, 2017 and December 31, 2016, we had financing receivables of $176.9 million and $156.5 million and related payables of $105.5 million and $110.0 million 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.sheet at December 31, 2019 were as follows:
December 31, 2019
Assets of discontinued operations
Cash and cash equivalents$1,396 
Accounts receivable, net78,643 
Merchandise inventories16,058 
Other current assets188,853 
Current assets of discontinued operations284,950 
Property and equipment, net65,710 
Intangible assets, net6,579 
Other assets, net27,431 
Operating lease assets87,425 
Valuation allowance on disposal group classified as held-for-sale(32,112)
Total assets of discontinued operations$439,983 
Liabilities of discontinued operations
Accounts payable$53,981 
Other current liabilities182,980 
Current liabilities of discontinued operations236,961 
Long-term debt, excluding current portion5,523 
Operating lease liabilities, excluding current portion76,270 
Other liabilities4,757 
Total liabilities of discontinued operations$323,511 
        Assets and liabilities held-for-sale as of December 31, 2019 were classified as current since we expected the Divestiture to be completed within one year of the balance sheet date.

        The following table provides operating and investing cash flow information for our discontinued operations:

June 30, 2020June 30, 2019
Operating Activities:
Depreciation and amortization$—  $10,834  
Loss on divestiture65,472  —  
Investing Activities:
Capital expenditures3,027  14,211  

Note 5—4—Goodwill and Intangible Assets
The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through SeptemberJune 30, 2017:2020:
Global SolutionsGlobal ProductsConsolidated
Carrying amount of goodwill, December 31, 2019$283,905  $109,276  $393,181  
Currency translation adjustments—  (1,511) (1,511) 
Carrying amount of goodwill, June 30, 2020$283,905  $107,765  $391,670  
10
 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


9


Intangible assets at SeptemberJune 30, 2017,2020 and December 31, 2016,2019 were as follows:
September 30, 2017 December 31, 2016June 30, 2020December 31, 2019
Customer
Relationships
 
Other
Intangibles
 Customer
Relationships		 Other
Intangibles		Customer
Relationships		TradenamesOther
Intangibles		Customer
Relationships		TradenamesOther
Intangibles
    
  
Gross intangible assets$241,444
 $41,483
 $118,223
 $4,045
Gross intangible assets$269,090  $90,000  $43,230  $270,693  $90,000  $43,055  
Accumulated amortization(48,757) (2,284) (38,429) (1,328)Accumulated amortization(107,341) (20,701) (11,739) (92,947) (16,520) (9,263) 
Net intangible assets$192,687
 $39,199
 $79,794
 $2,717
Net intangible assets$161,749  $69,299  $31,491  $177,746  $73,480  $33,792  
Weighted average useful lifeWeighted average useful life10 years11 years8 years10 years11 years8 years

At SeptemberJune 30, 2017, $163.52020, $71.4 million in net intangible assets were held in the DomesticGlobal Solutions segment $10.2and $191.1 million were held in the International segment and $58.2 million were held in the ProprietaryGlobal Products segment. Amortization expense for intangible assets was $5.1$10.6 million and $2.2$12.8 million for the three months ended SeptemberJune 30, 20172020 and 20162019, respectively, and $9.7$21.2 million and $6.6$22.8 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019, respectively.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $11.6$20.7 million for the remainder of 2017, $24.6 million for 2018, $24.7 million for 2019, $24.7 million for 2020, $24.4$39.8 million for 2021, and $23.5$38.9 million for 2022.2022, $38.7 million for 2023, $33.9 million for 2024 and $28.2 million for 2025.

Note 6—5—Exit and Realignment ChargesCosts
We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain distribution and outsourced logistics centers, administrative offices and warehouses, in the United States and Europe.IT restructuring charges. 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 ninesix months ended SeptemberJune 30, 20172020 and 20162019 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 segment574
 457
 1,406
 3,284
Proprietary Products segment592
 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,
2020201920202019
Global Solutions segment$1,713  $1,614  $3,542  $2,180  
Global Products segment487  103  487  241  
Total exit and realignment charges$2,200  $1,717  $4,029  $2,421  



10
11





The following table summarizes the activity related to exit and realignment cost accruals through SeptemberJune 30, 20172020 and 2016:
2019:
 
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
Accrued exit and realignment costs, December 31, 2019$8,162 
Provision for exit and realignment activities:
Severance1,391 
Information system restructuring costs183 
Other255 
Cash payments(5,799)
Accrued exit and realignment costs, March 31, 20204,192 
Provision for exit and realignment activities:
Severance809 
Information system restructuring costs671 
Other720 
Cash payments(2,072)
Accrued exit and realignment costs, June 30, 2020$4,320 
Accrued exit and realignment costs, December 31, 2018$7,477 
Provision for exit and realignment activities:
Severance360 
Information system restructuring costs261 
Other83 
Cash payments(2,206)
Accrued exit and realignment costs, March 31, 20195,975 
Provision for exit and realignment activities:
Severance1,008 
Information system restructuring costs705 
Other4 
Cash payments(2,301)
Accrued exit and realignment costs, June 30, 2019$5,391 
In addition to the
Acquisition-related and exit and realignment accrualscharges presented in the preceding table, we also incurred $1.9our consolidated statements of operations includes acquisition-related charges of $3.9 million of costs that were expensed as incurred for the three months ended September 30, 2017, including $1.7and $8.1 million in 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.
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.

11


Note 7—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain officers and other key employees 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 ninesix months ended SeptemberJune 30, 20172020 and 2016, were as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Service cost$26
 $27
 $53
 $70
Interest cost474
 508
 1,422
 1,523
Recognized net actuarial loss456
 412
 1,367
 1,236
Net periodic benefit cost$956
 $947
 $2,842
 $2,829
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$3.7 million and $0.4$7.8 million for the three and six months ended SeptemberJune 30, 20172019, respectively, and 2016 and $1.3 millionconsisted primarily of transition costs for the nine months ended September 30, 2017 and 2016.Halyard acquisition.

Note 8—6—Debt
Debt consists of the following:
12

June 30, 2020December 31, 2019
Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
3.875% Senior Notes, due September 2021$178,510  $175,135  $236,234  $229,356  
4.375% Senior Notes, due December 2024244,619  212,994  273,978  212,086  
Term A Loans, due July 2022207,206  210,763  377,420  383,050  
Term B Loan, due April 2025478,729  445,505  480,337  442,217  
Revolver130,000  130,000  177,900  177,900  
Receivables Securitization Program147,339  150,000  —  —  
Finance leases and other12,251  12,251  13,783  13,783  
Total debt1,398,654  1,336,648  1,559,652  1,458,392  
Less current maturities(128,800) (126,656) (51,237) (51,237) 
Long-term debt$1,269,854  $1,209,992  $1,508,415  $1,407,155  
We have $275$179 million of 3.875% senior notes due in 2021 (the “2021 Notes”)2021 Notes) and $275$246 million of 4.375% senior notes due in 2024 (the “2024 Notes”)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 amount 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 applicable Benchmark Treasury Rate plus 25 basis points for the 2021 Notes and the applicable Benchmark Treasury Rate plus 30 basis points.points for the 2024 Notes. In June 2020, we announced cash tender offers for up to $240.0 million aggregate principal amount of our outstanding 2021 Notes and 2024 Notes. As of September 30, 2017 and December 31, 2016, the estimated fair valueEarly Settlement Date of June 22, 2020, $54.1 million of the 2021 Notes was $280.1and $29.0 million and $274.5 million and the estimated fair value of the 2024 Notes was $276.9were repaid. On the Early Settlement Date, the 2021 Notes were redeemed at 100% of par, and the 2024 Notes were redeemed at 90% of par, resulting in a net gain on extinguishment of debt of $2.9 million. The tender offers remained open through July 2, 2020, and an additional $0.1 million of the 2021 Notes were redeemed at the Base Consideration price of 95% of par by the time the offers closed. Including the tender offer, we used $83.2 million of cash to repurchase $87.8 million aggregate principal amount of the 2021 Notes and $270.0 million, respectively.
On July 27, 2017, we entered into a new Credit Agreement replacing2024 Notes during the Amended Credit Agreement. The new agreement provides borrowing capacityfirst six months of $600 million and a $250 million term loan. We make principal payments under the term loan on a quarterly basis2020. Consistent with the remaining outstanding principal due in five years. The revolving credit facility has a five-year maturity. The proceeds fromterms of the new borrowing were primarily usedFifth Amendment to fund the Byram acquisition which closed on August 1, 2017. Under the Credit Agreement, we used $54.1 million of the proceeds from the sale of Movianto to fund the repayment of the 2021 Notes, which were retired in the second quarter as part of the tender offer. As required by the Fifth Amendment to the Credit Agreement, the remaining $78.9 million of proceeds from the sale of Movianto were placed in a designated account and will be used to repurchase a portion of the outstanding 2021 Notes within 210 days of the Divestiture Date or repay a portion of our Term Loans. As of June 30, 2020, we classified $78.9 million of 2021 Notes as current liabilities since we intend to use the remaining $78.9 million of proceeds from the sale of Movianto to repurchase a portion of our 2021 Notes within 210 days of the Divestiture Date.
We have the ability to request two one-year extensionsa Credit Agreement (last amended February 13, 2020) with a $400 million revolving credit facility and to request an increase$686 million in aggregate commitments by up to $200 million.outstanding term 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 1) either the London Interbank Offered Rate (LIBOR), the Federal FundsEurocurrency Rate or the PrimeBase Rate plus 2) an adjustmentApplicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement). Our credit spread on the revolving credit facility and Term A Loans at June 30, 2020 was Eurocurrency Rate plus 4.25%. Our Term B Loan accrues interest based on 1) either the betterEurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of our debt ratings or leverage ratio (Credit Spread)3.50% per annum for Base Rate Loans and 4.50% per annum for Eurocurrency Rate Loans (each as defined byin the Credit Agreement.Agreement). Our credit spread on the Term B Loan at June 30, 2020 was Eurocurrency Rate plus 4.50%. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility. The termsOur Credit Agreement has a “springing maturity date” with respect to the revolving credit facility, the Term A Loans, and the Term B Loan. If the outstanding balance of the Credit Agreement limit2021 Notes has not been paid in full as of the amountdate 91 days prior to the maturity date of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basisthe 2021 Notes, then the Termination Date (as defined in the eventCredit Agreement) of an acquisition. Based on our leverage ratio at September 30, 2017, the interest rate under therevolving credit facility, the Term A Loans, and the Term B Loan shall be the date that is LIBOR plus 1.375%.91 days prior to the maturity date of the 2021 Notes. Likewise, if the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.
At SeptemberJune 30, 2017,2020 and December 31, 2019, we had borrowings of $117.2$130.0 million and $177.9 million, respectively, under the revolver and letters of credit of approximately $5.1$13.9 million and $11.7 million, respectively, outstanding under the Credit Agreement, leaving $477.7Agreement. At June 30, 2020 and December 31, 2019, we had $256.1 million and $209.3 million, respectively, available for borrowing. The December 31, 2019 availability reflected letters of credit associated with discontinued operations of $1.1 million. There were no letters of credit associated with discontinued operations as of June 30, 2020. We also had a letterletters of credit and bank guarantees outstanding for $1.3$3.6 million, of which $2.0 million are in process of being transferred to the buyer of Movianto, and $1.5 million as of SeptemberJune 30, 20172020 and $1.1 million at December 31, 2016,2019, respectively, which supports certain leased facilities
13

as well as other normal business activities in the United States and Europe. These letters of credit and guarantees were issued independent of the Credit Agreement.
We 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, the holders of the 2024 Notes, and the parties secured under 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 of each Credit Party and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. The Fifth Amendment to the Credit Agreement included additional collateral requirements if the Credit Parties, including an obligation to pledge our facilities leasedowned U.S. real estate and the remaining equity interests in Europe.foreign subsidiaries.
On February 19, 2020, we entered into an accounts receivable securitization program (the Receivables Securitization Program). Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time. The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued. Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Securitization Program matures on February 17, 2023. In February 2020, we drew $150 million from the Receivables Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement. The Fifth Amendment to the Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A loans to the extent those instruments are outstanding.
The Credit Agreement and senior notesSenior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. The terms of the Credit Agreement also require the company to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture. We believe we were in compliance with our debt covenants at SeptemberJune 30, 2017.2020.

As of June 30, 2020, scheduled future principal payments of debt were $24.8 million in 2020, $228.6 million in 2021, $278.8 million in 2022, $155.0 million in 2023, $251.0 million in 2024, and $468.8 million thereafter.

Note 7—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain 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 for the three and six months ended June 30, 2020 and 2019, respectively, were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Service cost$357  $330  $708  $659  
Interest cost496  600  990  1,200  
Recognized net actuarial loss214  260  428  520  
Net periodic benefit cost$1,067  $1,190  $2,126  $2,379  

Note 8—Derivatives
We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest under our Credit Agreement and Receivables Securitization Program, which fluctuate based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable
12
14



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, net 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.

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of June 30, 2020:
Derivative AssetsDerivative Liabilities
Notional AmountMaturity DateClassificationFair ValueClassificationFair Value
Cash flow hedges
Interest rate swaps$450,000  May 2022 and May 2025Other assets, net$—  Other liabilities$32,974  
Economic (non-designated) hedges
Foreign currency contracts$22,600  July 2020Other assets, net$13  Other liabilities$—  

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2019:
Derivative AssetsDerivative Liabilities
Notional AmountMaturity DateClassificationFair ValueClassificationFair Value
Cash flow hedges
Interest rate swaps$450,000  May 2022 and May 2025Other assets, net$—  Other liabilities$17,436  

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 30, 2020:
Amount of Gain/(Loss) Recognized in Other Comprehensive LossLocation of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into IncomeTotal Amount of Income/(Expense) Line Items Presented in the Consolidated Statement of Operations in Which the Effects are RecordedAmount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Three Months Ended June 30, 2020Six Months Ended June 30, 2020Three Months Ended June 30, 2020Six Months Ended June 30, 2020Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Interest rate swaps$(2,439) $(19,397) Interest expense, net$(21,605) $(44,948) $(2,601) $(3,860) 
The amount of ineffectiveness associated with these contracts was immaterial for the periods presented.

15

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 30, 2019:
Amount of Gain/(Loss) Recognized in Other Comprehensive LossLocation of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into IncomeTotal Amount of Income/(Expense) Line Items Presented in the Consolidated Statement of Operations in Which the Effects are RecordedAmount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Three Months Ended June 30, 2019Six Months Ended June 30, 2019Three Months Ended June 30, 2019Six Months Ended June 30, 2019Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Interest rate swaps$(8,162) $(12,577) Interest expense, net$(26,048) $(51,506) $(361) $(682) 
Foreign currency contracts$191  $636  Cost of goods sold$(2,090,187) $(4,164,407) $314  $57  
The amount of ineffectiveness associated with these contracts was immaterial for the periods presented.

For the three months and six months ended June 30, 2020, we recognized a gain of $1.3 million and a loss of $1.4 million, respectively, associated with our economic (non-designated) foreign currency contracts. 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.

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

Note 9—Income Taxes

The effective tax rate was 48.1%96.9% and 34.3%28.8% for the three and ninesix months ended SeptemberJune 30, 2017,2020, compared to 36.3%10.5% and 37.3%8.1% in the same periods of 2016.2019. The changes in the effective tax rate compared to 2016 resulted primarily from a change in income mix among different tax rate jurisdictions 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 ofthese rates resulted from an income tax valuation allowancebenefit recorded in Europe for $3.4 million during the secondfirst quarter of 2017.
2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.  The liability for unrecognized tax benefits was $13.3$11.7 million at SeptemberJune 30, 2017,2020 and $10.7$11.5 million at December 31, 2016.2019. Included in the liability at SeptemberJune 30, 20172020 and December 31, 2019 were $5.0$2.8 million and $3.1 million, respectively, of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The Internal Revenue Services (IRS) is conducting an audit of our 2015 and 2016 Consolidated Income Tax Returns. In connection with the audit, the IRS has asserted that our taxable income for 2015 and 2016 should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied through the current date. At this point, we cannot estimate the likelihood of potential liability associated with this audit or the applicability of the IRS’ position for taxable years following 2016. However, we believe that the IRS' claims are without merit and plan to pursue all available administrative and judicial remedies necessary to resolve this matter. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows and that we have adequate tax reserves for all tax matters. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest, and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.

16

Note 10—Net IncomeLoss per Common Share
The following summarizes the calculation of net incomeloss per common share attributable to common shareholders for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019:
 Three Months Ended June 30,Six Months Ended
June 30,
(in thousands, except per share data)2020201920202019
Weighted average shares outstanding - basic and diluted61,128  59,805  60,819  60,403  
Income (loss) from continuing operations$161  $(9,734) $(8,748) $(20,653) 
Basic and diluted per share$—  $(0.16) $(0.14) $(0.34) 
Loss from discontinued operations$(55,788) $(742) $(58,203) $(3,919) 
Basic and diluted per share$(0.91) $(0.01) $(0.96) $(0.07) 
Net loss$(55,627) $(10,476) $(66,951) $(24,572) 
Basic and diluted per share$(0.91) $(0.17) $(1.10) $(0.41) 
 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 - basic10,592
 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 diluted59,849
 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—Shareholders’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 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
In May 2020, we entered into an equity distribution agreement, pursuant to 10b5-1 plans entered into by the companywhich we may offer and sell, from time to time, and/or during the company’s scheduled quarterly trading windows for officers and directors. During the nine months ended September 30, 2017, we repurchased in open-market transactions and retired approximately 0.2 million shares of our common stock forhaving an aggregate offering price of $5.0 million, up to $50 million. We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or an average price per share of $32.27.for general corporate and working capital purposes. As of SeptemberJune 30, 2017, we have approximately $94.02020, 0 shares were issued and $50 million remainingof common stock remained available under the repurchaseat-the-market equity financing program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.


13
17



Note 12—Accumulated Other Comprehensive Income (Loss)Loss
The following table shows the changes in accumulated other comprehensive income (loss)loss by component for the three and nine months ended SeptemberJune 30, 20172020 and 2016:2019:
Retirement PlansCurrency
Translation
Adjustments		Derivatives and OtherTotal
Accumulated other comprehensive loss, March 31, 2020$(14,521) $(53,479) $(24,112) $(92,112) 
Other comprehensive income (loss) before reclassifications14,428  (2,439) 11,989  
Income tax—  —  428  428  
Other comprehensive income (loss) before reclassifications, net of tax—  14,428  (2,011) 12,417  
Amounts reclassified from accumulated other comprehensive loss639  15,580  2,601  18,820  
Income tax(44) —  (666) (710) 
Amounts reclassified from accumulated other comprehensive loss, net of tax595  15,580  1,935  18,110  
Other comprehensive income (loss)595  30,008  (76) 30,527  
Accumulated other comprehensive loss, June 30, 2020$(13,926) $(23,471) $(24,188) $(61,585) 
Retirement PlansCurrency Translation AdjustmentsDerivatives and OtherTotal
Accumulated other comprehensive loss, March 31, 2019$(7,949) $(36,758) $(7,328) $(52,035) 
Other comprehensive income (loss) before reclassifications—  7,452  (7,971) (519) 
Income tax—  —  2,678  2,678  
Other comprehensive income (loss) before reclassifications, net of tax—  7,452  (5,293) 2,159  
Amounts reclassified from accumulated other comprehensive loss260  —  47  307  
Income tax(63) —  (16) (79) 
Amounts reclassified from accumulated other comprehensive loss, net of tax197  —  31  228  
Other comprehensive income (loss)197  7,452  (5,262) 2,387  
Accumulated other comprehensive loss, June 30, 2019$(7,752) $(29,306) $(12,590) $(49,648) 
Retirement PlansCurrency Translation AdjustmentsDerivatives and OtherTotal
Accumulated other comprehensive loss, December 31, 2019$(14,691) $(25,301) $(12,715) $(52,707) 
Other comprehensive loss before reclassifications—  (13,750) (19,397) (33,147) 
Income tax—  —  5,074  5,074  
Other comprehensive loss before reclassifications, net of tax—  (13,750) (14,323) (28,073) 
Amounts reclassified from accumulated other comprehensive loss853  15,580  3,860  20,293  
Income tax(88) —  (1,010) (1,098) 
Amounts reclassified from accumulated other comprehensive loss, net of tax765  15,580  2,850  19,195  
Other comprehensive income (loss)765  1,830  (11,473) (8,878) 
Accumulated other comprehensive loss, June 30, 2020$(13,926) $(23,471) $(24,188) $(61,585) 
18
 Retirement Plans 
Currency
Translation
Adjustments
 Other Total
Accumulated other comprehensive income (loss), June 30, 2017$(10,743) $(28,348) $165
 $(38,926)
Other comprehensive income (loss) before reclassifications—
 12,254
 94
 12,348
Income tax—
 —
 —
 —
Other comprehensive income (loss) before reclassifications, net of tax—
 12,254
 94
 12,348
Amounts reclassified from accumulated other comprehensive income (loss)456
 —
 —
 456
Income tax(220) —
 —
 (220)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax236
—
—
 —
 236
Other comprehensive income (loss)236
 12,254
 94
 12,584
Accumulated other comprehensive income (loss), September 30, 2017$(10,507) $(16,094) $259
 $(26,342)
        
Accumulated other comprehensive income (loss), June 30, 2016$(9,999) $(40,186) $(78) $(50,263)
Other comprehensive income (loss) before reclassifications—
 1,401
 82
 1,483
Income tax—
 —
 —
 —
Other comprehensive income (loss) before reclassifications, net of tax—
 1,401
 82
 1,483
Amounts reclassified from accumulated other comprehensive income (loss)412
 —
 —
 412
Income tax(194) —
 —
 (194)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax218
—
—
 —
 218
Other comprehensive income (loss)218
 1,401
 82
 1,701
Accumulated other comprehensive income (loss), September 30, 2016$(9,781) $(38,785) $4
 $(48,562)
        



14


Table of Contents
Retirement PlansCurrency
Translation
Adjustments		Derivatives and OtherTotal
Retirement Plans 
Currency
Translation
Adjustments
 Other Total
Accumulated other comprehensive income (loss), December 31, 2016$(11,209) $(56,245) $(29) $(67,483)
Accumulated other comprehensive loss, December 31, 2018Accumulated other comprehensive loss, December 31, 2018$(8,146) $(32,551) $(4,915) $(45,612) 
Other comprehensive income (loss) before reclassifications

 40,151
 288
 40,439
Other comprehensive income (loss) before reclassifications—  3,245  (11,941) (8,696) 
Income tax—
 —
 —
 —
Income tax—  —  3,831  3,831  
Other comprehensive income (loss) before reclassifications, net of tax—
 40,151
 288
 40,439
Other comprehensive income (loss) before reclassifications, net of tax—  3,245  (8,110) (4,865) 
Amounts reclassified from accumulated other comprehensive income (loss)1,367
 —
 —
 1,367
Amounts reclassified from accumulated other comprehensive lossAmounts reclassified from accumulated other comprehensive loss520  —  625  1,145  
Income tax(665) —
 —
 (665)Income tax(126) —  (190) (316) 
Amounts reclassified from accumulated other comprehensive income (loss), net of tax702
 —
 —
 702
Amounts reclassified from accumulated other comprehensive loss, net of taxAmounts reclassified from accumulated other comprehensive loss, net of tax394  —  435  829  
Other comprehensive income (loss)702
 40,151
 288
 41,141
Other comprehensive income (loss)394  3,245  (7,675) (4,036) 
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) $(51,825)
Other comprehensive income (loss) before reclassifications—
 2,443
 119
 2,562
Income tax—
 —
 —
 —
Other comprehensive income (loss) before reclassifications, net of tax—
 2,443
 119
 2,562
Amounts reclassified from accumulated other comprehensive income (loss)1,233
 —
 —
 1,233
Income tax(532) —
 —
 (532)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax701
 —
 —
 701
Other comprehensive income (loss)701
 2,443
 119
 3,263
Accumulated other comprehensive income (loss), September 30, 2016$(9,781) $(38,785) $4
 $(48,562)
Accumulated other comprehensive loss, June 30, 2019Accumulated other comprehensive loss, June 30, 2019$(7,752) $(29,306) $(12,590) $(49,648) 
We include amounts reclassified out of accumulated other comprehensive incomeloss related to defined benefit pension plans as a component of net periodic pension cost recorded in distribution, selling and administrative expenses.Other (income) expense, net. For the three and ninesix months ended SeptemberJune 30, 2017,2020, we reclassified $0.5$0.6 million and $1.4$0.8 million, respectively, of actuarial net losses. For the three and ninesix months ended SeptemberJune 30, 2016,2019, we reclassified $0.2 million and $0.4 million, and $1.2 millionrespectively, of actuarial net losses. Amounts reclassified from accumulated other comprehensive loss include currency translation adjustments released as a result of the Divestiture.

Note 13—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 three2 segments: Domestic, InternationalGlobal Solutions and ProprietaryGlobal Products. The DomesticGlobal Solutions segment includes our United States distribution, outsourced logistics and value-added services business. Byram, acquired on August 1, 2017, is included in the Domestic segment. The International segment consists ofGlobal Products manufactures and sources medical surgical products through our European distribution, logisticsproduction and value-added services business. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing.operations.
We evaluate the performance of our segments based on their operating earningsincome 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.
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.


15
19




The following tables present financial information by segment:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net revenue:
Global Solutions$1,548,639  $2,134,469  $3,396,233  $4,258,068  
Global Products370,401  363,889  761,593  710,974  
Total segment net revenue1,919,040  2,498,358  4,157,826  4,969,042  
Inter-segment revenue
Global Products(111,321) (121,653) (227,414) (241,498) 
       Total inter-segment revenue(111,321) (121,653) (227,414) (241,498) 
Consolidated net revenue$1,807,719  $2,376,705  $3,930,412  $4,727,544  
Operating income:
Global Solutions$(10,141) $17,734  $(2,450) $39,375  
Global Products51,774  17,949  70,345  25,673  
Inter-segment eliminations(2,772) (729) (1,603) 1,017  
Intangible amortization(10,611) (12,756) (21,221) (22,781) 
Acquisition-related and exit and realignment charges(6,054) (5,390) (12,118) (10,254) 
Other (1)
—  (909) —  (529) 
Consolidated operating income$22,196  $15,899  $32,953  $32,501  
Depreciation and amortization:
Global Solutions$11,065  $9,715  $21,701  $20,215  
Global Products13,826  15,246  27,103  27,853  
Discontinued operations—  5,221  —  10,834  
Consolidated depreciation and amortization$24,891  $30,182  $48,804  $58,902  
Capital expenditures:
Global Solutions$2,931  $1,196  $3,963  $4,537  
Global Products2,135  3,880  5,152  6,783  
Discontinued operations1,363  6,176  3,027  14,211  
Consolidated capital expenditures$6,429  $11,252  $12,142  $25,531  
 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
International96,661
 83,751
 287,555
 255,861
Proprietary Products124,542
 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 Products9,102
 14,340
 26,040
 41,866
Inter-segment eliminations416
 (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
International4,304
 4,259
 12,072
 13,125
Proprietary Products1,947
 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
International3,206
 3,223
 11,659
 8,053
Proprietary Products718
 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
International418,331
 352,898
Proprietary Products401,331
 400,885
Segment assets3,235,741
 2,532,264
Cash and cash equivalents98,415
 185,488
Consolidated total assets$3,334,156
 $2,717,752
(1)2019 included interest cost and net actuarial losses related to the U.S. Retirement Plan as well as Software as a Service (SaaS) implementation costs associated with the upgrading of our global IT platforms in connection with the redesign of our global information system strategy.






16
20


June 30, 2020December 31, 2019
Total assets:
Global Solutions$2,057,125  $2,205,134  
Global Products979,385  930,937  
Segment assets3,036,510  3,136,071  
Discontinued operations—  439,983  
Cash and cash equivalents101,276  67,030  
Consolidated total assets$3,137,786  $3,643,084  

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,
2020201920202019
Net revenue:
United States$1,737,615  $2,270,768  $3,771,069  $4,574,680  
International70,104  105,937  159,343  152,864  
Consolidated net revenue$1,807,719  $2,376,705  $3,930,412  $4,727,544  

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), net7,018
 (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 subsidiaries17,772
 —
 —
 (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), net7,403
 (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 subsidiaries37,182
 —
 —
 (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

17


Nine Months Ended September 30, 2017Owens &
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 expenses434
 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), net20,756
 (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 subsidiaries70,986
 —
 —
 (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) $90,937
Nine Months Ended September 30, 2016Owens &
Minor, Inc.		 Guarantor
Subsidiaries		 Non-guarantor
Subsidiaries		 Eliminations Consolidated
Statements of Income         
Net revenue$—
 $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 expenses838
 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), net21,134
 (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 subsidiaries103,654
 —
 —
 (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


18


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, net30,770
 595,202
 114,563
 (7,779) 732,756
Merchandise inventories—
 909,406
 82,065
 (2,220) 989,251
Other current assets193
 117,403
 193,903
 —
 311,499
Total current assets42,419
 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 subsidiaries2,094,759
 —
 —
 (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 liabilities7,127
 110,580
 178,956
 —
 296,663
Total current liabilities7,127
 897,975
 306,983
 (7,794) 1,204,291
Long-term debt, excluding current portion545,830
 6,743
 364,683
 —
 917,256
Due to O&M and subsidiaries580,437
 —
 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 liabilities1,133,394
 1,174,472
 814,629
 (792,123) 2,330,372
Equity         
Common stock122,499
 —
 —
 —
 122,499
Paid-in capital224,183
 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 equity1,003,784
 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


19


December 31, 2016Owens &
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 assets106
 86,907
 167,143
 —
 254,156
Total current assets38,121
 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 subsidiaries2,044,963
 —
 —
 (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 liabilities7,106
 93,327
 138,404
 —
 238,837
Total current liabilities7,106
 809,330
 226,153
 (7,951) 1,034,638
Long-term debt, excluding current portion544,838
 3,219
 16,526
 —
 564,583
Due to O&M and subsidiaries571,102
 —
 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 liabilities1,123,046
 1,082,297
 318,358
 (765,987) 1,757,714
Equity        —
Common stock122,062
 —
 —
 —
 122,062
Paid-in capital219,955
 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 equity960,038
 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

20


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 advances50,452
 (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 period38,015
 61,266
 86,207
 —
 185,488
Cash and cash equivalents at end of period$11,456
 $1,145
 $85,814
 $—
 $98,415

21


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 liabilities2,277
 (512) (46,668) —
 (44,903)
Other, net1,321
 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 advances172,057
 (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 activities71,574
 (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 equivalents53,200
 14,387
 (15,511) —
 52,076
Cash and cash equivalents at beginning of period103,284
 5,614
 52,122
 —
 161,020
Cash and cash equivalents at end of period$156,484
 $20,001
 $36,611
 $—
 $213,096

22


Note 15—Recent Accounting Pronouncements
On JanuaryIn August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 2017, weand Level 2 of the fair value hierarchy and the policy for timing of such transfers. This ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). We adopted ASU No. 2016-09, Improvements2018-13 effective beginning January 1, 2020. Its adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software. This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to Employee Share-Based Payment Accounting. The amendments in this updated guidance included changes to simplifydevelop or obtain internal-use software. We adopted ASU No. 2018-15 effective beginning January 1, 2020. Its adoption did not have a material impact on our consolidated financial statements.
In December 2019, the CodificationFASB issued ASU No. 2019-12, Simplifying the Accounting for severalIncome Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the accountingcurrent guidance to promote consistency among reporting entities. ASU No. 2019-12 is effective for share-based payment transactions, includingfiscal years beginning after December 15, 2020. Most amendments within the income tax consequences, classificationstandard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the potential impact of awards as either equity or liabilities,adopting this guidance on our consolidated financial statements 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. disclosures.
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,March 2020, the FASB issued an ASU Revenue from ContractsNo. 2020-03, Codification Improvements to Financial Instruments. The Standard is part of FASB’s ongoing project to improve and clarify its Accounting Standards Codification and avoid unintended application. The items addressed are not expected to significantly affect current practice or create a significant administrative cost for most entities. The amendment is divided into issues 1 to 7 with Customers.different effective dates as follows: The amendedamendments related to Issue 1, Issue 2, Issue 4, and Issue 5 are conforming amendments. The amendments are effective upon issuance of this update. The amendment related to Issue 3 is a conforming amendment that affects the guidance eliminates industry specificrelated to the amendments in ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The effective date of this update for the amendments to ASU No. 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendments related to Issue 6 and Issue 7 affect the guidance in the amendments in ASU No. 2016-13, Financial 5 Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For entities that have not yet adopted the amendments related to ASU No. 2016-13, the effective dates and applies to all companies.  Revenuethe transition requirements for these amendments are the same as the effective date and transition requirements in ASU No. 2016-13, which 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 after December 15, 2022, including
21

interim periods within those fiscal years. We adopted ASU No. 2020-03 effective beginning January 1, 20182020 for Issues 1 through 5. Its adoption did not have a material impact on our consolidated financial statements. We are currently evaluating the potential impact of adopting this guidance for Issues 6 and allow for either full retrospective adoption or modified retrospective adoption (cumulative effect). We have substantially completed7 on our evaluationconsolidated financial statements and disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the amended guidance, including identificationEffects of revenue streamsReference Rate Reform on Financial Reporting, which provides optional expedients and customer contract reviews. Our revenue is primarily distribution revenue, which we recognize at the time shipment is completedexceptions for applying GAAP to contracts, hedging relationships, and title passesother transactions affected by reference rate reform if certain criteria are met. The amendments apply only to the customer. Although wecontracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are continuing to assesseffective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact of the amended guidance, 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 thethis guidance may require changes tohave on our business processes, systemsconsolidated financial statements and controls to support the additional required disclosures.
There hashave been no changefurther changes in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.

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, 2016.2019. 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, 2016.2019.
Overview and Divestiture of Movianto
Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company. On June 18, 2020 (the Divestiture Date), we completed the previously announced divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million. The Divestiture provides us with a greater ability to focus on and invest in our differentiated products, services company that connects the world of medical products to the point 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 logisticsbusinesses. A portion of the net proceeds was used to repurchase $54.1 million of our 2021 Notes through a tender offer (see Note 6, “Debt”). We recorded losses of $56.4 million and value-added$65.5 million, respectively, in connection with the Divestiture for the three and six months ended June 30, 2020.
We have entered into transition services business. Byram, acquired on August 1, 2017, is includedagreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the Buyer will provide to each other various transitional services.Transition service expenses and reimbursements were immaterial for the three and six months ended June 30, 2020.
As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” through the Divestiture Date and the related assets and liabilities were classified as “held-for-sale” 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 inconsolidated balance sheet as of December 31, 2019. See Note 133, “Discontinued Operations,” of the Notes to Consolidated Financial Statements included in this quarterly report.for further information. Unless otherwise indicated, the following information relates to continuing operations.
Financial highlights. The following table provides a reconciliation of reported operating earnings, 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 amortizationIncome (loss) 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

23


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

Net incomecontinuing operations per diluted share was $0.18$0.00 and $0.82$(0.14) for the three and ninesix months ended SeptemberJune 30, 2017, a decrease of $0.30 and $0.50 when2020, respectively, as compared to the same periods of 2016. Adjusted EPS (non-GAAP) was $0.40$(0.16) and $1.26$(0.34) for the three and ninesix months ended SeptemberJune 30, 2017, a decrease 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. Domestic2019, respectively. Global Solutions segment operating earnings were $36.1loss was $(10.1) million in the quarter and $102.8$(2.5) million for the year to date periodthree and six months ended June 30, 2020, respectively, compared to $41.0operating income of $17.7 million and $126.2 million in the prior year comparative periods. The declines were largely a result 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$39.4 million for the quarterthree and $0.8 million year to date, compared to operating earnings of $1.4 million and $3.4 million in the prior year.six months ended June 30, 2019, respectively. The change compared to prior year resulted primarily from increased costs to support new business. Proprietary Products operating earningsdeclines were $9.1 million and $26.0 million, reflecting decreases of $5.2 million and $15.8 million as a result of lower revenues in part from a reduction in elective surgeries as compared to prior year and increased production costs.
Use of Non-GAAP Measures
Adjustedyear. Global Products segment operating earnings, 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

24


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 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.
(1) Acquisition-related charges were $4.3was $51.8 million and $6.3$70.3 million for the three and ninesix months ended SeptemberJune 30, 20172020, respectively, compared to $0.6$17.9 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$25.7 million for the three and ninesix months ended SeptemberJune 30, 2017. Current year charges2019, respectively. The increases were associateda result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with severance from reduction in force and other employee costs associated withcontinued operating efficiencies compared to 2019.

COVID-19 Update
We are closely monitoring the establishmentimpact of COVID-19 on all aspects of our new client engagement centers,business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels. We have taken actions to protect our teammates while maintaining business continuity as we respond to 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 centerneeds from this global pandemic. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders.
22

Revenue in the first six months of 2020 of $3.9 billion includes a significant overall impact from COVID-19 related to the reduction of surgical procedures beginning in mid-March through the end of the second quarter, which was partially offset by a greater demand for personal protective equipment (PPE). Operating income also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies.
We are evaluating various government-sponsored COVID-response stimulus, relief, and production initiatives such as under the Defense Production Act (DPA) and recent Coronavirus Aid, Relief and Economic Security (CARES) Act. In April 2020, under the DPA, the U.S. Department of Defense initiated a technology investment agreement with us involving up to $30 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks to the U.S. government. The
nature of the agreement provides a program of expedited partial funding to begin expansion while final terms are completed. Through June 30, 2020, approximately $12 million had been expended and reimbursed in accordance with this arrangement. In addition, as allowed under the CARES Act, we have filed for a $13 million income tax refund with the IRS related to the carryback of net operating losses (NOL) incurred in 2018. This refund receivable was included in other current assets on our balance sheet as of June 30, 2020. In connection with this NOL carryback, we recorded throughout 2017. Exita $5.2 million benefit to the income tax benefit for the six months ended June 30, 2020.
We are unable to predict with certainty the full impact that COVID-19 will have on our future financial position and realignment chargesoperating results due to numerous variables.

Results of Operations

Net revenue.
Three Months Ended June 30,Change
(Dollars in thousands)20202019$%
Global Solutions$1,548,639  $2,134,469  $(585,830) (27.4)%
Global Products370,401  363,889  6,512  1.8 %
Inter-segment(111,321) (121,653) 10,332  8.5 %
Net revenue$1,807,719  $2,376,705  $(568,986) (23.9)%
Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Global Solutions$3,396,233  $4,258,068  $(861,835) (20.2)%
Global Products761,593  710,974  50,619  7.1 %
Inter-segment(227,414) (241,498) 14,084  5.8 %
Net revenue$3,930,412  $4,727,544  $(797,132) (16.9)%

The change in net revenue for the three and six months ended June 30, 2020 reflected the impact of a reduction in elective surgical procedures, primarily due to the impact of COVID-19, and lower distribution revenues as a result of customer non-renewals that occurred in 2019. These were $2.1partially offset by revenue growth in Global Products from increased demand for personal protective equipment and growth in Byram, our Home Healthcare business. Foreign currency translation had an unfavorable impact on net revenue of $1.5 million and $19.1$3.6 million for the three and ninesix months ended SeptemberJune 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 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 to exclude these charges from our non-GAAP results in the second quarter of 2017 and thus prior year amounts have been recast on the same basis.
(3) Includes software2020, respectively, as a service (SaaS) implementation costs associated with the upgrading of our global IT platforms in connection with the redesign of our global information system strategy.
(4) 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)%
International96,661
 83,751
 12,910
 15.4 %
Proprietary Products124,542
 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)%
International287,555
 255,861
 31,694
 12.4 %
Proprietary Products392,654
 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 revenue declined for both the three and nine months ended September 30, 2017, primarily as a result the exit of a large domestic customer in 2016, lower growth with existing domestic customers and one less sales day compared to the prior year. Byram contributed $80.3 million in revenue to the Domestic segment for the quarter and year to date. The


25


increase in the International segment was driven by growth with existing customers and new business as well as a favorable foreign currency translation impact of $2.8 million for the quarter but offset by an unfavorable impact of $12.4 million year to date. A decrease in sales of our sourced products contributed to the year over year change in the Proprietary Products segment.
Cost of goods sold.
Three Months Ended June 30,Change
(Dollars in thousands)20202019$%
Cost of goods sold$1,538,312  $2,090,187  $(551,875) (26.4)%
23

Three Months Ended September 30, ChangeSix Months Ended June 30,Change
(Dollars in thousands)2017 2016 $ %(Dollars in thousands)20202019$%
Cost of goods sold$2,032,019
 $2,119,326
 $(87,307) (4.1)%Cost of goods sold$3,392,445  $4,164,407  $(771,962) (18.5)%

 Nine Months Ended September 30, Change
(Dollars in thousands)2017 2016 $ %
Cost of goods sold$6,071,787
 $6,462,739
 $(390,952) (6.0)%
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 ProprietaryGlobal Products business. There is no cost of goods sold associated with our fee-for-service business. As a resultarrangements. Cost of the decreasegoods 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 forincluding sales mix.

Gross margin.
Three Months Ended June 30,Change
(Dollars in thousands)20202019$%
Gross margin$269,407  $286,518  $(17,111) (6.0)%
As a % of net revenue14.90 %12.06 %
Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Gross margin$537,967  563,137  $(25,170) (4.5)%
As a % of net revenue13.69 %11.91 %
        Gross margin in the three and ninesix months ended SeptemberJune 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 revenue12.94% 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 revenue12.36% 12.13%    
Gross margin for the quarter included positive contribution2020 were impacted by lower distribution revenues and unfavorable impact from Byram and a change in revenue mix offset by the impact of overall lower revenues, a decline in provider margin and lower income from manufacturer product price changes (on a year to date basis). The impact of foreign currency translation was favorable for the quarter by $2.3of $1.4 million and unfavorable by $6.1$4.2 million, for the year to date. With increasing customer cost pressures and competitive dynamicsrespectively. The increase in healthcare, we believe the current trend of increased gross margin pressure will continue.as a percentage of revenue reflected an improved sales mix and productivity and operating efficiencies in Global Products.

Operating expenses.
Three Months Ended September 30, ChangeThree Months Ended June 30,Change
(Dollars in thousands)2017 2016 $ %(Dollars in thousands)20202019$%
Distribution, selling and administrative expenses$261,045
 $241,305
 $19,740
 8.2 %Distribution, selling and administrative expenses$241,734  $264,215  $(22,481) (8.5)%
As a % of net revenue11.18% 9.99% 
 
As a % of net revenue13.37 %11.12 %
Acquisition-related and exit and realignment chargesAcquisition-related and exit and realignment charges$6,054  $5,390  $664  12.3 %
Other operating (income) expense, net$1,927
 $(1,337) $3,264
 (244.1)%Other operating (income) expense, net$(577) $1,014  $(1,591) (156.9)%

Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Distribution, selling and administrative expenses$495,782  $519,326  $(23,544) (4.5)%
As a % of net revenue12.61 %10.99 %
Acquisition-related and exit and realignment charges$12,118  $10,254  $1,864  18.2 %
Other operating (income) expense, net$(2,886) $1,056  $(3,942) (373.3)%
26


 Nine Months Ended September 30, Change
(Dollars in thousands)2017 2016 $ %
Distribution, selling and administrative expenses$735,353
 $726,944
 $8,409
 1.2 %
As a % of net revenue10.61% 9.88%    
Other operating (income) expense, net$2,143
 $(5,179) $7,322
 (141.4)%
Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced 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 to convert new customers to our information systems are
24

Overall DS&A expenses were affected by the revenue decline and change in mix and investments in the business, partially offset by operational efficiencies.  DS&A expenses also included in DS&Afavorable impacts for foreign currency translation of $0.3 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%$0.6 million for the three and ninesix months ended SeptemberJune 30, 2017. Overall expenses reflected decreased sales activity2020, respectively.

Acquisition-related charges were $3.9 million and $8.1 million for the three and six months ended June 30, 2020,
compared to $3.7 million and $7.8 million for the same periods of 2019. Acquisition-related charges in 2020 and 2019 consist primarily of transition costs for the quarterHalyard acquisition. Exit and yearrealignment charges were $2.2 million and $4.0 million for the three and six months ended June 30, 2020, compared to date, benefits$1.7 million and $2.4 million for the same periods of cost control2019. Amounts in 2020 were associated with severance from reduction in force and productivity initiatives, and a favorable foreign currency translation impact of $6.2 million year to date. These were offset in part by increasedother 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 lossreorganization of the U.S. commercial, operations and executive teams. Amounts in 2016.2019 were associated with severance costs, the establishment of our client engagement center, and IT restructuring charges.

The changeschange in other operating (income) expense, net werewas attributed primarily to higher foreign currency transaction gains compared to prior year, gain on legal settlement, and lower software as a service implementation expenses which were not incurreddue to the adoption of ASU No. 2018-15 as of January 1, 2020. See Note 14 in 2016.Notes to Consolidated Financial Statements.
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 September 30, ChangeThree Months Ended June 30,Change
(Dollars in thousands)2017 2016 $ %(Dollars in thousands)20202019$%
Interest expense, net$8,737
 $6,770
 $1,967
 29.1%Interest expense, net$21,605  $26,048  $(4,443) (17.1)%
Effective interest rate4.15% 4.76%    Effective interest rate5.63 %7.20 %
Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Interest expense, net$44,948  $51,506  $(6,558) (12.7)%
Effective interest rate6.50 %6.86 %
 Nine Months Ended September 30, Change
(Dollars in thousands)2017 2016 $ %
Interest expense, net$22,218
 $20,324
 $1,894
 9.3%
Effective interest rate4.52% 4.79%    
The increase in interest        Interest expense and change in effective interest rate for the three and ninesix months ended SeptemberJune 30, 20172020 decreased primarily due to a reduction in debt and a decrease in our effective interest rate, which were partially offset by the amortization of additional deferred financing costs as a result of the borrowings under our newFifth Amendment to the Credit Agreement entered in July 2017.February 2020. See Note 6 in Notes to Consolidated Financial Statements.

Other (income) expense, net.
Three Months Ended June 30,Change
(Dollars in thousands)20202019$%
Other (income) expense, net$(4,552) $731  $(5,283) (722.7)%
Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Other expense, net$294  $3,464  $(3,170) (91.5)%

        Other (income) expense, net for the three months ended June 30, 2020 includes a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2024 Notes, which was partially offset by the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to the U.S. Retirement Plan. Other expense, net for the six months ended June 30, 2020 includes the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to the U.S. Retirement Plan, offset by a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes. Other (income) expense, net for the three and six months ended June 30, 2019 includes interest cost and net actuarial losses related to the U.S. Retirement Plan and the write-off of deferred financing costs.


25

Income taxes.
Three Months Ended September 30, ChangeThree Months Ended June 30,Change
(Dollars in thousands)2017 2016 $ %(Dollars in thousands)20202019$%
Income tax provision$10,063
 $16,967
 $(6,904) (40.7)%
Income tax provision (benefit)Income tax provision (benefit)$4,982  $(1,146) $6,128  534.7 %
Effective tax rate48.1% 36.3%    Effective tax rate96.9 %10.5 %
Six Months Ended June 30,Change
(Dollars in thousands)20202019$%
Income tax benefit$(3,541) (1,816) $(1,725) (95.0)%
Effective tax rate28.8 %8.1 %
 Nine Months Ended September 30, Change
(Dollars in thousands)2017 2016 $ %
Income tax provision$26,010
 $48,585
 $(22,575) (46.5)%
Effective tax rate34.3% 37.3%    

The changeschange in the effective tax raterates compared to 20162019 resulted primarily from a change in income mix among different tax rate jurisdictions 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 income tax valuation allowancebenefit recorded in Europe for $3.4 million during the secondfirst quarter of 2017.2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.

27



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$20 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, collectioncollections of accounts receivable, and paymentpayments 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 ChangeJune 30, 2020December 31, 2019Change
(Dollars in thousands) $ %(Dollars in thousands)$%
Cash and cash equivalents$98,415
 $185,488
 $(87,073) (46.9)%Cash and cash equivalents$101,276  $67,030  $34,246  51.1 %
Accounts and notes receivable, net of allowances$732,756
 $606,084
 $126,672
 20.9 %
Accounts receivable, net of allowancesAccounts receivable, net of allowances$633,647  $674,706  $(41,059) (6.1)%
Consolidated DSO (1)
27.6
 23.1
 
 
Consolidated DSO (1)
29.0  27.1  
Merchandise inventories$989,251
 $916,311
 $72,940
 8.0 %Merchandise inventories$1,040,861  $1,146,192  $(105,331) (9.2)%
Consolidated inventory turnover (2)
8.1
 9.2
 
 
Consolidated inventory turnover (2)
5.7  6.6  
Accounts payable$875,630
 $750,750
 $124,880
 16.6 %Accounts payable$824,131  $808,035  $16,096  2.0 %
(1) Based on period end accounts receivable and net revenue for the quarter
(2) Based on average annual inventory and annualized costcosts of goods sold for the quarter ended SeptemberJune 30, 20172020 and year ended December 31, 20162019
Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20172020 and 2016:
2019, which relates to continuing operations and discontinued operations:
(Dollars in thousands)2017 2016(Dollars in thousands)20202019
Net cash provided by (used for):   Net cash provided by (used for):
Operating activities$5,645
 $144,511
Operating activities$150,457  $29,014  
Investing activities(403,578) (16,266)Investing activities126,959  (25,192) 
Financing activities305,723
 (82,821)Financing activities(171,062) (16,053) 
Effect of exchange rate changes5,137
 6,652
Effect of exchange rate changes5,412  203  
Increase (decrease) in cash and cash equivalents$(87,073) $52,076
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash$111,766  $(12,028) 
Cash provided by operating activities was $5.6 million in the first ninesix months of 2017, compared to $144.5 million2020 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 unfavorablenet income along with favorable changes in working capital.
26

Table of Contents
Cash provided by investing activities in the first six months of 2020 included cash consideration received of $133.0 million from the sale of Movianto, proceeds of $6.0 million from the surrender of company-owned life insurance policies, and capital including inventoryexpenditures of $12.1 million for our strategic and accounts receivable balances.
operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software. Cash used for investing activities was $403.6 million in the first nine months of 2017, compared to $16.3 million in the same period of 2016. Investing activities in 2017 and 2016 related to2019 included capital expenditures for our strategic and operational efficiency initiatives particularly initiatives relating to information technology enhancementsassociated with property and optimizing our distribution network. equipment and capitalized software.
Cash used for investing activities in 2017 also includes the acquisition of Byram Healthcare for $367 million.
Cash provided by financing activities in the first ninesix months of 2017 was $305.72020 included dividend payments of $0.3 million and repayments of $47.9 million under our revolving credit facility, compared to cash useddividend payments of $82.8$4.9 million and proceeds from borrowings of $19.9 million for the same period of 2019. We also had proceeds from borrowings of $150.0 million related to the Accounts Receivable Securitization Program. Financing activities also included repayments of $258.0 million in the first six months of 2020 compared to $24.8 million in the same period of 2016. During2019 on our term loans (under the Credit Agreement) and 2021 Notes and 2024 Notes. We used $83.2 million of cash to repurchase $87.8 million aggregate principal amount of the 2021 and 2024 Notes during the first ninesix months of 2017, we2020. We also paid dividends of $47.3 million (compared to $47.8$10.4 million in 2016), repurchased common stock under a share repurchase program for $5.0 million (comparedfinancing costs related to $48.7the February 2020 Accounts Receivable Securitization Program and the Fifth Amendment to the February 2020 Credit Agreement, as compared to $4.3 million in 2016) and borrowed on our newfinancing costs related to the February 2019 Fourth Amendment to the Credit Agreement ($250 million term loan and $117.2 million on our revolving credit facility). There were no borrowings in the prior year period.Agreement.
Capital resources.resources. Our sources of liquidity include cash and cash equivalents and a revolving credit facility. On July 27, 2017, we entered into a new Credit Agreement replacing the Amendedfacility under our Credit Agreement 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 revolving borrowing capacity of $600$400 million and a $250$686 million in outstanding 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

28


adjustment quarterly,our revolving credit facility and Term A Loans is based on 1) either the London Interbank Offered Rate (LIBOR), the Federal FundsEurocurrency Rate or the PrimeBase Rate plus 2) an adjustmentApplicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement). Our credit spread on the revolving credit facility and Term A Loans at June 30, 2020 was Eurocurrency Rate plus 4.25%. Our Term B Loan accrues interest based on 1) either the betterEurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of our debt ratings or leverage ratio (Credit Spread)3.50% per annum for Base Rate Loans, and 4.50% per annum for Eurocurrency Rate Loans (each as defined byin the Credit Agreement.Agreement). Our credit spread on the Term B Loan at June 30, 2020 was Eurocurrency Rate plus 4.50%. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility.
At June 30, 2020 and December 31, 2019, we had borrowings of $130.0 million and $177.9 million, respectively, under the revolver and letters of credit of $13.9 million and $11.7 million, respectively, outstanding under the Credit Agreement. At June 30, 2020 and December 31, 2019, we had $256.1 million and $209.3 million, respectively, available for borrowing. The December 31, 2019 availability reflected letters of credit associated with discontinued operations of $1.1 million. There were no letters of credit associated with discontinued operations as of June 30, 2020. We also had letters of credit and bank guarantees outstanding for $3.6 million, of which $2.0 million are in process of being transferred to the buyer of Movianto, and $1.5 million as of June 30, 2020 and December 31, 2019, respectively, which supports certain leased facilities as well as other normal business activities in the United States and Europe. These letters of credit and guarantees were issued independent of the Credit Agreement.
We 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, the holders of the 2024 Notes, and the parties secured under 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 of each Credit Party and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. The Fifth Amendment to the Credit Agreement included additional collateral requirements if the Credit Parties, including an obligation to pledge our owned U.S. real estate and the remaining equity interests in foreign subsidiaries.
Our Credit Agreement has a “springing maturity date” with respect to the revolving credit facility, the Term A Loans, and the Term B Loan. If the outstanding balance of the 2021 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2021 Notes, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility, the Term A Loans, and the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.
On February 19, 2020, we entered into an accounts receivable securitization program (the Receivables Securitization Program). Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time. The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued. Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Securitization Program matures on February 17, 2023. In February 2020, we drew $150 million from the Receivables
27

Table of Contents
Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement. The Fifth Amendment to the Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A loans to the extent those instruments are outstanding.
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. The terms of the Credit Agreement limitalso require the amount of indebtedness that we may incur and require uscompany to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.acquisition or divestiture. We were in compliance with our debt covenants at June 30, 2020.
In May 2020, we entered into an equity distribution agreement, pursuant to which we may utilizeoffer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50 million. We intend to use the revolving credit facilitynet proceeds from the sale of our securities offered by this program for long-term strategic growth, capital expenditures,the repayment of indebtedness and/or for general corporate and working capital purpose. As of June 30, 2020, no shares were issued and general corporate purposes. If$50 million of common stock remained available under the at-the-market equity financing program.
From time to time, we were unablemay enter into transactions to accessrepay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the revolving credit facility, it could impact ourdebt’s terms). Our ability to fund these needs. Basedconsummate any such transaction will depend on prevailing market conditions, our leverage ratio at September 30, 2017, the interest rate under the credit facility is LIBOR plus 1.375%.
At September 30, 2017,liquidity requirements, contractual restrictions and other factors. We cannot provide any assurance as to if or when we had borrowings of $117.2 million and letters of credit of approximately $5.1 million outstanding under the Credit Agreement, leaving $477.7 million available for borrowing. We also have a $1.3 million letter of credit outstanding as of September 30, 2017 and December 31, 2016 which supports our facilities leased in Europe.
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”). 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 amountwill consummate any such transactions or the present valueterms of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points.any such transaction.
In the thirdThe second quarter dividend 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 sharewas paid in the third quarter of 2016. We anticipate continuing to pay quarterly cash dividends in the future. However, theJune 2020. 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 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 the first nine months of 2017, we repurchased approximately 0.2 million shares for $5.0 million under this program. At September 30, 2017, 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, sharedebt 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. Our cash and cash equivalents held by our foreign subsidiaries totaled $66.3 million and $52.9 million at June 30, 2020 and December 31, 2019, respectively. We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand. We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2020. 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. We will continue to evaluate our foreign earnings repatriation policy in 2020 for all our foreign subsidiaries.

Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 20162019 and Note 1514 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on SeptemberJune 30, 2017.

29


2020.
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:
•our ability to achieve revenue and operating income goals may be affected by: COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, or temporary production and distribution center and office
28

Table of Contents
closures due to reduced workforces or government mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;
•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;
•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);regulations;
•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;
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 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;
•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;
•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;

30


•adverse changes in U.S. and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals;
29

Table of Contents
•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 withdrawal from the European Union; and
•other factors describeddetailed 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 subject to price risk for our raw materials, the most significant of which relates to the cost of polypropylene and nitrile used in the 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.
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, British pound and Thai baht. We may use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.
We are exposed to market risk from changes in interest rates related to our borrowing under our Credit Agreement and Receivables Securitization Program. However, we enter into interest rate swap agreements to manage our exposure to interest rate changes. We had $686 million in borrowings under our term loans, $130 million in borrowings under our revolving credit facility. We had $117.2facility, $147 million in outstanding borrowings under our Receivable Securitization Program, and approximately $5.1$14 million in letters of credit under the revolving credit facilityCredit Agreement at SeptemberJune 30, 2017. A hypothetical2020. After considering the effects of interest rate swap agreements outstanding as of June 30, 2020, 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$5 million per year for every $10 million ofbased on our borrowings outstanding borrowings under the revolving credit facility.at June 30, 2020.
Due to the nature and pricing of our DomesticGlobal 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 hashave included entering into leases forusing 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$2.66 and $3.07 per gallon in the first ninesix months of 2017, a increase from $2.25 per gallon in the first nine months of 2016.2020 and 2019, respectively. Based on our fuel consumption in the first ninesix months of 2017,2020, we estimate that every 10 cents per gallon increase in the benchmark would reduce our DomesticGlobal Solutions segment operating earningsincome by approximately $0.3$0.2 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 and British Pound. 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 our foreign currency transaction risks are low since our revenues and expenses are typically denominated in the same currency.
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 SeptemberJune 30, 2017.2020. There has beenwas 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 the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the 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 as to the effectiveness 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.
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, 2016.2019. Through SeptemberJune 30, 2017,2020, there have been no material developments in any legal proceedings reported in such Annual Report.


30

Table of Contents
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, 2016.2019 and our Form 10-Q for the three months ended March 31, 2020. Through SeptemberJune 30, 2017, we have added the following risk factors. There2020, there have been no other material changes in the risk factors described in such Annual Report.Report and First Quarter 2020 Form 10-Q.



31

Table of Contents

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 eitherMay 2020, we entered into an equity distribution agreement, pursuant to 10b5-1 plans entered into by the companywhich we may offer and sell, from time to time, and/or duringshares of our common stock having an aggregate offering price of up to $50 million. We intend to use the company’s scheduled quarterly trading windows for officers and directors. We did not repurchase any sharesnet proceeds from the sale of our securities offered by this program for the three months ended Septemberrepayment of indebtedness and/or for general corporate and working capital purposes. As of June 30, 2017.2020, no shares were issued and $50 million of common stock remained available under the at-the-market equity financing program.

32



Item 6. Exhibits
 
(a)Exhibits
31

Table of Contents
(a)Exhibits
31.110.1
10.2
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We hereby undertake to furnish copies of such omitted materials supplementally upon request by the SEC.
** Management contract or compensatory plan or arrangement

32
33


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:August 4, 2020Owens & Minor, Inc./s/ Edward A. Pesicka
(Registrant)Edward A. Pesicka
Date:November 1, 2017/s/ Paul C. Phipps
Paul C. Phipps
President & Chief Executive Officer
Date:November 1, 2017August 4, 2020/s/ Richard A. MeierAndrew G. Long
Richard A. MeierAndrew G. Long
Executive Vice President & Chief Financial Officer & President, International
 

33
34