DEI
DEI - shares | 3 Months Ended | |
Mar. 31, 2020 | May 08, 2020 | |
Entity [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2020 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 | |
Entity Registrant Name | COVETRUS, INC. | |
Entity Central Index Key | 0001752836 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Shell Company | false | |
Entity Current Reporting Status | Yes | |
Entity Common Stock, Shares Outstanding | 111,947,324 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 205 | $ 130 |
Accounts receivable, net of allowance of $8 and $8 | 525 | 426 |
Inventories, net | 572 | 636 |
Other receivables | 70 | 67 |
Prepaid expenses and other | 40 | 30 |
Assets held for sale (Note 3) | 48 | 51 |
Total current assets | 1,460 | 1,340 |
Non-current assets: | ||
Property and equipment, net of accumulated depreciation of $89 and $84 | 94 | 93 |
Operating lease right-of-use assets, net (Note 5) | 123 | 84 |
Goodwill | 1,154 | 1,154 |
Other intangibles, net (Note 6) | 605 | 643 |
Investments and other | 51 | 47 |
Total assets | 3,487 | 3,361 |
Current liabilities: | ||
Accounts payable | 466 | 520 |
Current maturities of long-term debt and other borrowings (Note 7) | 61 | 62 |
Accrued payroll and related liabilities | 45 | 44 |
Accrued taxes | 28 | 18 |
Other current liabilities | 180 | 164 |
Liabilities held for sale (Note 3) | 20 | 21 |
Total current liabilities | 800 | 829 |
Non-current liabilities: | ||
Long-term debt and other borrowings, net (Note 7) | 1,298 | 1,125 |
Deferred taxes | 46 | 47 |
Other liabilities | 132 | 94 |
Total liabilities | 2,276 | 2,095 |
Commitments and contingencies (Note 10) | ||
Redeemable non-controlling interests (Note 11) | 9 | 10 |
Shareholders' equity: | ||
Common stock, $0.01 par value per share, 675,000,000 shares authorized; 111,854,439 shares issued and outstanding as of March 31, 2020; 111,620,507 shares issued and outstanding as of December 31, 2019 | 1 | 1 |
Accumulated other comprehensive loss (Note 12) | (116) | (86) |
Additional paid-in capital | 2,390 | 2,381 |
Accumulated deficit | (1,073) | (1,040) |
Total shareholders’ equity | 1,202 | 1,256 |
Total liabilities, redeemable non-controlling interests, and shareholders’ equity | $ 3,487 | $ 3,361 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - Parenthetical - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Accounts receivable, reserves | $ 8 | $ 8 |
Property and equipment, accumulated depreciation | $ 89 | $ 84 |
Common stock, par value (in usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 675,000,000 | 675,000,000 |
Common stock, shares issued (in shares) | 111,854,439 | 111,620,507 |
Common stock, shares outstanding (in shares) | 111,854,439 | 111,620,507 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Income Statement [Abstract] | |||
Net sales | $ 1,065 | $ 941 | |
Cost of sales | 863 | 764 | |
Gross profit | 202 | 177 | |
Operating expenses: | |||
Selling, general and administrative | 222 | 186 | |
Operating loss | (20) | (9) | |
Other income (expense): | |||
Interest income | 0 | 2 | |
Interest expense | (14) | (12) | |
Other, net | (1) | 1 | |
Loss before taxes and equity in earnings of affiliates | (35) | (18) | |
Less: Income tax benefit | 2 | 4 | |
Net loss | (33) | (14) | |
Less: net loss attributable to redeemable non-controlling interests | 0 | 1 | |
Net loss attributable to Covetrus | [1] | $ (33) | $ (13) |
Loss per share attributable to Covetrus: (Note 14) | |||
Basic (in usd per share) | $ (0.30) | $ (0.14) | |
Diluted (in usd per share) | $ (0.30) | $ (0.14) | |
Weighted-average common shares outstanding: | |||
Basic (in shares) | 112 | 95 | |
Diluted (in shares) | 112 | 95 | |
[1] | (a) Net income earned from January 1, 2019 through February 7, 2019 is attributed to the Former Parent as it was the sole shareholder prior to February 7, 2019 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Statement of Comprehensive Income [Abstract] | ||
Net loss | $ (33) | $ (14) |
Other comprehensive (loss) income, net of tax: | ||
Foreign currency translation (loss) gain | (22) | 1 |
Unrealized loss on derivative instruments | (8) | 0 |
Total other comprehensive (loss) income | (30) | 1 |
Comprehensive loss | (63) | (13) |
Comprehensive (income) loss attributable to redeemable non-controlling interests: | ||
Net loss | 0 | 1 |
Foreign currency translation gain | (1) | 0 |
Comprehensive (income) loss attributable to redeemable non-controlling interests | (1) | 1 |
Comprehensive loss attributable to Covetrus | $ (64) | $ (12) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Millions | Total | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Net Former Parent Investment | |
Beginning balance (in shares) at Dec. 29, 2018 | 0 | ||||||
Beginning balance at Dec. 29, 2018 | $ 1,494 | $ 0 | $ 0 | $ 0 | $ (82) | $ 1,576 | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net loss attributable to Covetrus | [1] | (13) | (21) | 8 | |||
Dividend to Former Parent | (1,153) | 0 | (1,153) | ||||
Issuance of shares at Separation (including share sale investors) (in shares) | 71,693,426 | ||||||
Issuance of shares at Separation (including Share Sale investors) | 0 | $ 1 | 608 | (609) | |||
Issuance of shares in connection with the Acquisition (in shares) | 39,742,089 | ||||||
Issuance of shares in connection with the Acquisition | 1,772 | 1,772 | |||||
Net increase in Former Parent investment | 178 | 178 | |||||
Issuance of shares in connection with share-based compensation plans (in shares) | 140,828 | ||||||
Issuance of shares in connection with share-based compensation plans | 0 | 0 | |||||
Share-based compensation | 15 | 15 | |||||
Other comprehensive income | 1 | 1 | |||||
Ending balance (in shares) at Mar. 31, 2019 | 111,576,343 | ||||||
Ending balance at Mar. 31, 2019 | $ 2,294 | $ 1 | 2,395 | (21) | (81) | $ 0 | |
Beginning balance (in shares) at Dec. 31, 2019 | 111,620,507 | 111,620,507 | |||||
Beginning balance at Dec. 31, 2019 | $ 1,256 | $ 1 | 2,381 | (1,040) | (86) | ||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net loss attributable to Covetrus | [1] | (33) | (33) | ||||
Issuance of shares in connection with share-based compensation plans (in shares) | 233,932 | ||||||
Issuance of shares in connection with share-based compensation plans | 0 | 0 | |||||
Share-based compensation | 9 | 9 | |||||
Other comprehensive income | $ (30) | (30) | |||||
Ending balance (in shares) at Mar. 31, 2020 | 111,854,439 | 111,854,439 | |||||
Ending balance at Mar. 31, 2020 | $ 1,202 | $ 1 | $ 2,390 | $ (1,073) | $ (116) | ||
[1] | (a) Net income earned from January 1, 2019 through February 7, 2019 is attributed to the Former Parent as it was the sole shareholder prior to February 7, 2019 |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash flows from operating activities: | ||
Net loss | $ (33) | $ (14) |
Adjustments to reconcile net loss to net cash used for operating activities: | ||
Depreciation and amortization | 40 | 30 |
Amortization of right-of-use assets | 6 | 6 |
Gain on sale of property and equipment | (1) | 0 |
Share-based compensation expense | 9 | 15 |
Benefit for deferred income taxes | (5) | (2) |
Amortization of debt issuance costs | 1 | 1 |
Other | 1 | 0 |
Changes in operating assets and liabilities, net of acquisitions: | ||
Accounts receivable, net | (112) | (20) |
Inventories, net | 44 | (19) |
Other assets and liabilities | 5 | (59) |
Accounts payable and accrued expenses | (31) | 31 |
Net cash used for operating activities | (76) | (31) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (11) | (10) |
Payments related to equity investments and business acquisitions, net of cash acquired | 0 | (25) |
Proceeds from sale of property and equipment | 4 | 2 |
Net cash used for investing activities | (7) | (33) |
Cash flows from financing activities: | ||
Proceeds from revolving credit facility | 190 | 0 |
Proceeds from issuance of debt | 0 | 1,220 |
Principal payments of debt | (17) | (24) |
Debt issuance and amendment costs | (5) | (24) |
Dividend paid to Former Parent | 0 | (1,151) |
Net transfers from Former Parent | 0 | 165 |
Acquisition payment | (9) | 0 |
Acquisitions of non-controlling interests in subsidiaries | 0 | (70) |
Net cash provided by financing activities | 159 | 116 |
Effect of exchange rate changes on cash and cash equivalents | (1) | (2) |
Net change in cash and cash equivalents | 75 | 50 |
Cash and cash equivalents, beginning of period | 130 | 23 |
Cash and cash equivalents, end of period | 205 | 73 |
Supplemental disclosures of cash flows information: | ||
Interest | 12 | 8 |
Income taxes | 4 | 4 |
Amounts included in the measurement of operating lease liabilities | 6 | 6 |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ 46 | $ 67 |
Business Overview and Significa
Business Overview and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Business Overview and Significant Accounting Policies | Business Overview and Significant Accounting Policies Business Covetrus, Inc. (“Covetrus,” “Company,” “we,” “our,” “us,” or “ourselves”) is a global animal-health technology and services company dedicated to supporting the companion, equine, and large-animal veterinary markets. On February 7, 2019, Covetrus became an independent company through the consummation of the spin-off by Henry Schein (“Former Parent”) of its animal-health business (“Animal Health Business”) and the completion of its acquisition of Direct Vet Marketing, Inc. (d/b/a Vets First Choice) (“Vets First Choice”). On February 8, 2019, Covetrus began trading on the Nasdaq Stock Market. Accordingly, results provided in accordance with generally accepted accounting principles in the United States of America (“GAAP”) reflect the operations of the Animal Health Business from January 1, 2019 to March 31, 2019 and Vets First Choice for the period from February 8, 2019 to March 31, 2019 . Basis of Presentation and Principles of Consolidation The accompanying balance sheet as of December 31, 2019 , which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2020 have been prepared in accordance with applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”) filed with the SEC on March 3, 2020. The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. All significant intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified to conform to the presentation of the current period. Accounting Pronouncements Adopted • As of January 1, 2019, we adopted Accounting Standards Codification Topic 326, Credit Losses (“Topic 326”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including accounts receivable. Topic 326 is effective for interim and annual reporting periods beginning after December 15, 2019 and is required to be adopted using the modified retrospective basis, with a cumulative-effect adjustment to Retained earnings (Accumulated deficit) as of the beginning of the first reporting period in which the guidance of Topic 326 is effective. The adoption of Topic 326 did not have a material impact on the results of our condensed consolidated financial statements. To be Adopted • ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” removes specific technical exceptions to general principles found in Topic 740, items that often produce information that investors have a hard time understanding and simplifies the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are evaluating the anticipated impact of this standard on our condensed consolidated financial statements as well as timing of adoption. • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). The standard is effective for all entities beginning March 12, 2020 through December 31, 2022. We are evaluating the anticipated impact of this standard on our condensed consolidated financial statements as well as timing of adoption. |
Novel Coronavirus Disease ("COV
Novel Coronavirus Disease ("COVID-19") | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Novel Coronavirus Disease (COVID-19) | Novel Coronavirus Disease 2019 (“COVID-19”) The COVID-19 pandemic has resulted in social distancing and other preventative measures that were instituted in various localities around the world. These measures led to the temporary closure of non-essential businesses throughout many of the regions in which we conduct operations. However, veterinary care has been deemed an essential business in most of these regions, and we currently continue to deliver products and services to our customers and their animal-owner clients. In addition, most of our customers are generally able to continue their operations through new social distancing guidelines which, depending on local regulations, can include telehealth and video conferencing. As a result, through March 31, 2020, we experienced limited disruption to our results of operations from the COVID-19 pandemic. We believe our allowance for credit losses related to our accounts receivable remains adequate as of March 31, 2020, due to the essential nature of our customers' business, as noted above, as well as the historic behavior of our large customer base. Although we anticipate that there could be an increase in the aging of our accounts receivable, we do not anticipate a significant increase in defaults. We experienced a sustained decline in our share price and a resulting decrease in our market capitalization due to the overall macroeconomic effects of the COVID-19 pandemic. Due to this overall market decline and the uncertainty surrounding COVID-19, we concluded that a triggering event occurred and conducted an interim impairment review as of March 31, 2020. We tested for goodwill impairment by quantitatively comparing the fair value of our North America reporting unit (the only reporting unit currently bearing goodwill) to its carrying amount. Using the income-based approach, fair value exceeded the carrying amount as of March 31, 2020. We took the following actions, some of which were initiated in the second quarter, to help ensure that our business has flexibility to mitigate potential effects from continued global economic pressure: • We borrowed funds under our revolving line of credit to increase our cash position. See Note 7 - Long-term Debt and Other Borrowings, Net , • We reduced our non-critical near-term planned capital expenditures, • We initiated negotiations for extended payment terms on certain contracts, • We managed our inventory levels in line with current market conditions, and • We instituted executive, board, and other senior-level employee compensation reductions, employee furloughs in certain European countries, certain shift eliminations, a hiring freeze, discretionary spending deferrals, and deferred payroll taxes as available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and suspended our 401(k)-employer match. Risk and Uncertainties The duration and severity of COVID-19-related potential disruptions and the actions we have taken, and may in the future take, in response thereto involve risks and uncertainties and it is not possible at this time to estimate the impact that COVID-19 could have on our business. The impact of COVID-19 on various business activities in affected countries could adversely affect our estimates, results of operations, and financial condition. Commitments and Contingencies We are involved in various legal proceedings that arise in the ordinary course of business. Substantial judgment is required in predicting the outcome of these legal proceedings, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and can be reasonably estimated. No material accrued loss contingencies were recorded as of March 31, 2020 . Securities Litigation Matter On September 30, 2019, the City of Hollywood (Florida) Police Officers' Retirement System filed a putative securities class action lawsuit in the United States District Court for the Eastern District of New York, purportedly on behalf of purchasers of Covetrus common stock from February 8, 2019 through August 12, 2019, against the Company, our Former Parent, our former Chief Executive Officer and President, and our former Chief Financial Officer (collectively the “Defendants”). The complaint alleges that the Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by making allegedly false and misleading statements, and omissions, primarily regarding the Company’s financial prospects and the integration costs relating to the business combination involving the Animal Health Business and Vets First Choice. The suit seeks unspecified damages, fees, interest, and costs. We intend to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action. Purchase Obligations We are party to an exclusive supply arrangement for certain products within the U.S. market. We amended this arrangement in February 2020 to extend the purchase obligations until 2025 which include unconditional purchase obligations totaling $44 million over this period. In 2019, we engaged a third-party for services over a three-year period ending December 31, 2022. The fixed portion of the contract is capped at $14 million while the variable portion of the contract is capped at $39 million over the term of the engagement. We consider the contract to be of a “take-or-pay” nature due to the termination fees embedded in the contract: fixed termination fees of $10 million until mid-May 2020, $12 million until mid-November 2020, and $14 million thereafter, plus any variable performance fees through termination. During the three months ended March 31, 2020 , we incurred $3 million in variable fees and $1 million in fixed fees under this arrangement, leaving a remaining potential commitment of $47 million . |
Held for Sale
Held for Sale | 3 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Held for Sale | Held for Sale In January 2020, we entered into a definitive agreement to sell our scil animal-care business (“scil”) to Heska Corporation (“Heska”) for a purchase price of $125 million in cash, subject to customary closing adjustments. On April 1, 2020, we completed the divestiture of scil to Heska. The transaction closed under an amended purchase agreement which reduced the total consideration paid to us from $125 million to $110 million , or approximately $100 million net of deal-related fees and other transaction items. In conjunction with the price adjustment, an approximate $10 million escrow fund that was to be funded by Heska and used as collateral for a period of up to 18 months for any potential claims tied to the transaction was eliminated. scil's major classes of assets and liabilities were as follows: March 31, 2020 December 31, 2019 Current assets $ 23 $ 24 Property and equipment, net 16 15 Goodwill 2 2 Other intangibles, net 4 4 Investments and other 3 3 Assets held for sale $ 48 $ 48 Current liabilities $ 17 $ 18 Other liabilities 3 3 Liabilities held for sale $ 20 $ 21 The sale of scil resulted in a gain of approximately $74 million which will be recognized in the quarter ending June 30, 2020. |
Revenue from Contracts with Cus
Revenue from Contracts with Customers | 3 Months Ended |
Mar. 31, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Revenue from Contracts with Customers | Revenue from Contracts with Customers Disaggregation of Revenue The tables below present our revenue disaggregated by major product category and reportable segment. Three Months Ended March 31, 2020 Supply Chain Services Software Prescription Management Eliminations Total North America $ 462 $ 20 $ 84 $ (16 ) $ 550 Europe 424 2 — (4 ) 422 APAC & Emerging Markets 93 2 — — 95 Eliminations (2 ) — — — (2 ) Total Net sales $ 977 $ 24 $ 84 $ (20 ) $ 1,065 Three Months Ended March 31, 2019 Supply Chain Services Software Prescription Management Eliminations Total North America $ 442 $ 22 $ 34 $ (1 ) $ 497 Europe 362 2 — (3 ) 361 APAC & Emerging Markets 84 2 — — 86 Eliminations (3 ) — — — (3 ) Total Net sales $ 885 $ 26 $ 34 $ (4 ) $ 941 Contract Balances Contract balances represent amounts presented in the condensed consolidated balance sheets when we have either transferred goods or services to the customer or the customer has paid consideration to us under the contract. These contract balances include accounts receivable, contract assets, and contract liabilities. Accounts Receivable Accounts receivable are recognized at the amount invoiced and the carrying amount is reduced by an allowance for credit losses. Our estimation of current expected credit losses with respect to receivables and recognition of allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. We do not consider there to be significant concentrations of credit risk with regard to trade receivables due to the short-term nature of our accounts, our large customer base, and strong historical experience collecting receivables. The allowance for credit losses is based on a number of factors which include reviewing delinquent accounts receivable, historical data, experience, customer types, creditworthiness, and economic trends. From time to time, we adjust our assumptions for anticipated changes in any of these or other factors expected to affect collectability, and the allowance for credit losses is reviewed quarterly for any required adjustments. Accounts receivable are written-off when it is probable that all contractual payments due will not be collected. Contract Assets Contract assets include amounts related to any conditional right to consideration for work completed as of the reporting date and generally represent amounts owed to us by customers, but not yet billed. Contract assets are transferred to Accounts receivable when the right becomes unconditional. Current contract assets are included in Prepaid expenses and other and non-current contract assets are included in Investments and other within the condensed consolidated balance sheets. The contract assets primarily relate to the bundled arrangements for the sale of equipment and consumables and sales of term software licenses. Current and non-current contract asset balances as of March 31, 2020 and December 31, 2019 were not material. Contract Liabilities Contract liabilities are comprised of advance payments and deferred revenue amounts. Contract liabilities are transferred to revenue once the performance obligation has been satisfied. Current contract liabilities are included in Other current liabilities and non-current contract liabilities are included in Other liabilities within the condensed consolidated balance sheets. The contract liabilities primarily relate to advance payments from customers and upfront payments for service arrangements provided over time. The current portion of contract liabilities of $37 million at March 31, 2020 and $37 million at December 31, 2019 were reported in Other current liabilities . Amounts related to non-current contract liabilities were not material. Performance Obligations Estimated future revenues expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2020 were not material. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Leases | Leases During the three months ended March 31, 2020 , the new lease for our compounding facility and office space in Arizona commenced, which increased our operating lease right-of-use assets and liabilities by $19 million . This facility has a lease term of 14 years . We also commenced or extended various other facility and equipment operating leases which individually were not material. |
Other Intangibles, Net
Other Intangibles, Net | 3 Months Ended |
Mar. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Other Intangibles, Net | Other Intangibles, Net Other intangibles, net includes customer relationships, trademarks, patents, product development, and non-compete arrangements. The following table presents the balances within the condensed consolidated balance sheets as of: March 31, 2020 December 31, 2019 Gross definite-lived intangible assets $ 990 $ 1,001 Less: Accumulated amortization (385 ) (358 ) Other intangibles, net $ 605 $ 643 The following table presents our amortization expense: Three Months Ended March 31, Location 2020 2019 Cost of sales $ 1 $ 1 Selling, general and administrative 33 24 Total amortization expense $ 34 $ 25 |
Long-term Debt and Other Borrow
Long-term Debt and Other Borrowings, Net | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Long-term Debt and Other Borrowings, Net | Long-term Debt and Other Borrowings, Net As of March 31, 2020 , our Long-term debt and other borrowings, net consisted of the following: Commencement Date Maturity Date March 31, December 31, 2019 Revolving line of credit February 2019 February 2024 $ 190 $ — Term loan payable in quarterly installments of $15 million beginning March 31, 2020 February 2019 February 2024 1,185 1,200 Loan payable with balloon payment due at maturity February 2019 March 2023 5 6 Finance lease obligations 1 1 Total 1,381 1,207 Less: current maturities (61 ) (62 ) Total Long-term debt and other borrowings 1,320 1,145 Less: unamortized debt discount (22 ) (20 ) Total Long-term debt and other borrowings, net $ 1,298 $ 1,125 The amount available for borrowing under the revolving line of credit as of March 31, 2020 , was $100 million , subject to covenant restrictions. See Note 16 - Subsequent Events . In February 2020, our credit facility was amended primarily to delay the step down of our leverage covenant from 5.50 x to 5.00 x until our second quarter ending June 30, 2021. On April 10, 2020 , we used $45 million in proceeds from the sale of scil (see Note 3 - Held for Sale ) to prepay our remaining quarterly principal amortization term loan payments for 2020. Following this prepayment, the next quarterly principal amortization term loan payment of $15 million is due on March 31, 2021 . |
Derivatives and Financial Instr
Derivatives and Financial Instruments | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivatives and Financial Instruments | Derivatives and Financial Instruments We are exposed to the impact of changes in interest rates in the normal course of business. Our financial risk management program is designed to manage the exposure arising from this cash flow risk and uses derivative financial instruments to minimize this risk. We do not enter into derivative financial instruments for trading or speculative purposes. In 2019, we executed interest rate swap contracts with notional amounts aggregating $500 million that are designated as cash flow hedges to manage interest rate risk on our floating rate debt. These interest rate swap contracts adjust the amount of our total debt that is subject to variable interest rates by effectively fixing the borrowing rates on a portion of our floating rate debt discussed in Note 7 - Long-term Debt and Other Borrowings, Net . Our interest rate swap agreements exchange payment streams based on the notional principal amount. These agreements fix our future interest rates ranging from 1.63% to 1.70% plus the applicable margin as provided in our debt agreement on an amount of our debt principal equal to the then-outstanding swap notional amount. The base notional amount matures two years from inception on July 31, 2021. On the interest rate swap inception dates, we designated the swaps as a hedge of the variability in cash flows we pay on our variable rate borrowings. The following table discloses the fair value and balance sheet location of our derivative instruments: Liability Derivatives Cash Flow Hedging Instruments Balance Sheet Location March 31, 2020 December 31, 2019 Interest rate swap contracts Other liabilities $ 9 $ 1 At inception of the hedging contract, we used statistical regression to assess the effectiveness of the interest rate hedges. The hedging contracts were deemed highly effective and are expected to be highly effective throughout the hedge period. Therefore, we perform a qualitative assessment of the hedge effectiveness at each subsequent quarterly reporting date. As of March 31, 2020 , derivative gains and losses were reported as a component of Other comprehensive loss and will subsequently be recorded in the condensed consolidated statements of operations when the hedged transaction is recognized in earnings. The effect of cash flow hedges on Other comprehensive loss was as follows: Cash Flow Hedging Instruments Location Three Months Ended Amounts recognized in Other comprehensive loss, net of tax Accumulated other comprehensive loss $ (8 ) The net amount of deferred losses on cash flow hedges that are expected to be reclassified from Accumulated other comprehensive income (loss) into Interest expense within the next 12 months is $5 million . |
Fair Value
Fair Value | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair Value | Fair Value GAAP defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis, and certain financial assets and liabilities that are not measured at fair value in our condensed consolidated balance sheets, but the fair value is disclosed. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows: • Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability • Level 3 - Unobservable inputs for the asset or liability There were no changes in valuation approaches or techniques during the three months ended March 31, 2020 . See Note 10 - Fair Value in our Form 10-K for a description of our valuation techniques. Assets and Liabilities Measured at Fair Value on a Recurring Basis Derivative Contracts Our derivatives at March 31, 2020 consisted of five interest rate swap contracts which are over-the-counter and not traded through an exchange. The following table presents our financial instruments measured at fair value on a recurring basis and indicates the level within the fair value hierarchy: Level March 31, 2020 December 31, 2019 Liabilities: Interest rate swap contracts 2 $ 9 $ 1 See Note 8 - Derivatives and Financial Instruments . Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets that are measured at fair value on a nonrecurring basis primarily relate to Property and equipment, net, Operating lease right-of-use assets, net, Goodwill, and Other intangible, net. We do not periodically adjust carrying value to fair value for these assets; rather, the carrying value of the asset is reduced to its fair value when we determine that impairment has occurred. We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2020 , or the year ended December 31, 2019 . Assets and Liabilities not Measured at Fair Value Financial Assets and Liabilities The carrying amounts reported on the condensed consolidated balance sheets for Cash and cash equivalents, Accounts receivable, net, Other receivables, Accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Investments in Affiliates There are no quoted market prices available for investments in affiliates, however, we believe the carrying amounts are a reasonable estimate of fair value. Long-term Debt Our Long-term debt is classified as a level 2 instrument. The carrying amount of the term loan approximates fair value given the underlying interest rate applied to such amounts outstanding is currently reset to the prevailing monthly market rate. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Novel Coronavirus Disease 2019 (“COVID-19”) The COVID-19 pandemic has resulted in social distancing and other preventative measures that were instituted in various localities around the world. These measures led to the temporary closure of non-essential businesses throughout many of the regions in which we conduct operations. However, veterinary care has been deemed an essential business in most of these regions, and we currently continue to deliver products and services to our customers and their animal-owner clients. In addition, most of our customers are generally able to continue their operations through new social distancing guidelines which, depending on local regulations, can include telehealth and video conferencing. As a result, through March 31, 2020, we experienced limited disruption to our results of operations from the COVID-19 pandemic. We believe our allowance for credit losses related to our accounts receivable remains adequate as of March 31, 2020, due to the essential nature of our customers' business, as noted above, as well as the historic behavior of our large customer base. Although we anticipate that there could be an increase in the aging of our accounts receivable, we do not anticipate a significant increase in defaults. We experienced a sustained decline in our share price and a resulting decrease in our market capitalization due to the overall macroeconomic effects of the COVID-19 pandemic. Due to this overall market decline and the uncertainty surrounding COVID-19, we concluded that a triggering event occurred and conducted an interim impairment review as of March 31, 2020. We tested for goodwill impairment by quantitatively comparing the fair value of our North America reporting unit (the only reporting unit currently bearing goodwill) to its carrying amount. Using the income-based approach, fair value exceeded the carrying amount as of March 31, 2020. We took the following actions, some of which were initiated in the second quarter, to help ensure that our business has flexibility to mitigate potential effects from continued global economic pressure: • We borrowed funds under our revolving line of credit to increase our cash position. See Note 7 - Long-term Debt and Other Borrowings, Net , • We reduced our non-critical near-term planned capital expenditures, • We initiated negotiations for extended payment terms on certain contracts, • We managed our inventory levels in line with current market conditions, and • We instituted executive, board, and other senior-level employee compensation reductions, employee furloughs in certain European countries, certain shift eliminations, a hiring freeze, discretionary spending deferrals, and deferred payroll taxes as available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and suspended our 401(k)-employer match. Risk and Uncertainties The duration and severity of COVID-19-related potential disruptions and the actions we have taken, and may in the future take, in response thereto involve risks and uncertainties and it is not possible at this time to estimate the impact that COVID-19 could have on our business. The impact of COVID-19 on various business activities in affected countries could adversely affect our estimates, results of operations, and financial condition. Commitments and Contingencies We are involved in various legal proceedings that arise in the ordinary course of business. Substantial judgment is required in predicting the outcome of these legal proceedings, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and can be reasonably estimated. No material accrued loss contingencies were recorded as of March 31, 2020 . Securities Litigation Matter On September 30, 2019, the City of Hollywood (Florida) Police Officers' Retirement System filed a putative securities class action lawsuit in the United States District Court for the Eastern District of New York, purportedly on behalf of purchasers of Covetrus common stock from February 8, 2019 through August 12, 2019, against the Company, our Former Parent, our former Chief Executive Officer and President, and our former Chief Financial Officer (collectively the “Defendants”). The complaint alleges that the Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by making allegedly false and misleading statements, and omissions, primarily regarding the Company’s financial prospects and the integration costs relating to the business combination involving the Animal Health Business and Vets First Choice. The suit seeks unspecified damages, fees, interest, and costs. We intend to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action. Purchase Obligations We are party to an exclusive supply arrangement for certain products within the U.S. market. We amended this arrangement in February 2020 to extend the purchase obligations until 2025 which include unconditional purchase obligations totaling $44 million over this period. In 2019, we engaged a third-party for services over a three-year period ending December 31, 2022. The fixed portion of the contract is capped at $14 million while the variable portion of the contract is capped at $39 million over the term of the engagement. We consider the contract to be of a “take-or-pay” nature due to the termination fees embedded in the contract: fixed termination fees of $10 million until mid-May 2020, $12 million until mid-November 2020, and $14 million thereafter, plus any variable performance fees through termination. During the three months ended March 31, 2020 , we incurred $3 million in variable fees and $1 million in fixed fees under this arrangement, leaving a remaining potential commitment of $47 million . |
Redeemable Non-controlling Inte
Redeemable Non-controlling Interests | 3 Months Ended |
Mar. 31, 2020 | |
Noncontrolling Interest [Abstract] | |
Redeemable Non-controlling Interests | Redeemable Non-controlling Interests Some minority equity owners in certain of our subsidiaries have the right, at certain times, to require us to acquire their ownership interest in those entities. We initially record our Redeemable non-controlling interests at fair value on the date of acquisition and subsequently adjust to redemption value. The following table presents the components of change and balances of Redeemable non-controlling interests within the condensed consolidated balance sheets as follows: Three Months Ended March 31, 2020 Year Ended Balance at beginning of period $ 10 $ 92 Decrease due to redemptions — (74 ) Net loss attributable to redeemable non-controlling interests — (3 ) Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests (1 ) 1 Change to redemption value — (6 ) Balance at end of period $ 9 $ 10 |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income (Loss) | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
Accumulated Other Comprehensive Income (Loss) | Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) includes certain gains and losses that are excluded from net income (loss) under GAAP as these amounts are recorded directly as an adjustment to total equity. The following table presents the changes in Accumulated other comprehensive loss, net of applicable taxes, by component: Derivative Loss Foreign Currency Translation Loss Total Balance at December 29, 2018 $ — $ (82 ) $ (82 ) Other comprehensive loss before reclassifications (1 ) (4 ) (5 ) Gain reclassified from Accumulated other comprehensive loss to earnings 1 — 1 Balance at December 31, 2019 — (86 ) (86 ) Other comprehensive loss before reclassifications (8 ) (22 ) (30 ) Balance at March 31, 2020 $ (8 ) $ (108 ) $ (116 ) We recognized foreign currency translation losses as a component of comprehensive income (loss) due to changes in foreign exchange rates from the beginning of the period to the end of the period. The condensed consolidated financial statements are denominated in the U.S. dollar currency. Fluctuations in the value of foreign currencies as compared to the U.S. dollar may have a significant impact on Comprehensive income (loss). The tax effect on accumulated unrealized losses on derivative instruments was not material for the periods presented. See Note 8 - Derivatives and Financial Instruments . |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Income tax benefit for the three months ended March 31, 2020 was $2 million on a loss before taxes and equity in earnings of affiliates of $35 million for a consolidated effective tax rate of 5.7% . The difference between our effective tax rate and the federal statutory tax rates for the jurisdictions in which we operate, for this period, primarily related to valuation allowances due to uncertainty regarding the realization of future tax benefits from deferred tax assets and non-deductible expenses associated with share-based compensation. Income tax benefit for the three months ended March 31, 2019 was $4 million on a loss before taxes and equity in earnings of affiliates of $18 million for a consolidated effective tax rate of 22.2% . The difference between our effective tax rate and the federal statutory tax rates for the jurisdictions in which we operate, for this period, primarily related to state and foreign income taxes and interest expense. The CARES Act On March 27, 2020, the President of the United States signed the CARES Act, a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act did not have a material impact to our condensed consolidated financial statements as of and for the quarter ended March 31, 2020 . |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 3 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings (loss) per common share (“EPS”) is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. In addition, the shares of common stock issuable pursuant to restricted stock awards, restricted stock units, and stock options outstanding under our 2019 Omnibus Incentive Compensation Plan are included in the diluted EPS calculation to the extent they are dilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for net loss per share: Three Months Ended March 31, (In millions, except per share amounts) 2020 2019 Numerator: Net loss attributable to Covetrus $ (33 ) $ (13 ) Denominator: Basic Weighted-average common shares outstanding 112 95 Diluted shares Effect of dilutive shares (a) — — Diluted shares 112 95 Loss per share attributable to Covetrus: Basic $ (0.30 ) $ (0.14 ) Diluted $ (0.30 ) $ (0.14 ) (a) Shares from share-based awards are not included for periods with a net loss because they would be anti-dilutive. |
Segment Data
Segment Data | 3 Months Ended |
Mar. 31, 2020 | |
Segment Reporting [Abstract] | |
Segment Data | Segment Data The following tables reflects our segment and Corporate information and reconciles Adjusted EBITDA for reportable segments to consolidated Net loss attributable to Covetrus: At and For the Three Months Ended March 31, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 550 $ 422 $ 95 $ — $ (2 ) $ 1,065 Adjusted EBITDA $ 41 $ 18 $ 7 $ (18 ) $ — $ 48 Total assets $ 3,063 $ 725 $ 128 $ 787 $ (1,216 ) $ 3,487 Reconciliation of Net Loss Attributable to Covetrus to Adjusted EBITDA: Net loss attributable to Covetrus $ (33 ) Plus: Depreciation and amortization 40 Plus: Interest expense, net 14 Less: Income tax benefit (2 ) Earnings before interest, taxes, depreciation, and amortization 19 Plus: Share-based compensation 9 Plus: Strategic consulting 4 Plus: Transaction costs (1) 7 Plus: Separation programs and executive severance 1 Plus: IT infrastructure 1 Plus: Formation of Covetrus (2) 6 Plus: Capital structure 1 Adjusted EBITDA $ 48 (1) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures. (2) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company. At and For the Three Months Ended March 31, 2019 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 497 $ 361 $ 86 $ — $ (3 ) $ 941 Adjusted EBITDA $ 35 $ 16 $ 5 $ (4 ) $ — $ 52 Total assets $ 3,364 $ 803 $ 194 $ 742 $ (834 ) $ 4,269 Reconciliation of Net Loss Attributable to Covetrus to Adjusted EBITDA: Net loss attributable to Covetrus $ (13 ) Plus: Depreciation and amortization 30 Plus: Interest expense, net 10 Less: Income tax benefit (4 ) Earnings before interest, taxes, depreciation, and amortization 23 Plus: Share-based compensation 15 Plus: Formation of Covetrus (1) 9 Plus: Carve-out operating expenses 5 Adjusted EBITDA $ 52 (1) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company. See Note 4 - Revenue from Contracts with Customers for our revenue disaggregated by major product category and reportable segment. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events Preferred Stock On April 30, 2020, we entered into an Investment Agreement (the “Investment Agreement”) with CD&R VFC Holdings, L.P. (the “Purchaser”), an affiliate of Clayton, Dubilier & Rice, LLC, pursuant to which we agreed to issue and sell to the Purchaser, and the Purchaser agreed to purchase from us, 250,000 shares of our 7.50% Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), in a private placement for aggregate gross proceeds of $250 million (such transaction, the “Private Placement”). The Series A Preferred Stock, once issued, will be convertible into shares of our common stock at a conversion price and a conversion rate set forth in the Certificate of Designations classifying the Series A Preferred Stock, a form of which is attached as Annex I to the Investment Agreement, a copy of which is filed as an exhibit to this Quarterly Report on Form 10-Q. On an as-converted basis, together with the Purchaser's existing common shares of Covetrus, the Purchaser will own approximately 25% of pro forma common shares outstanding. However, the terms of the preferred stock limit the Purchaser's voting interest to 19.99% of our then-outstanding voting interests. Under the terms of the Investment Agreement, the Purchaser will have the right to appoint two designees to our board of directors. We expect to use the net proceeds from the Private Placement to repay a portion of our revolver borrowings, provide additional short-term liquidity, and support general corporate purposes. Other Transactions On April 30, 2020, we completed the previously announced combination of our subsidiary, Covetrus Espana, with Distrivet S.A. to form a leading animal-health provider on the Iberian Peninsula. At closing, we made a payment of $11 million and we are obligated to make an additional payment of $11 million on the one-year anniversary. We now own 50.01% of the new company, called Distrivet, a Covetrus company. Also see Note 3 - Held for Sale for information on the April 1, 2020 closing of the sale of scil to Heska . |
Business Overview and Signifi_2
Business Overview and Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Business | Business Covetrus, Inc. (“Covetrus,” “Company,” “we,” “our,” “us,” or “ourselves”) is a global animal-health technology and services company dedicated to supporting the companion, equine, and large-animal veterinary markets. On February 7, 2019, Covetrus became an independent company through the consummation of the spin-off by Henry Schein (“Former Parent”) of its animal-health business (“Animal Health Business”) and the completion of its acquisition of Direct Vet Marketing, Inc. (d/b/a Vets First Choice) (“Vets First Choice”). On February 8, 2019, Covetrus began trading on the Nasdaq Stock Market. Accordingly, results provided in accordance with generally accepted accounting principles in the United States of America (“GAAP”) reflect the operations of the Animal Health Business from January 1, 2019 to March 31, 2019 and Vets First Choice for the period from February 8, 2019 to March 31, 2019 . |
Basis of Presentation | Basis of Presentation and Principles of Consolidation The accompanying balance sheet as of December 31, 2019 , which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2020 have been prepared in accordance with applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”) filed with the SEC on March 3, 2020. |
Principles of Consolidation | The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. All significant intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified to conform to the presentation of the current period. |
Accounting Pronouncements Adopted and Recently Issued Accounting Standards | Accounting Pronouncements Adopted • As of January 1, 2019, we adopted Accounting Standards Codification Topic 326, Credit Losses (“Topic 326”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including accounts receivable. Topic 326 is effective for interim and annual reporting periods beginning after December 15, 2019 and is required to be adopted using the modified retrospective basis, with a cumulative-effect adjustment to Retained earnings (Accumulated deficit) as of the beginning of the first reporting period in which the guidance of Topic 326 is effective. The adoption of Topic 326 did not have a material impact on the results of our condensed consolidated financial statements. To be Adopted • ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” removes specific technical exceptions to general principles found in Topic 740, items that often produce information that investors have a hard time understanding and simplifies the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are evaluating the anticipated impact of this standard on our condensed consolidated financial statements as well as timing of adoption. • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). The standard is effective for all entities beginning March 12, 2020 through December 31, 2022. We are evaluating the anticipated impact of this standard on our condensed consolidated financial statements as well as timing of adoption. |
Contract Balances | Three Months Ended March 31, 2020 Supply Chain Services Software Prescription Management Eliminations Total North America $ 462 $ 20 $ 84 $ (16 ) $ 550 Europe 424 2 — (4 ) 422 APAC & Emerging Markets 93 2 — — 95 Eliminations (2 ) — — — (2 ) Total Net sales $ 977 $ 24 $ 84 $ (20 ) $ 1,065 Three Months Ended March 31, 2019 Supply Chain Services Software Prescription Management Eliminations Total North America $ 442 $ 22 $ 34 $ (1 ) $ 497 Europe 362 2 — (3 ) 361 APAC & Emerging Markets 84 2 — — 86 Eliminations (3 ) — — — (3 ) Total Net sales $ 885 $ 26 $ 34 $ (4 ) $ 941 |
Fair Value | Assets and Liabilities Measured at Fair Value on a Recurring Basis Derivative Contracts Our derivatives at March 31, 2020 consisted of five interest rate swap contracts which are over-the-counter and not traded through an exchange. The following table presents our financial instruments measured at fair value on a recurring basis and indicates the level within the fair value hierarchy: Level March 31, 2020 December 31, 2019 Liabilities: Interest rate swap contracts 2 $ 9 $ 1 See Note 8 - Derivatives and Financial Instruments . Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets that are measured at fair value on a nonrecurring basis primarily relate to Property and equipment, net, Operating lease right-of-use assets, net, Goodwill, and Other intangible, net. We do not periodically adjust carrying value to fair value for these assets; rather, the carrying value of the asset is reduced to its fair value when we determine that impairment has occurred. We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2020 , or the year ended December 31, 2019 . Assets and Liabilities not Measured at Fair Value Financial Assets and Liabilities The carrying amounts reported on the condensed consolidated balance sheets for Cash and cash equivalents, Accounts receivable, net, Other receivables, Accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Investments in Affiliates There are no quoted market prices available for investments in affiliates, however, we believe the carrying amounts are a reasonable estimate of fair value. Long-term Debt Our Long-term debt is classified as a level 2 instrument. The carrying amount of the term loan approximates fair value given the underlying interest rate applied to such amounts outstanding is currently reset to the prevailing monthly market rate. |
Held for Sale (Tables)
Held for Sale (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Held for Sale Major Classes of Assets and Liabilities | scil's major classes of assets and liabilities were as follows: March 31, 2020 December 31, 2019 Current assets $ 23 $ 24 Property and equipment, net 16 15 Goodwill 2 2 Other intangibles, net 4 4 Investments and other 3 3 Assets held for sale $ 48 $ 48 Current liabilities $ 17 $ 18 Other liabilities 3 3 Liabilities held for sale $ 20 $ 21 |
Revenue from Contracts with C_2
Revenue from Contracts with Customers (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of Revenue | Three Months Ended March 31, 2020 Supply Chain Services Software Prescription Management Eliminations Total North America $ 462 $ 20 $ 84 $ (16 ) $ 550 Europe 424 2 — (4 ) 422 APAC & Emerging Markets 93 2 — — 95 Eliminations (2 ) — — — (2 ) Total Net sales $ 977 $ 24 $ 84 $ (20 ) $ 1,065 Three Months Ended March 31, 2019 Supply Chain Services Software Prescription Management Eliminations Total North America $ 442 $ 22 $ 34 $ (1 ) $ 497 Europe 362 2 — (3 ) 361 APAC & Emerging Markets 84 2 — — 86 Eliminations (3 ) — — — (3 ) Total Net sales $ 885 $ 26 $ 34 $ (4 ) $ 941 |
Other Intangibles, Net (Tables)
Other Intangibles, Net (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Finite-Lived Intangible Assets | The following table presents the balances within the condensed consolidated balance sheets as of: March 31, 2020 December 31, 2019 Gross definite-lived intangible assets $ 990 $ 1,001 Less: Accumulated amortization (385 ) (358 ) Other intangibles, net $ 605 $ 643 |
Finite-lived Intangible Assets Amortization Expense | The following table presents our amortization expense: Three Months Ended March 31, Location 2020 2019 Cost of sales $ 1 $ 1 Selling, general and administrative 33 24 Total amortization expense $ 34 $ 25 |
Long-term Debt and Other Borr_2
Long-term Debt and Other Borrowings, Net (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Schedule of Debt | As of March 31, 2020 , our Long-term debt and other borrowings, net consisted of the following: Commencement Date Maturity Date March 31, December 31, 2019 Revolving line of credit February 2019 February 2024 $ 190 $ — Term loan payable in quarterly installments of $15 million beginning March 31, 2020 February 2019 February 2024 1,185 1,200 Loan payable with balloon payment due at maturity February 2019 March 2023 5 6 Finance lease obligations 1 1 Total 1,381 1,207 Less: current maturities (61 ) (62 ) Total Long-term debt and other borrowings 1,320 1,145 Less: unamortized debt discount (22 ) (20 ) Total Long-term debt and other borrowings, net $ 1,298 $ 1,125 |
Derivatives and Financial Ins_2
Derivatives and Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The following table discloses the fair value and balance sheet location of our derivative instruments: Liability Derivatives Cash Flow Hedging Instruments Balance Sheet Location March 31, 2020 December 31, 2019 Interest rate swap contracts Other liabilities $ 9 $ 1 |
Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location | The effect of cash flow hedges on Other comprehensive loss was as follows: Cash Flow Hedging Instruments Location Three Months Ended Amounts recognized in Other comprehensive loss, net of tax Accumulated other comprehensive loss $ (8 ) |
Fair Value Fair Value (Tables)
Fair Value Fair Value (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value Disclosures [Abstract] | |
Schedule Financial Instruments Measured at Fair Value on a Recurring Basis | The following table presents our financial instruments measured at fair value on a recurring basis and indicates the level within the fair value hierarchy: Level March 31, 2020 December 31, 2019 Liabilities: Interest rate swap contracts 2 $ 9 $ 1 |
Redeemable Non-controlling In_2
Redeemable Non-controlling Interests (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Noncontrolling Interest [Abstract] | |
Redeemable Non-controlling Interests | The following table presents the components of change and balances of Redeemable non-controlling interests within the condensed consolidated balance sheets as follows: Three Months Ended March 31, 2020 Year Ended Balance at beginning of period $ 10 $ 92 Decrease due to redemptions — (74 ) Net loss attributable to redeemable non-controlling interests — (3 ) Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests (1 ) 1 Change to redemption value — (6 ) Balance at end of period $ 9 $ 10 |
Accumulated Other Comprehensi_2
Accumulated Other Comprehensive Income (Loss) (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
Schedule of Accumulated Other Comprehensive Loss | The following table presents the changes in Accumulated other comprehensive loss, net of applicable taxes, by component: Derivative Loss Foreign Currency Translation Loss Total Balance at December 29, 2018 $ — $ (82 ) $ (82 ) Other comprehensive loss before reclassifications (1 ) (4 ) (5 ) Gain reclassified from Accumulated other comprehensive loss to earnings 1 — 1 Balance at December 31, 2019 — (86 ) (86 ) Other comprehensive loss before reclassifications (8 ) (22 ) (30 ) Balance at March 31, 2020 $ (8 ) $ (108 ) $ (116 ) |
Earnings (Loss) Per Share (Tabl
Earnings (Loss) Per Share (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share [Abstract] | |
Reconciliation of Basic Shares to Diluted Shares | The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for net loss per share: Three Months Ended March 31, (In millions, except per share amounts) 2020 2019 Numerator: Net loss attributable to Covetrus $ (33 ) $ (13 ) Denominator: Basic Weighted-average common shares outstanding 112 95 Diluted shares Effect of dilutive shares (a) — — Diluted shares 112 95 Loss per share attributable to Covetrus: Basic $ (0.30 ) $ (0.14 ) Diluted $ (0.30 ) $ (0.14 ) (a) Shares from share-based awards are not included for periods with a net loss because they would be anti-dilutive. |
Segment Data (Tables)
Segment Data (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information, by Segment | The following tables reflects our segment and Corporate information and reconciles Adjusted EBITDA for reportable segments to consolidated Net loss attributable to Covetrus: At and For the Three Months Ended March 31, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 550 $ 422 $ 95 $ — $ (2 ) $ 1,065 Adjusted EBITDA $ 41 $ 18 $ 7 $ (18 ) $ — $ 48 Total assets $ 3,063 $ 725 $ 128 $ 787 $ (1,216 ) $ 3,487 Reconciliation of Net Loss Attributable to Covetrus to Adjusted EBITDA: Net loss attributable to Covetrus $ (33 ) Plus: Depreciation and amortization 40 Plus: Interest expense, net 14 Less: Income tax benefit (2 ) Earnings before interest, taxes, depreciation, and amortization 19 Plus: Share-based compensation 9 Plus: Strategic consulting 4 Plus: Transaction costs (1) 7 Plus: Separation programs and executive severance 1 Plus: IT infrastructure 1 Plus: Formation of Covetrus (2) 6 Plus: Capital structure 1 Adjusted EBITDA $ 48 (1) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures. (2) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company. At and For the Three Months Ended March 31, 2019 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 497 $ 361 $ 86 $ — $ (3 ) $ 941 Adjusted EBITDA $ 35 $ 16 $ 5 $ (4 ) $ — $ 52 Total assets $ 3,364 $ 803 $ 194 $ 742 $ (834 ) $ 4,269 Reconciliation of Net Loss Attributable to Covetrus to Adjusted EBITDA: Net loss attributable to Covetrus $ (13 ) Plus: Depreciation and amortization 30 Plus: Interest expense, net 10 Less: Income tax benefit (4 ) Earnings before interest, taxes, depreciation, and amortization 23 Plus: Share-based compensation 15 Plus: Formation of Covetrus (1) 9 Plus: Carve-out operating expenses 5 Adjusted EBITDA $ 52 (1) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company. See Note 4 - Revenue from Contracts with Customers for our revenue disaggregated by major product category and reportable segment. |
Held for Sale (Details)
Held for Sale (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Apr. 01, 2020 | Mar. 31, 2020 | Jan. 31, 2020 | Dec. 31, 2019 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Current liabilities | $ 20 | $ 21 | |||
scil Animal Care Business | Disposal Group, Held-for-sale, Not Discontinued Operations | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Purchase price | $ 125 | ||||
Current assets | 23 | 24 | |||
Property and equipment, net | 16 | 15 | |||
Goodwill | 2 | 2 | |||
Other intangibles, net | 4 | 4 | |||
Investments and other | 3 | 3 | |||
Assets held for sale | 48 | 48 | |||
Current liabilities | 17 | 18 | |||
Other non-current liabilities | 3 | 3 | |||
Liabilities held for sale | $ 20 | $ 21 | |||
scil Animal Care Business | Subsequent Event | Disposal Group, Held-for-sale, Not Discontinued Operations | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Purchase price | $ 110 | ||||
Disposal Group, Including Discontinued Operation, Consideration, Net of Dealer Related Fees and other Transactions | 100 | ||||
Collateral Pledged | scil Animal Care Business | Subsequent Event | Disposal Group, Held-for-sale, Not Discontinued Operations | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Purchase price | $ 10 | ||||
Forecast | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Building held-for-sale | $ 74 |
- Revenue from Contracts with C
- Revenue from Contracts with Customers - Disaggregation of Revenue (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Disaggregation of Revenue [Line Items] | ||
Net sales | $ 1,065 | $ 941 |
North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 550 | 497 |
Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 422 | 361 |
APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 95 | 86 |
Operating Segments | North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 550 | 497 |
Operating Segments | Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 422 | 361 |
Operating Segments | APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 95 | 86 |
Operating Segments | Supply Chain Services | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 977 | 885 |
Operating Segments | Supply Chain Services | North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 462 | 442 |
Operating Segments | Supply Chain Services | Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 424 | 362 |
Operating Segments | Supply Chain Services | APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 93 | 84 |
Operating Segments | Software Solutions | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 24 | 26 |
Operating Segments | Software Solutions | North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 20 | 22 |
Operating Segments | Software Solutions | Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 2 | 2 |
Operating Segments | Software Solutions | APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 2 | 2 |
Operating Segments | Prescription Management | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 84 | 34 |
Operating Segments | Prescription Management | North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 84 | 34 |
Operating Segments | Prescription Management | Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 0 | 0 |
Operating Segments | Prescription Management | APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 0 | 0 |
Eliminations | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | (20) | (4) |
Eliminations | North America | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | (16) | (1) |
Eliminations | Europe | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | (4) | (3) |
Eliminations | APAC & Emerging Markets | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 0 | 0 |
Eliminations | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | (2) | (3) |
Eliminations | Supply Chain Services | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | (2) | (3) |
Eliminations | Software Solutions | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | 0 | 0 |
Eliminations | Prescription Management | ||
Disaggregation of Revenue [Line Items] | ||
Net sales | $ 0 | $ 0 |
Revenue from Contracts with C_3
Revenue from Contracts with Customers - Narrative (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Revenue from Contract with Customer [Abstract] | ||
Current contract liabilities | $ 37 | $ 37 |
Leases - Narrative (Details)
Leases - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Lessee, Lease, Description [Line Items] | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ 46 | $ 67 |
Term of contract | 14 years | |
Office space | Arizona | ||
Lessee, Lease, Description [Line Items] | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ 19 |
Other Intangibles, Net - Goodwi
Other Intangibles, Net - Goodwill Rollforward (Details) $ in Millions | Mar. 31, 2020USD ($) |
Goodwill [Roll Forward] | |
Beginning Balance | $ 1,154 |
Ending Balance | $ 1,154 |
Other Intangibles, Net - Finite
Other Intangibles, Net - Finite Lived Intangible Assets (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Gross definite-lived intangible assets | $ 990 | $ 1,001 |
Less: Accumulated amortization | (385) | (358) |
Other intangibles, net | $ 605 | $ 643 |
Other Intangibles, Net - Amorti
Other Intangibles, Net - Amortization of Intangible Assets (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 34 | $ 25 |
Cost of sales | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 1 | 1 |
Selling, general and administrative | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 33 | $ 24 |
Long-term Debt and Other Borr_3
Long-term Debt and Other Borrowings, Net - Schedule of Debt (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||
Total | $ 1,381 | $ 1,207 |
Less: current maturities | (61) | (62) |
Total Long-term debt and other borrowings | 1,320 | 1,145 |
Less: unamortized debt discount | (22) | (20) |
Total Long-term debt and other borrowings | 1,298 | 1,125 |
Finance lease obligations | ||
Debt Instrument [Line Items] | ||
Finance lease obligations | 1 | 1 |
Notes Payable to Banks | Term loan payable in quarterly installments of $15 million beginning March 31, 2020 | ||
Debt Instrument [Line Items] | ||
Long-term debt | 1,185 | 1,200 |
Notes Payable to Banks | Loan payable with balloon payment due at maturity | ||
Debt Instrument [Line Items] | ||
Long-term debt | 5 | 6 |
Revolving Facility | Credit Agreement | ||
Debt Instrument [Line Items] | ||
Long-term debt | $ 190 | $ 0 |
Long-term Debt and Other Borr_4
Long-term Debt and Other Borrowings, Net - Narrative (Details) $ in Millions | Apr. 10, 2020USD ($) | Mar. 31, 2021USD ($) | Mar. 31, 2020USD ($) | Feb. 29, 2020 | Dec. 31, 2019 |
Forecast | |||||
Line of Credit Facility [Line Items] | |||||
Repayments of debt | $ 15 | ||||
Subsequent Event | |||||
Line of Credit Facility [Line Items] | |||||
Repayments of debt | $ 45 | ||||
Notes Payable to Banks | Term loan payable in quarterly installments of $15 million beginning March 31, 2020 | |||||
Line of Credit Facility [Line Items] | |||||
Long Term Debt, Quarterly Installment Payment, Amount | $ 15 | ||||
Credit Agreement | Syndicated Credit Agreement 2019 | |||||
Line of Credit Facility [Line Items] | |||||
Leverage ratio | 5 | 5.50 | |||
Revolving Facility | Credit Agreement | |||||
Line of Credit Facility [Line Items] | |||||
Remaining borrowing capacity | $ 100 |
Derivatives and Financial Ins_3
Derivatives and Financial Instruments - Narrative (Details) - USD ($) $ in Millions | 2 Months Ended | 3 Months Ended |
Aug. 31, 2019 | Mar. 31, 2020 | |
Derivative [Line Items] | ||
Term of contract | 2 years | |
Net amount of deferred losses on cash flow hedges that are expected to be reclassified from Accumulated other comprehensive income (loss) into Interest expense within the next 12 months | $ 5 | |
Cash Flow Hedging | Interest rate swap contracts | ||
Derivative [Line Items] | ||
Term of contract | 2 years | |
Cash Flow Hedging | Designated as Hedging Instrument | Interest rate swap contracts | ||
Derivative [Line Items] | ||
Notional amount | $ 500 | |
Minimum | Cash Flow Hedging | Designated as Hedging Instrument | Interest rate swap contracts | ||
Derivative [Line Items] | ||
Forward interest rate | 1.63% | |
Maximum | Cash Flow Hedging | Designated as Hedging Instrument | Interest rate swap contracts | ||
Derivative [Line Items] | ||
Forward interest rate | 1.70% |
Derivatives and Financial Ins_4
Derivatives and Financial Instruments - Balance Sheet Location (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Fair Value, Recurring | Cash Flow Hedging | Interest rate swap contracts | Other Noncurrent Liabilities | ||
Derivative [Line Items] | ||
Interest rate swap contracts | $ 9 | $ 1 |
Derivatives and Financial Ins_5
Derivatives and Financial Instruments - Income Statement Location (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Designated as Hedging Instrument | Cash Flow Hedging | Interest expense | Interest rate swap contracts | |
Derivative [Line Items] | |
Amounts recognized in Other comprehensive loss, net of tax | $ (8) |
Fair Value - Narrative and Sche
Fair Value - Narrative and Schedule Financial Instruments Measured at Fair Value on a Recurring Basis (Details) $ in Millions | Mar. 31, 2020USD ($)swap | Dec. 31, 2019USD ($) |
Fair Value Disclosures [Abstract] | ||
Number of interest rate swap contracts | swap | 5 | |
Interest rate swap contracts | Fair Value, Recurring | Level 2 | ||
Liabilities: | ||
Derivative Liability | $ | $ 9 | $ 1 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Unrecorded unconditional purchase obligation | $ 47 | $ 44 |
Purchase obligation, fixed fee cap | 14 | |
Purchase obligation, variable fee cap | 39 | |
Future contingent termination fees, period one | 10 | |
Future contingent termination fees, period two | 12 | |
Future contingent termination fees, period three | $ 14 | |
Purchase obligation, variable fees incurred | 3 | |
Purchase obligation, fixed fees incurred | $ 1 |
Redeemable Non-controlling In_3
Redeemable Non-controlling Interests - Summary of Redeemable Non-controlling Interests (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Increase (Decrease) in Temporary Equity [Roll Forward] | ||
Balance at beginning of period | $ 10 | $ 92 |
Decrease due to redemptions | 0 | (74) |
Net loss attributable to redeemable non-controlling interests | 0 | (3) |
Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests | (1) | 1 |
Change to redemption value | 0 | (6) |
Balance at end of period | $ 9 | $ 10 |
Accumulated Other Comprehensi_3
Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||
Beginning balance | $ 1,256 | $ 1,494 |
Other comprehensive loss before reclassifications | (30) | (5) |
Gain reclassified from Accumulated other comprehensive loss to earnings | 1 | |
Ending balance | 1,202 | 1,256 |
Derivative Loss | ||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||
Beginning balance | 0 | 0 |
Other comprehensive loss before reclassifications | (8) | (1) |
Gain reclassified from Accumulated other comprehensive loss to earnings | 1 | |
Ending balance | (8) | 0 |
Foreign Currency Translation Loss | ||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||
Beginning balance | (86) | (82) |
Other comprehensive loss before reclassifications | (22) | (4) |
Gain reclassified from Accumulated other comprehensive loss to earnings | 0 | |
Ending balance | $ (108) | $ (86) |
Income Taxes - Narrative (Detai
Income Taxes - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Income tax expense (benefit) | $ (2) | $ (4) |
Income (loss) before taxes and equity in earnings of affiliates | $ (35) | $ (18) |
Effective tax rate | 5.70% | 22.20% |
Earnings (Loss) Per Share - Rec
Earnings (Loss) Per Share - Reconciliation of Basic Shares to Diluted Shares (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Earnings Per Share [Abstract] | |||
Net loss attributable to Covetrus | [1] | $ (33) | $ (13) |
Basic shares (in shares) | 112 | 95 | |
Effect of dilutive shares (in shares) | 0 | 0 | |
Diluted shares (in shares) | 112 | 95 | |
Basic (in usd per share) | $ (0.30) | $ (0.14) | |
Diluted (in usd per share) | $ (0.30) | $ (0.14) | |
[1] | (a) Net income earned from January 1, 2019 through February 7, 2019 is attributed to the Former Parent as it was the sole shareholder prior to February 7, 2019 |
Segment Data - Operating Result
Segment Data - Operating Results by Segment (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | ||
Segment Reporting Information [Line Items] | ||||
Net sales | $ 1,065 | $ 941 | ||
Adjusted EBITDA | 48 | 52 | ||
Total assets | 3,487 | 4,269 | $ 3,361 | |
Net loss attributable to Covetrus | [1] | (33) | (13) | |
Plus: Depreciation and amortization | 40 | 30 | ||
Plus: Interest expense, net | 14 | 10 | ||
Less: Income tax benefit | (2) | (4) | ||
Earnings before interest, taxes, depreciation, and amortization | 19 | 23 | ||
Plus: Share-based compensation | 9 | 15 | ||
Plus: Strategic consulting | 4 | |||
Plus: Transaction costs | 7 | |||
Plus: Separation programs and executive severance | 1 | |||
Plus: IT infrastructure | 1 | |||
Plus: Formation of Covetrus | 6 | 9 | ||
Plus: Capital structure | 1 | 5 | ||
Adjusted EBITDA | 48 | 52 | ||
Corporate | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 0 | 0 | ||
Adjusted EBITDA | (18) | (4) | ||
Total assets | 787 | 742 | ||
Adjusted EBITDA | (18) | (4) | ||
Eliminations | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | (2) | (3) | ||
Adjusted EBITDA | 0 | 0 | ||
Total assets | (1,216) | (834) | ||
Adjusted EBITDA | 0 | 0 | ||
North America | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 550 | 497 | ||
North America | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 550 | 497 | ||
Adjusted EBITDA | 41 | 35 | ||
Total assets | 3,063 | 3,364 | ||
Adjusted EBITDA | 41 | 35 | ||
Europe | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 422 | 361 | ||
Europe | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 422 | 361 | ||
Adjusted EBITDA | 18 | 16 | ||
Total assets | 725 | 803 | ||
Adjusted EBITDA | 18 | 16 | ||
APAC & Emerging Markets | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 95 | 86 | ||
APAC & Emerging Markets | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 95 | 86 | ||
Adjusted EBITDA | 7 | 5 | ||
Total assets | 128 | 194 | ||
Adjusted EBITDA | $ 7 | $ 5 | ||
[1] | (a) Net income earned from January 1, 2019 through February 7, 2019 is attributed to the Former Parent as it was the sole shareholder prior to February 7, 2019 |
Subsequent Events (Details)
Subsequent Events (Details) $ / shares in Units, $ in Millions | Apr. 30, 2021USD ($) | Apr. 30, 2020USD ($)Designees$ / sharesshares |
Subsequent Event | Distrivet | ||
Subsequent Event [Line Items] | ||
Ownership interest | 50.01% | |
Payments to acquire businesses, gross | $ 11 | |
CD&R VFC Holdings, L.P. | Subsequent Event | ||
Subsequent Event [Line Items] | ||
Ownership interest | 25.00% | |
Voting interest | 19.99% | |
Right to appoint designees to the Board of Directors, number of appointees | Designees | 2 | |
Forecast | Distrivet | ||
Subsequent Event [Line Items] | ||
Payments to acquire businesses, gross | $ 11 | |
Forecast | Private Placement | Investment Agreement | CD&R VFC Holdings, L.P. | Series A Preferred Stock | Subsequent Event | ||
Subsequent Event [Line Items] | ||
Preferred stock shares issued (in shares) | shares | 250,000 | |
Preferred stock, dividend rate, percentage | 7.50% | |
Preferred stock par value per hare (in dollars per share) | $ / shares | $ 0.01 | |
Proceeds from issuance of private placement | $ 250 |