UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 10-Q
________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2019
OR
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
_______________________________________________________
(Exact name of Registrant as specified in its charter)
_______________________________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
(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 class | Trading Symbol(s) | Name of each exchange on which registered | ||
_________________________________________________________
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.
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | |
Emerging growth company | |||
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. | ☐ | ||
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 31, 2019, was 62,851,754 shares.
Owens & Minor, Inc. and Subsidiaries
Index
Page | ||
Item 1. | ||
Consolidated Statements of Income (Loss) —Three and Nine Months Ended September 30, 2019 and 2018 | ||
Consolidated Balance Sheets—September 30, 2019 and December 31, 2018 | ||
Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and 2018 | ||
Consolidated Statements of Changes in Equity—Three and Nine Months Ended September 30, 2019 and 2018 | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 6. | ||
2
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenue | $ | $ | $ | $ | ||||||||||||
Cost of goods sold | ||||||||||||||||
Gross margin | ||||||||||||||||
Distribution, selling and administrative expenses | ||||||||||||||||
Goodwill and intangible asset impairment charges | ||||||||||||||||
Acquisition-related and exit and realignment charges | ||||||||||||||||
Other operating (income) expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
Operating income (loss) | ( | ) | ||||||||||||||
Interest expense, net | ||||||||||||||||
Other (income) expense, net | ( | ) | ||||||||||||||
Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Net income (loss) per common share: basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to consolidated financial statements.
3
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Currency translation adjustments (net of income tax of $0 in 2019 and 2018) | ( | ) | ( | ) | ( | ) | ||||||||||
Change in unrecognized net periodic pension costs (net of income tax of $61 and $187 in 2019 and $161 and $449 in 2018) | ||||||||||||||||
Net unrealized (loss) gain on derivative instruments and other (net of income tax of $1,225 and $4,866 in 2019 and $103 and $30 in 2018) | ( | ) | ( | ) | ||||||||||||
Total other comprehensive income (loss), net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to consolidated financial statements.
4
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
September 30, | December 31, | ||||||
(in thousands, except per share data) | 2019 | 2018 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net of allowances of $21,043 and $19,618 | |||||||
Merchandise inventories | |||||||
Other current assets | |||||||
Total current assets | |||||||
Property and equipment, net of accumulated depreciation of $309,259 and $270,105 | |||||||
Operating lease assets | |||||||
Goodwill | |||||||
Intangible assets, net | |||||||
Other assets, net | |||||||
Total assets | $ | $ | |||||
Liabilities and equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | $ | |||||
Accrued payroll and related liabilities | |||||||
Other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt, excluding current portion | |||||||
Operating lease liabilities, excluding current portion | |||||||
Deferred income taxes | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies | |||||||
Equity | |||||||
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,862 shares and 62,294 shares | |||||||
Paid-in capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Total equity | |||||||
Total liabilities and equity | $ | $ | |||||
See accompanying notes to consolidated financial statements.
5
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30, | |||||||
(in thousands) | 2019 | 2018 | |||||
Operating activities: | |||||||
Net loss | $ | ( | ) | $ | ( | ) | |
Adjustments to reconcile net loss to cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Share-based compensation expense | |||||||
Goodwill and intangible asset impairment charges | |||||||
Provision for losses on accounts receivable | |||||||
Deferred income tax benefit | ( | ) | ( | ) | |||
Changes in operating lease right-of-use assets and lease liabilities | ( | ) | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( | ) | |||||
Merchandise inventories | |||||||
Accounts payable | ( | ) | |||||
Net change in other assets and liabilities | ( | ) | |||||
Other, net | |||||||
Cash provided by operating activities | |||||||
Investing activities: | |||||||
Acquisitions, net of cash acquired | ( | ) | |||||
Additions to property and equipment | ( | ) | ( | ) | |||
Additions to computer software | ( | ) | ( | ) | |||
Proceeds from sale of property and equipment | |||||||
Cash used for investing activities | ( | ) | ( | ) | |||
Financing activities: | |||||||
Proceeds from issuance of debt | |||||||
(Repayments) borrowings under revolving credit facility | ( | ) | |||||
Repayments of debt | ( | ) | ( | ) | |||
Financing costs paid | ( | ) | ( | ) | |||
Cash dividends paid | ( | ) | ( | ) | |||
Other, net | ( | ) | ( | ) | |||
Cash (used for) provided by financing activities | ( | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | |||||
Net increase in cash, cash equivalents and restricted cash | |||||||
Cash, cash equivalents and restricted cash at beginning of period | |||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||
Supplemental disclosure of cash flow information: | |||||||
Income taxes (received) paid, net of refunds | $ | ( | ) | $ | |||
Interest paid | $ | $ | |||||
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
(in thousands, except per share data) | Common Shares Outstanding | Common Stock ($2 par value ) | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||
Dividends declared ($0.0025 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ||||||||||||||||||||||
Balance, March 31, 2019 | ( | ) | ||||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||
Dividends declared ($0.0025 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ||||||||||||||||||||||
Balance, June 30, 2019 | ( | ) | ||||||||||||||||||||
Net income | ||||||||||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||
Dividends declared ($0.0025 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ( | ) | ( | ) | ||||||||||||||||||
Balance, September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Balance, December 31, 2017 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Net income | ||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||
Dividends declared ($0.26 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ||||||||||||||||||||||
Balance, March 31, 2018 | ( | ) | ||||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||
Dividends declared ($0.26 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ||||||||||||||||||||||
Balance, June 30, 2018 | ( | ) | ||||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||
Dividends declared ($0.26 per share) | ( | ) | ( | ) | ||||||||||||||||||
Share-based compensation expense, exercises and other | ( | ) | ( | ) | ||||||||||||||||||
Balance, September 30, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, unless otherwise indicated)
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, our or the Company) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
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 represents $16.2 million held in an escrow account as of September 30, 2019 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. The restricted cash presented below is classified as non-current in Other assets, net within the accompanying consolidated balance sheets.
September 30, 2019 | December 31, 2018 | ||||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash included in Other assets, net | |||||||
Total cash, cash equivalents and restricted cash | $ | $ | |||||
Note 2—Fair Value
Note 3—Acquisition
On April 30, 2018 (the Acquisition Date), we completed the acquisition of substantially all of Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and Infection Prevention (S&IP) business, the name “Halyard Health” (and all variations of that name and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash acquired. The Halyard business is a leading global provider of medical supplies and solutions for the
8
prevention of healthcare associated infections across acute care and non-acute care markets. This business is reported as part of the Global Products segment.
The following table presents the fair value of the assets acquired and liabilities assumed recognized as of the Acquisition Date. The fair value of intangibles from this acquisition was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs.
Preliminary Fair Value Originally Estimated as of Acquisition Date (1) | Differences Between Prior and Current Period Fair Value | Fair Value as of Acquisition Date | |||||||||
Assets acquired: | |||||||||||
Current assets | $ | $ | $ | ||||||||
Goodwill | ( | ) | |||||||||
Intangible assets | |||||||||||
Other noncurrent assets | |||||||||||
Total assets | |||||||||||
Liabilities assumed: | |||||||||||
Current liabilities | ( | ) | |||||||||
Noncurrent liabilities | |||||||||||
Total liabilities | |||||||||||
Fair value of net assets acquired, net of cash | $ | $ | $ | ||||||||
(1) As previously reported in our 2018 Form 10-K.
We are amortizing the fair value of acquired intangible assets, primarily customer relationships, a trade name and other intellectual property, over their estimated weighted average useful lives of eight to 12 years.
Goodwill of $112 million, which we assigned to our Global Products segment, consists largely of expected opportunities to expand into new markets and further develop a presence in the medical products segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
The unaudited pro forma results of net revenue for the three and nine months ended September 30, 2018 as if Halyard was acquired on January 1, 2018 were $2,464,877 and $7,575,727 , respectively. The pro forma results of net income (loss) and net income (loss) per common share have not been represented because the effects were not material to our historic consolidated financial statements. Accordingly, the pro forma results noted above are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future.
Note 4—Financing Receivables and Payables
At September 30, 2019 and December 31, 2018, we had financing receivables of $165.4 million and $183.3 million, respectively, and related payables of $93.5 million and $100.3 million, respectively, outstanding under our order-to-cash program, which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.
Note 5—Goodwill and Intangible Assets
The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through September 30, 2019:
Global Solutions | Global Products | Consolidated | |||||||||
Carrying amount of goodwill, December 31, 2018 | $ | $ | $ | ||||||||
Currency translation adjustments | |||||||||||
Acquisition | ( | ) | ( | ) | |||||||
Carrying amount of goodwill, September 30, 2019 | $ | $ | $ | ||||||||
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Intangible assets at September 30, 2019 and December 31, 2018, were as follows:
September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||
Customer Relationships | Tradenames | Other Intangibles | Customer Relationships | Tradenames | Other Intangibles | ||||||||||||||||||
Gross intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Net intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Weighted average useful life | |||||||||||||||||||||||
At September 30, 2019, $91.7 million in net intangible assets were held in the Global Solutions segment and $208.1 million were held in the Global Products segment. Amortization expense for intangible assets was $10.9 million and $10.4 million for the three months ended September 30, 2019 and 2018 and $34.4 million and $26.1 million for the nine months ended September 30, 2019 and 2018, respectively.
Note 6—Leases
We adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019. We elected to use the adoption date as our date of initial application and thus have not restated comparative prior periods. We elected the ‘package of practical expedients’, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.
The adoption of the new standard resulted in the recording of operating lease assets and lease liabilities of approximately $197 million and $201 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net income (loss) and had no impact on cash flows.
We enter into non-cancelable agreements to lease most of our office and warehouse facilities with remaining terms generally ranging from one to 20 years. Certain leases include renewal options, generally for one to five-year increments. The exercise of lease renewal options is at our sole discretion. We include options to renew (or terminate) in our lease term, and as part of our right-of-use assets and lease liabilities, when it is reasonably certain that we will exercise that option. We also lease some of our transportation and material handling equipment for terms generally ranging from three to 10 years. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of right-of-use assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. We use the implicit rate when readily determinable. The operating lease asset also includes adjustments for any lease payments made and lease incentives.
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The components of lease expense were as follows:
Classification | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Operating lease cost | Distribution, selling and administrative expenses | $ | $ | ||||||
Finance lease cost: | |||||||||
Amortization of lease assets | Distribution, selling and administrative expenses | ||||||||
Interest on lease liabilities | Interest expense, net | ||||||||
Total finance lease cost | |||||||||
Short-term lease cost | Distribution, selling and administrative expenses | ||||||||
Variable lease cost | Distribution, selling and administrative expenses | ||||||||
Total lease cost | $ | $ | |||||||
Variable lease cost consists primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities which are paid as incurred.
Supplemental balance sheet information is as follows:
Classification | As of September 30, 2019 | ||||
Assets: | |||||
Operating lease assets | Operating lease assets | $ | |||
Finance lease assets | Property and equipment, net | ||||
Total lease assets | $ | ||||
Liabilities: | |||||
Current | |||||
Operating | Other current liabilities | $ | |||
Finance | Other current liabilities | ||||
Noncurrent | |||||
Operating | Operating lease liabilities, excluding current portion | ||||
Finance | Long-term debt, excluding current portion | ||||
Total lease liabilities | $ | ||||
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Other information related to leases was as follows:
Nine Months Ended September 30, 2019 | ||||
Supplemental cash flow information | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating and finance leases | $ | |||
Financing cash flows from finance leases | $ | |||
Right-of-use assets obtained in exchange for new operating and finance lease liabilities | $ | |||
Weighted average remaining lease term (years) | ||||
Operating leases | ||||
Finance leases | ||||
Weighted average discount rate | ||||
Operating leases | % | |||
Finance leases | % | |||
Maturities of lease liabilities as of September 30, 2019 were as follows:
Operating Leases | Finance Leases | Total | |||||||||
2019 (remainder) | $ | $ | $ | ||||||||
2020 | |||||||||||
2021 | |||||||||||
2022 | |||||||||||
2023 | |||||||||||
Thereafter | |||||||||||
Total lease payments | |||||||||||
Less: Interest | ( | ) | ( | ) | ( | ) | |||||
Present value of lease liabilities | $ | $ | $ | ||||||||
At December 31, 2018, future minimum annual payments under non-cancelable lease agreements with original terms in excess of one year, and including payments required under operating leases for facilities we have vacated, were as follows:
Total | |||
2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Total minimum payments | $ | ||
Rent expense for all operating leases for the year ended December 31, 2018 was $78.3 million.
Note 7—Derivatives
We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.
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We use a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in cash flows. We account for the designated foreign exchange forward contracts as cash flow hedges. These foreign exchange forward contracts generally have maturities up to 12 months and the counterparties to the transactions are typically large international financial institutions.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest under our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we entered into interest rate swaps during the third quarter of 2018 whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreements are included in interest expense.
We determine the fair value of our foreign currency derivatives and our interest rate swaps based on observable market-based inputs or unobservable inputs that are corroborated by market data. We do not view the fair value of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying exposure. Our derivatives are over-the-counter instruments with liquid markets. All derivatives are carried at fair value in our consolidated balance sheets in other assets and other liabilities. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of September 30, 2019:
Derivative Assets | Derivative Liabilities | ||||||||||||||||
Notional Amount | Maturity Date | Classification | Fair Value | Classification | Fair Value | ||||||||||||
Cash flow hedges | |||||||||||||||||
Interest rate swaps | $ | May 2022 and May 2025 | Other assets, net | $ | Other liabilities | $ | |||||||||||
Foreign currency contracts | $ | December 2019 | Other assets, net | $ | Other liabilities | $ | |||||||||||
Economic (non-designated) hedges | |||||||||||||||||
Foreign currency contracts | $ | October 2019 - November 2019 | Other assets, net | $ | Other liabilities | $ | |||||||||||
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2018:
Derivative Assets | Derivative Liabilities | ||||||||||||||||
Notional Amount | Maturity Date | Classification | Fair Value | Classification | Fair Value | ||||||||||||
Cash flow hedges | |||||||||||||||||
Interest rate swaps | $ | May 2022 and May 2025 | Other assets, net | $ | Other liabilities | $ | |||||||||||
Foreign currency contracts | $ | January 2019 - December 2019 | Other assets, net | $ | Other liabilities | $ | |||||||||||
Economic (non-designated) hedges | |||||||||||||||||
Foreign currency contracts | $ | January 2019 - April 2019 | Other assets, net | $ | Other liabilities | $ | |||||||||||
13
The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of income (loss) for the three and nine months ended September 30, 2019:
Amount of Gain/(Loss) Recognized in Other Comprehensive Income (Loss) | Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income | Total Amount of Income/(Expense) Line Items Presented in the Consolidated Statement of Income (Loss) in Which the Effects are Recorded | Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income | ||||||||||||||||
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||||||||||
Interest rate swaps | $ | ( | ) | $ | ( | ) | Interest expense, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Foreign currency contracts | $ | ( | ) | $ | Cost of goods sold | $ | ( | ) | $ | ( | ) | $ | $ | ||||||
The amount of ineffectiveness associated with these contracts was immaterial for the periods presented.
For the three and nine months ended September 30, 2019, we recognized gains less than $0.1 million and $1.1 million, respectively, associated with our economic (non-designated) foreign currency contracts.
Note 8—Exit and Realignment Costs
We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain distribution and logistics centers, administrative offices and warehouses. These charges also include costs associated with our strategic organizational realignment which include management changes, certain professional fees, and costs to streamline administrative functions and processes.
Exit and realignment charges by segment for the three and nine months ended September 30, 2019 and 2018 were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Global Solutions segment | $ | $ | $ | $ | |||||||||||
Global Products segment | ( | ) | ( | ) | |||||||||||
Total exit and realignment charges | $ | $ | $ | $ | |||||||||||
14
Total (1) | ||||
Accrued exit and realignment costs, December 31, 2018 | $ | |||
Provision for exit and realignment activities: | ||||
Severance | ||||
Information system restructuring costs | ||||
Other | ||||
Change in estimate | ( | ) | ||
Cash payments | ( | ) | ||
Accrued exit and realignment costs, March 31, 2019 | ||||