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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 March 31, 2020
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
_______________________________________________________
Owens & Minor, Inc.
(Exact name of Registrant as specified in its charter)
_______________________________________________________

Virginia
 
 
54-1701843
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
9120 Lockwood Boulevard
Mechanicsville
Virginia
23116
(Address of principal executive offices)
(Zip Code)
 
 
 
 
Post Office Box 27626,
Richmond, Virginia
 
 
23261-7626
(Mailing address of principal executive offices)
 
 
(Zip Code)
Registrant’s telephone number, including area code (804723-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $2 par value per share
 
OMI
 
New York Stock Exchange
_________________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      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       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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  
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of April 30, 2020, was 63,007,803 shares.
 
 
 
 
 



Owens & Minor, Inc. and Subsidiaries
Index
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 6.

2



Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
 
 
Three Months Ended March 31,
 
(in thousands, except per share data)
 
2020
 
2019
 
Net revenue
 
$
2,122,693

 
$
2,350,840

 
Cost of goods sold
 
1,854,134

 
2,074,219

 
Gross margin

268,559

 
276,621

 
Distribution, selling and administrative expenses
 
254,048

 
255,112

 
Acquisition-related and exit and realignment charges
 
6,064

 
4,863

 
Other operating (income) expense, net
 
(2,309
)
 
42

 
Operating income
 
10,756

 
16,604

 
Interest expense, net
 
23,342

 
25,458

 
Other expense, net
 
4,846

 
2,734

 
Loss from continuing operations before income taxes
 
(17,432
)
 
(11,588
)
 
Income tax benefit
 
(8,523
)
 
(670
)
 
Loss from continuing operations, net of tax
 
(8,909
)
 
(10,918
)
 
Loss from discontinued operations, net of tax
 
(2,415
)
 
(3,178
)
 
Net loss
 
$
(11,324
)
 
$
(14,096
)
 
 
 
 
 
 
 
Loss from continuing operations per common share: basic and diluted
 
$
(0.15
)
 
$
(0.18
)
 
Loss from discontinued operations per common share: basic and diluted
 
(0.04
)
 
(0.05
)
 
Net loss per common share: basic and diluted
 
$
(0.19
)
 
$
(0.23
)
 


See accompanying notes to consolidated financial statements.
3


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(unaudited)
 
 
 
Three Months Ended March 31,
 
(in thousands)
 
2020

2019
 
Net loss
 
$
(11,324
)
 
$
(14,096
)
 
Other comprehensive loss, net of tax:
 
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2020 and 2019)
 
(28,178
)
 
(4,207
)
 
Change in unrecognized net periodic pension costs (net of income tax of $44 in 2020 and $69 in 2019)
 
170

 
197

 
Net unrealized loss on derivative instruments and other (net of income tax benefit of $4,302 in 2020 and $658 in 2019)
 
(11,397
)
 
(2,413
)
 
Other comprehensive loss
 
(39,405
)
 
(6,423
)
 
Comprehensive loss
 
$
(50,729
)
 
$
(20,519
)
 


See accompanying notes to consolidated financial statements.
4


Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
March 31,
 
December 31,
(in thousands, except per share data)
2020
 
2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
92,315

 
$
67,030

Accounts receivable, net of allowances of $23,971 and $21,015
667,607

 
674,706

Merchandise inventories
1,108,844

 
1,146,192

Other current assets
151,635

 
79,372

Current assets of discontinued operations
499,410

 
439,983

Total current assets
2,519,811

 
2,407,283

Property and equipment, net of accumulated depreciation of $254,054 and $245,718
301,335

 
315,427

Operating lease assets
133,738

 
142,219

Goodwill
388,000

 
393,181

Intangible assets, net
271,513

 
285,018

Other assets, net
100,473

 
99,956

Total assets
$
3,714,870

 
$
3,643,084

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
891,542

 
$
808,035

Accrued payroll and related liabilities
44,722

 
53,584

Other current liabilities
229,824

 
231,029

Current liabilities of discontinued operations
383,586

 
323,511

Total current liabilities
1,549,674

 
1,416,159

Long-term debt, excluding current portion
1,484,340

 
1,508,415

Operating lease liabilities, excluding current portion
109,381

 
117,080

Deferred income taxes
42,962

 
40,550

Other liabilities
112,175

 
98,726

Total liabilities
3,298,532

 
3,180,930

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,885 shares and 62,843 shares
125,770

 
125,686

Paid-in capital
256,357

 
251,401

Retained earnings
126,323

 
137,774

Accumulated other comprehensive loss
(92,112
)
 
(52,707
)
Total equity
416,338

 
462,154

Total liabilities and equity
$
3,714,870

 
$
3,643,084



See accompanying notes to consolidated financial statements.
5


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Operating activities:
 
 
 
Net loss
$
(11,324
)
 
$
(14,096
)
Adjustments to reconcile net loss to cash provided by (used for) operating activities:
 
 

Depreciation and amortization
23,913

 
28,720

Share-based compensation expense
3,941

 
4,505

Impairment charges
9,080

 

Provision for losses on accounts receivable
5,213

 
3,619

Deferred income tax expense (benefit)
6,348

 
(8,613
)
Changes in operating lease right-of-use assets and lease liabilities
(714
)

(190
)
Changes in operating assets and liabilities:
 
 

Accounts receivable
(7,942
)
 
(22,573
)
Merchandise inventories
39,340

 
80,194

Accounts payable
98,743

 
(120,480
)
Net change in other assets and liabilities
(77,178
)
 
(15,668
)
Other, net
4,034

 
3,678

Cash provided by (used for) operating activities
93,454

 
(60,904
)
Investing activities:
 
 
 
Additions to property and equipment
(4,771
)
 
(11,674
)
Additions to computer software
(942
)
 
(2,605
)
Proceeds from sale of property and equipment
33

 
271

Cash used for investing activities
(5,680
)
 
(14,008
)
Financing activities:
 
 
 
Proceeds from issuance of debt
150,000

 

(Repayments) borrowings under revolving credit facility
(6,200
)
 
72,100

Repayments of debt
(166,798
)
 
(12,394
)
Financing costs paid
(5,785
)
 
(4,313
)
Cash dividends paid
(155
)
 
(4,764
)
Other, net
(2,468
)
 
(1,124
)
Cash (used for) provided by financing activities
(31,406
)
 
49,505

Effect of exchange rate changes on cash and cash equivalents
(62
)
 
(2,721
)
Net increase (decrease) in cash, cash equivalents and restricted cash
56,306

 
(28,128
)
Cash, cash equivalents and restricted cash at beginning of period
84,687

 
103,367

Cash, cash equivalents and restricted cash at end of period
$
140,993

 
$
75,239

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid (received), net of refunds
$
2,695

 
$
(12,388
)
Interest paid
$
21,431

 
$
24,504




See accompanying notes to consolidated financial statements.
6


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
 
(in thousands, except per share data)
Common
Shares
Outstanding
 
Common 
Stock
($2 par value )
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Loss
 
Total
Equity
Balance, December 31, 2018
62,294

 
$
124,588

 
$
238,773

 
$
200,670

 
$
(45,612
)
 
$
518,419

Net loss
 
 
 
 
 
 
(14,096
)
 
 
 
(14,096
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(6,423
)
 
(6,423
)
Dividends declared ($0.0025 per share)
 
 
 
 
 
 
(119
)
 
 
 
(119
)
Share-based compensation expense, exercises and other
642

 
1,284

 
2,774

 


 
 
 
4,058

Balance, March 31, 2019
62,936

 
$
125,872

 
$
241,547

 
$
186,455

 
$
(52,035
)
 
$
501,839

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
62,843

 
$
125,686

 
$
251,401

 
$
137,774

 
$
(52,707
)
 
$
462,154

Net loss
 
 
 
 
 
 
(11,324
)
 
 
 
(11,324
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(39,405
)
 
(39,405
)
Dividends declared ($0.0025 per share)
 
 
 
 
 
 
(127
)
 
 
 
(127
)
Share-based compensation expense, exercises and other
42

 
84

 
4,956

 
 
 
 
 
5,040

Balance, March 31, 2020
62,885

 
$
125,770

 
$
256,357

 
$
126,323

 
$
(92,112
)
 
$
416,338



See accompanying notes to consolidated financial statements.
7


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 Movianto business represents a component that met accounting requirements to be classified as discontinued operations and held for sale beginning December 31, 2019. In accordance with GAAP, the financial position and results of operations of the Movianto business are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. With the exception of Note 3, the Notes to the Consolidated Financial Statements reflect the continuing operations of Owens & Minor, Inc. See Note 3 for additional information regarding discontinued operations. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash represents $16.3 million held in an escrow account as of March 31, 2020 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.
 
March 31, 2020
 
December 31, 2019
Cash and cash equivalents
$
92,315

 
$
67,030

Restricted cash included in Other assets, net
16,315

 
16,261

Cash of discontinued operations
32,363

 
1,396

Total cash, cash equivalents and restricted cash
$
140,993

 
$
84,687



Note 2—Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The carrying amount of restricted cash also approximates fair value due to its nature. The fair value of debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). See Note 6 for the fair value of debt. The fair value of interest rate swaps and foreign currency contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 8 for the fair value of derivatives.


8



Note 3—Discontinued Operations
On January 16, 2020, we announced our intention to sell our European logistics business, Movianto, to EHDH Holding Group (EHDH), a privately held French company, for cash consideration of $133 million. The Company concluded that the Movianto business met the criteria for discontinued operations as of March 31, 2020 and December 31, 2019, as the intention to sell represented a strategic shift and the criteria for held-for-sale were met. Movianto was previously reported in the Global Solutions segment. The transaction is expected to close in the first half of 2020.
Accordingly, the results of operations from our Movianto business are reported in the accompanying consolidated statements of operations as “Loss from discontinued operations, net of tax” for the quarters ended March 31, 2020 and 2019, and the related assets and liabilities are classified as held-for-sale as of March 31, 2020 and December 31, 2019 in the accompanying balance sheets. We recognized a loss of $9.1 million and $32.1 million in connection with the classification of the related assets and liabilities as held-for-sale as of March 31, 2020 and December 31, 2019, respectively.

The following table summarizes the financial results of our discontinued operations for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Net revenue
$
122,342

 
$
110,548

 
Cost of goods sold
32,106

 
28,745

 
Gross margin
90,236

 
81,803

 
Distribution, selling, and administrative expenses
80,953

 
83,044

 
Asset impairment charges
9,080

 

 
Acquisition-related and exit and realignment charges
271

 
126

 
Other operating income, net
(461
)
 
(186
)
 
Operating income (loss)
393

 
(1,181
)
 
Interest expense, net
1,720

 
1,640

 
Loss from discontinued operations before income taxes
(1,327
)
 
(2,821
)
 
Income tax provision from discontinued operations
1,088

 
357

 
Loss from discontinued operations, net of tax
$
(2,415
)
 
$
(3,178
)
 

We suspended depreciation and amortization on assets that are held for sale, including right-of-use assets recorded in accordance with ASU No. 2016-02, for the three months ended March 31, 2020.


9




The assets and liabilities of the discontinued Movianto business reflected on the consolidated balance sheets at March 31, 2020 and December 31, 2019, are as follows:
 
March 31, 2020
 
December 31, 2019
 
Assets of discontinued operations
 
 
 
 
Cash and cash equivalents
$
32,363

 
$
1,396

 
Accounts receivable, net
78,193

 
78,643

 
Merchandise inventories
12,979

 
16,058

 
Other current assets
227,070

 
188,853

 
Current assets of discontinued operations
350,605

 
284,950

 
Property and equipment, net
70,730

 
70,976

 
Intangible assets, net
7,010

 
6,579

 
Other assets, net
27,248

 
22,165

 
Operating lease assets
84,202

 
87,425

 
Valuation allowance on disposal group classified as held for sale
(40,385
)
 
(32,112
)
 
Total assets of discontinued operations
$
499,410

 
$
439,983

 
Liabilities of discontinued operations
 
 
 
 
Accounts payable
$
68,058

 
$
53,981

 
Other current liabilities
191,728

 
182,980

 
Current liabilities of discontinued operations
259,786

 
236,961

 
Long-term debt, excluding current portion
2,781

 
5,523

 
Operating lease liabilities, excluding current portion
69,820

 
76,270

 
Other liabilities
51,199

 
4,757

 
Total liabilities of discontinued operations
$
383,586

 
$
323,511

 

    
Assets and liabilities held for sale as of March 31, 2020 and December 31, 2019 are classified as current since we expect the divestiture to be completed within one year of the balance sheet dates.

The following table provides operating and investing cash flow information for our discontinued operations:
 
March 31, 2020
 
March 31, 2019
 
Operating Activities:
 
 
 
 
Depreciation and amortization
$

 
$
5,613

 
Asset impairment charges
9,080

 

 
Investing Activities:
 
 
 
 
Capital expenditures
1,664

 
8,035

 

Note 4—Goodwill and Intangible Assets
The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through March 31, 2020:
 
Global Solutions
 
Global Products
 
Consolidated
Carrying amount of goodwill, December 31, 2019
$
283,905

 
$
109,276

 
$
393,181

Currency translation adjustments

 
(5,181
)
 
(5,181
)
Carrying amount of goodwill, March 31, 2020
$
283,905

 
$
104,095

 
$
388,000



10



Intangible assets at March 31, 2020 and December 31, 2019, were as follows:
 
March 31, 2020
 
December 31, 2019
 
Customer
Relationships
 
Tradenames
 
Other
Intangibles
 
Customer
Relationships
 
Tradenames
 
Other
Intangibles
 
 
 
 
 
 
 
 
 
 
 
 
Gross intangible assets
$
266,595

 
$
90,000

 
$
43,227

 
$
270,693

 
$
90,000

 
$
43,055

Accumulated amortization
(97,366
)
 
(18,611
)
 
(12,332
)
 
(92,947
)
 
(16,520
)
 
(9,263
)
Net intangible assets
$
169,229

 
$
71,389

 
$
30,895

 
$
177,746

 
$
73,480

 
$
33,792

Weighted average useful life
10 years

 
11 years

 
8 years

 
10 years

 
11 years

 
8 years


At March 31, 2020, $76.1 million in net intangible assets were held in the Global Solutions segment and $195.4 million were held in the Global Products segment. Amortization expense for intangible assets was $10.6 million and $10.0 million for the three months ended March 31, 2020 and 2019, respectively.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $31.1 million for the remainder of 2020, $39.8 million for 2021, $38.9 million for 2022, $38.7 million for 2023, $33.9 million for 2024 and $28.2 million for 2025.
Note 5—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 outsourced logistics centers, administrative offices and warehouses, and IT restructuring charges. These charges also include costs associated with our strategic organizational realignment which include management changes, certain professional fees, and costs to streamline administrative functions and processes.

Exit and realignment charges by segment for the three months ended March 31, 2020 and 2019 were as follows:
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Global Solutions segment
$
1,829

 
$
566

 
Global Products segment

 
138

 
Total exit and realignment charges
$
1,829

 
$
704

 



11



The following table summarizes the activity related to exit and realignment cost accruals through March 31, 2020 and 2019:
 
 
Total (1)
Accrued exit and realignment costs, December 31, 2019
 
$
8,162

Provision for exit and realignment activities:
 


Severance
 
1,391

Information system restructuring costs
 
183

Other
 
255

Change in estimate
 

Cash payments
 
(5,799
)
Accrued exit and realignment costs, March 31, 2020
 
$
4,192

 
 
 
Accrued exit and realignment costs, December 31, 2018
 
$
7,477

Provision for exit and realignment activities:
 
 
Severance
 
360

Information system restructuring costs
 
261

Other
 
83

Change in estimate
 

Cash payments
 
(2,206
)
Accrued exit and realignment costs, March 31, 2019
 
$
5,975


(1)The accrued exit and realignment costs at March 31, 2020 and 2019 related primarily to information system restructuring costs and severance.

Acquisition-related and exit and realignment charges presented in our consolidated statements of operations includes acquisition-related charges of $4.2 million for the three months ended March 31, 2020 and 2019, respectively, and consisted primarily of transition costs for the Halyard acquisition.
Note 6—Debt
Debt consists of the following:
 
March 31, 2020
 
December 31, 2019
 
Carrying Amount
 
Estimated Fair Value
 
Carrying Amount
 
Estimated Fair Value
3.875% Senior Notes, due September 2021
$
231,764

 
$
223,367

 
$
236,234

 
$
229,356

4.375% Senior Notes, due December 2024
274,041

 
184,140

 
273,978

 
212,086

Term A Loans, due July 2022
217,924

 
221,906

 
377,420

 
383,050

Term B Loan, due April 2025
479,332

 
340,751

 
480,337

 
442,217

Revolver
171,700

 
171,700

 
177,900

 
177,900

Accounts Receivable Securitization Program
147,209

 
150,000

 

 

Finance leases and other
13,557

 
13,557

 
13,783

 
13,783

Total debt
1,535,527

 
1,305,421

 
1,559,652

 
1,458,392

Less current maturities
(51,187
)
 
(51,187
)
 
(51,237
)
 
(51,237
)
Long-term debt
$
1,484,340

 
$
1,254,234

 
$
1,508,415

 
$
1,407,155


We have $233 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points. We used $4.4 million of cash to repurchase $4.6 million aggregate principal amount of the 2021 Notes during the first quarter of 2020.

12



We have a Credit Agreement (amended February 2020) with a borrowing capacity of $400 million and $697 million outstanding in term loans. On February 13, 2020, we entered into a Fifth Amendment to the Credit Agreement.
The interest rate on our revolving credit facility and Term A loans is based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus an adjustment based on our Consolidated Total Leverage Ratio as defined by the Credit Agreement. Our credit spread at March 31, 2020 was Eurocurrency Rate plus 4.25%. Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement). We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Credit Agreement requires us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.
We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 100% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. The Fifth Amendment to the Credit Agreement included additional collateral requirements related to the parties secured on the Credit Agreement, including the obligation to pledge the Company's owned U.S. real estate and remaining equity interests in foreign subsidiaries. Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loans. If as of the date 91 days prior to the maturity date of our 2021 Notes all outstanding amounts under the 2021 Notes have not been paid in full, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility and the Term A loans shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if as of the date 91 days prior to the maturity date of our 2024 Notes, all outstanding amounts under the 2024 Notes have not been paid in full, the Termination Date of the Term B loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.
On February 19, 2020, we entered into an accounts receivable securitization program (the “Receivables Securitization Program”). Pursuant to the Receivables Securitization Program, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time. The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued. Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Securitization Program matures on February 17, 2023. In February 2020, $150 million in proceeds from the sale of accounts receivable pursuant to the Receivables Securitization Program were used to repay higher interest indebtedness under our Term A loans.
At March 31, 2020 and December 31, 2019, we had borrowings of $171.7 million and $177.9 million, respectively, under the revolver and letters of credit of $11.7 million and $11.7 million, respectively, outstanding under the Credit Agreement along with $508.1 million and $512.7 million, respectively, in Senior Notes. At March 31, 2020 and December 31, 2019, we had $215.5 million and $209.3 million, respectively, available for borrowing, which reflected the letters of credit associated with discontinued operations of $1.1 million and $1.1 million, respectively, against our borrowing capacity. We also had letters of credit and bank guarantees outstanding for $1.5 million as of March 31, 2020 and December 31, 2019, respectively, which supports certain facilities leased as well as other normal business activities in the United States and Europe.
The Credit Agreement and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at March 31, 2020.
As of March 31, 2020, scheduled future principal payments of debt were $37.2 million in 2020, $282.8 million in 2021, $320.5 million in 2022, $155.0 million in 2023, $280.0 million in 2024, and $468.8 million thereafter.
Note 7—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain retirees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.
The components of net periodic benefit cost for the three months ended March 31, 2020 and 2019, respectively, were as follows:

13



 
Three Months Ended March 31,
 
2020
 
2019
Service cost
$
351

 
$
329

Interest cost
494

 
600

Recognized net actuarial loss
214

 
260

Net periodic benefit cost
$
1,059

 
$
1,189


Note 8—Derivatives
We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest under our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable 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 March 31, 2020:

 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional Amount
 
Maturity Date
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
450,000

 
May 2022 and May 2025
 
Other assets, net
 
$

 
Other liabilities
 
$
33,136

 
 
 
 
 
 
 
 
 
 
 
 
Economic (non-designated) hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
21,000

 
April 2020
 
Other assets, net
 
$
280

 
Other liabilities
 
$


The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2019:

 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional Amount
 
Maturity Date
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
450,000

 
May 2022 and May 2025
 
Other assets, net
 
$

 
Other liabilities
 
$
17,436



14



The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three months ended March 31, 2020:
 
Amount of Gain/(Loss) Recognized in Other Comprehensive 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 Operations in Which the Effects are Recorded
Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Interest rate swaps
$
(16,958
)
Interest expense, net
$
(23,342
)
$
(1,259
)

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

For the three months ended March 31, 2020 and 2019, we recognized a loss of $2.7 million and a gain of $0.5 million, respectively, associated with our economic (non-designated) foreign currency contracts.

We recorded the change in fair value of derivative instruments and the remeasurement adjustment of the foreign currency denominated asset or liability in other operating (income) expense, net for our foreign exchange contracts.
Note 9—Income Taxes

The effective tax rate was 48.9% for the three months ended March 31, 2020, compared to 5.8% in the same quarter of 2019. The change in these rates resulted from an income tax benefit of $5.2 million recorded in the first quarter of 2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.  The liability for unrecognized tax benefits was $11.7 million at March 31, 2020 and $11.5 million at December 31, 2019. Included in the liability at March 31, 2020 and December 31, 2019 were $3.1 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
Note 10—Net Loss per Common Share
The following summarizes the calculation of net loss per common share attributable to common shareholders for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
(in thousands, except per share data)
2020
 
2019
 
Weighted average shares outstanding - basic and diluted
60,571


60,376

 
 



 
Loss from continuing operations
$
(8,909
)

$
(10,918
)
 
Basic and diluted per share
$
(0.15
)

$
(0.18
)
 
 





 
Loss from discontinued operations
$
(2,415
)

$
(3,178
)
 
Basic and diluted per share
$
(0.04
)

$
(0.05
)
 
 





 
Net loss
$
(11,324
)

$
(14,096
)
 
Basic and diluted per share
$
(0.19
)

$
(0.23
)
 


15



Note 11—Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss by component for the three months ended March 31, 2020 and 2019: 
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Derivatives and Other
 
Total
Accumulated other comprehensive loss, December 31, 2019
$
(14,691
)
 
$
(25,301
)
 
$
(12,715
)
 
$
(52,707
)
Other comprehensive loss before reclassifications

 
(28,178
)
 
(16,958
)
 
(45,136
)
Income tax

 

 
4,646

 
4,646

Other comprehensive loss before reclassifications, net of tax

 
(28,178
)
 
(12,312
)
 
(40,490
)
Amounts reclassified from accumulated other comprehensive income
214

 

 
1,259

 
1,473

Income tax
(44
)
 

 
(344
)
 
(388
)
Amounts reclassified from accumulated other comprehensive income, net of tax
170

 

 
915

 
1,085

Other comprehensive income (loss)
170

 
(28,178
)
 
(11,397
)
 
(39,405
)
Accumulated other comprehensive loss, March 31, 2020
$
(14,521
)
 
$
(53,479
)
 
$
(24,112
)
 
$
(92,112
)
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Derivatives and Other
 
Total
Accumulated other comprehensive loss, December 31, 2018
$
(8,146
)
 
$
(32,551
)
 
$
(4,915
)
 
$
(45,612
)
Other comprehensive loss before reclassifications

 
(4,207
)
 
(3,649
)
 
(7,856
)
Income tax

 

 
808

 
808

Other comprehensive loss before reclassifications, net of tax

 
(4,207
)
 
(2,841
)
 
(7,048
)
Amounts reclassified from accumulated other comprehensive income
266

 

 
578

 
844

Income tax
(69
)
 

 
(150
)
 
(219
)
Amounts reclassified from accumulated other comprehensive income, net of tax
197

 

 
428

 
625

Other comprehensive income (loss)
197

 
(4,207
)
 
(2,413
)
 
(6,423
)
Accumulated other comprehensive loss, March 31, 2019
$
(7,949
)
 
$
(36,758
)
 
$
(7,328
)
 
$
(52,035
)
We include amounts reclassified out of accumulated other comprehensive loss related to defined benefit pension plans as a component of net periodic pension cost. For the three months ended March 31, 2020 and 2019, we reclassified $0.2 million and $0.3 million, respectively, of actuarial net losses.
Note 12—Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under two segments: Global Solutions and Global Products. The Global Solutions segment includes our United States distribution, outsourced logistics and value-added services business. Global Products manufactures and sources medical surgical products through our production and kitting operations.
We evaluate the performance of our segments based on their operating income excluding intangible amortization, acquisition-related and exit and realignment charges, certain purchase price fair value adjustments, and other substantive items that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis.
Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading and not meaningful. We believe all inter-segment sales are at prices that approximate market.

16



The following tables present financial information by segment:
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Net revenue:
 
 
 
 
Segment net revenue
 
 
 
 
Global Solutions
$
1,847,593

 
$
2,123,599

 
Global Products
391,192

 
347,085

 
Total segment net revenue
2,238,785

 
2,470,684

 
Inter-segment revenue
 
 
 
 
Global Products
(116,092
)
 
(119,844
)
 
       Total inter-segment revenue
(116,092
)
 
(119,844
)
 
Consolidated net revenue
$
2,122,693

 
$
2,350,840

 
 
 
 
 
 
Operating income:
 
 
 
 
Global Solutions
$
7,691

 
$
21,642

 
Global Products
18,571

 
7,724

 
Inter-segment eliminations
1,169

 
1,746

 
Intangible amortization
(10,611
)
 
(10,026
)
 
Acquisition-related and exit and realignment charges
(6,064
)
 
(4,863
)
 
Other (1)

 
381

 
Consolidated operating income
$
10,756

 
$
16,604

 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
Global Solutions
$
10,636

 
$
10,500

 
Global Products
13,277

 
12,607

 
Discontinued operations

 
5,613

 
Consolidated depreciation and amortization
$
23,913

 
$
28,720

 
 
 
 
 
 
Capital expenditures:
 
 
 
 
Global Solutions
$
1,032

 
$
3,341

 
Global Products
3,017

 
2,903

 
Discontinued operations
1,664

 
8,035

 
Consolidated capital expenditures
$
5,713

 
$
14,279

 

(1) 2019 included interest cost and net actuarial losses related to the U.S. Retirement Plan as well as Software as a Service (SaaS) implementation costs associated with the upgrading of our global IT platforms in connection with the redesign of our global information system strategy.
 
March 31, 2020
 
December 31, 2019
Total assets:
 
 
 
Global Solutions
$
2,168,358

 
$
2,205,134

Global Products
954,787

 
930,937

Segment assets
3,123,145

 
3,136,071

Discontinued operations
499,410

 
439,983

Cash and cash equivalents
92,315

 
67,030

Consolidated total assets
$
3,714,870

 
$
3,643,084


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

17



 
Three Months Ended March 31,
 
 
2020
 
2019
 
Net revenue:
 
 
 
 
United States
$
2,033,454

 
$
2,303,913