SEC Filing | Owens & Minor, Inc.

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omi-20210930

Table of Contents

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, 2021


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

For the transition period from to

Commission file number 1-9810

_______________________________________________________

Owens & Minor, Inc.

(Exact name of Registrant as specified in its charter)

_______________________________________________________


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

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

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $2 par value per share

OMI

New York Stock Exchange

_________________________________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 October 31, 2021, was 75,455,760 shares.

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Owens & Minor, Inc. and Subsidiaries

Index


Part I. Financial Information		Page

Item 1.	Financial Statements	3
	Consolidated Statements of Operations—Three and Nine Months Ended September 30, 2021 and 2020	3
	Consolidated Statements of Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2021 and 2020	4
	Consolidated Balance Sheets—September 30, 2021 and December 31, 2020	5
	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2021 and 2020	6
	Consolidated Statements of Changes in Equity—Three and Nine Months Ended September 30, 2021 and 2020	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
Part II. Other Information

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	32
Item 6.	Exhibits	32

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Part I. Financial Information

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Net revenue	$	2,502,175	$	2,187,928	$	7,318,169	$	6,118,340
Cost of goods sold	2,173,336		1,843,589		6,146,511		5,236,035
Gross margin	328,839		344,339		1,171,658		882,305
Distribution, selling and administrative expenses	262,457		262,538		849,255		758,320
Acquisition-related and exit and realignment charges	6,380		6,382		20,967		18,500
Other operating income, net	(2,873)		(134)		(5,016)		(3,020)
Operating income	62,875		75,553		306,452		108,505
Interest expense, net	11,572		20,975		36,784		65,923
Loss on extinguishment of debt	—		308		40,433		2,580
Other expense (income), net	799		785		2,397		(1,193)
Income from continuing operations before income taxes	50,504		53,485		226,838		41,195
Income tax provision	6,375		7,404		47,224		3,863
Income from continuing operations, net of tax	44,129		46,081		179,614		37,332
Loss from discontinued operations, net of tax	—		—		—		(58,203)
Net income (loss)	$	44,129	$	46,081	$	179,614	$	(20,871)

Basic income (loss) per common share:
Income from continuing operations	$	0.60	$	0.76	$	2.47	$	0.61
Loss from discontinued operations	—		—		—		(0.95)
Net income (loss)	$	0.60	$	0.76	$	2.47	$	(0.34)
Diluted income (loss) per common share:
Income from continuing operations	$	0.58	$	0.76	$	2.38	$	0.61
Loss from discontinued operations	—		—		—		(0.95)
Net income (loss)	$	0.58	$	0.76	$	2.38	$	(0.34)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Net income (loss)	$	44,129	$	46,081	$	179,614	$	(20,871)
Other comprehensive income (loss), net of tax:
Currency translation adjustments	(12,014)		5,173		(26,724)		7,003
Change in unrecognized net periodic pension costs	395		167		552		932
Change in gains and losses on derivative instruments	—		1,681		20,044		(9,792)
Total other comprehensive income (loss), net of tax	(11,619)		7,021		(6,128)		(1,857)
Comprehensive income (loss)	$	32,510	$	53,102	$	173,486	$	(22,728)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)


	September 30,		December 31,
(in thousands, except per share data)	2021		2020
Assets
Current assets
Cash and cash equivalents	$	39,759	$	83,058
Accounts receivable, net of allowances of $19,273 and $19,087	759,744		700,792
Merchandise inventories	1,514,387		1,233,751
Other current assets	84,335		118,264
Total current assets	2,398,225		2,135,865
Property and equipment, net of accumulated depreciation of $320,389 and $284,126	308,463		315,662
Operating lease assets	184,554		144,755
Goodwill	386,693		394,086
Intangible assets, net	209,789		243,351
Other assets, net	96,395		101,920
Total assets	$	3,584,119	$	3,335,639
Liabilities and equity
Current liabilities
Accounts payable	$	1,118,753	$	1,000,186
Accrued payroll and related liabilities	100,171		109,447
Other current liabilities	206,094		236,094
Total current liabilities	1,425,018		1,345,727
Long-term debt, excluding current portion	959,485		986,018
Operating lease liabilities, excluding current portion	154,009		119,932
Deferred income taxes	37,093		50,641
Other liabilities	121,509		121,267
Total liabilities	2,697,114		2,623,585
Commitments and contingencies
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 75,429 shares and 73,472 shares	150,858		146,944
Paid-in capital	434,952		436,597
Retained earnings	345,832		167,022
Accumulated other comprehensive loss	(44,637)		(38,509)
Total equity	887,005		712,054
Total liabilities and equity	$	3,584,119	$	3,335,639

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
(in thousands)	2021		2020
Operating activities:
Net income (loss)	$	179,614	$	(20,871)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	68,142		69,494
Share-based compensation expense	19,078		15,275
Loss on divestiture	—		65,472
Loss on extinguishment of debt	40,433		2,580
Provision for losses on accounts receivable	19,270		9,583
Deferred income tax (benefit) expense	(18,286)		25,017
Changes in operating lease right-of-use assets and lease liabilities	1,190		(1,328)
Changes in operating assets and liabilities:
Accounts receivable	(84,381)		(20,173)
Merchandise inventories	(284,188)		52,605
Accounts payable	120,821		136,156
Net change in other assets and liabilities	(8,341)		(69,117)
Other, net	20,484		3,503
Cash provided by operating activities	73,836		268,196
Investing activities:
Proceeds from divestiture	—		133,000
Additions to property and equipment	(26,446)		(21,678)
Additions to computer software	(6,179)		(4,702)
Proceeds from sale of property and equipment	41		178
Proceeds from cash surrender value of life insurance policies	—		6,032
Cash (used for) provided by investing activities	(32,584)		112,830
Financing activities:
Proceeds from issuance of debt	574,900		150,000
Repayments under revolving credit facility, net	(90,900)		(107,900)
Repayments of debt	(553,140)		(270,399)
Financing costs paid	(13,912)		(10,367)
Cash dividends paid	(548)		(467)
Payment for termination of interest rate swaps	(15,434)		—
Other, net	(18,188)		(5,822)
Cash used for financing activities	(117,222)		(244,955)
Effect of exchange rate changes on cash and cash equivalents	(2,454)		6,721
Net (decrease) increase in cash, cash equivalents and restricted cash	(78,424)		142,792
Cash, cash equivalents and restricted cash at beginning of period	134,506		84,687
Cash, cash equivalents and restricted cash at end of period	$	56,082	$	227,479
Supplemental disclosure of cash flow information:
Income taxes paid (received), net of refunds	$	83,606	$	(1,892)
Interest paid	$	32,035	$	61,271

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 Loss		Total Equity
Balance, December 31, 2020	73,472	$	146,944	$	436,597	$	167,022	$	(38,509)	$	712,054
Net income						69,589				69,589
Other comprehensive income								7,903		7,903
Dividends declared ($0.0025 per share)						(434)				(434)
Share-based compensation expense, exercises and other	1,628	3,256		(6,107)						(2,851)
Balance, March 31, 2021	75,100	150,200		430,490		236,177		(30,606)		786,261
Net income						65,896				65,896
Other comprehensive loss								(2,412)		(2,412)
Dividends declared ($0.0025 per share)						(187)				(187)
Share-based compensation expense, exercises and other	295	591		(2,130)						(1,539)
Balance, June 30, 2021	75,395	150,791		428,360		301,886		(33,018)		848,019
Net income						44,129				44,129
Other comprehensive loss								(11,619)		(11,619)
Dividends declared ($0.0025 per share)						(183)				(183)
Share-based compensation expense, exercises and other	34	67		6,592						6,659
Balance, September 30, 2021	75,429	$	150,858	$	434,952	$	345,832	$	(44,637)	$	887,005

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
Net loss						(55,627)				(55,627)
Other comprehensive income								30,527		30,527
Dividends declared ($0.0025 per share)						(156)				(156)
Share-based compensation expense, exercises and other	852	1,704		2,376						4,080
Balance, June 30, 2020	63,737	127,474		258,733		70,540		(61,585)		395,162
Net income						46,081				46,081
Other comprehensive income								7,021		7,021
Dividends declared ($0.0025 per share)						(156)				(156)
Share-based compensation expense, exercises and other	(21)	(42)		3,269						3,227
Balance, September 30, 2020	63,716	$	127,432	$	262,002	$	116,465	$	(54,564)	$	451,335

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share data, 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, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The Movianto business represented a component that met accounting requirements to be classified as discontinued operations for the nine months ended September 30, 2020. In accordance with GAAP, the results of operations of the Movianto business are presented as discontinued operations through June 18, 2020 (the Divestiture Date) and, as such, have been excluded from continuing operations for the nine months ended September 30, 2020. With the exception of Note 3, the Notes to Consolidated Financial Statements reflect the continuing operations of Owens & Minor, Inc. and its subsidiaries. See Note 3 for additional information regarding discontinued operations. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.

Reclassifications

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

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash included in Other assets, net as of September 30, 2021 represents cash held in an escrow account as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) initiatives.

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.


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	39,759	$	83,058
Restricted cash included in Other current assets	—		35,126
Restricted cash included in Other assets, net	16,323		16,322
Total cash, cash equivalents, and restricted cash	$	56,082	$	134,506

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 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.

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Note 3—Discontinued Operations

On June 18, 2020, we completed the divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million. We concluded that the Movianto business met the criteria for discontinued operations through the Divestiture Date, 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.

Accordingly, the results of operations from the Movianto business are reported in the accompanying consolidated statements of operations as Loss from discontinued operations, net of tax for the three and nine months ended September 30, 2020.

The following table summarizes the financial results of our discontinued operations for the three and nine months ended September 30, 2020:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Net revenue	$	—	$	226,759
Cost of goods sold	—		53,923
Gross margin	—		172,836
Distribution, selling, and administrative expenses	—		157,512
Loss on divestiture	—		65,472
Acquisition-related and exit and realignment charges	—		4,825
Other operating income, net	—		(388)
Operating loss	—		(54,585)
Interest expense, net	—		3,144
Loss from discontinued operations before income taxes	—		(57,729)
Income tax provision from discontinued operations	—		474
Loss from discontinued operations, net of tax	$	—	$	(58,203)

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 nine months ended September 30, 2020.

No revenue or expense have been recorded in discontinued operations related to the disposal group subsequent to the Divestiture Date.

We have entered into transition services agreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the Buyer will provide to each other various transitional services. Certain transition service arrangement costs and reimbursements were recorded during the three and nine months ended September 30, 2021 and 2020 and were immaterial for the periods presented. These arrangements were substantially completed as of September 30, 2021.

We had no assets and liabilities of the discontinued Movianto business reflected on the consolidated balance sheets at September 30, 2021 and December 31, 2020.

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


	Nine Months Ended September 30, 2020
Operating Activities:
Loss on divestiture	$	65,472
Investing Activities:
Capital expenditures	3,027

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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 September 30, 2021:


	Global Solutions		Global Products		Consolidated
Carrying amount of goodwill, December 31, 2020	$	283,905	$	110,181	$	394,086
Currency translation adjustments	—		(7,393)		(7,393)
Carrying amount of goodwill, September 30, 2021	$	283,905	$	102,788	$	386,693

Intangible assets at September 30, 2021 and December 31, 2020 were as follows:


	September 30, 2021						December 31, 2020
	Customer Relationships		Tradenames		Other Intangibles		Customer Relationships		Tradenames		Other Intangibles
Gross intangible assets	$	265,527	$	90,000	$	43,313	$	270,505	$	90,000	$	43,245
Accumulated amortization	(139,632)		(31,152)		(18,267)		(121,209)		(24,881)		(14,309)
Net intangible assets	$	125,895	$	58,848	$	25,046	$	149,296	$	65,119	$	28,936
Weighted average useful life	10 years		11 years		8 years		10 years		11 years		8 years

At September 30, 2021, $51.1 million in net intangible assets were held in the Global Solutions segment and $159 million were held in the Global Products segment. Amortization expense for intangible assets was $10.0 million and $10.2 million for the three months ended September 30, 2021 and 2020, and $30.1 million and $31.5 million for the nine months ended September 30, 2021 and 2020.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is approximately $10 million for the remainder of 2021, $39 million for 2022, $39 million for 2023, $34 million for 2024, $28 million for 2025 and $27 million for 2026.

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, our client engagement center and IT restructuring charges. These charges also include costs associated with our strategic organizational realignment which include leadership reorganization costs, certain professional fees, and costs to streamline administrative functions and processes and divestiture related costs.

Exit and realignment charges by segment for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Global Solutions segment	$	5,352	$	2,714	$	16,166	$	6,255
Global Products segment	1,028		2,877		4,801		3,364
Total exit and realignment charges	$	6,380	$	5,591	$	20,967	$	9,619

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The following table summarizes the activity related to exit and realignment cost accruals through September 30, 2021 and 2020:


	Total
Accrued exit and realignment costs, December 31, 2020	$	3,146
Provision for exit and realignment activities:
Information system restructuring costs	1,029
Lease obligations	347
Other	781
Cash payments	(2,915)
Accrued exit and realignment costs, March 31, 2021	2,388
Provision for exit and realignment activities:
Information system restructuring costs	1,611
Lease obligations	(126)
Other	989
Cash payments	(2,302)
Accrued exit and realignment costs, June 30, 2021	2,560
Provision for exit and realignment activities:
Information system restructuring costs	1,506
Lease obligations	107
Other	3,142
Cash payments	(4,199)
Accrued exit and realignment costs, September 30, 2021	$	3,116

Accrued exit and realignment costs, December 31, 2019	$	8,162
Provision for exit and realignment activities:
Severance	1,391
Information system restructuring costs	183
Lease obligations	202
Other	53
Cash payments	(5,799)
Accrued exit and realignment costs, March 31, 2020	4,192
Provision for exit and realignment activities:
Severance	809
Information system restructuring costs	671
Lease obligations	219
Other	501
Cash payments	(2,072)
Accrued exit and realignment costs, June 30, 2020	4,320
Provision for exit and realignment activities:
Severance	1,950
Information system restructuring costs	77
Lease obligations	848
Other	2,716
Cash payments	(7,083)
Accrued exit and realignment costs, September 30, 2020	$	2,828

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In addition to the exit and realignment accruals in the preceding table, we also incurred $1.6 million and $11.6 million of costs that were expensed as incurred for the three and nine months ended September 30, 2021, which primarily includes $1.5 million and $9.6 million of wind-down costs related to Fusion5 for the three and nine months ended September 30, 2021.

There were no acquisition-related charges included within acquisition-related and exit and realignment charges presented in our consolidated statements of operations for the three and nine months ended September 30, 2021. Acquisition-related charges within acquisition-related and exit and realignment charges presented in our consolidated statements of operations were $0.8 million and $8.9 million for the three and nine months ended September 30, 2020, which consisted primarily of transition costs for the Halyard acquisition.

We may incur additional charges in 2021 for wind-down costs related to Fusion5.

Note 6—Debt

Debt consists of the following:


	September 30, 2021				December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Term Loan A-2	$	—	$	—	$	33,865	$	34,390
Term Loan B	—		—		477,525		486,614
Receivables Securitization Program	196,683		200,000		152,929		155,100
4.375% Senior Notes, due December 2024	245,011		261,329		244,780		253,241
Revolver	12,300		12,300		103,200		103,200
4.500% Senior Notes, due March 2029	491,430		507,075		—		—
Finance leases and other	15,677		15,677		13,668		13,668
Total debt	961,101		996,381		1,025,967		1,046,213
Less current maturities	(1,616)		(1,616)		(39,949)		(40,453)
Long-term debt	$	959,485	$	994,765	$	986,018	$	1,005,760

We have $246 million, excluding deferred financing costs and third party fees, of 4.375% senior notes due in 2024 (the 2024 Notes), with interest payable semi-annually. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. We have the option to redeem the 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the applicable Benchmark Treasury Rate (as defined) plus 30 basis points.

In March 2021, we issued $500 million, excluding deferred financing costs and third party fees, of 4.500% senior unsecured notes due in 2029 (the 2029 Unsecured Notes), with interest payable semi-annually (the Notes Offering). The 2029 Unsecured Notes were sold at 100% of the principal amount with an effective yield of 4.500%. We used a portion of the net proceeds from the Notes Offering to repay our Term B Loan and borrowings under our revolving credit facility. In connection with these repayments, we recorded $15.3 million in write-offs of deferred financing costs and third party fees within loss on extinguishment of debt for the nine months ended September 30, 2021. No write-offs of deferred financing costs and third party fees were recorded for the three months ended September 30, 2021. We may redeem all or part of the 2029 Unsecured Notes prior to March 31, 2024, at a price equal to 100% of the principal amount of the 2029 Unsecured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 10, 2021 (the Indenture). On or after March 31, 2024, we may redeem all or part of the 2029 Unsecured Notes at the applicable redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem up to 40% of the aggregate principal amount of the 2029 Unsecured Notes at any time prior to March 31, 2024, at a redemption price equal to 104.5% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

On March 10, 2021, we terminated our then existing credit agreement and all obligations thereunder were repaid. On that same date, we entered into a new credit agreement with Bank of America, N.A. and a syndicate of lenders (the Credit Agreement) with a $300 million revolving credit facility. The interest rate on our revolving credit facility is based on a spread over a benchmark rate (as described in the Credit Agreement). The Credit Agreement matures in March 2026.

At September 30, 2021 and December 31, 2020, we had borrowings of $12.3 million and $103 million and letters of credit of $9.4 million and $13.9 million outstanding under our revolving credit facilities. At September 30, 2021 and December

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31, 2020, we had $278 million and $283 million available for borrowing. We also had letters of credit and bank guarantees outstanding for $2.2 million and $1.6 million as of September 30, 2021 and December 31, 2020, which supports certain leased facilities as well as other normal business activities in the United States and Europe. These letters of credit and guarantees were issued outside of the revolving credit facility.

We entered into a Security and Pledge Agreement (the Security Agreement), dated March 10, 2021, pursuant to which we granted collateral on behalf of the holders of the 2024 Notes, and the parties secured under the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries, subject to certain customary exceptions, and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

On March 10, 2021, we entered into an amendment to our accounts receivable securitization program (the Receivables Securitization Program). Pursuant to the amended Receivables Securitization Program, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $450 million outstanding at any time. The interest rate under the Receivables Securitization Program is based on a spread over a benchmark rate (as described in the Third Amendment to the Receivables Financing Agreement). 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 in March 2024.

The Credit Agreement, Receivables Securitization Program, 2024 Notes and 2029 Unsecured Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements. The terms of the Credit Agreement also require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture. We were in compliance with our debt covenants at September 30, 2021.

As of September 30, 2021, scheduled future principal payments of debt, excluding finance leases and other, were $446 million in 2024, $12.3 million in 2026, and $500 million in 2029. Current maturities at September 30, 2021 include $1.6 million in current portion of finance leases.

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 teammates.

The components of net periodic benefit cost for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Service cost	$	693	$	362	$	2,106	$	1,073
Interest cost	443		498		1,337		1,488
Recognized net actuarial loss	353		214		1,060		642
Net periodic benefit cost	$	1,489	$	1,074	$	4,503	$	3,203

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 determine the fair value of our foreign currency derivatives 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. All derivatives are carried at fair value in our consolidated balance sheets in other current assets and other current liabilities. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.

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The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of September 30, 2021:

Derivative Assets

Derivative Liabilities

Notional Amount

Maturity Date

Classification

Fair Value

Classification

Fair Value

Economic (non-designated) hedges

Foreign currency contracts

14,400

October 2021

Other current assets

Other current liabilities

—

In March 2021, we terminated the remaining $300 million in notional value of interest rate swaps concurrent with the debt financing transaction. In September 2020, we terminated $150 million in notional value of interest rate swaps. The remaining balance of the fair value adjustments of $25.1 million, which related to these terminated interest rate swaps, within Accumulated other comprehensive loss was reclassified to Loss on extinguishment of debt within our consolidated statements of operations for the nine months ended September 30, 2021.

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2020:


				Derivative Assets			Derivative Liabilities
	Notional Amount		Maturity Date	Classification	Fair Value		Classification	Fair Value
Cash flow hedges
Interest rate swaps	$	300,000	May 2022 and May 2025	Other assets, net	$	—	Other liabilities	$	17,872

Economic (non-designated) hedges
Foreign currency contracts	$	30,300	January 2021	Other current assets	$	151	Other current liabilities	$	—

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and nine months ended September 30, 2021:


	Amount of Gain Recognized in Other Comprehensive Income (Loss)				Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income	Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded				Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021			Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Interest rate swaps	$	—	$	2,426	Loss on extinguishment of debt	$	—	$	(40,433)	$	—	$	(25,518)

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

The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and nine months ended September 30, 2020:

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	Amount of Loss Recognized in Other Comprehensive Income (Loss)				Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income	Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded				Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020			Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Interest rate swaps	$	(515)	$	(19,913)	Interest expense, net	$	(20,975)	$	(65,923)	$	(3,028)	$	(6,889)

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

For the three and nine months ended September 30, 2021 we recognized losses of $0.9 million and $2.5 million associated with our economic (non-designated) foreign currency contracts. For the three and nine months ended September 30, 2020 we recognized losses of $0.9 million and $2.3 million 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, net for our foreign exchange contracts.

Note 9—Income Taxes

The effective tax rate was 12.6% and 20.8% for the three and nine months ended September 30, 2021, compared to 13.8% and 9.4% in the same periods of 2020. The change in these rates resulted primarily from an income tax benefit recorded in the first quarter of 2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and in the third quarter of 2021 associated with the 2017 Tax Cuts and Jobs Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax benefit associated with the vesting of restricted stock. The liability for unrecognized tax benefits was $23.0 million at September 30, 2021 and $20.8 million at December 31, 2020. Included in the liability at September 30, 2021 and December 31, 2020 were $2.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Services (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied through the current date. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that we have adequately reserved for this matter and that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest, and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.

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Note 10—Net Income (Loss) per Common Share

The following summarizes the calculation of net income (loss) per common share attributable to common shareholders for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands, except per share data)	2021		2020	2021	2020
Income from continuing operations, net of tax	$	44,129	$</