What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-03 · 132 added, 147 removed, 124 unchanged (69% of the section changed)

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This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview and Divestiture of Movianto

Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company.

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

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

The Divestiture provides us with a greater ability to focus on and invest in our di fferentiated products, services and U.S.

distribution businesses.

A portion of the net proceeds was used to repurchase $54.1 million of our 2021 Notes through a tender offer (see Note 6, “Debt”).

We recorded a loss of $65.5 million in connection with the Divestiture for the nine months ended September 30, 2020.

We have entered into transition services agreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the B uyer will provide to each other various transitional services.

Transition service expenses and reimbursements were immaterial for the three and nine months ended September 30, 2020.

As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” through the Divestiture Date and the related assets and liabilities were classified as “held-for-sale” in the consolidated balance sheet as of December 31, 2019.

As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” for the three months ended March 31, 2020.

See Note 3, “Discontinued Operations,” of the Notes to Consolidated Financial Statements for further information.

Unless otherwise indicated, the following information relates to continuing operations.

Income (loss) from continuing operations per diluted share was $0.76 and $0.61 for the three and nine months ended September 30, 2020, respectively, as compared to $0.06 and $(0.28) for the three and nine months ended September 30, 2019, respectively.

Global Solutions segment operating income was $11.0 million and $8.5 million for the three and nine months ended September 30, 2020, respectively, compared to $24.9 million and $64.3 million for the three and nine months ended September 30, 2019, respectively.

The declines were a result of lower revenues in part from a reduction in elective surgeries as compared to prior year.

Global Products segment operating income was $89.9 million and $160.3 million for the three and nine months ended September 30, 2020, respectively, compared to $16.9 million and $42.6 million for the three and nine months ended September 30, 2019, respectively.

The increases were a result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with continued operating efficiencies compared to 2019.

Income (loss) from continuing operations per diluted share was $0.98 for the three months ended March 31, 2021 as compared to $(0.15) for the three months ended March 31, 2020.

Global Solutions segment operating income was $8.9 million for the three months ended March 31, 2021, compared to $7.7 million for the three months ended March 31, 2020.

Global Products segment operating income was $164 million for the three months ended March 31, 2021, compared to $18.6 million

for the three months ended March 31, 2020.

The increase was a result of higher revenues and favorable product mix combined with continued operating efficiencies compared to the prior year.

COVID-19 Update

We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We are closely monitoring the impact of the 2019 novel coronavirus (COVID-19) on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders.

Revenue in the first nine months of 2020 of $6.1 billion includes a significant overall impact from COVID-19 related to the reduction of surgical procedures beginning in mid-March, which was partially offset by a greater demand for personal protective equipment (PPE).

Revenue for the three months ended March 31, 2021 of $2.3 billion includes an increase in demand for personal protective equipment (PPE), which was partially offset by a reduction in elective surgical procedures primarily due to the impact of COVID-19.

Operating income also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies.

We have expanded our PPE production operations to 24 hours a day, 7 days a week, and have taken measures to increase and improve our production such as retooling existing equipment, installing and optimizing new production lines and ramping up our new non-woven fabric machinery.

We have delivered nearly 11 billion units of PPE, of which approximately 4 billion units were produced with materials manufactured in our American factories or Owens & Minor owned facilities, since January 2020.

We have expanded our PPE production operations and have taken measures to increase and improve our production such as retooling existing equipment, installing and optimizing new production lines and ramping up our new non-woven fabric machinery.

We expect that we will continue servicing our customers' needs related to the heightened demand for our PPE as a result of various factors, including the implementation of new regulations and healthcare protocols calling for increased use of PPE, healthcare professional preference for medical grade PPE, stockpile PPE demand and the creation of new channels for PPE demand in healthcare, non-healthcare and international markets.

We are evaluating various government-sponsored COVID-response stimulus, relief, and production initiatives such as under the Defense Production Act (DPA) and recent Coronavirus Aid, Relief and Economic Security (CARES) Act.

In April 2020, under the DPA, the U.S.

Department of Defense initiated a technology investment agreement with us involving up to $30 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks to the U.S.

nature of the agreement provides a program of expedited partial funding to begin expansion while final terms are completed.

Through September 30, 2020, approximately $20.4 million had been expended and reimbursed in accordance with this arrangement.

In addition, as allowed under the CARES Act, we filed for $13.0 million and $17.6 million income tax refunds with the Internal Revenue Service (IRS) related to the carryback of net operating losses (NOL) incurred in 2018 and 2019, respectively.

As of September 30, 2020, the $13.0 million refund was received and the $17.6 million refund was included in other current assets on our consolidated balance sheet.

In connection with these NOL carryback items, we recorded a $7.0 million and $12.2 million benefit to the income tax benefit for the three and nine months ended September 30, 2020.

We are unable to predict the length of the pandemic and the full impact that COVID-19 will have on our future financial position and operating results due to numerous variables and continued uncertainties.

In March 2020, under the Defense Production Act (DPA), we were awarded a contract with the U.S.

Department of Health and Human Services to produce N-95 respirator masks in an effort to replenish the Strategic National Stockpile.

In April 2020, also under the DPA, the U.S.

Department of Defense initiated a technology investment agreement with us involving up to $30.0 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks.

Through March 31, 2021, approximately $27.8 million had been expended, substantially all of which had been reimbursed in accordance with this arrangement .

We are unable to predict the timing of the pandemic and the full impact that COVID-19 will have on our future financial position and operating results due to numerous variables and continued uncertainties.

Although we have experienced growth in sales volumes for certain of our products (such as PPE) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic.

Results of Operations

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

Global Solutions $ 1,865,182 $ 2,047,379 $ (182,197) (8.9) %

Global Products 473,797 359,835 113,962 31.7 %

Inter-segment (151,051) (114,462) (36,589) (32.0) %

Net revenue $ 2,187,928 $ 2,292,752 $ (104,824) (4.6) %

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

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Net revenue $ 2,326,534 $ 2,122,693 $ 203,841 9.6 %

The change in net revenue for the three and nine months ended September 30, 2020 reflected the impact of a reduction in elective surgical procedures, primarily due to the impact of COVID-19, and lower distribution revenues as a result of customer non-renewals that occurred in 2019.

These were partially offset by revenue growth in Global Products from increased demand for PPE and growth in Byram, our Home Healthcare business.

Foreign currency translation had a favorable impact on net revenue of $1.9 million for the three months ended September 30, 2020 and an unfavorable impact on net revenue of $1.7 million for the nine months ended September 30, 2020, as compared to the prior year.

Cost of goods sold.

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

The change in net revenue for the three months ended March 31, 2021 reflected the impact of revenue growth in Global Products from increased demand for PPE, higher cost pass-through in gloves, along with strong performance in our Byram Patient Direct business.

These were partially offset by a reduction in elective surgical procedures, primarily due to the impact of COVID-19, and one less selling day.

Foreign currency translation had a favorable impact on net revenue of $9.3 million for the three months ended March 31, 2021 as compared to the prior year.

Cost of goods sold.

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

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Gross margin.

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

Gross margin $ 344,339 $ 280,622 $ 63,717 22.7 %

As a % of net revenue 15.74 % 12.24 %

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

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As a % of net revenue 19.03 % 12.65 %

Gross margin in the three and nine months ended September 30, 2020 were impacted by improved sales mix and productivity, operating efficiencies in Global Products and a favorable impact from foreign currency translation of $5.4 million and $1.1 million, respectively.

Gross margin increase in the three months ended March 31, 2021 was driven by sales growth, market dynamics including timing of cost changes, an overall improved sales mix, operating efficiencies primarily in Global Products and a favorable impact from foreign currency translation of $6.2 million.

Operating expenses.

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

Distribution, selling and administrative expenses $ 262,538 $ 248,661 $ 13,877 5.6 %

As a % of net revenue 12.00 % 10.85 %

Acquisition-related and exit and realignment charges $ 6,382 $ 4,522 $ 1,860 41.1 %

Other operating (income) expense, net $ (134) $ 1,329 $ (1,463) (110.1) %

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

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Acquisition-related and exit and realignment charges $ 5,963 $ 6,064 $ (101) (1.7) %

Other operating (income) expense, net $ (3,020) $ 2,385 $ (5,405) (226.6) %

Other operating income, net $ (2,605) $ (2,309) $ (296) 12.8 %

Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements.

Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers.

Overall DS&A expenses were affected by the revenue decline and change in mix and investments in the business, partially offset by operational efficiencies.

DS&A expenses also included an unfavorable impact for foreign currency translation of $0.3 million for the three months ended September 30, 2020 and a favorable impact for foreign currency translation of $0.3 million for the nine months ended September 30, 2020.

Acquisition-related charges were $0.8 million and $8.9 million for the three and nine months ended September 30, 2020, compared to $3.5 million and $11.4 million for the same periods of 2019.

Acquisition-related charges in 2020 and 2019 consist primarily of transition costs for the Halyard acquisition.

Exit and realignment charges were $5.6 million and $9.6 million for the three and nine months ended September 30, 2020, compared to $1.0 million and $3.4 million for the same periods of 2019.

Amounts in 2020 were associated with severance from reduction in force, post divestiture costs related to the Movianto business and other costs related to the reorganization of the U.S.

Overall DS&A expenses were affected by revenue growth, higher accrued incentive compensation, teammate benefits and charitable contributions, partially offset by operational efficiencies.

DS&A expenses also included an unfavorable impact for foreign currency translation of $1.0 million for the three months ended March 31, 2021.

There were no acquisition-related charges for the three months ended March 31, 2021 compared to $4.2 million for the same period of 2020, which consisted primarily of transition costs for the Halyard acquisition.

Exit and realignment charges were $6.0 million for the three months ended March 31, 2021 and consisted primarily of an increase in reserves associated with certain retained assets of Fusion5, IT restructuring charges and other costs related to the reorganization of the U.S.

commercial, operations and executive teams.

Amounts in 2019 were associated with severance costs, the establishment of our client engagement center, and IT restructuring charges.

The change in other operating (income) expense, net was attributed primarily to higher foreign currency transaction gains compared to prior year, gain on legal settlement, and lower software as a service implementation expenses due to the adoption of ASU No.

2018-15 as of January 1, 2020.

See Note 14 in Notes to Consolidated Financial Statements.

Interest expense, net .

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

Exit and realignment charges were $1.8 million for the three months ended March 31, 2020 and consisted primarily of IT restructuring charges and other costs related to the reorganization of the U.S.

commercial, operations and executive teams.

The change in other operating income, net was attributed primarily to lower foreign currency transaction gains offset by lower losses from the adjustments to fair value on our foreign currency contracts compared to prior year.

Interest expense, net .

Effective interest rate 5.64 % 6.04 %

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

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Effective interest rate 5.45 % 7.17 %

Interest expense, net for the three and nine months ended September 30, 2020 decreased primarily due to a reduction in debt and a decrease in our effective interest rate, which were partially offset by the amortization of additional deferred financing costs as a result of the Fifth Amendment to the Credit Agreement in February 2020.

Interest expense, net and the effective interest rate fo r the three months ended March 31, 2021 decreased primarily due to a reduction of debt and lower interest rates.

See Note 6 in Notes to Consolidated Financial Statements.

Other expense, net .

Three Months Ended September 30, Change

Loss on extinguishment of debt.

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

Loss on extinguishment of debt $ 40,433 $ 4,127 $ 36,306 879.7 %

Loss on extinguishment of debt for the three months ended March 31, 2021 includes the write-off of deferred financing costs and third party fees associated with the debt financing in March 2021 of $15.

3 million and amounts reclassified from accumulated other comprehensive loss as a result of the termination of our interest rate swaps of $25.1 million.

Loss on extinguishment of debt for the three months ended March 31, 2020 primarily includes the write-off of deferred financing costs and third party fees.

Other expense, net .

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

Other expense, net $ 569 $ 719 $ (150) (20.9) %

Other expense, net for the three months ended September 30, 2020 and September 30, 2019 primarily relate to interest cost and net actuarial losses related to the U.S.

Retirement Plan.

Other expense, net for the nine months ended September 30, 2020 includes the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to the U.S.

Retirement Plan, offset by a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes.

Other expense, net for the nine months ended September 30, 2019 includes interest cost and net actuarial losses related to the U.S.

Retirement Plan, the write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement in February 2019, and gain on extinguishment of debt related to the partial repurchase of our 2021 Notes.

Other expense, net for the three months ended March 31, 2021 and 2020 represents interest cost and net actuarial losses related to our retirement plans.

Income taxes.

Three Months Ended September 30, Change

(Dollars in thousands) 2020 2019 $ %

Income tax provision (benefit) $ 7,404 $ (1,910) $ 9,314 487.6 %

Effective tax rate 13.8 % -126.5 %

Nine Months Ended September 30, Change

Three Months Ended

March 31, Change

(Dollars in thousands) 2021 2020 $ %

1 unchanged sentence

Effective tax rate 24.4 % 48.9 %

The change in the effective tax rates compared to 2019 resulted primarily from an income tax benefit recorded in the first and third quarters of 2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, year over year changes in, and mixture of, income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.

In addition, the provision for income taxes reflects an increase in our reserve for uncertain tax positions for the three and nine months ended September 30, 2020 in connection with the IRS’ audit of our 2015 and 2016 consolidated income tax returns described in Note 9 in the Notes to Consolidated Financial Statements.

The change in the effective tax rate for the three months ended March 31, 2021 compared to the same period in 2020 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, 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 recorded in the first quarter of 2021.

Financial Condition, Liquidity and Capital Resources

Financial condition .

We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory turnover.

We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility, or a combination thereof of approximately $24 million.

We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory days.

We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility or Receivables Securitization Program, or a combination thereof of approximately $25.9 million.

The majority of our cash and cash equivalents are held in cash depository accounts with major banks in the United States, Europe, and Asia.

Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collections of accounts receivable, and payments to suppliers.

September 30, 2020 December 31, 2019 Change

March 31, 2021 December 31, 2020 Change

(Dollars in thousands) $ %

3 unchanged sentences

Merchandise inventories $ 1,322,897 $ 1,233,751 $ 89,146 7.2 %

Consolidated inventory turnover (2)

Inventory days (2)

Accounts payable $ 1,021,761 $ 1,000,186 $ 21,575 2.2 %

(1) Based on period end accounts receivable and net revenue for the quarter

(2) Based on average inventory and annualized costs of goods sold for the quarter ended September 30, 2020 and year ended December 31, 2019

(1) Based on period end accounts receivable and net revenue for the quarters ended March 31, 2021 and December 31, 2020

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended March 31, 2021 and December 31, 2020

Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, which relates to continuing operations and discontinued operations:

The following table summarizes our consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, which relates to continuing operations and discontinued operations:

(Dollars in thousands) 2021 2020

4 unchanged sentences

Effect of exchange rate changes (2,139) (62)

Net increase in cash, cash equivalents and restricted cash $ 142,792 $ 9,636

Cash provided by operating activities in the first nine months of 2020 reflected fluctuations in net income along with favorable changes in working capital.

Cash provided by investing activities in the first nine months of 2020 included cash consideration received of $133.0 million from the sale of Movianto, proceeds of $6.0 million from the surrender of company-owned life insurance policies, and capital expenditures of $26.4 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

Cash used for investing activities in 2019 included capital expenditures for our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.

Cash used for financing activities in the first nine months of 2020 included dividend payments of $0.5 million and repayments of $107.9 million under our revolving credit facility, compared to $5.1 million and $36.1 million, respectively, for the same period of 2019.

We also had proceeds from borrowings of $150.0 million related to the Accounts Receivable Securitization Program in the first nine months of 2020.

Financing activities also included repayments of $270.4 million in the first nine months of 2020 compared to $40.7 million in the same period of 2019 on our term loans (under the Credit Agreement) and 2021 and 2024 Notes.

We used $83.3 million of cash to repurchase $87.9 million aggregate principal amount of the 2021 and 2024 Notes during the first nine months of 2020.

We also paid $10.4 million in financing costs related to the February 2020 Accounts Receivable Securitization Program and the February 2020 Fifth Amendment to the Credit Agreement, as compared to $4.3 million in financing costs related to the February 2019 Fourth Amendment to the Credit Agreement.

Net (decrease) increase in cash, cash equivalents and restricted cash $ (63,729) $ 56,306

Cash provided by operating activities in the first three months of 2021 and 2020 reflected fluctuations in net income along with changes in working capital.

Cash used for investing activities in the first three months of 2021 and 2020 included capital expenditures of $6.6 million and $5.7 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

C ash used for financing activities in the first three months of 2021 included dividend payments of $0.2 million and repayments of $96.5 million under our revolving credit facility, compared to $0.2 million and $6.2 million for the same period of 2020.

We also had proceeds from borrowings of $575 million related to the 2029 Unsecured Notes and Accounts Receivable Securitization Program for the first three months of 2021, compared to $150 million related to the Accounts Receivable Securitization Program for the first three months of 2020.

Financing activities also included repayments of $523 million for the first three months of 2021 compared to $167 million in the same period of 2020 on our term loans and 2021 and 2024 Notes.

We used $4.4 million of cash to repurchase $4.6 million aggregate principal amount of the 2021 and 2024 Notes during the first three months of 2020.

We also paid $11.7 million in financing costs, as compared to $5.8 million in financing costs for the same period of 2020.

In addition, we paid $15.4 million to terminate the remaining $300 million in notional value of interest rate swaps during the first three months of 2021.

Capital resources .

Our sources of liquidity include cash and cash equivalents, a revolving credit facility under our Credit Agreement with Bank of America, N.A, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and a syndicate of lenders (the Credit Agreement), and the Receivables Securitization Program.

Our sources of liquidity include cash and cash equivalents, a revolving credit facility under our Credit Agreement with Bank of America, N.A, as an administrative agent and collateral agent, and a syndicate of financial institutions, as lenders (the Credit Agreement), and the Receivables Securitization Program.

The Credit Agreement provides a revolving borrowing capacity of $300 million.

The interest rate on our revolving credit facility and Term A Loans is based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement).

Our credit spread on the revolving credit facility and Term A Loans at September 30, 2020 was Eurocurrency Rate plus 4.25%.

Our Term B Loan accrues interest based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of 3.50% per annum for Base Rate Loans, and 4.50% per annum for Eurocurrency Rate Loans (each as defined in the Credit Agreement).

Our credit spread on the Term B Loan at September 30, 2020 was Eurocurrency Rate plus 4.50% .

We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility.

At September 30, 2020 and December 31, 2019, we had borrowings of $70.0 million and $177.9 million, respectively, under the revolver and letters of credit of $13.9 million and $11.7 million, respectively, outstanding under the Credit Agreement.

At September 30, 2020 and December 31, 2019, we had $316.1 million and $209.3 million, respectively, available for borrowing.

The December 31, 2019 availability reflected letters of credit associated with discontinued operations of $1.1 million.

There were no letters of credit associated with discontinued operations as of September 30, 2020.

We also had letters of credit and bank guarantees outstanding for $2.4 million, of which $0.8 million are in process of being transferred to the buyer of Movianto, and $1.6 million and $1.5 million as of September 30, 2020 and December 31, 2019, respectively, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

The interest rate on our revolving credit facility is based on a spread over either the Eurocurrency Rate or the Base Rate (each as defined in the Credit Agreement) .

The Credit Agreement matures in March 2026.

At March 31, 2021 and December 31, 2020, we had borrowings of $6.7 million and $103 million, and letters of credit of $11.4 million and $13.9 million outstanding under our credit agreements.

At March 31, 2021 and December 31, 2020, we had $282 million and $283 million, available for borrowing.

We also had letters of credit and bank guarantees outstanding for $1.9 million and $1.6 million as of March 31, 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 independent of the Credit Agreement .

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

The Fifth Amendment to the Credit Agreement included additional collateral requirements if the Credit Parties, including an obligation to pledge our owned U.S.

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 and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

The Credit Agreement included additional collateral requirements of the Credit Parties, including an obligation to pledge our owned U.S.

real estate and the remaining equity interests in foreign subsidiaries.

Our Credit Agreement has a “springing maturity date” with respect to the revolving credit facility, the Term A Loans, and the Term B Loan.

If the outstanding balance of the 2021 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2021 Notes, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility, the Term A Loans, and the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2021 Notes.

Likewise, if the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.

On February 19, 2020, we entered into an accounts receivable securitization program (the Receivables Securitization Program).

Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time.

The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued.

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 the London Interbank Offered Rate (LIBOR) or successor rate.

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.

Our Receivables Securitization Program has a “springing maturity date” with respect to the Term A Loans.

If the outstanding balance of the Term A loans have not been paid in full as of the date 91 days prior to the maturity date of the Term A Loans, then the Scheduled Termination Date (as defined in the Receivables Financing Agreement) of the Receivables Securitization Program shall be the date that is 91 days prior to the maturity date of the Term A Loans.

In February 2020, we drew $150 million from the Receivables Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement.

The Fifth Amendment to the

Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A loans to the extent those instruments are outstanding.

The Credit Agreement, Receivables Securitization Program, and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement.

The terms of the Credit Agreement also require the company to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture.

We were in compliance with our debt covenants at September 30, 2020.

Current maturities include scheduled principal payments within the next 12 months of $44.6 million and $5.0 million for our Term A and Term B Loans, respectively, $1.0 million in short-term finance leases, and $178.5 million related to our 2021 Notes.

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 either agreement.

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 March 31, 2021.

In May 2020, we entered into an equity distribution agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million.

We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and working capital purposes.

As of September 30, 2020 no shares were issued and $50 million of common stock remained available under the at-the-market equity financing program.

On October 6, 2020, we completed a follow-on equity offering wherein we sold an aggregate of 8,475,000 shares of our common stock at an offering price of $20.50, resulting in net proceeds to us of approximately $165 million, after deducting expenses relating to the follow-on equity offering, including the underwriters’ discounts and commissions.

Pursuant to the underwriting agreement, we granted the underwriters an option to purchase up to an additional 1,271,250 shares of our common stock, which the underwriters exercised in full.

Inclusive of this exercised option, net proceeds to us were approximately $190 million, after deducting expenses relating to the follow-on equity offering, including the underwriters’ discounts and commissions.

We used the proceeds from the follow-on equity offering to repay the remaining $109 million outstanding balance of Term Loan A-1 at par on October 8, 2020, to repay $52 million of our Term Loan A-2 at par on October 15, 2020, and to repay $30 million of borrowings under the revolving credit facility.

On October 30, 2020, we issued a notice of redemption to redeem all of our outstanding 2021 Notes on November 30, 2020 (the “Redemption Date”).

The redemption price will include accrued and unpaid interest to, but not including, the Redemption Date, and a redemption premium, equal to the greater of (i) 100% of the principal amount of the 2021 Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points.

As of March 31, 2021 no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program.

We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure.

From time to time, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms).

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We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.

The third quarter dividend of $0.0025 per share was paid in September 2020.

The payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements, current and future limitations under our Credit Agreement (as amended) and other factors.

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, debt repurchases and other cash requirements.

The first quarter dividend of $0.0025 per share was paid in March 2021.

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement and Receivables Securitization Program, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, debt repurchases and other cash requirements.

While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.

We earn a portion of our operating income in foreign jurisdictions outside the United States.

Our cash and cash equivalents held by our foreign subsidiaries totaled $32.0 million and $52.9 million at September 30, 2020 and December 31, 2019, respectively.

Our cash and cash equivalents held by our foreign subsidiaries totaled $37.7 million and $72.0 million at March 31, 2021 and December 31, 2020.

We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand.

We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of September 30, 2020.

have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of March 31, 2021.

As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S.

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We will continue to evaluate our foreign earnings repatriation policy in 2021 for all our foreign subsidiaries.

Guarantor and Collateral Group Summarized Financial Information

We are providing the following information in compliance with Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and Rule 13-02 of Regulation S-X, of with respect to our 2024 Notes.

See Note 6 of the accompanying consolidated financial statements for additional information regarding the terms of the 2024 Notes.

The following tables present summarized financial information for Owens & Minor, Inc.

and the guarantors of Owens & Minor, Inc.’s 2024 Notes (together, "the Guarantor Group"), on a combined basis with intercompany balances and transactions between entities in the Guarantor Group eliminated.

The guarantor subsidiaries are 100% owned by Owens & Minor, Inc.

Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several.

Summarized financial information of the Guarantor Group is as follows:

Summarized Consolidated Statement of Operations - Guarantor Group Three months ended March 31, 2021

(Dollars in thousands)

Net revenue (1)

Gross margin 386,153

Operating income 105,032

Income from continuing operations, net of tax 42,145

Net income 42,145

(1) Includes $78.2 million in sales to non-guarantor subsidiaries for the three months ended March 31, 2021.

Summarized Consolidated Balance Sheet - Guarantor Group March 31, 2021 December 31, 2020

(Dollars in thousands)

Total current assets $ 1,286,114 $ 1,559,248

Intercompany receivable 370,103 399,484

Total assets 2,664,388 2,943,125

Current liabilities 1,379,941 1,374,800

Intercompany payable 106,238 89,040

Total liabilities 2,388,724 2,465,894

The following tables present summarized financial information for Owens & Minor, Inc.

and the subsidiaries of Owens & Minor, Inc.’s 2024 Notes pledged that constitute a substantial portion of collateral (together, "the Collateral Group"), on a combined basis with intercompany balances and transactions between entities in the Collateral Group eliminated.

The pledged subsidiaries are 100% owned by Owens & Minor, Inc.

No trading market for the subsidiaries included in the Collateral Group exists.

Summarized financial information of the Collateral Group is as follows:

Summarized Consolidated Balance Sheet - Collateral Group March 31, 2021 December 31, 2020

(Dollars in thousands)

Total current assets $ 1,377,069 $ 1,651,460

Intercompany receivable 248,974 158,651

Total assets 2,561,146 2,851,226

Current liabilities 1,335,156 1,356,024

Intercompany payable 504,299 486,491

Total liabilities 2,376,416 2,480,953

The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our Consolidated Statements of Operations.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2019 and Note 14 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2020.

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 14 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 2021.

Forward-looking Statements

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• our ability to achieve revenue and operating income goals may be affected by:

COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic or future pandemics, related governmental responses, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, or temporary production and distribution center and office closures due to reduced workforces or government mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic or future pandemics, related governmental responses, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, temporary production and distribution center and office closures due to reduced workforces or government mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

• competitive pressures in the marketplace, including intense pricing pressure;

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and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals;

• our ability to successfully implement the expense reduction and productivity and efficiency increasing initiatives;

• our ability to successfully implement the expense reduction and productivity and efficiency initiatives;

• our ability to continue to comply with the terms and conditions of Byram Healthcare’s Corporate Integrity Agreement;

• the potentially adverse impact of the United Kingdom’s withdrawal from the European Union;

• other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as updated and supplemented by Item 8.01 of our Current Report on Form 8-K filed with the SEC on March 27, 2020 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.

We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis