ACCENDRA HEALTH INC/VA/ 10-Q

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. 3 Table of Contents 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. 4 Table of Contents 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. 5 Table of Contents 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. 6 Table of Contents 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. 7 Table of Contents 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. 8 Table of Contents 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 9 Table of Contents 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 10 Table of Contents 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 11 Table of Contents 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 12 Table of Contents 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. 13 Table of Contents 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 $ 92 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: 14 Table of Contents 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. 15 Table of Contents 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 $ 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 ) Weighted average shares outstanding - basic 73,215 60,786 72,649 60,983 Dilutive shares 2,743 137 2,754 — Weighted average shares outstanding - diluted 75,958 60,923 75,403 60,983 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 ) Note 11— Shareholders' Equity 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, 2021, no shares were issued and $ 50.0 million of common stock remained available under the at-the-market equity financing program. Note 12— Accumulated Other Comprehensive Loss The following table shows the changes in accumulated other comprehensive loss by component for the three and nine months ended September 30, 2021 and 2020: 16 Table of Contents Retirement Plans Currency Translation Adjustments Derivatives Total Accumulated other comprehensive loss, June 30, 2021 $ ( 18,290 ) $ ( 14,728 ) $ — $ ( 33,018 ) Other comprehensive loss before reclassifications — ( 12,014 ) — ( 12,014 ) Income tax — — — — Other comprehensive loss before reclassifications, net of tax — ( 12,014 ) — ( 12,014 ) Amounts reclassified from accumulated other comprehensive loss 500 — — 500 Income tax ( 105 ) — — ( 105 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 395 — — 395 Other comprehensive income (loss) 395 ( 12,014 ) — ( 11,619 ) Accumulated other comprehensive loss, September 30, 2021 $ ( 17,895 ) $ ( 26,742 ) $ — $ ( 44,637 ) Retirement Plans Currency Translation Adjustments Derivatives Total Accumulated other comprehensive loss, June 30, 2020 $ ( 13,926 ) $ ( 23,471 ) $ ( 24,188 ) $ ( 61,585 ) Other comprehensive income (loss) before reclassifications — 5,173 ( 516 ) 4,657 Income tax — — 40 40 Other comprehensive income (loss) before reclassifications, net of tax — 5,173 ( 476 ) 4,697 Amounts reclassified from accumulated other comprehensive loss 214 — 3,028 3,242 Income tax ( 47 ) — ( 871 ) ( 918 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 167 — 2,157 2,324 Other comprehensive income 167 5,173 1,681 7,021 Accumulated other comprehensive loss, September 30, 2020 $ ( 13,759 ) $ ( 18,298 ) $ ( 22,507 ) $ ( 54,564 ) Retirement Plans Currency Translation Adjustments Derivatives Total Accumulated other comprehensive loss, December 31, 2020 $ ( 18,447 ) $ ( 18 ) $ ( 20,044 ) $ ( 38,509 ) Other comprehensive (loss) income before reclassifications — ( 26,724 ) 2,426 ( 24,298 ) Income tax — — ( 611 ) ( 611 ) Other comprehensive (loss) income before reclassifications, net of tax — ( 26,724 ) 1,815 ( 24,909 ) Amounts reclassified from accumulated other comprehensive loss 704 — 25,518 26,222 Income tax ( 152 ) — ( 7,289 ) ( 7,441 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 552 — 18,229 18,781 Other comprehensive income (loss) 552 ( 26,724 ) 20,044 ( 6,128 ) Accumulated other comprehensive loss, September 30, 2021 $ ( 17,895 ) $ ( 26,742 ) $ — $ ( 44,637 ) 17 Table of Contents Retirement Plans Currency Translation Adjustments Derivatives Total Accumulated other comprehensive loss, December 31, 2019 $ ( 14,691 ) $ ( 25,301 ) $ ( 12,715 ) $ ( 52,707 ) Other comprehensive loss before reclassifications — ( 8,577 ) ( 19,913 ) ( 28,490 ) Income tax — — 5,113 5,113 Other comprehensive loss before reclassifications, net of tax — ( 8,577 ) ( 14,800 ) ( 23,377 ) Amounts reclassified from accumulated other comprehensive loss 1,067 15,580 6,889 23,536 Income tax ( 135 ) — ( 1,881 ) ( 2,016 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 932 15,580 5,008 21,520 Other comprehensive income (loss) 932 7,003 ( 9,792 ) ( 1,857 ) Accumulated other comprehensive loss, September 30, 2020 $ ( 13,759 ) $ ( 18,298 ) $ ( 22,507 ) $ ( 54,564 ) We include amounts reclassified out of accumulated other comprehensive loss related to defined benefit pension plans as a component of net periodic pension cost recorded in Other expense (income), net. Note 13— 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 businesses (Medical Distribution and Patient Direct), 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 and acquisition-related and exit and realignment charges 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. The following tables present financial information by segment: 18 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net revenue: Segment net revenue Global Solutions $ 2,022,919 $ 1,865,182 $ 5,850,007 $ 5,261,415 Global Products 679,067 473,797 2,026,385 1,235,391 Total segment net revenue 2,701,986 2,338,979 7,876,392 6,496,806 Inter-segment revenue Global Products ( 199,811 ) ( 151,051 ) ( 558,223 ) ( 378,466 ) Total inter-segment revenue ( 199,811 ) ( 151,051 ) ( 558,223 ) ( 378,466 ) Consolidated net revenue $ 2,502,175 $ 2,187,928 $ 7,318,169 $ 6,118,340 Operating income: Global Solutions $ 20,366 $ 10,972 $ 47,729 $ 8,522 Global Products 51,327 89,923 310,242 160,268 Inter-segment eliminations 7,587 ( 8,718 ) ( 475 ) ( 10,322 ) Intangible amortization ( 10,025 ) ( 10,242 ) ( 30,077 ) ( 31,463 ) Acquisition-related and exit and realignment charges ( 6,380 ) ( 6,382 ) ( 20,967 ) ( 18,500 ) Consolidated operating income $ 62,875 $ 75,553 $ 306,452 $ 108,505 Depreciation and amortization: Global Solutions $ 9,951 $ 9,572 $ 29,678 $ 31,273 Global Products 12,691 11,118 38,464 38,221 Consolidated depreciation and amortization $ 22,642 $ 20,690 $ 68,142 $ 69,494 Capital expenditures: Global Solutions $ 5,752 $ 3,582 $ 14,776 $ 7,545 Global Products 8,192 10,656 17,849 15,808 Discontinued operations — — — 3,027 Consolidated capital expenditures $ 13,944 $ 14,238 $ 32,625 $ 26,380 September 30, 2021 December 31, 2020 Total assets: Global Solutions $ 2,135,865 $ 2,117,372 Global Products 1,408,495 1,135,209 Segment assets 3,544,360 3,252,581 Cash and cash equivalents 39,759 83,058 Consolidated total assets $ 3,584,119 $ 3,335,639 The following table presents net revenue by geographic area, which were attributed based on the location from which we ship products or provide services. 19 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net revenue: United States $ 2,380,794 $ 2,101,074 $ 6,900,222 $ 5,872,143 International 121,381 86,854 417,947 246,197 Consolidated net revenue $ 2,502,175 $ 2,187,928 $ 7,318,169 $ 6,118,340 Note 14— Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted ASU No. 2019-12 effective beginning January 1, 2021. Its adoption did not have a material impact on our consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. Our current debt agreements contemplate a transition from LIBOR to another benchmark rate in the event that LIBOR ceases to exist. We do not expect the transition to have a material impact on our consolidated financial statements. In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, to improve consistency by amending the FASB Accounting Standards Codification (the Codification) to include all disclosure guidance in the appropriate disclosure sections. This ASU also clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The amendments in this ASU do not change GAAP and, therefore, are not expected to result in a significant change in practice. We adopted ASU No. 2020-10 effective beginning January 1, 2021. Its adoption did not have a material impact on our consolidated financial statements. There have been no further changes in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2020.