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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-K 
 
 
 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2019
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number 1-9810
 
 
 
OWENS & MINOR, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Virginia
 
 
54-1701843
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
9120 Lockwood Boulevard
Mechanicsville
Virginia
23116
(Address of principal executive offices)
(Zip Code)
 
 
 
 
Post Office Box 27626,
Richmond, Virginia
 
 
23261-7626
(Mailing address of principal executive offices)
 
 
(Zip Code)

Registrant’s telephone number, including area code (804723-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
 Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $2 par value
 
OMI
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).    Yes      No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The aggregate market value of Common Stock held by non-affiliates (based upon the closing sales price) was approximately $196,281,142 as of June 30, 2019.
The number of shares of the Company’s common stock outstanding as of February 14, 2020 was 62,849,712 shares.
Documents Incorporated by Reference
The proxy statement for the annual meeting of shareholders to be held on May 1, 2020, is incorporated by reference for Item 5 of Part II and Part III.
 
 
 


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Form 10-K Table of Contents
 
 
 
 
 
Item No.
 
 
Page
 
 
 
 
 
 
 
1

 
3
1A.

 
8
1B.

 
16
2

 
16
3

 
16
 
 
 
 
 
 
 
4

 
Mine Safety Disclosures
16
5

 
16
6

 
17
7

 
17
7A.

 
24
8

 
24
9

 
24
9A.

 
24
9B.

 
25
 
 
25
 
 
26
 
 
 
 
 
 
 
 
 
 
 
10

 
27
11

 
27
12

 
27
13

 
27
14

 
27
 
 
 
 
 
 
 
 
 
 
 
15

 
28
Corporate Officers can be found at the end of this Form 10-K.



Part I
Item 1. Business
General
Owens & Minor, Inc. and subsidiaries (we, us or our), a Fortune 500 company headquartered in Richmond, Virginia, is a leading global healthcare solutions company with integrated technologies, products and services aligned to deliver significant and sustained value for healthcare providers, manufacturers and directly to patients across the continuum of care. Our teammates serve healthcare industry customers in over 70 countries, by providing quality products and helping to reduce total costs across the healthcare supply chain by optimizing point-of care performance, freeing up capital and clinical resources and managing contracts to optimize financial performance. The description of our business should be read in conjunction with the consolidated financial statements and supplementary data included in this Form 10-K.
Founded in 1882, Owens & Minor was incorporated in 1926 and has operated continuously from its Richmond, Virginia headquarters. Through organic growth and acquisitions over many years, we significantly expanded and strengthened our company, achieving international scale in the healthcare market. Today, we have distribution, production, customer service and sales facilities located across Asia, Europe, Latin America and the United States.
On April 30, 2018, we acquired substantially all of Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and Infection Prevention (S&IP) business, the name “Halyard Health” (and all variations of that name and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash acquired. The Halyard business is a leading global provider of medical supplies and solutions for the prevention of healthcare associated infections across acute care and non-acute care markets.
On January 16, 2020, we announced our intention to sell our European logistics business, Movianto, to EHDH Holding Group (EHDH), a privately held French company. The divestiture is intended to provide us with a greater ability to focus on and invest in our differentiated products, services and U.S. distribution businesses. See Note 3, “Discontinued Operations,” of the Notes to Consolidated Financial Statements included in this annual report for further information. Unless otherwise indicated, the following information relates to continuing operations.

Global Solutions
In our Global Solutions segment, we offer a comprehensive portfolio of products and services to healthcare providers and manufacturers. Our portfolio of medical and surgical supplies includes branded products purchased from manufacturers and our own proprietary products. We store our products at our distribution centers and provide delivery of these products, along with related services, to healthcare providers around the nation.
Our service offerings to healthcare providers include supplier management, analytics, inventory management, and clinical supply management. These value-add services help providers improve their process for contracting with vendors, purchasing supplies and streamlining inventory. These services include our operating room-focused inventory management program that helps healthcare providers manage suture and endo-mechanical inventory, as well as our customizable surgical supply service that includes the kitting and delivery of surgical supplies in procedure-based totes to coincide with the healthcare providers' surgical schedule.
In addition to services to healthcare providers, we offer a variety of programs dedicated to providing outsourced logistics and marketing solutions to our suppliers as well. These are designed to help manufacturers drive sales growth, increase market share and achieve operational efficiencies. Manufacturer programs are generally negotiated on an annual basis and provide for enhanced levels of support that are aligned with the manufacturer’s annual objectives and growth goals. We have contractual arrangements with manufacturers participating in these programs that provide performance-based incentives to us, as well as cash discounts for prompt payment. Program incentives can be earned on a monthly, quarterly or annual basis.
We operate a network of 48 distribution centers located throughout the continental United States, which are strategically located to efficiently serve our provider and manufacturer customers. A significant investment in information technology supports our business including warehouse management systems, customer service and ordering functions, demand forecasting programs, electronic commerce, data warehousing, decision support and supply-chain management.
We customize product deliveries, whether the orders are “just-in-time,” “low-unit-of-measure,” pallets, or truckloads. We also customize delivery schedules according to customers’ needs to increase their efficiency in receiving and storing products. We have deployed low-unit-of-measure automated picking modules in our larger distribution centers to maximize efficiency, and our distribution center teammates use voice-pick technology to enhance speed and accuracy in performing certain warehousing processes. We partner with a third party company to deliver most supplies in the United States. We also use contract carriers and parcel delivery services when they are more cost-effective and timely

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The majority of our distribution arrangements compensate us on a cost-plus percentage basis, under which a negotiated percentage mark-up is added to the contract cost of the product agreed to by the customer and the supplier or Group Purchasing Organization (GPO). We price our services for other arrangements under activity-based pricing models. In these cases, pricing depends upon the type, level and/or complexity of services that we provide to customers, and in some cases we do not take title to the product (although we maintain certain custodial risks). As a result, this fee-for-service pricing model aligns the fees we charge with the cost of the services provided, which is a component of distribution, selling and administrative expenses, rather than with the cost of the product, which is a component of cost of goods sold.
Byram Healthcare expands our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies. Byram specializes in various patient care product lines including ostomy, wound care, diabetes, urology, incontinence and enteral. We receive payments for products sold through Byram from managed care plans, the U.S. federal government under the Medicare program, state governments under their respective Medicaid or similar programs, private insurers and directly from patients. Byram has a nationwide sales force, focusing on managed care and key referral sources, six centers of excellence aligned with specific product categories, and a nationwide network to optimize shipping distance and time.
In 2018, our new customer solution, Fusion5, began in earnest and was created to help healthcare providers succeed in the shift from fee-for-service to value based care. A principal area where Fusion5 is currently engaged is helping providers manage bundled payment episodes under the Bundled Payments for Care Improvement, or BPCI, Advanced program. Fusion5 incurred start-up operating costs during 2019 and 2018 as the venture prepared to provide services to a portfolio of customers including acute care hospitals and physician group practices in 2019 and beyond.
Global Products

Our Global Products segment manufactures and sources medical surgical products through our production and kitting operations. With the acquisition of our Halyard Surgical and Infection Prevention (“Halyard”) business, we have expanded to provide medical supplies and solutions for the prevention of healthcare-associated infections across the acute and alternate site channels.
Our manufacturing facilities are located in the United States, Thailand, Honduras, Mexico and Ireland. Our business has recognized brands across its portfolio of product offerings, including sterilization wrap, surgical drapes and gowns, facial protection, protective apparel, medical exam gloves, custom and minor procedure kits and other medical products. We use a wide variety of raw materials and other inputs in our production processes, with polypropylene polymers and nitrile constituting our most significant raw material purchases. We base our purchasing decisions on quality assurance, cost effectiveness and regulatory requirements, and we work closely with our suppliers to assure continuity of supply while maintaining high quality and reliability. We primarily purchase these materials from external suppliers, some of which are single-source suppliers. Global commodity prices can affect pricing of certain raw materials on which we rely. In our Halyard product line, polypropylene polymers, which are oil based, and nitrile represent a significant component of our manufacturing costs. In addition, the prices of other raw materials we use, such as resins and finishing supplies, often fluctuate in response to changes in oil prices.
We support customer sales through a dedicated global sales force and direct our primary sales and marketing efforts toward hospitals and other healthcare providers to highlight the unique benefits and competitive differentiation of our products. We work directly with physicians, nurses, professional societies, hospital administrators and GPOs to collaborate and educate on emerging practices and clinical techniques that prevent infection and speed recovery. These marketing programs are delivered directly to healthcare providers. Additionally, we provide marketing programs to our strategic distribution partners throughout the world. We operate four major distribution centers located in North America and Asia that ship multiple finished products to multiple customers, as well as other distribution sites that also have customer shipping capabilities, in order to optimize cost and customer service requirements.
Our proprietary products are typically purchased pursuant to purchase orders or supply agreements in which the purchaser specifies whether such products are to be supplied through a distributor or directly. This segment may sell on an intercompany basis to our Global Solutions segment when we are the designated distributor, to other third-party distributors or directly to healthcare providers.






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Our Customers
We currently provide products and services to thousands of healthcare provider customers either directly or indirectly through third-party distributors. These customers include multi-facility networks of healthcare providers offering a broad spectrum of healthcare services to a particular market or markets as well as smaller, independent hospitals in the United States. In addition to contracting with healthcare providers at the Integrated Delivery Network (IDN) level and through GPOs, we also contract with other types of healthcare providers including surgery centers, physicians’ practices and smaller networks of hospitals that have joined together to negotiate terms. We have contracts to provide distribution services to the members of a number of national GPOs, including Vizient, Premier, Inc. (Premier) and HealthTrust Purchasing Group (HPG). Below is a summary of these agreements:
GPO
 
Year of Renewal
 
Term
 
Sales to Members as a % of Consolidated Net Revenue in 2019
Vizient
 
2019
 
2 years
 
37%
Premier
 
2016
 
5 years
 
21%
HPG
 
2017
 
4 years
 
14%
We have our own independent relationships with most of our hospital customers through separate contractual commitments that may or may not be based upon the terms of our agreement with the GPO. As a result, the termination or expiration of an agreement with a particular GPO would not necessarily mean that we would lose the members of such GPO as our customers.
Our suppliers represent the largest and most influential healthcare manufacturers in the industry. We have long-term relationships with these important companies in the healthcare supply chain and have long provided traditional distribution services to them. In the Global Solutions segment, no sales of products of any individual suppliers exceeded 10% of our consolidated net revenue for 2019.
Asset Management
In our business, a significant investment in inventory and accounts receivable is required to meet the rapid delivery requirements of customers and provide high-quality service. As a result, efficient asset management is essential to our profitability. We continually work to refine our processes to optimize inventory and collect accounts receivable.
Inventory
We are focused in our efforts to optimize inventory and continually consolidate products and collaborate with suppliers on inventory productivity initiatives. When we convert large-scale, IDN customers to our distribution network, an additional investment in inventory in advance of expected sales is generally required. We actively monitor inventory for obsolescence and use inventory turnover and other operational metrics to measure our performance in managing inventory.
Accounts Receivable
In the normal course of business, we provide credit to our customers and use credit management techniques to evaluate customers’ creditworthiness and facilitate collection. These techniques may include performing initial and ongoing credit evaluations of customers based primarily on financial information provided by them and from sources available to the general public. We also use third-party information from sources such as credit reporting agencies, banks and other credit references. We actively manage our accounts receivable to minimize credit risk, days sales outstanding (DSO) and accounts receivable carrying costs. Our ability to accurately invoice and ship product to customers enhances our collection results and affects our DSO performance. As we diversify our customer portfolio, the change in business mix also affects our DSO. We have arrangements with certain customers under which they make deposits on account, either because they do not meet our standards for creditworthiness or in order to obtain more favorable pricing.
Competition
The industries in which we operate are highly competitive. Global Solutions competitors include two major nationwide manufacturers who also provide distribution services, Cardinal Health, Inc. and privately-held Medline Industries, Inc. In addition, we compete with a number of regional and local distributors, companies that distribute products to patient's homes and customer self-distribution models. Major outsourced logistics competitors serving healthcare manufacturers in the United States include United Parcel Service and FedEx Corporation.

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The major competitors of our Global Products business include Cardinal Health, Inc., Medline Industries, Inc., Hogy Medical, Multigate Medical Products, Mölnlycke Health Care and HARTMANN Group. In the United States, several of our distribution partners and GPOs are also competitors or are increasingly seeking to compete with us by direct sourcing their own products. In developing and emerging markets, we compete against reusable products, or low usage of infection prevention products, due in large part to limited awareness and education on infection prevention practices and products. The highly competitive environment requires us to seek out technological innovations and to market our products effectively. Our products face competition from other brands that may be less expensive than our products and from other companies that may have more resources than we do. Competitive factors include price, alternative clinical practices, innovation, quality and reputation. To successfully compete, we must demonstrate that our products offer higher quality, more innovative features or better value versus other products.
Research and Development
We continuously engage in research and development to commercialize new products and enhance the effectiveness, reliability and safety of our existing products. In our Global Products business, we are focused on maintaining our market position by providing innovative customer-preferred product enhancements, with a particular focus on the operating room. Leveraging customer insights and our vertically integrated manufacturing capabilities, we seek to continuously improve our product designs, specifications and features to deliver cost efficiencies while improving healthcare worker and patient protection. We continuously refresh our surgical drape and gown portfolio to ensure that our products are aligned with the latest medical and procedural standards. Our research team works with healthcare providers to develop and design exam glove and apparel portfolios that optimize comfort and fit and provide cost-effective infection prevention solutions for use throughout the hospital. We are also investing in new categories and solutions that complement our technical expertise and existing intellectual property. We are particularly focused on those new categories that we believe will leverage our existing scalable technology platforms as well as our sales and marketing expertise.
Intellectual Property
Patents, trademarks and other proprietary rights are very important to the growth of our business. We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position.
On a regular basis, we review third-party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities, and monitor the intellectual property owned by others.
We have approximately 1,045 patents and patent applications pending in the United States and other countries that relate to the technology used in many of our products. We utilize patents in our surgical and infection protection products and currently have approximately 120 issued patents in the U.S. and over 500 issued patents in countries outside the U.S. These patents generally expire between 2020 and 2040.  We do not license any patents from third parties that are material to our business.
We also file patent applications for innovative product lines and solutions that result from our technical expertise.  In order to protect our ongoing research & development investments, we have approximately 60 pending patent applications in the U.S. and approximately 300 pending patent applications in countries outside of the U.S.
With respect to trademarks, we have approximately 1,000 trademarks and trademark applications pending in the United States and other countries that are used to designate or identify our company or products.  We have over 100 U.S. registration trademarks and over 700 registered trademarks outside of the U.S.  We also have 27 pending trademark applications in the U.S. and 91 pending trademark applications outside of the U.S.
Since the Halyard acquisition, we have and will continue to distribute products bearing the well-known “Halyard” brand. Other well-known registered trademarks we use include Aero Blue, Quick Check, Smart-Fold, One Step, Purple, Purple Nitrile, and Purple Nitrile-Xtra.
We consider the patents and trademarks which we own and the trademarks under which we sell certain of our products, as a whole, to be material to our business. However, we do not consider our business to be materially dependent upon any individual patent or trademark.
Regulation
The development, manufacture, marketing, sale, promotion and distribution of our products, as well as the provision of logistics and services in the healthcare industry are subject to comprehensive regulation by federal, state and local government agencies. Government regulation by various national, regional, federal, state and local agencies, globally, addresses (among other matters) inspection of, and controls over, research and laboratory procedures, clinical investigations,

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product approvals and manufacturing, labeling, packaging, marketing and promotion, pricing and reimbursement, sampling, distribution, quality control, post-market surveillance, record keeping, storage and disposal practices.
Our operations are impacted by trade regulations in many countries that govern the import of raw materials and finished products, as well as data privacy laws (including the General Data Protection Regulation) that require safeguards for the protection of healthcare and other personal data. In addition, we are subject to laws and regulations that seek to prevent corruption and bribery in the marketplace (including the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act, which provide guidance on corporate interactions with government officials) as well as laws and regulations pertaining to healthcare fraud and abuse, including state and federal anti-kickback and false claims laws in the United States.
We must also comply with laws and regulations, including those governing operations, storage, transportation, manufacturing, sales, safety and security standards for each of our manufacturing and distribution centers, of the Food and Drug Administration, the Centers for Medicare and Medicaid Services, the Drug Enforcement Agency, the Department of Transportation, the Environmental Protection Agency, the Department of Homeland Security, the Occupational Safety and Health Administration, and state boards of pharmacy, or similar state licensing boards and regulatory agencies.
Compliance with these laws and regulations is costly and materially affects our business. Among other effects, healthcare regulations substantially increase the time, difficulty and costs incurred in obtaining and maintaining approval to market newly developed and existing products. We believe we are in material compliance with all statutes and regulations applicable to our operations.
Our operations outside the U.S. are subject to local, country and European-wide regulations, including those promulgated by the European Medicines Agency (EMA) and the Medical Devices Directive. In addition, quality requirements are imposed by healthcare industry manufacturers and pharmaceutical companies which audit our operations on a regular basis. Each of our manufacturing locations are licensed or registered with the appropriate local authority. We believe we are in material compliance with all applicable statutes and regulations, as well as prevailing industry best practices, in the conduct of our business operations outside of the United States.
Since we market our products worldwide, certain products of a local nature and variations of product lines must also meet other local regulatory requirements. Certain additional risks are inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on participation in local enterprises, expropriation, nationalization, and other governmental action. Demand for many of our existing and new medical devices is, and will continue to be, affected by the extent to which government healthcare programs and private health insurers reimburse our customers for patients’ medical expenses in the countries where we do business. Statutory and regulatory requirements for Medicaid, Medicare, and other government healthcare programs govern provider reimbursement levels. From time to time, legislative changes are made to government healthcare programs that impact our business, and the federal and/or state governments may continue to enact measures in the future aimed at containing or reducing reimbursement levels for medical expenses paid for in whole or in part with government funds. We cannot predict the nature of such measures or their impact on our business, results of operations, financial condition and cash flows. Any reduction in the amount of reimbursements received by our customers could harm our business by reducing their selection of our products and the prices they are willing to pay.
Compliance with these laws and regulations is costly and materially affects our business. Among other effects, healthcare regulations substantially increase the time, difficulty and costs incurred in obtaining and maintaining approval to market newly developed and existing products. We believe we are in material compliance with all statutes and regulations applicable to our operations.
Employees
At the end of 2019, we employed approximately 6,400 full- and part-time teammates in the U.S. and 9,000 outside of the U.S. Most of our teammates outside the U.S. are covered by collective bargaining agreements. We continue to have positive relationships with teammates and works councils.
Available Information
We make our Forms 10-K, Forms 10-Q and Forms 8-K (and all amendments to these reports) available free of charge through the SEC Filings link in the Investor Relations content section on our website located at www.owens-minor.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Information included on our website is not incorporated by reference into this Annual Report on Form 10-K.

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You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding the company (http://www.sec.gov).
Additionally, we have adopted a written Code of Honor that applies to all of our directors, officers and teammates, including our principal executive officer and senior financial officers. This Code of Honor (including any amendments to or waivers of a provision thereof) and our Corporate Governance Guidelines are available on our website at www.owens-minor.com.
Item 1A. Risk Factors
Set forth below are certain risk factors that we currently believe could materially and adversely affect our business, financial condition, results of operations and cash flows. These risk factors are in addition to those mentioned in other parts of this report and are not all of the risks that we face. We could also be affected by risks that we currently are not aware of or that we currently do not consider material to our business.
We face competition and accelerating pricing pressure.
The medical/surgical supply distribution industry in the United States is highly competitive and characterized by pricing pressure which accelerated in 2017 and has continued and put further margin pressure on our business. We expect this margin pressure to continue. We compete with other national distributors and a number of regional and local distributors, as well as customer self-distribution models and, to a lesser extent, certain outsourced logistics companies. Competitive factors within the medical/surgical supply distribution industry include market pricing, total delivered product cost, product availability, the ability to fill and invoice orders accurately, delivery time, range of services provided, efficient product sourcing, inventory management, information technology, electronic commerce capabilities, and the ability to meet customer-specific requirements. Our success is dependent on the ability to compete on the above factors, while managing internal costs and expenses. These competitive pressures could have a material adverse effect on our results of operations and financial condition.
In addition, in recent years, the healthcare industry in the United States has experienced and continues to experience significant consolidation in response to cost containment legislation and general market pressures to reduce costs. This consolidation of our customers and suppliers generally gives them greater bargaining power to reduce the pricing available to them, which may adversely impact our results of operations and financial condition.
The healthcare outsourced logistics business in the United States is characterized by intense competition from a number of international, regional and local companies, including large conventional outsourced logistics companies and internet based non-traditional competitors that are moving into the healthcare and pharmaceutical distribution business. This competitive market places continuous pricing pressure on us from customers and manufacturers that could adversely affect our results of operations and financial condition if we are unable to continue to retain and/or grow our revenues and to offset margin reductions caused by pricing pressures through cost control measures.
We have significant concentration in and dependence on certain healthcare provider customers and Group Purchasing Organizations.
In 2019, our top ten customers in the United States represented approximately 25% of our consolidated net revenue. In addition, in 2019, approximately 72% of our consolidated net revenue was from sales to member hospitals under contract with our largest group purchasing organizations (GPO): Vizient, Premier and HPG. We could lose a significant healthcare provider customer or GPO relationship if an existing contract expires without being replaced or is terminated by the customer or GPO prior to its expiration. Although the termination of our relationship with a given GPO would not necessarily result in the loss of all of the member hospitals as customers, any such termination of a GPO relationship, or a significant individual healthcare provider customer relationship, could have a material adverse effect on our results of operations and financial condition.
Our operating income is dependent on certain significant domestic suppliers.
In North America, we distribute products from approximately 1,000 suppliers and are dependent on these suppliers for the continuing supply of products. In 2019, sales of products of our ten largest domestic suppliers accounted for approximately 45% of consolidated net revenue. In the Global Solutions segment, no sales of products of any individual suppliers exceeded 10% of our consolidated net revenue for 2019. We rely on suppliers to provide agreeable purchasing and delivery terms and performance incentives. Our ability to sustain adequate operating income has been, and will continue to be, dependent upon our ability to obtain favorable terms and incentives from suppliers, as well as suppliers continuing use of third-party distributors to

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sell and deliver their products. A change in terms by a significant supplier, the decision of such a supplier to distribute its products directly to healthcare providers rather than through third-party distributors, or a key supplier’s failure to sell and deliver us products necessary to meet our customers’ demands could have a material adverse effect on our results of operations and financial condition.
Our results of operations may suffer upon the bankruptcy, insolvency, or other credit failure of a customer that has a substantial amount owed to us.
We provide credit in the normal course of business to customers. We perform initial and ongoing credit evaluations of customers and maintain reserves for credit losses. The bankruptcy, insolvency or other credit failure of one or more customers with substantial balances due to us could have a material adverse effect on our results of operations, financial condition and cash flows.
Changing conditions in the United States healthcare industry may impact our results of operations.
A large percentage of our revenue is derived in the United States. We, along with our customers and suppliers, are subject to extensive federal and state regulations relating to healthcare as well as the policies and practices of the private healthcare insurance industry. In recent years, there have been a number of government and private initiatives to reduce healthcare costs and government spending. These changes have included an increased reliance on managed care; reductions in Medicare and Medicaid reimbursement levels; consolidation of competitors, suppliers and customers; a shift in healthcare provider venues from acute care settings to clinics, physician offices and home care; and the development of larger, more sophisticated purchasing groups. All of these changes place additional financial pressure on healthcare provider customers, who in turn seek to reduce the costs and pricing of products and services provided by us. We expect the healthcare industry to continue to change significantly and these potential changes, which may include a reduction in government support of healthcare services, adverse changes in legislation or regulations, and further reductions in healthcare reimbursement practices, could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to generate sufficient cash to service our debt and other obligations.

As of December 31, 2019, on a consolidated basis we had approximately $1.6 billion of aggregate principal amount of secured indebtedness as well as approximately $201 million in contractual obligations under our operating leasing arrangements and $209.3 million of undrawn availability under our credit facilities. Our ratio of total debt to total shareholders’ equity as of December 31, 2019 was 337%.
Our ability to make payments on our indebtedness and our other obligations will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. We cannot assure you that we would be able to implement any of these alternatives on satisfactory terms or at all. In the absence of such operating results and resources, we could face substantial liquidity problems and may be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.
If we are unable to service our debt obligations from cash flows, we may need to refinance all or a portion of our debt obligations prior to maturity. Our ability to refinance or restructure our debt will depend upon our financial condition or the condition of the capital markets at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.
We may not be able to refinance, extend or repay our substantial indebtedness which would have a material adverse affect on our financial condition.
Our 2021 Notes and our 2024 Notes become due and payable on September 2021 and December 2024, respectively. We anticipate that we will need to raise capital in order to repay the 2021 Notes and/or the 2024 Notes. As of December 31, 2019, we owed $238 million under our 2021 Notes and $275 million under our 2024 Notes. If we are unable to raise sufficient capital

9


to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. Additionally, our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loans. If as of the date 91 days prior to the maturity date of our 2021 Notes all outstanding amounts under the 2021 Notes have not been paid in full, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility and the Term A loans shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if as of the date 91 days prior to the maturity date of our 2024 Notes, all outstanding amounts under the 2024 Notes have not been paid in full, the Termination Date of the Term B loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes. We cannot provide any assurances that we will be able to raise the necessary amount of capital to repay these obligations or that we will be able to extend the maturity dates or otherwise refinance these obligations. Upon a default, our lenders would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and financial condition.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Certain borrowings under our credit agreements bear interest at variable rates and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our earnings and cash flows will correspondingly decrease.
Our credit facilities and our existing notes have restrictive covenants that could limit our financial flexibility.
The indentures that govern our existing notes and our credit facilities contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests.
Our credit facilities and the indentures governing our existing notes include restrictions that, among other things, limit our ability to: incur indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. Under our credit facilities, we are subject to financial covenants that require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition and limit our capital expenditures.
Our failure to comply with these restrictions or covenants could result in a default under the agreements governing the relevant indebtedness. If a default under the credit facilities and the indentures governing our existing notes is not cured or waived, such default could result in the acceleration of debt or other payment obligations under our debt or other agreements that contain cross-acceleration, cross-default or similar provisions, which could require us to repurchase or pay debt or other obligations prior to the date it is otherwise due.
Our ability to comply with covenants contained in the credit facilities and the indentures governing our existing notes and any other debt or other agreements to which we are or may become a party, may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.

An interruption in the ability of our business to manufacture products may have a material adverse effect on our business.
We manufacture the majority of our products in eight facilities, three in the United States, one each in Thailand, Ireland and Honduras and two in Mexico. If one or more of these facilities experience damage, or if these manufacturing capabilities are otherwise limited or stopped due to quality, regulatory or other reasons, including natural disasters, geopolitical events, prolonged power or equipment failures, labor disputes or unsuccessful imports/exports of products as well as supply chain transportation disruptions, it may not be possible to timely manufacture the relevant products at required levels or at all. A reduction or interruption in any of these manufacturing processes could have a material adverse effect on our business, results of operations, financial condition and cash flows.
An inability to obtain key components, raw materials or manufactured products from third parties may have a material adverse effect on our Global Products segment.
Our Global Products segment depends on the availability of various components, raw materials and manufactured products supplied by others for its operations. If the capabilities of suppliers and third-party manufacturers are limited or stopped, due to quality, regulatory or other reasons, that could negatively impact our ability to manufacture or deliver our

10


products and could lead to exposure to regulatory actions. Further, for quality assurance or cost effectiveness, we have purchased from sole suppliers certain components and raw materials such as polymers used in our products, and we expect to continue to purchase these components and raw materials from these sole suppliers. Although there are other sources in the market place for these items, we may not be able to quickly establish additional or replacement sources for certain components or materials due to regulations and requirements of the U.S. Food and Drug Administration (FDA) and other regulatory authorities regarding the manufacture of our products. The loss of any sole supplier or any sustained supply interruption that affects the ability to manufacture or deliver our products in a timely or cost effective manner could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may incur product liability losses, litigation liability, product recalls, safety alerts or regulatory action associated with the products that we source, assemble, manufacture and sell which can be costly and disruptive to our business.
The risk of product liability claims is inherent in the design, assembly, manufacture and marketing of the medical products of the types we sell. A number of factors could result in an unsafe condition or injury to, or death of, a patient with respect to the products that we source, assemble, manufacture or sell, including physician technique and experience in performing the relevant surgical procedure, component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or information.
In addition to product liability claims and litigation, an unsafe condition or injury to, or death of, a patient associated with our products could lead to a recall of, or issuance of a safety alert relating to, our products, or suspension or delay of regulatory product approvals or clearances, product seizures or detentions, governmental investigations, civil or criminal sanctions or injunctions to halt manufacturing and distribution of our products. Any one of these could result in significant costs and negative publicity resulting in reduced market acceptance and demand for our products and harm our reputation. In addition, a recall or injunction affecting our products could temporarily shut down production lines or place products on a shipping hold.
All of the foregoing types of legal proceedings and regulatory actions are inherently unpredictable and, regardless of the outcome, could disrupt our business, result in substantial costs or the diversion of management attention and could have a material adverse effect on our results of operations, financial condition and cash flows.

We must obtain clearance or approval from the appropriate regulatory authorities prior to introducing a new product or a modification to an existing product. The regulatory clearance process may result in substantial costs, delays and limitations on the types and uses of products we can bring to market, any of which could have a material adverse effect on our business.
In the United States, before we can market a new product, or a new use of, or claim for, or significant modification to, an existing product, we generally must first receive clearance or approval from the FDA and certain other regulatory authorities. Most major markets for medical products outside the United States also require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining regulatory clearances and approvals to market a medical product can be costly and time consuming, involve rigorous pre-clinical and clinical testing, require changes in products or result in limitations on the indicated uses of products. We cannot assure you that these clearances and approvals will be granted on a timely basis, or at all. In addition, once a medical product has been cleared or approved, a new clearance or approval may be required before it may be modified, its labeling changed or marketed for a different use. Medical products are cleared or approved for one or more specific intended uses and promoting a device for an off-label use could result in government enforcement action. Furthermore, a product approval or clearance can be withdrawn or limited due to unforeseen problems with the medical product or issues relating to its application. The regulatory clearance and approval process may result in, among other things, delayed, if at all, realization of product net sales, substantial additional costs and limitations on the types of products we may bring to market or their indicated uses, any one of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our inability to adequately integrate acquisitions could have a material adverse effect on our operations.

In connection with our growth strategy, we from time to time acquire other businesses, including the Halyard acquisition (Halyard) and Byram Healthcare (Byram), that we believe will expand or complement our existing businesses and operations. The integration of acquisitions involves a number of significant risks, which may include but are not limited to, the following:
Expenses and difficulties in the transition and integration of operations and systems;
Retention of current customers and the ability to obtain new customers;
The assimilation and retention of personnel, including management personnel, in the acquired businesses;

11


Accounting, tax, regulatory and compliance issues that could arise;
Difficulties in implementing uniform controls, procedures and policies in our acquired companies;
Unanticipated expenses incurred or charges to earnings based on unknown circumstances or liabilities;
Failure to realize the synergies and other benefits we expect from the acquisition or at the pace we anticipate;
General economic conditions in the markets in which the acquired businesses operate;
Difficulties encountered in conducting business in markets where we have limited experience and expertise;
Failure to fully integrate information technology;
Inadequate indemnification from the seller; and
Failure of the seller to perform under any transition services agreement.

If we are unable to successfully complete and integrate our strategic acquisitions in a timely manner, our business, growth strategies and results of operations could be adversely affected.
Our Global Products segment is exposed to price fluctuations of key commodities, which may negatively impact our results of operations.
Our Global Products Segment relies on product inputs, such as polypropylene and nitrile, as well as other commodities, in the manufacture of its products. Prices of these commodities are volatile and have fluctuated significantly in recent years, which may contribute to fluctuations in our results of operations. The ability to hedge commodity prices is limited. Furthermore, due to competitive dynamics, we may be unable to pass along commodity-driven cost increases through higher prices. If we cannot fully offset cost increases through other cost reductions, or recover these costs through price increases or surcharges, we could experience lower margins and profitability which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our business and operations depend on the proper functioning of critical facilities, supply chain and distribution networks.
Damage or disruption to our supply chain and distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes, the financial and/or operational instability of key suppliers, geo-political events or other reasons could impair our ability to distribute products and conduct our business. To the extent that we are unable, or it is not financially feasible, to mitigate the likelihood or potential impact of such events, or to manage effectively such events if they occur, there could be a material adverse effect on our business, financial condition or results of operations.  For example, in December 2019, a strain of the novel coronavirus (COVID-19) was reported to have surfaced in Wuhan, China and additional cases have been reported globally.  The coronavirus has caused supply chain disruptions for certain manufacturers of medical products and an increased demand for these products resulting in the implementation of product allocations by certain manufacturers.  At this point, the extent to which the coronavirus may impact our results is uncertain.
Our operations depend on the proper functioning of information systems, and our business could be adversely affected if we experience a cyber-attack or other systems breach.    
We rely on information systems to receive, process, analyze and manage data in distributing thousands of inventory products to customers from numerous distribution and outsourced logistics centers. These systems are also relied upon for billings to and collections from customers, as well as the purchase of and payment for inventory and related transactions from our suppliers. In addition, the success of our long-term growth strategy is dependent upon the ability to continually monitor and upgrade our information systems to provide better service to customers. Our business and results of operations may be materially adversely affected if systems are interrupted or damaged by unforeseen events (including cyber-attacks) or fail to operate for an extended period of time, or if we fail to appropriately enhance our systems to support growth and strategic initiatives.
Our distribution and outsourced logistics services rely on the performance and upkeep of our information systems. If our information systems are interrupted, damaged or fail to operate, our customers could be negatively impacted which could have a material adverse effect on our results of operations.
Our investment in Fusion5 may continue to incur losses.
 
Fusion5 is a new enterprise with limited operating history.  In 2018, Fusion5 began managing bundled payment episodes under the BCPI-A program. As of December 31, 2019, Fusion5 had incurred losses exceeding the revenue generated. Due to the nature of the BPCI-A program and Fusion5’s contracts with the Centers for Medicare and Medicaid Services (CMS) and healthcare providers, the timing of payments to Fusion5 may differ from our expectations.  Additionally, under certain of its contracts with healthcare providers, generally referred to as “risk-share” or “gain-share” contracts, Fusion5 takes financial risk for a portion of costs of medical procedures delivered by its customers.  If these costs exceed, in the aggregate, fees paid to

12


or savings generated by Fusion5 under its contracts with customers, Fusion5 may continue to incur losses.  Further, changes to the BPCI-A program by CMS with respect to payment timing could have a material adverse effect on our financial results.
We are subject to stringent regulatory and licensing requirements.

We are required to comply with extensive and complex laws and regulations at the federal, state and local government levels in the United States and other countries where we operate. We also are required to hold permits and licenses and to comply with the operational and security standards of various governmental bodies and agencies. Any failure to comply with these laws and regulations or any failure to maintain the necessary permits, licenses or approvals, or to comply with the required standards, could disrupt our operations and/or adversely affect our results of operations and financial condition.
Among the U.S. healthcare related laws that we are subject to include the U.S. federal Anti-kickback Statute, the U.S. federal Stark Law, the False Claims Act and similar state laws relating to fraud, waste and abuse. The requirements of these laws are complex and subject to varying interpretations, and it is possible that regulatory authorities could challenge our policies and practices. If we fail to comply with these laws, we could be subject to federal or state government investigations or qui tam actions (false claims cases initiated by private parties purporting to act on behalf of federal or state governments), which could result in civil or criminal sanctions, including the loss of licenses or the ability to participate in Medicare, Medicaid and other federal and state healthcare programs. Such sanctions and damages could adversely affect our results of operations and financial condition.
Our global operations are also subject to risks of violation of laws, including those that prohibit improper payments to and bribery of government officials and other individuals and organizations. These laws include the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar laws and regulations in foreign jurisdictions, any violation of which could result in substantial liability and a loss of reputation in the marketplace. Failure to comply with these laws also could subject us to civil and criminal penalties that could adversely affect our business and results of operations.
Our Byram business is a Medicare-certified supplier and participates in state Medicaid programs. Failure to comply with applicable standards and regulations could result in civil or criminal sanctions, including the loss of our ability to participate in Medicare, Medicaid and other federal and state healthcare programs.
We collect, handle and maintain patient-identifiable health information and other sensitive personal and financial information, which are subject to federal, state and foreign laws that regulate the use and disclosure of such information. Regulations currently in place continue to evolve, and new laws in this area could further restrict our ability to collect, handle and maintain personal or patient information, or could require us to incur additional compliance costs, either of which could have an adverse impact on our results of operations. Violations of federal (such as the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA), state or foreign laws (such as the European Union’s General Data Protection Regulation, as amended, or GDPR) concerning privacy and data protection could subject us to civil or criminal penalties, breach of contract claims, costs for remediation and harm to our reputation.
Compliance with the terms and conditions of Byram’s Corporate Integrity Agreement requires significant resources and, if we fail to comply, we could be subject to penalties or excluded from participation in government healthcare programs, which could seriously harm our results of operations, liquidity and financial condition.

Prior to its acquisition by Owens & Minor, Byram entered into a five-year Corporate Integrity Agreement beginning April 2016 with the Office of Inspector General of the United States Department of Health and Human Services (“OIG”). The Corporate Integrity Agreement provides that Byram shall, among other things, establish and maintain a compliance program, including a corporate compliance officer and committee, a code of conduct, comprehensive compliance policies and procedures, training and monitoring, a review process for certain arrangements between Byram and referral sources, a compliance hotline, an open door policy and a disciplinary process for compliance violations. The Corporate Integrity Agreement further provides that Byram shall provide periodic reports to the OIG, complete certain regular certifications and engage an Independent Review Organization to perform reviews of certain arrangements between Byram and referral sources.
Failing to meet the Corporate Integrity Agreement obligations could have material adverse consequences for Byram including monetary penalties for each instance of non-compliance. In addition, in the event of an uncured material breach or deliberate violation of the Corporate Integrity Agreement, we could be excluded from participation in federal healthcare programs, or other significant penalties, which could seriously harm our results of operations, liquidity and financial results.

We could be subject to adverse changes in the tax laws or challenges to our tax positions.    
We operate throughout the United States and other countries. As a result, we are subject to the tax laws and regulations of the United States federal, state and local governments and of various foreign jurisdictions. From time to time, legislative and regulatory initiatives are proposed, including but not limited to proposals to repeal LIFO (last-in, first-out) treatment of

13


inventory in the United States or changes in tax accounting methods for inventory, import tariffs and taxes, or other tax items. These and other changes in tax laws and regulations could adversely affect our tax positions, tax rate or cash payments for taxes. There can be no assurance that our effective tax rate will not be materially adversely affected by legislation resulting from these initiatives.
Our global operations increase the extent of our exposure to the economic, political, currency, regulatory and other risks of international operations.    

Our global operations involve issues and risks, including but not limited to the following, any of which could have an adverse effect on our business and results of operations:
Lack of familiarity with and expertise in conducting business in foreign markets;
Foreign currency fluctuations and exchange risk;
Unexpected changes in foreign regulations or conditions relating to labor, the economic or political environment, and social norms or requirements;
Adverse tax consequences and difficulties in repatriating cash generated or held abroad;
Local economic environments, recession, inflation, indebtedness, currency volatility and competition; and
Changes in trade protection laws and other laws affecting trade and investment, including import/export regulations in both the United States and foreign countries.

General economic conditions may adversely affect demand for our products and services.

Poor or deteriorating economic conditions in the United States and the other countries in which we conduct business could adversely affect the demand for healthcare services and consequently, the demand for our products and services. Poor economic conditions also could lead our suppliers to offer less favorable terms of purchase to distributors, which would negatively affect our profitability. These and other possible consequences of financial and economic decline could have a material adverse effect on our business, results of operations and financial condition.

We operate within the European Union and therefore may be affected by the United Kingdom's withdrawal from the European Union.

We operate within the European Union (the E.U.). The United Kingdom's (the U.K.) exit from the E.U. (commonly referred to as Brexit) and the resulting significant change to the U.K.’s relationship with the E.U. and with countries outside the E.U. (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the U.K. and the E.U. and otherwise negatively impact our operations in Europe. The U.K. withdrew from the European Union, effective January 31, 2020, and is now in a period of transition. All existing trading arrangements will be maintained through December 31, 2020, the end of the transition period.  The U.K. and E.U. will negotiate future trading arrangements during the transition period.  An exit without a trade agreement in place would result in the United Kingdom losing access to free trade agreements for goods and services with the European Union and other countries. To the extent new trading arrangements are negotiated, the implementation of any agreements reached, and the changes to current operations and processes resulting therefrom, could have an adverse impact on our operations. Depending on the outcome of these negotiations, it is possible that Brexit will result in our E.U. operations becoming subject to materially different, and potentially conflicting, laws, regulations or tariffs which could require costly new compliance initiatives or changes to legal entity structures or operating practices. Furthermore, in the event the U.K. leaves the E.U. without new trade agreements, there may be additional adverse impacts on immigration and trade between the U.K. and the E.U. or countries outside the E.U. Such impacts could have an adverse effect on our business and results of operations. The ultimate effects of Brexit on us will depend on the specific terms of any negotiated trading arrangements the U.K. and the E.U. reach to provide access to each other’s respective markets.

Our continued success is substantially dependent on positive perceptions of our reputation.

One of the reasons why customers choose to do business with us and why teammates choose us as a place of employment is the reputation that we have built over many years. To be successful in the future, the Company must continue to preserve, grow and leverage the value of our brand. Reputational value is based in large part on perceptions of subjective qualities. Even an isolated incident, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, and as a result, could tarnish our brand and lead to adverse effects on our business, financial condition and results of operations.


14


We may experience competition from third-party online commerce sites.

Traditional distribution relationships are being challenged by online commerce solutions. Such competition will require us to cost-effectively adapt to changing technology, to continue to provide enhanced service offerings and to continue to differentiate our business (including with additional value-added services) to address demands of consumers and customers on a timely basis. The emergence of such competition and our inability to anticipate and effectively respond to changes on a timely basis could have a material adverse effect on our business.

Audits by tax authorities could result in additional tax payments for prior periods, and tax legislation could materially adversely affect our financial results and tax liabilities.

The amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by
non-U.S. tax authorities. In addition, tax laws and regulations are extremely complex and subject to varying interpretations. Although we believe that our historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, they can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge. If these audits result in assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities.

Recent significant changes to our executive leadership team and any future loss of members of such team, and the resulting management transitions might harm our future operating results.

We have recently experienced significant changes to our executive leadership team. In 2019, we named several new key leaders, including a new President & Chief Executive Officer, Executive Vice President & Chief Financial Officer, Executive Vice President & Chief Operating Officer and Executive Vice President & Chief Commercial Officer. These types of management changes have the potential to disrupt our operations due to the operational and administrative inefficiencies, added costs, increased likelihood of turnover, and the loss of personnel with deep institutional knowledge, which could result in significant disruptions to our operations. In addition, we must successfully integrate the new executive leadership team members within our organization in order to achieve our operating objectives, and changes in key leadership positions may temporarily affect our financial performance and results of operations as new leadership becomes familiar with our business.

Our goodwill may become impaired, which would require us to record a significant charge to earnings in accordance with generally accepted accounting principles.

U.S. GAAP requires us to test our goodwill for impairment on an annual basis, or more frequently if indicators for potential impairment exist. The testing required by GAAP involves estimates and judgments by management. Although we believe our assumptions and estimates are reasonable and appropriate, any changes in key assumptions, including a failure to meet business plans or other unanticipated events and circumstances such as a rise in interest rates, may affect the accuracy or validity of such estimates. As a result of impairment tests performed during 2018, we recorded an impairment charge related to goodwill of $397.6 million. No impairment charge was recorded in 2019. We may be further required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill is determined, which charge could adversely affect our results of operations.

The market price for our common stock may be highly volatile.

The market price for our common stock may be highly volatile. A variety of factors may have a significant impact on the market price of our common stock, including, but not limited to:

the publication of earnings estimates or other research reports and speculation in the press or investment community;
changes in our industry and competitors;
changes in government or legislation;
our financial condition, results of operations and cash flows and prospects;
activism by any single large shareholder or combination of shareholders;
any future issuances of our common stock, which may include primary offerings for cash, stock splits, issuances in connection with business acquisitions, issuances of restricted stock/units and the grant or exercise of stock options from time to time;
general market and economic conditions; and    
any outbreak or escalation of hostilities in areas where we do business.


15


In addition, the NYSE can experience extreme price and volume fluctuations that can be unrelated or disproportionate to the operating performance of the companies listed on NYSE. Broad market and industry factors may negatively affect the market price of our common stock, regardless of actual operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business.

We cannot assure you that the proposed Movianto sale will be completed.
    
On January 16, 2020, we announced our intention to sell our Movianto business for cash proceeds of $133 million and
an expected completion date in the first half of 2020. There are a number of risks and uncertainties relating to the Movianto
sale. For example, the Movianto sale may not be completed, or may not be completed in the timeframe, on the terms or in the
manner currently anticipated, as a result of a number of factors, including, among other things, the failure of one or more of the
conditions to closing. There can be no assurance that the conditions to closing of the Movianto sale will be satisfied or waived or that other events will not intervene to delay or result in the failure to close the sale.

We and the Movianto business will be subject to business uncertainties while the sale is pending that could adversely affect our business and the Movianto business.

The announcement and pendency of the Movianto sale could cause disruptions and create uncertainty surrounding our business and affect our relationships with our customers, suppliers and teammates. Although we intend to take actions to reduce any adverse effects, these uncertainties could cause customers, suppliers and others that deal with us and/or the Movianto business to seek to change existing business relationships. In addition, employee retention could be negatively impacted during the pendency of the sale. If key teammates depart because of concerns relating to the uncertainty and difficulty of the integration process, our business could be harmed. The uncertainties related to the pending Movianto sale could have a negative impact on our ability to manage existing operations, which could adversely affect our business, financial condition and results of operations. Additionally, investor perceptions about the terms or benefits of the Movianto sale could have a negative impact on our business and the trading prices of our securities, including the 2021 and 2024 Notes.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our Global Solutions segment operated distribution centers as well as office and warehouse space across the United States as of December 31, 2019. We leased all of the centers from unaffiliated third parties with the exception of two locations, one of which we own and the other is owned by a customer. We also leased customer service centers as well as small offices for sales personnel across the United States. In addition, we leased space on a temporary basis from time to time to meet our inventory storage needs.
At December 31, 2019, our Global Products segment operated facilities located throughout the world that handle production, assembly, research, quality assurance testing, distribution and packaging of our products.
The following table provides a summary of our principal facilities:
 
Owned
 
Leased
 
Other
 
Total
Location
Production
5

 
3

 

 
8

Mexico, United States, Thailand, Honduras and Europe
Distribution
1

 
51

 
1

 
53

United States, Canada and India
Storage
1

 
6

 

 
7

United States
Office
1

 
25

 

 
26

Europe, United States, Canada and Asia
Total
8

 
85

 
1

 
94

 
We own our corporate headquarters building, and adjacent acreage, in Mechanicsville, Virginia, a suburb of Richmond, Virginia. In addition, we lease our Client Engagement Center (CEC) in Richmond, Virginia designed to support standardization and enhanced service to customers.
We regularly assess our business needs and make changes to the capacity and location of distribution and outsourced logistics centers. We believe that our facilities are adequate to carry on our business as currently conducted. A number of leases are scheduled to terminate within the next several years. We believe that, if necessary, we could find facilities to replace these leased premises without suffering a material adverse effect on our business.
Item 3. Legal Proceedings
We are subject to various legal actions that are ordinary and incidental to our business, including contract disputes, employment, workers’ compensation, product liability, regulatory and other matters. We establish reserves from time to time based upon periodic assessment of the potential outcomes of pending matters. In addition, we believe that any potential liability arising from employment, product liability, workers’ compensation and other personal injury litigation matters would be adequately covered by our insurance, subject to policy limits, applicable deductibles and insurer solvency. While the outcome of legal actions cannot be predicted with certainty, we believe, based on current knowledge and the advice of counsel, that the outcome of these currently pending matters, individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.
Part II

Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Owens & Minor, Inc.’s common stock trades on the New York Stock Exchange under the symbol OMI. As of February 14, 2020, there were 2,848 common shareholders of record. We believe there are an estimated additional 21,888 beneficial holders of our common stock. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of our dividend payments.
Share Repurchase Program. In October 2016, our Board of Directors authorized a three-year share repurchase program of up to $100 million of the company’s outstanding common stock to be executed at the discretion of management over a three-year period. The authorization took effect in December 2016 upon the completion of the previous authorization and ended in December 2019.
We did not repurchase any shares during the years ended December 31, 2019 and 2018.

16


Item 6. Selected Consolidated Financial Data
Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations of the Company together with its subsidiaries. The discussion and analysis presented below refers to, and should be read in conjunction with, the consolidated financial statements and accompanying notes included in Item 8 of Part II of this Annual Report on Form 10-K.
Overview
Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company. On April 30, 2018 (the Closing Date), we completed the acquisition of substantially all of Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and Infection Prevention business, the name “Halyard Health” (and all variations of that name and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash acquired. The Halyard business is a leading global provider of medical supplies and solutions for the prevention of healthcare associated infections across acute care and non-acute care markets. This business is reported as part of the Global Products segment.
We entered into transition services agreements with Avanos pursuant to which they and we provided to each other various transitional services, including, but not limited to, facilities, product supply, financial and business services, procurement, human resources, research and development, regulatory affairs and quality assurance, sales and marketing, information technology and other support services. On the Closing Date, certain of our affiliates also entered into transitional distribution agreements with affiliates of Avanos under which the Avanos affiliates served as limited risk distributors for our international customer orders on a transitional basis. The services under the transition services agreements and distribution agreements generally commenced on the Closing Date and terminated by December 31, 2019.
On January 16, 2020, we announced our intention to sell our European logistics business, Movianto, to EHDH Holding Group (EHDH), a privately held French company. The divestiture is intended to provide us with a greater ability to focus on and invest in our differentiated products, services and U.S. distribution businesses. See Note 3, “Discontinued Operations,” of the Notes to Consolidated Financial Statements included in this annual report for further information. Unless otherwise indicated, the following information relates to continuing operations.
Net loss per diluted share was $(1.03) for the year ended December 31, 2019, an increase of $6.25 compared to 2018. Global Solutions segment operating income was $83.6 million for 2019, compared to $108.8 million for 2018. The declines were a result of lower revenues, continued pressure on distribution margins, and higher transportation expenses compared to prior year. Global Products segment operating income was $65.1 million for 2019, compared to $75.7 million for 2018, reflecting an unfavorable impact of $3.8 million in 2019 and a favorable impact of $0.1 million in 2018 from foreign currency translation.




17


Supplemental Financial Information
(in thousands, except ratios and per share data)
 
At or for the years ended December 31,
 
2019
 
2018
 
2017
 
Summary of Operations:
 
 
 
 
 
 
Net revenue
$
9,210,939

 
$
9,418,192

 
$
8,926,647

 
Net income (loss)
$
(62,371
)
 
$
(437,012
)
 
$
72,793

 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 
Net income (loss) per share—basic and diluted
$
(1.03
)
 
$
(7.28
)
 
$
1.20

 
Cash dividends
$
0.01

 
$
0.86

 
$
1.03

 
Stock price at year end
$
5.17

 
$
6.33

 
$
18.88

 
 
 
 
 
 
 
 
Summary of Financial Position:
 
 
 
 
 
 
Total assets
$
3,643,084

 
$
3,773,788

 
$
3,376,293

 
Cash and cash equivalents
$
67,030

 
$
66,308

 
$
36,321

 
Total debt
$
1,559,652

 
$
1,676,606

 
$
917,363

 
Total equity
$
462,154

 
$
518,419

 
$
1,015,479

 
 
 
 
 
 
 
 
Selected Ratios:
 
 
 
 
 
 
Gross margin as a percent of revenue
12.25
%
 
11.37
 %
 
10.21
%
 
Distribution, selling and administrative expenses as a percent of revenue
11.11
%
 
10.12
 %
 
8.36
%
 
Operating income (loss) as a percent of revenue
0.79
%
 
(3.74
)%
 
1.16
%
 
Days sales outstanding (DSO) (1)
27.1

 
27.1

 
27.1

 
Average annual inventory turnover (2)
6.6

 
6.9

 
8.3

 

(1) Based on year end accounts receivable and net revenue for the fourth quarter of the year.
(2) Based on average annual inventory and cost of goods sold for the respective year. Changes in inventory turnover since December 31, 2017 are also affected by the 2018 Halyard acquisition.

Results of Operations
2019 compared to 2018
Net revenue.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Global Solutions
$
8,243,867

 
$
8,767,549

 
$
(523,682
)
 
(6.0
)%
Global Products
1,433,977

 
1,111,322

 
322,655

 
29.0
 %
Inter-segment
(466,905
)
 
(460,679
)
 
(6,226
)
 
(1.4
)%
Net revenue
$
9,210,939

 
$
9,418,192

 
$
(207,253
)
 
(2.2
)%
The decrease in net revenue for the year reflected the impact of lower distribution revenues as a result of customer non-renewals, primarily resulting from service issues prior to early 2019, partially offset by revenue growth in other business lines. The changes from prior year also include an unfavorable impact from foreign currency translation of $5.8 million. Net revenue for Global Products benefited when compared to prior year from the acquisition of Halyard in April 2018. Halyard sales from January through April 2019 were $255 million (net of $71 million of intercompany sales).

18


Cost of goods sold.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Cost of goods sold
$
8,082,448

 
$
8,347,666

 
$
(265,218
)
 
(3.2
)%
Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory loss. These are sometimes referred to as distribution contracts. Cost of goods sold also includes direct and certain indirect labor, material and overhead costs associated with our Global Products business. There is no cost of goods sold associated with our fee-for-service arrangements. Cost of goods sold compared to prior year reflects changes in sales activity, including sales mix. Cost of goods sold when compared to prior year was also impacted from the acquisition of Halyard in April 2018. Halyard cost of goods sold from January through April 2019 were $210 million (net of $72 million of intercompany eliminations).
Gross margin.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Gross margin
$
1,128,491

 
$
1,070,526

 
$
57,965

 
5.4
%
As a % of net revenue
12.25
%
 
11.37
%
 
 
 
 
Gross margin for the year reflected strong revenue growth with Byram and overall improved sales mix, as the Global Products revenues constitute a higher percentage of revenue, which was partially offset by unfavorable impact from foreign currency translation of $4.8 million.
We value distribution inventory held in the United States under the LIFO method. Had inventory been valued under the first-in, first-out (FIFO) method, gross margin as a percentage of net revenue would have been 9 basis points higher in 2019 and 29 basis points higher in 2018.
Operating expenses.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Distribution, selling & administrative expenses
$
1,023,065

 
$
952,865

 
$
70,200

 
7.4
 %
As a % of net revenue
11.11
%
 
10.12
%
 
 
 
 
Acquisition-related and exit and realignment charges
$
30,050

 
$
59,101

 
$
(29,051
)
 
(49.2
)%
Other operating expense (income), net
$
2,225

 
$
(3,039
)
 
$
5,264

 
173.2
 %
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 compared to prior year reflected higher expenses to support a full year of Halyard, higher transportation expenses, increased expenses incurred for the development of new customer solutions and increased expenses to support the sale of Halyard products. These increases were partially offset by favorable impacts for foreign currency translation of $1.0 million. The change in other operating expense (income), net was attributed primarily to higher software as a service implementation expenses and an adverse foreign currency impact compared to prior year.
Acquisition-related and charges were $15.7 million and $45.0 million in 2019 and 2018, respectively, and consisted primarily of transition and transaction costs for the Halyard acquisition. Exit and realignment charges were $14.4 million and $14.1 million in 2019 and 2018, respectively. Exit and realignment charges in 2019 were associated with severance from reduction in force and other costs related to the reorganization of the U.S. commercial and operations and executive teams, along with facility closures in the U.S. and other IT restructuring charges. Exit and realignment charges in 2018 were associated with severance from reduction in force and other employee costs associated with the establishment of our client engagement center, the writedown of information system assets which are no longer used and other IT restructuring charges.


19


Interest expense, net.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Interest expense, net
$
98,113

 
$
70,983

 
$
27,130

 
38.2
%
Effective interest rate
6.36
%
 
5.31
%
 
 
 
 

Interest expense increased year over year primarily due to an increase in borrowings under our revolving credit facility and term loans entered into to fund the Halyard acquisition in 2018 and an increase in our interest rate and amortized fees as a result of the Fourth Amendment to the Credit Agreement in February 2019. See Note 11 in Notes to Consolidated Financial Statements.
Other expense, net.
 
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Other expense, net
$
3,757

 
$
3,765

 
$
(8
)
 
(0.2
)%
Other expense, net in 2019 includes the write-off of $2.0 million 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 a $1.2 million gain on extinguishment of debt related to the partial repurchases of our 2021 Notes. 2019 and 2018 also include interest cost and net actuarial losses related to the U.S. Retirement Plan of $2.9 million and $3.8 million, respectively.
Income taxes.
For the years ended December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Income tax benefit
$
(6,135
)
 
$
(32,429
)
 
$
26,294

 
81.1
%
Effective tax rate
21.4
%
 
7.6
%
 
 
 
 
    

The change in the effective tax rate resulted primarily from goodwill and intangible asset impairment charges in 2018 which were mostly not deductible for income tax purposes.


20


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.
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, collection of accounts receivable, and payments to suppliers.
 
December 31,
 
Change
(Dollars in thousands)
2019
 
2018
 
$
 
%
Cash and cash equivalents
$
67,030

 
$
66,308

 
$
722

 
1.1
 %
Accounts receivable, net
$
674,706

 
$
756,687

 
$
(81,981
)
 
(10.8
)%
Days sales outstanding (1)
27.1

 
27.1

 
 
 
 
Merchandise inventories
$
1,146,192

 
$
1,273,726

 
$
(127,534
)
 
(10.0
)%
Inventory turnover (2)
6.6

 
6.9

 
 
 
 
Accounts payable
$
808,035

 
$
1,065,197

 
$
(257,162
)
 
(24.1
)%
(1) Based on year end accounts receivable and net revenue for the fourth quarter
(2) Based on average annual inventory and costs of goods sold for the years ended December 31, 2019 and 2018
Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows, which relates to continuing operations and discontinued operations:
 
For the years ended December 31,
(Dollars in thousands)
2019
 
2018
Net cash provided by (used for):
 
 
 
Operating activities
$
166,085

 
$
115,589

Investing activities
(51,897
)
 
(815,829
)
Financing activities
(130,197
)
 
701,071

Effect of exchange rate changes on cash
(2,671
)
 
(1,986
)
Decrease in cash, cash equivalents and restricted cash
$
(18,680
)
 
$
(1,155
)
Cash provided by operating activities in 2019 and 2018 reflected fluctuations in net income along with favorable changes in working capital.
Cash used for investing activities in 2019 and 2018 included capital expenditures of $52.2 million and $65.7 million, respectively, for our strategic and operational efficiency initiatives, particularly initiatives relating to information technology enhancements and optimizing our distribution network. Cash used for investing activities in 2018 included cash paid for the acquisition of Halyard of $758 million.
Cash (used for) provided by financing activities for the year ended December 31, 2019 included dividend payments of $5.2 million and repayments of $32.2 million under our revolving credit facility, compared to dividend payments of $48.2 million and proceeds from borrowings of $105.5 million for the same period of 2018. Financing activities also included repayments of $85.6 million in 2019 compared to $16.3 million in the same period of 2018 on our term loans (under the Credit Agreement) and 2021 Notes. We used $36.2 million of cash to repurchase $37.3 million aggregate principal amount of the 2021 Notes during 2019. In 2018, we used net proceeds of $695.8 million from term loans and $74.8 million under our revolving credit facility primarily to fund the Halyard acquisition. We also paid $4.3 million in financing costs related to the Fourth Amendment to the Credit Agreement in February 2019.

21


Capital resources. Our sources of liquidity include cash and cash equivalents and a revolving credit facility under our Credit Agreement with Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., Bank of America, N.A. and a syndicate of financial institutions (the Credit Agreement). The Credit Agreement provides a borrowing capacity of $400 million and $858 million outstanding in term loans. The interest rate on our revolving credit facility and Term A loans is based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus an adjustment based on our Consolidated Total Leverage Ratio as defined by the Credit Agreement. Our credit spread at December 31, 2019 was Eurocurrency Rate plus 3.5%. Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement). We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Credit Agreement requires us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.
We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 65% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loans. If as of the date 91 days prior to the maturity date of our 2021 Notes all outstanding amounts under the 2021 Notes have not been paid in full, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility and the Term A loans shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if as of the date 91 days prior to the maturity date of our 2024 Notes, all outstanding amounts under the 2024 Notes have not been paid in full, the Termination Date of the Term B loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.
At December 31, 2019 and 2018, we had borrowings of $177.9 million and $210.1 million, respectively, under the revolver and letters of credit of $11.7 million and $15.2 million, respectively, outstanding under the Credit Agreement along with $512.7 million and $550.0 million, respectively, in Senior Notes. We also had letters of credit and bank guarantees outstanding for $1.5 million and $4.4 million as of December 31, 2019 and 2018, respectively, which supports certain facilities leased as well as other normal business activities in the United States and Europe.
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). Our ability to consummate any such transaction will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.
We paid cash dividends on our outstanding common stock at the rate of $0.0025 per common share for each of the four quarters of 2019. In 2018, we paid quarterly dividends of $0.26 per common share for the first three quarters and $0.075 for the fourth quarter dividend was accrued at December 31, 2018 and paid in January 2019. In February 2020, the Board of Directors approved the first quarter dividend of $0.0025 per common share. 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.
In October 2016, the Board of Directors authorized an up to three-year share repurchase program of up to $100 million of the company’s outstanding common stock to be executed at the discretion of management over a three-year period. The authorization took effect in December 2016 upon the completion of the previous authorization and ended in December 2019. We did not repurchase any shares during the years ended December 31, 2019 and 2018.
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, share and 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.

22


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 $52.9 million and $27.9 million at December 31, 2019 and 2018, respectively. 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 December 31, 2019. As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for Thailand. We will continue to evaluate our foreign earnings repatriation policy in 2020 for all our foreign subsidiaries.
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on financial condition or liquidity.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We continually evaluate the accounting policies and estimates used to prepare the financial statements.
Critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used. Our estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances. Because of the uncertainty inherent in such estimates, actual results may differ. We believe our critical accounting policies and estimates include accounting for goodwill and long-lived assets and business combinations.
Goodwill and long-lived assets. Goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired. Long-lived assets, which are a component of identifiable net assets, include intangible assets with finite useful lives, property and equipment, right-of-use assets, and computer software costs. Intangible assets with finite useful lives consist primarily of customer relationships, tradenames, and other intangibles acquired through business combinations. Certain assumptions and estimates are employed in determining the fair value of identifiable net assets acquired.
We evaluate goodwill for impairment annually, as of October 1, and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed. The quantitative goodwill impairment test uses valuation techniques to determine fair value, including comparable multiples of reporting unit's earnings before interest, taxes, depreciation and amortization (EBITDA) and discounted cash flows. The EBITDA multiples are based on an analysis of current enterprise valuations and recent acquisition prices of similar companies, if available. Goodwill totaled $393.2 million at December 31, 2019.
Long-lived assets, which exclude goodwill, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. We assess long-lived assets for potential impairment by comparing the carrying value of an asset, or group of related assets, to its estimated undiscounted future cash flows. At December 31, 2019, long-lived assets included property and equipment of $315.4 million, net of accumulated depreciation; intangible assets of $285.0 million, net of accumulated amortization; operating lease assets of $142.2 million, net of accumulated amortization, and computer software of $43.6 million, net of accumulated amortization.
The impairment review of goodwill and long-lived assets requires the extensive use of accounting estimates and assumptions. The application of alternative assumptions or inability to meet certain financial projections, could produce materially different results.
Business Combinations. We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

23


Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1 of Notes to the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates related to our borrowing under our Credit Agreement. However, we enter into interest rate swap agreements to manage our exposure to interest rate changes. We had $858 million in borrowings under our term loans, $178 million in borrowings under our revolving credit facility and $12 million in letters of credit under the Credit Agreement at December 31, 2019. After considering the effects of interest rate swap agreements outstanding as of December 31, 2019, we estimate an increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $6 million per year based on our borrowings outstanding at December 31, 2019.
Due to the nature and pricing of our Global Solutions segment distribution services, we are exposed to potential volatility in fuel prices. Our strategies for helping to mitigate our exposure to changing domestic fuel prices has included using trucks with improved fuel efficiency. We benchmark our domestic diesel fuel purchase prices against the U.S. Weekly Retail On-Highway Diesel Prices (benchmark) as quoted by the U.S. Energy Information Administration. The benchmark averaged $3.06 per gallon for 2019, a decrease from $3.18 per gallon in 2018. Based on our fuel consumption in 2019, we estimate that every 10 cents per gallon increase in the benchmark would reduce our Global Solutions segment operating income by approximately $0.3 million on an annualized basis.
In the normal course of business, we are exposed to foreign currency translation and transaction risks. Our business transactions outside of the United States are primarily denominated in the Euro, British Pound and Thai Baht. We may use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.
We are subject to price risk for our raw materials, the most significant of which relates to the cost of polypropylene and nitrile used in the manufacturing processes of our Global Products segment. Prices of the commodities underlying these raw materials are volatile and have fluctuated significantly in recent years and in the future may contribute to fluctuations in our results of operations. The ability to hedge these commodity prices is limited.
Item 8. Financial Statements and Supplementary Data
See Item 15. Exhibits and Financial Statement Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We carried out an evaluation, with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.

24


We entered into transition services agreements with Avanos pursuant to which they and we provided to each other various transitional services, including, but not limited to, facilities, product supply, financial and business services, procurement, human resources, research and development, regulatory affairs and quality assurance, sales and marketing, information technology and other support services. The services under the transition services agreements and distribution agreements generally commenced on the Closing Date and terminated by December 31, 2019. Management established controls to mitigate the risk over financial reporting as it relates to the transition services agreements.
There has been no change in our internal control over financial reporting during our last fiscal quarter (our fourth quarter in the case of an annual report) ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately assessed the adoption impact of the new lease standard, and its related amendments, on our consolidated financial statements. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.
Item 9B. Other Information
None.
Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, controls deemed effective now may become inadequate in the future because of changes in conditions, or because compliance with policies or procedures has deteriorated or been circumvented.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria established in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on management’s assessment and the COSO criteria, management believes that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2019, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included in this annual report.


 
/s/ Edward A. Pesicka                          
Edward A. Pesicka, President & Chief Executive Officer


 
/s/ Andrew G. Long          
Andrew G. Long, Executive Vice President & Chief Financial Officer


25


Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Owens & Minor, Inc.:

Opinion on Internal Control Over Financial Reporting
We have audited Owens & Minor, Inc. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended and the related notes (collectively, the consolidated financial statements), and our report dated March 4, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ KPMG LLP

Richmond, Virginia
March 4, 2020

26


Part III
Items 10-14.
Information required by Items 10-14 can be found under Corporate Officers at the end of the electronic filing of this Form 10-K and the registrant’s 2020 Proxy Statement pursuant to instructions (1) and G(3) of the General Instructions to Form 10-K.
Because our common stock is listed on the New York Stock Exchange (NYSE), our Chief Executive Officer is required to make, and he has made, an annual certification to the NYSE stating that he was not aware of any violation of the corporate governance listing standards of the NYSE. Our Chief Executive Officer made his annual certification to that effect to the NYSE as of June 4, 2019. In addition, we have filed, as exhibits to this Annual Report on Form 10-K, the certifications of our principal executive officer and principal financial officer required under Sections 906 and 302 of the Sarbanes-Oxley Act of 2002 to be filed with the Securities and Exchange Commission regarding the quality of our public disclosure.






27


Part IV

Item 15. Exhibits and Financial Statement Schedules
a) The following documents are filed as part of this report:
 
Page
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018
29
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019 and 2018
30
Consolidated Balance Sheets as of December 31, 2019 and 2018
31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
32
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2019 and 2018
33
Notes to Consolidated Financial Statements
34
Report of Independent Registered Public Accounting Firm
62
b) Exhibits:
See Index to Exhibits on page 69.

28


OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Year ended December 31,
2019
 
2018
Net revenue
$
9,210,939

 
$
9,418,192

Cost of goods sold
8,082,448

 
8,347,666

Gross margin
1,128,491

 
1,070,526

Distribution, selling and administrative expenses
1,023,065

 
952,865

Goodwill and intangible asset impairment charges

 
413,945

Acquisition-related and exit and realignment charges
30,050

 
59,101

Other operating expense (income), net
2,225

 
(3,039
)
Operating income (loss)
73,151

 
(352,346
)
Interest expense, net
98,113

 
70,983

Other expense, net
3,757

 
3,765

Loss from continuing operations before income taxes
(28,719
)
 
(427,094
)
Income tax benefit
(6,135
)
 
(32,429
)
Loss from continuing operations
(22,584
)
 
(394,665
)
Loss from discontinued operations, net of tax
(39,787
)
 
(42,347
)
Net loss
$
(62,371
)
 
$
(437,012
)
 
 
 
 
Loss from continuing operations per common share: basic and diluted
$
(0.37
)
 
$
(6.58
)
Loss from discontinued operations per common share: basic and diluted
(0.66
)
 
(0.70
)
Net loss per common share: basic and diluted
$
(1.03
)
 
$
(7.28
)
See accompanying notes to consolidated financial statements.

29


OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Year ended December 31,
2019
 
2018
Net loss
$
(62,371
)
 
$
(437,012
)
Other comprehensive loss, net of tax:
 
 
 
Currency translation adjustments (net of income tax of $0 in 2019 and 2018)
7,250

 
(19,366
)
Change in unrecognized net periodic pension costs (net of income tax benefit of $2,299 in 2019 and income tax of $1,377 in 2018)
(6,545
)
 
3,920

Net unrealized loss on derivative instruments and other (net of income tax benefit of $3,305 in 2019 and $1,831 in 2018)
(7,800
)
 
(5,082
)
Other comprehensive loss
(7,095
)
 
(20,528
)
Comprehensive loss
$
(69,466
)
 
$
(457,540
)
See accompanying notes to consolidated financial statements.


30


OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
December 31,
2019
 
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
67,030

 
$
66,308

Accounts receivable, net
674,706

 
756,687

Merchandise inventories
1,146,192

 
1,273,726

Other current assets
79,372

 
121,926

Current assets of discontinued operations
439,983

 
319,930

Total current assets
2,407,283

 
2,538,577

Property and equipment, net
315,427

 
323,943

Operating lease assets
142,219

 

Goodwill
393,181

 
414,122

Intangible assets, net
285,018

 
314,175

Other assets, net
99,956

 
84,510

Other assets of discontinued operations

 
98,461

Total assets
$
3,643,084

 
$
3,773,788

Liabilities and equity
 
 
 
Current liabilities

 

Accounts payable
$
808,035

 
$
1,065,197

Accrued payroll and related liabilities
53,584

 
38,358

Other current liabilities
231,029

 
178,930

Current liabilities of discontinued operations
323,511

 
189,526

Total current liabilities
1,416,159

 
1,472,011

Long-term debt, excluding current portion
1,508,415

 
1,647,918

Operating lease liabilities, excluding current portion
117,080

 

Deferred income taxes
40,550

 
50,852

Other liabilities
98,726

 
77,690

Other liabilities of discontinued operations

 
6,898

Total liabilities
3,180,930

 
3,255,369

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized—200,000 shares; issued and outstanding— 62,843 shares and 62,294 shares
125,686

 
124,588

Paid-in capital
251,401

 
238,773

Retained earnings
137,774

 
200,670

Accumulated other comprehensive loss
(52,707
)
 
(45,612
)
Total equity
462,154

 
518,419

Total liabilities and equity
$
3,643,084

 
$
3,773,788

See accompanying notes to consolidated financial statements.

31


OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
2019
 
2018
Operating activities:
 
 
 
Net loss
$
(62,371
)
 
$
(437,012
)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 

Depreciation and amortization
116,678

 
101,927

Share-based compensation expense
15,803

 
16,376

Impairment charges
32,112

 
439,613

Deferred income tax benefit
(17,402
)
 
(35,018
)
Provision for losses on accounts receivable
12,914

 
9,430

Changes in operating lease right-of-use assets and lease liabilities
(2,599
)
 

Changes in operating assets and liabilities:
 
 

Accounts receivable
63,526

 
11,106

Merchandise inventories
127,921

 
(65,451
)
Accounts payable
(235,631
)
 
92,179

Net change in other assets and liabilities
104,801

 
(23,604
)
Other, net
10,333

 
6,043

Cash provided by operating activities
166,085

 
115,589

Investing activities:
 
 

Acquisitions, net of cash acquired

 
(751,834
)
Additions to property and equipment
(42,419
)
 
(44,873
)
Additions to computer software
(9,809
)
 
(20,812
)
Proceeds from sale of property and equipment
331

 
1,690

Cash used for investing activities
(51,897
)
 
(815,829
)
Financing activities:
 
 

Proceeds from issuance of debt

 
695,750

(Repayments) borrowings from revolving credit facility
(32,200
)
 
105,500

Repayment of debt
(85,592
)
 
(16,250
)
Financing costs paid
(4,313
)
 
(28,512
)
Cash dividends paid
(5,226
)
 
(48,200
)
Other, net
(2,866
)
 
(7,217
)
Cash (used for) provided by financing activities
(130,197
)
 
701,071

Effect of exchange rate changes on cash and cash equivalents
(2,671
)
 
(1,986
)
Net decrease in cash, cash equivalents and restricted cash
(18,680
)
 
(1,155
)
Cash, cash equivalents and restricted cash at beginning of year
103,367

 
104,522

Cash, cash equivalents and restricted cash at end of year
$
84,687

 
$
103,367

Supplemental disclosure of cash flow information:
 
 
 
Income taxes (received) paid, net of refunds
$
(6,198
)
 
$
19,151

Interest paid
$
95,413

 
$
68,585

See accompanying notes to consolidated financial statements.

32


OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(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, 2017
61,476

 
$
122,952

 
$
226,937

 
$
690,674

 
$
(25,084
)
 
$
1,015,479

Net loss
 
 
 
 
 
 
(437,012
)
 
 
 
(437,012
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(20,528
)
 
(20,528
)
Dividends declared ($0.86 per share)
 
 
 
 
 
 
(52,992
)
 
 
 
(52,992
)
Share-based compensation expense, exercises and other
818

 
1,636

 
11,836

 
 
 
 
 
13,472

Balance, December 31, 2018
62,294

 
124,588

 
238,773

 
200,670

 
(45,612
)
 
518,419

Net loss
 
 
 
 
 
 
(62,371
)
 
 
 
(62,371
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(7,095
)
 
(7,095
)
Dividends declared ($0.01 per share)
 
 
 
 
 
 
(525
)
 
 
 
(525
)
Share-based compensation expense, exercises and other
549

 
1,098

 
12,628

 
 
 
 
 
13,726

Balance, December 31, 2019
62,843

 
$
125,686

 
$
251,401

 
$
137,774

 
$
(52,707
)
 
$
462,154

See accompanying notes to consolidated financial statements.

33


OWENS & MINOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except per share data, unless otherwise indicated)
Note 1—Summary of Significant Accounting Policies
Owens & Minor, Inc. and subsidiaries (we, us or our), a Fortune 500 company headquartered in Richmond, Virginia, is a leading global healthcare solutions company with integrated technologies, products and services aligned to deliver significant and sustained value for healthcare providers and manufacturers across the continuum of care. Our teammates serve healthcare industry customers in over 70 countries, by producing quality products and helping to reduce total costs across the healthcare supply chain by optimizing point-of care performance, freeing up capital and clinical resources and managing contracts to optimize financial performance.
Basis of Presentation. The consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls, in conformity with U.S generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations.
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Estimates are used for, but are not limited to, the allowances for losses on accounts receivable, inventory valuation allowances, supplier incentives, depreciation and amortization, goodwill valuation, valuation of intangible assets and other long-lived assets, self-insurance liabilities, tax liabilities, defined benefit obligations, share-based compensation and other contingencies. Actual results may differ from these estimates.
Cash, Cash Equivalents and Restricted Cash. Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash represents $16.3 million held in an escrow account as of December 31, 2019 as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) Advanced Program.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows. The restricted cash presented below is classified as non-current in Other assets, net within the accompanying consolidated balance sheets.
 
December 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
67,030

 
$
66,308

Restricted cash included in Other assets, net
16,261

 

Cash of discontinued operations
1,396

 
37,059

Total cash, cash equivalents and restricted cash
$
84,687

 
$
103,367


Book overdrafts represent the amount of outstanding checks issued in excess of related bank balances and are included in accounts payable in our consolidated balance sheets, as they are similar to trade payables and are not subject to finance charges or interest. Changes in book overdrafts are classified as operating activities in our consolidated statements of cash flows.
Accounts Receivable, Net. In general, accounts receivable from customers are recorded at the invoiced amount and are reduced by any rebates due to the customer, which are estimated based on contractual terms or historical experience. We assess finance charges on overdue accounts receivable that are recognized as other operating income based on their estimated ultimate collectability. We have arrangements with certain customers under which they make deposits on account. Customer deposits in excess of outstanding receivable balances are classified as other current liabilities. For our direct to patient business, accounts receivable are recorded net of a contractual allowance.

34


We maintain valuation allowances based upon the expected collectability of accounts receivable. Our allowances include specific amounts for accounts that are likely to be uncollectible, such as customer bankruptcies and disputed amounts and general allowances for accounts that may become uncollectible. Allowances are estimated based on a number of factors, including industry trends, current economic conditions, creditworthiness of customers, age of the receivables, changes in customer payment patterns, and historical experience. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Merchandise Inventories. Merchandise inventories are valued at the lower of cost or market, with cost determined by the last-in, first-out (LIFO) method for distribution inventories in the U.S. Cost of remaining inventories are determined using the first-in, first out (FIFO) or weighted-average cost method.
Property and Equipment. Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense for financial reporting purposes is computed on a straight-line method over the estimated useful lives of the assets or, for capital leases and leasehold improvements, over the term of the lease, if shorter. In general, the estimated useful lives for computing depreciation and amortization are three to 15 years for machinery and equipment, five to 40 years for buildings, and up to fifteen years for leasehold and land improvements. Straight-line and accelerated methods of depreciation are used for income tax purposes. Normal maintenance and repairs are expensed as incurred, and renovations and betterments are capitalized. We suspend depreciation and amortization on assets that are held for sale.
Leases. We enter into non-cancelable agreements to lease most of our office and warehouse facilities with remaining terms generally ranging from one to 10 years. Certain leases include renewal options, generally for one to five-year increments. The exercise of lease renewal options is at our sole discretion. We include options to renew (or terminate) in our lease term, and as part of our right-of-use assets and lease liabilities, when it is reasonably certain that we will exercise that option. We also lease some of our transportation and material handling equipment for terms generally ranging from three to 10 years. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of right-of-use assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of unpaid lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. We use the implicit rate when readily determinable. The right-of-use assets also include adjustments for any lease payments made and lease incentives received.
Goodwill. We evaluate goodwill for impairment annually, as of October 1, and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount.
We determine the estimated fair value of our reporting units by using an income (discounted cash flow analysis) approach. The income approach is dependent upon several assumptions regarding future periods, including assumptions with respect to future sales growth and a terminal growth rate. In addition, a weighted average cost of capital (“WACC”) is used to discount future estimated cash flows to their present values. The WACC is based on externally observable data considering market participants’ cost of equity and debt, optimal capital structure and risk factors specific to our company.
Intangible Assets. Intangible assets acquired through purchases or business combinations are stated at fair value at the acquisition date and net of accumulated amortization in the consolidated balance sheets. Intangible assets, consisting primarily of customer relationships, customer contracts, non-competition agreements, trademarks, and tradenames are amortized over their estimated useful lives. In determining the useful life of an intangible asset, we consider our historical experience in renewing or extending similar arrangements. Customer relationships are generally amortized over three to 15 years and other intangible assets are amortized generally for periods between one and 15 years, based on their pattern of economic benefit or on a straight-line basis. We suspend amortization on assets that are held for sale.

35


Computer Software. We develop and purchase software for internal use. Software development costs incurred during the application development stage are capitalized. Once the software has been installed and tested, and is ready for use, additional costs incurred in connection with the software are expensed as incurred. Capitalized computer software costs are amortized over the estimated useful life of the software, usually between three and ten years. Capitalized computer software costs are included in other assets, net, in the consolidated balance sheets. Unamortized software at December 31, 2019 and 2018 was $43.6 million and $46.9 million, respectively. Depreciation and amortization expense includes $9.3 million and $9.5 million of software amortization for the years ended December 31, 2019 and 2018, respectively. Implementation costs incurred for a cloud computing arrangement that is considered a service contract (software as a service or SaaS) are expensed as incurred.
Long-Lived Assets. Long-lived assets, which include property and equipment, finite-lived intangible assets, right-of-use assets, and unamortized software costs, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. We assess long-lived assets for potential impairment by comparing the carrying value of an asset, or group of related assets, to their estimated undiscounted future cash flows. We suspend depreciation and amortization on assets that are held for sale.
Self-Insurance Liabilities. We are self-insured for most employee healthcare, workers’ compensation and automobile liability costs; however, we maintain insurance for individual losses exceeding certain limits. Liabilities are estimated for healthcare costs using current and historical claims data. Liabilities for workers’ compensation and automobile liability claims are estimated using historical claims data and loss development factors. If the underlying facts and circumstances of existing claims change or historical trends are not indicative of future trends, then we may be required to record additional expense or reductions to expense. Self-insurance liabilities are included in other current liabilities on the consolidated balance sheets.
Revenue Recognition. On January 1, 2018, we adopted ASC 606 Revenue from Contracts with Customers, which establishes principles for recognizing revenue and reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We applied the guidance using the modified retrospective transition method. The adoption of this guidance had no impact on the amount and timing of revenue recognized, therefore, no adjustments were recorded to our consolidated financial statements upon adoption.
Our revenue is primarily generated from sales contracts with customers. Under most of our distribution and product sales arrangements, our performance obligations are limited to delivery of products to a customer upon receipt of a purchase order. For these arrangements, we recognize revenue at the point in time when shipment is completed, as control passes to the customer upon product receipt.
Revenue for activity-based fees and other services is recognized over time as activities are performed. Depending on the specific contractual provisions and nature of the performance obligation, revenue from services may be recognized on a straight-line basis over the term of the service, on a proportional performance model, based on level of effort, or when final deliverables have been provided.
Our contracts sometimes allow for forms of variable consideration including rebates, discounts and performance guarantees. In these cases, we estimate the amount of consideration to which we will be entitled in exchange for transferring the product or service to the customer. Rebates and customer discounts are estimated based on contractual terms or historical experience and we maintain an accrual for rebates or discounts that have been earned but are unpaid. The amount accrued for rebates and discounts due to customers was $49.5 million at December 31, 2019 and $44.2 million at December 31, 2018.
Additionally, we generate fees from arrangements that include performance targets related to cost-saving initiatives for customers that result from our supply-chain management services. Achievement against performance targets, measured in accordance with contractual terms, may result in additional fees paid to us or, if performance targets are not achieved, we may be obligated to refund or reduce a portion of our fees or to provide credits toward future purchases by the customer. For these arrangements, contingent revenue is deferred and recognized as the performance target is achieved and the applicable contingency is released. When we determine that a loss is probable under a contract, the estimated loss is accrued. The amount deferred under these arrangements is not material.
For our direct to patient sales, revenues are recorded based upon the estimated amounts due from patients and third-party payors. Third-party payors include federal and state agencies (under Medicare and Medicaid programs), managed care health plans and commercial insurance companies. Estimates of contractual allowances are based upon historical collection rates for the related payor agreements. The estimated reimbursement amounts are made on a payor-specific basis and are recorded based on the best information available regarding management’s interpretation of the applicable laws, regulations and reimbursement terms.

36


In most cases, we record revenue gross, as we are the primary obligor in the arrangement and we obtain control of the products before they are transferred to the customer. When we act as an agent in a sales arrangement and do not bear a significant portion of inventory risks, primarily for our outsourced logistics business, we record revenue net of product cost. Sales taxes collected from customers and remitted to governmental authorities are excluded from revenues.
See Note 21 for disaggregation of revenue by segment and geography as we believe that best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Cost of Goods Sold. Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor, bear the risk of general and physical inventory loss and carry all credit risk associated with sales. Cost of goods sold also includes direct and certain indirect labor, material and overhead costs associated with our Global Products business. We have contractual arrangements with certain suppliers that provide incentives, including cash discounts for prompt payment, operational efficiency and performance-based incentives. These incentives are recognized as a reduction in cost of goods sold as targets become probable of achievement.
In situations where we act as an agent in a sales arrangement and do not bear a significant portion of these risks, primarily for our outsourced logistics business, there is no cost of goods sold and all costs to provide the service to the customer are recorded in distribution, selling and administrative expenses.
As a result of different practices of categorizing costs and different business models throughout our industry, our gross margins may not necessarily be comparable to other companies in our industry.
Distribution, Selling and Administrative (DS&A) Expenses. DS&A expenses include shipping and handling costs, labor, depreciation, amortization and other costs for selling and administrative functions and all costs associated with our fee-for-service arrangements.
Shipping and Handling. Shipping and handling costs are primarily included in DS&A expenses on the consolidated statements of operations and include costs to store, to move, and to prepare products for shipment, as well as costs to deliver products to customers. Shipping and handling costs totaled $422.3 million and $563.4 million for the years ended December 31, 2019 and 2018, respectively.
Share-Based Compensation. We account for share-based payments to employees at fair value and recognize the related expense in distribution, selling and administrative expenses over the service period for awards expected to vest.
Derivative Financial Instruments. We are directly and indirectly affected by changes in certain market conditions, 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, primarily foreign currency exchange risk and interest rate risk. We use forward contracts, which are agreements to buy or sell a quantity at a predetermined future date and at a predetermined rate or price, and interest rate swaps. We enter into derivative transactions that we believe will be highly effective at offsetting the underlying risk and do not enter into derivative financial instruments for trading purposes.
All derivatives are carried at fair value in our consolidated balance sheets. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we record the change in fair value of the derivative instrument in our financial statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative will be highly effective in offsetting the underlying hedged cash flows and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a hedge as a cash flow hedge, fair value hedge, or a net investment hedge based on the exposure we are hedging. For the effective portion of qualifying cash flow hedges, we record changes in fair value in other comprehensive income (“OCI”). We release the derivative’s gain or loss from OCI to match the timing of the underlying hedged items’ effect on earnings. We review the effectiveness of our hedging instruments quarterly, recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. The cash flow impact of the derivative instruments is primarily included in our consolidated statements of cash flows in net cash provided by operating activities.

37


Income Taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided if it is more likely than not that a deferred tax asset will not be realized. When we have claimed tax benefits that may be challenged by a tax authority, an estimate of the effect of these uncertain tax positions is recorded. It is our policy to provide for uncertain tax positions and the related interest and penalties based upon an assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent that the tax outcome of these uncertain tax positions changes, based on our assessment, such changes in estimate may impact the income tax provision in the period in which such determination is made.
We earn a portion of our operating income in foreign jurisdictions outside the United States. 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 December 31, 2019. As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for Thailand. We will continue to evaluate our foreign earnings repatriation policy in 2020 for all our foreign subsidiaries. Our policy election for GILTI is that we will record such taxes as a current period expense once incurred and will follow the tax law ordering approach.
Fair Value Measurements. Fair value is determined based on assumptions that a market participant would use in pricing an asset or liability. The assumptions used are in accordance with a three-tier hierarchy, defined by GAAP, that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the use of present value and other valuation techniques in the determination of fair value (Level 3).
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 11 for the fair value of debt. The fair value of interest rate swaps and foreign currency contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 14 for the fair value of derivatives.
Acquisition-Related and Exit and Realignment Charges. We present costs incurred in connection with acquisitions in acquisition-related and exit and realignment charges in our consolidated statements of operations. Acquisition-related charges consist primarily of transaction costs incurred to perform due diligence and to analyze, negotiate and consummate an acquisition, costs to perform post-closing activities to establish the organizational structure, and costs to transition the acquired company’s information technology and other operations and administrative functions from the former owner.
Exit and realignment charges consist of costs associated with optimizing our operations which include the closure and consolidation of certain distribution and outsourced logistics centers, administrative offices and warehouses. These charges also include costs related to our strategic organizational realignment which include management changes, certain professional fees, and costs to streamline administrative functions and processes. Costs associated with exit and realignment activities are recorded at their fair value when incurred. Liabilities are established at the cease-use date for remaining contractual obligations discounted using a credit-adjusted risk-free rate of interest. We evaluate these assumptions quarterly and adjust the liability accordingly. The current portion of contractual termination costs are included in other current liabilities on the consolidated balance sheets, and the non-current portion is included in other liabilities. Severance benefits are recorded when payment is considered probable and reasonably estimable.
Income (Loss) Per Share. Basic and diluted income (loss) per share are calculated pursuant to the two-class method, under which unvested share-based payment awards containing non-forfeitable rights to dividends are participating securities.

38


Foreign Currency Translation. Our foreign subsidiaries generally consider their local currency to be their functional currency. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at period-end exchange rates and revenues, cost of goods sold and expenses are translated at average exchange rates during the period. Cumulative currency translation adjustments are included in accumulated other comprehensive income (loss) in shareholders’ equity. Gains and losses on intercompany foreign currency transactions that are long-term in nature and which we do not intend to settle in the foreseeable future are also recognized in other comprehensive income (loss) in shareholders’ equity. Realized gains and losses from foreign currency transactions are recorded in other operating income, net in the consolidated statements of operations and were not material to our consolidated results of operations in 2019 and 2018.
Business Combinations. We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Discontinued Operations: The Movianto business represents a component that met accounting requirements to be classified as discontinued operations and held for sale. In accordance with GAAP, the financial position and results of operations of the Movianto business are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. With the exception of Note 3, the Notes to the Consolidated Financial Statements reflect the continuing operations of Owens & Minor, Inc. See Note 3 for additional information regarding discontinued operations.
Recent Accounting Pronouncements. During 2019, we adopted Accounting Standard Updates (ASU’s) issued by the Financial Accounting Standards Board (FASB).
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. We adopted ASU No. 2016-02 in the first quarter of 2019. We elected to use the adoption date as our date of initial application and thus have not restated comparative prior periods. See Note 9 for additional information.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU No. 2017-12 is intended to simplify the application of hedge accounting and provide increased transparency as to the scope and results of hedging programs. The Company adopted ASU No. 2017-12 effective beginning January 1, 2019. Its adoption did not have a material impact on our consolidated financial statements.

On February 14, 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU No. 2018-02 allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the Act) from accumulated other comprehensive income (loss) to retained earnings. ASU No. 2018-02 was effective for the Company on January 1, 2019 and we elected not to reclassify income tax effects due to the Act from accumulated other comprehensive loss to retained earnings on the consolidated balance sheet in the period of adoption.

In August 2018, the SEC adopted a final rule under SEC Release No. 33-10532, Disclosure Update and Simplification that amends certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments also expanded the disclosure requirements on the analysis of shareholders' equity for interim financial statements, in which registrants must now analyze changes in shareholders’ equity, in the form of reconciliation, for the current and comparative year-to-date periods, with subtotals for each interim period. This final rule was effective on November 5, 2018. As of the first quarter of 2019, the Company adopted all relevant disclosure requirements, including the shareholders’ equity interim disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted as of December 31, 2019:

On June 16, 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. This standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact the adoption of ASU No. 2016-13 will have on our consolidated financial statements and related disclosures. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief. These ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead these

39


amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. These ASUs will have the same effective date and transition requirements as ASU No. 2016-13.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. This ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ASU No. 2018-13 is generally required to be applied retrospectively to all periods presented upon their effective date with the exception of certain amendments, which should be applied prospectively to the most recent interim or annual period presented in the year of adoption. We do not expect this ASU to have a material impact on our consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software. This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and we do not expect this to have a material impact on our consolidated financial statements and disclosures.

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. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020. 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. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements and disclosures.
Note 2—Significant Risks and Uncertainties
Many of our hospital customers in the U.S. are represented by group purchasing organizations (GPOs) that contract with us for services on behalf of the GPO members. GPOs representing a significant portion of our business are Vizient, Premier, Inc. (Premier) and Health Trust Purchasing Group (HPG). Members of these GPOs have incentives to purchase from their primary selected distributor; however, they operate independently and are free to negotiate directly with distributors and manufacturers. For 2019 and 2018, net revenue from hospitals under contract with these GPOs represented the following approximate percentages of our net revenue annually: Vizient—37% to 40%; Premier—19% to 21%; and HPG—13% to 14%.
In 2019 and 2018, no sales of products of any individual suppliers exceeded 10% of our consolidated net revenue.
Note 3—Discontinued Operations
On January 16, 2020, we announced our intention to sell our European logistics business, Movianto, to EHDH Holding Group (EHDH), a privately held French company, for cash consideration of $133 million. The Company concluded that the Movianto business met the criteria for discontinued operations as of December 31, 2019, as the intention to sell represented a strategic shift and the criteria for held-for-sale were met. Movianto was previously reported in the Global Solutions segment. The transaction is expected to close in the first half of 2020.

Accordingly, the results of operations from our Movianto business are reported in the accompanying consolidated statements of operations as “Loss from discontinued operations, net of tax” for the years ended December 31, 2019 and 2018, and the related assets and liabilities are classified as held-for-sale as of December 31, 2019 and 2018 in the accompanying balance sheets. We recognized a loss of $32.1 million in connection with the classification of the related assets and liabilities as held-for-sale.

The following table summarizes the financial results of our discontinued operations for the years ended December 31, 2019 and 2018:
Year ended December 31,
2019
 
2018
Net revenue
$
439,104

 
$
420,516

Cost of goods sold
106,896

 
124,079

Gross margin
332,208

 
296,437

Distribution, selling, and administrative expenses
330,737

 
305,118

Asset impairment charges
32,112

 
25,668

Acquisition-related and exit and realignment charges
2,856

 
3,099

Other operating expense (income), net
(1,325
)
 
(1,385
)
Operating loss
(32,172
)
 
(36,063
)
Interest expense, net
6,752

 
6,039

Loss from discontinued operations before income taxes
(38,924
)
 
(42,102
)
Income tax provision from discontinued operations
863

 
245

Loss from discontinued operations, net of taxes
$
(39,787
)
 
$
(42,347
)



40


The assets and liabilities of the discontinued Movianto business reflected on the consolidated balance sheets at December 31, 2019 and 2018, are as follows:
December 31,
2019
 
2018
Assets of discontinued operations
 
 
 
Cash and cash equivalents
$
1,396

 
$
37,059

Accounts receivable, net
78,643

 
66,731

Merchandise inventories
16,058

 
16,377

Other current assets
188,853

 
199,763

Current assets of discontinued operations
284,950

 
319,930

Property and equipment, net
65,710

 
62,780

Intangible assets, net
6,579

 
7,589

Other assets, net
27,431

 
28,092

Operating lease assets
87,425

 

Valuation allowance on disposal group classified as held for sale
(32,112
)
 

Total assets of discontinued operations
$
439,983

 
$
418,391

Liabilities of discontinued operations
 
 
 
Accounts payable
$
53,981

 
$
44,392

Other current liabilities
182,980

 
145,134

Current liabilities of discontinued operations
236,961

 
189,526

Long-term debt, excluding current portion
5,523

 
2,664

Operating lease liabilities, excluding current portion
76,270

 

Other liabilities
4,757

 
4,234

Total liabilities of discontinued operations
$
323,511

 
$
196,424



Assets and liabilities held for sale as of December 31, 2019 are classified as current since we expect the divestiture to be completed within one year of the balance sheet date. In the prior year, the assets and liabilities held for sale are classified separately as current or noncurrent because the noncurrent assets and liabilities did not meet the criteria for current classification as of December 31, 2018.

The following table provides operating and investing cash flow information for our discontinued operations:
Year ended December 31,
2019
 
2018
Operating Activities:
 
 
 
Depreciation and amortization
$
17,111

 
$
18,527

Asset impairment charges
32,112

 
25,668

Investing Activities:
 
 
 
Capital expenditures
(18,952
)
 
(11,805
)

Note 4—Acquisition
On April 30, 2018 (the Closing Date), we completed the acquisition of substantially all of Avanos Medical, Inc.'s (Avanos, previously Halyard Health, Inc.) Surgical and Infection Prevention business, the name “Halyard Health” (and all variations of that name and related intellectual property rights) and its information technology (IT) systems in exchange for $758 million, net of cash acquired. The Halyard S&IP business is a leading global provider of medical supplies and solutions for the prevention of healthcare associated infections across acute care and non-acute care markets. This business is reported as part of the Global Products segment.
The following table presents the fair value of the assets acquired and liabilities assumed recognized as of the acquisition date. The fair value of intangibles from this acquisition was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs.

41


 
 
Preliminary Fair Value
Originally Estimated as of
Acquisition Date
(1)
 
Differences Between Prior and Current Period Preliminary Fair Value Estimate
 
Fair Value as of Acquisition Date
Assets acquired:
 
 
 
 
 
 
Current assets
 
$
330,870

 
$

 
$
330,870

Goodwill
 
130,217

 
(23,877
)
 
106,340

Intangible assets
 
191,230

 
13,000

 
204,230

Other noncurrent assets
 
218,387

 
5,616

 
224,003

Total assets
 
870,704

 
(5,261
)
 
865,443

Liabilities assumed:
 
 
 

 
 
Current liabilities
 
92,438

 
(12,428
)
 
80,010

Noncurrent liabilities
 
20,217

 
7,167

 
27,384

Total liabilities
 
112,655

 
(5,261
)
 
107,394

Fair value of net assets acquired, net of cash
 
$
758,049

 
$

 
$
758,049


(1) As previously reported in our 2018 Form 10-K.
We are amortizing the fair value of acquired intangible assets, primarily customer relationships, a trade name and other intellectual property, over their estimated weighted average useful lives of eight to 12 years.
Goodwill of $106 million, which we assigned to our Global Products segment, consists largely of expected opportunities to expand into new markets and further develop a presence in the medical products segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
The unaudited pro forma results of net revenue for the year ended December 31, 2018 as if Halyard S&IP was acquired on January 1, 2018 was $9.7 billion. The pro forma results of net income (loss) and net income (loss) per common share are not presented because the effects were not material to our historic consolidated financial statements. Accordingly, the pro forma results are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future.
Acquisition-related expenses in 2019 and 2018 consisted primarily of transition and transaction costs for the Halyard transaction. We recognized pre-tax acquisition-related expenses of $15.7 million and $45.3 million for the years ended December 31, 2019 and 2018.
Note 5—Accounts Receivable, Net
Allowances for losses on accounts receivable of $21.0 million and $19.2 million have been applied as reductions of accounts receivable at December 31, 2019 and 2018. Write-offs of accounts receivable were $1.1 million and $2.8 million for 2019 and 2018.
Note 6—Merchandise Inventories
At December 31, 2019 and 2018 we had inventory of $1,146 million and $1,274 million, of which $866.8 million and $1,023.1 million were valued under LIFO. If LIFO inventories had been valued on a current cost or FIFO basis, they would have been greater by $154.7 million and $146.5 million as of December 31, 2019 and 2018. At December 31, 2019 and 2018, included in our inventory was $37.4 million and $43.8 million in raw materials, $61.8 million and $67.3 million in work in process and the remainder was finished goods.
Note 7—Property and Equipment
Property and equipment consists of the following:
December 31,
2019
 
2018
Land and land improvements
$
22,269

 
$
20,951

Buildings and leasehold improvements
156,184

 
152,756

Machinery and equipment
371,324

 
342,422

Construction in progress
11,368

 
13,556

Property and equipment, gross
561,145

 
529,685

Accumulated depreciation and amortization
(245,718
)
 
(205,742
)
Property and equipment, net
$
315,427

 
$
323,943


Depreciation expense for property and equipment and assets under finance leases was $43.5 million and $29.1 million for the years ended December 31, 2019 and 2018, respectively.
Note 8—Goodwill and Intangible Assets
As of October 1, 2019, we performed our annual impairment test and concluded that there were no impairments of goodwill as the estimated fair value of each reporting unit exceeded its carrying value.
In 2018, as a result of a decline in market capitalization of the company, and lower than projected financial results of certain reporting units due to customer losses and operational inefficiencies, which caused us to revise our expectations with regard to future performance, we determined there were indicators present that would require an interim impairment analysis.
During 2018, we performed goodwill impairment tests and concluded that the fair values for certain reporting units were below their carrying amounts. The amount by which the carrying values of the impaired reporting units' goodwill exceeded their fair values was $180.2 million within our Global Solutions segment and $217.5 million within our Global Products segment, which were recognized as an impairment losses for the year ended December 31, 2018.
We recorded these amounts in “Goodwill and intangible asset impairment charges” in our 2018 consolidated statement of operations.
The following table summarizes the changes in the carrying amount of goodwill through December 31, 2019:
 
 
Global Solutions
 
Global Products
 
Consolidated
 
 
 
 
 
 
 
Carrying amount of goodwill, January 1, 2018
 
$
469,013

 
$
217,951

 
$
686,964

Currency translation adjustments
 

 
(637
)
 
(637
)
Acquisitions (see Note 4)
 
(4,933
)
 
130,364

 
125,431

Carrying amount of goodwill, December 31, 2018
 
464,080

 
347,678

 
811,758

Accumulated goodwill impairment, January 1, 2018
 

 

 

Goodwill impairment charge
 
(180,175
)
 
(217,461
)
 
(397,636
)
Accumulated goodwill impairment, December 31, 2018
 
(180,175
)
 
(217,461
)
 
(397,636
)
Net carrying amount of goodwill, December 31, 2018
 
283,905

 
130,217

 
414,122

Currency translation adjustments
 

 
2,936

 
2,936

Acquisition (see Note 4)
 

 
(23,877
)
 
(23,877
)
Net carrying amount of goodwill, December 31, 2019
 
$
283,905

 
$
109,276

 
$
393,181


Intangible assets at December 31, 2019 and 2018 were as follows:
 
2019
 
2018
 
Customer
Relationships
 
Tradenames
 
Other
Intangibles
 
Customer
Relationships
 
Tradenames
 
Other
Intangibles
Gross intangible assets
$
270,693

 
$
90,000

 
$
43,055

 
$
251,557

 
$
97,000

 
$
40,285

Accumulated amortization
(92,947
)
 
(16,520
)
 
(9,263
)
 
(62,283
)
 
(8,543
)
 
(3,841
)
Net intangible assets
$
177,746

 
$
73,480

 
$
33,792

 
$
189,274

 
$
88,457

 
$
36,444

Weighted average useful life
10 years

 
11 years

 
8 years

 
10 years

 
11 years

 
8 years


During 2018, we noted impairment indicators related to our intangible assets. We performed impairment tests for the asset groups to which our intangible assets are assigned and based on the projected undiscounted future cash flows, we recorded an impairment charge of $16.5 million related to a write-off of customer relationships for the year ended December 31, 2018. We recorded this amount in “Goodwill and intangible asset impairment charges” in our accompanying consolidated statements of operations.
At December 31, 2019 and 2018, $80.7 million and $99.2 million in net intangible assets were held in the Global Solutions segment and $204.3 million and $214.9 million were held in the Global Products segment, respectively. Amortization expense for intangible assets was $44.0 million for 2019 and $35.1 million for 2018.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $41.5 million for 2020, $39.8 million for 2021, $38.9 million for 2022, $38.7 million for 2023 and $33.9 million for 2024.
Note 9—Leases
We adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019. We elected to use the adoption date as our date of initial application and thus have not restated comparative prior periods. We elected the ‘package of practical

42


expedients’, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.
The adoption of the new standard resulted in the recording of operating lease assets and lease liabilities of approximately $197 million and $201 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net loss and had no impact on cash flows.

The components of lease expense were as follows:
 
Classification
Year Ended December 31, 2019
Operating lease cost
DS&A Expenses
$
53,588

Finance lease cost:
 
 
Amortization of lease assets
DS&A Expenses
1,322

Interest on lease liabilities
Interest expense, net
1,189

Total finance lease cost
 
$
2,511

Short-term lease cost
DS&A Expenses
348

Variable lease cost
DS&A Expenses
16,415

Total lease cost
 
$
72,862


Variable lease cost consists primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities which are paid as incurred. Rent expense for all operating leases for the year ended December 31, 2018 was $56.1 million.

Supplemental balance sheet information is as follows:
 
Classification
 
As of December 31, 2019
Assets:
 
 
 
Operating lease assets
Operating lease assets
 
$
142,219

Finance lease assets
Property and equipment, net
 
7,948

Total lease assets
 
 
$
150,167

Liabilities:
 
 
 
Current
 
 
 
Operating
Other current liabilities
 
$
31,568

Finance
Other current liabilities
 
1,014

Noncurrent
 
 
 
Operating
Operating lease liabilities, excluding current portion
 
117,080

Finance
Long-term debt, excluding current portion
 
11,692

Total lease liabilities
 
 
$
161,354


The gross value recorded under finance leases was $15.9 million and $26.2 million with associated accumulated depreciation of $8.0 million and $14.8 million as of December 31, 2019 and 2018, respectively.

43


Other information related to leases was as follows:
 
Year Ended December 31, 2019
 
Supplemental cash flow information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating and finance leases
$
54,300

 
Financing cash flows from finance leases
$
1,205

 
 
 
 
Right-of-use assets obtained in exchange for new operating and finance lease liabilities
$
33,933

 
 
 
 
Weighted average remaining lease term (years)
 
 
Operating leases
5.1

 
Finance leases
8.8

 
 
 
 
Weighted average discount rate
 
 
Operating leases
11.9
%
 
Finance leases
9.7
%
 

Maturities of lease liabilities as of December 31, 2019 were as follows:
 
Operating Leases
 
Finance Leases
 
Total
2020
$
46,658

 
$
2,139

 
$
48,797

2021
43,689

 
2,024

 
45,713

2022
32,381

 
1,955

 
34,336

2023
25,314

 
1,910

 
27,224

2024
19,059

 
1,890

 
20,949

Thereafter
33,675

 
8,408

 
42,083

Total lease payments
200,776

 
18,326

 
219,102

Less: Interest
(52,128
)
 
(5,620
)
 
(57,748
)
Present value of lease liabilities
$
148,648

 
$
12,706

 
$
161,354


    
    
Note 10—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. These charges also include costs associated with our strategic organizational realignment which include management changes, certain professional fees and costs to streamline administrative functions and processes.

Exit and realignment charges by segment for the years ended December 31, 2019 and 2018 were as follows:
Year ended December 31,
2019
 
2018
Global Solutions
$
9,133

 
$
13,932

Global Products
5,264

 
133

Total exit and realignment charges
$
14,397

 
$
14,065



44


The following table summarizes the activity related to exit and realignment cost accruals through December 31, 2019:
        
 
 
Total(1)
Accrued exit and realignment charges, January 1, 2018
 
$
10,668

Provision for exit and realignment activities:
 


Severance
 
7,988

Information system restructuring costs
 
2,802

Other
 
3,383

Change in estimate
 
(108
)
Cash payments
 
(17,256
)
Accrued exit and realignment charges, December 31, 2018
 
7,477

Provision for exit and realignment activities:
 


Severance
 
6,008

Information system restructuring costs
 
2,531

Other
 
5,985

Change in estimate
 
(127
)
Cash payments
 
(13,712
)
Accrued exit and realignment charges, December 31, 2019
 
$
8,162



(1) The accrued exit and realignment costs at December 31, 2019 and 2018 related primarily to information system restructuring costs and severance.
We do not expect significant additional costs in 2020 for activities that were initiated through December 31, 2019; however, we anticipate new actions will be taken in 2020.
Note 11—Debt
Debt consists of the following:
 
2019
 
2018
December 31,
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
3.875% Senior Notes, $238 million par value, maturing September 2021
$
236,234

 
$
229,356

 
$
273,577

 
$
207,001

4.375% Senior Notes, $275 million par value, maturing December 2024
273,978

 
212,086

 
272,972

 
174,859

Term Loan A-1
206,521

 
209,375

 
231,847

 
231,847

Term Loan A-2
170,899

 
173,675

 
190,575

 
190,575

Term Loan B
480,337

 
442,217

 
483,327

 
385,284

Revolver
177,900

 
177,900

 
210,100

 
210,100

Finance leases and other
13,783

 
13,783

 
14,208

 
14,208

Total debt
1,559,652

 
1,458,392

 
1,676,606

 
1,413,874

Less current maturities
(51,237
)
 
(51,237
)
 
(28,688
)
 
(28,688
)
Long-term debt
$
1,508,415

 
$
1,407,155

 
$
1,647,918

 
$
1,385,186



We have $238 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points. We used $36.2 million of cash to repurchase $37.3 million aggregate principal amount of the 2021 Notes during 2019.
As of December 31, 2019, we had a Credit Agreement (amended February 2019) with a borrowing capacity of $400 million and $858 million in outstanding term loans. In connection with the 2018 Halyard S&IP acquisition, we amended our Credit Agreement to include, among others things, an additional $195.8 million Term A-2 loan and $500 million Term B loan. The revolving credit facility and Term A loans mature in July 2022 and the Term B loan matures in April 2025.
We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (“the Secured Parties") including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 65% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loan. If as of the date that is 91 days prior to the maturity date of our 2021 Notes all outstanding amounts under the 2021 Notes have not been paid in full, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility and the Term A loans shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if as of the date 91 days prior to the maturity date of our 2024 Notes, all outstanding amounts under the 2024 Notes have not been paid in full, the Termination Date of the Term B loan shall be the date that is 91 prior to the maturity date of the 2024 Notes.
We make principal payments under the term loans on a quarterly basis with the remaining outstanding principal due upon maturity. The interest rate on our revolving credit facility and Term A loans, which is subject to adjustment quarterly, is based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus an adjustment based on our EBITDA ratio as defined by the Credit Agreement. Our credit spread at December 31, 2019 was the Eurocurrency Rate plus 3.50%. Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement). We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Credit Agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.
At December 31, 2019 and 2018, we had letters of credit of $11.7 million and $15.2 million, respectively, outstanding under the Credit Agreement. We also had letters of credit and bank guarantees outstanding for $1.5 million as of

45


December 31, 2019 and $4.4 million as of December 31, 2018, which supports certain facilities leased as well as other normal business activities in the United States and Europe.
As of December 31, 2019, scheduled future principal payments of debt were $49.6 million in 2020, $287.4 million in 2021, $476.7 million in 2022, $5.0 million in 2023, $280.0 million in 2024, and $468.8 million thereafter.
In February of 2020 we amended our Credit Agreement. Please see Note 23 for further information.
The Credit Agreement and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at December 31, 2019.
Note 12—Share-Based Compensation
We maintain a share-based compensation plan (the Plan) that is administered by the Compensation and Benefits Committee of the Board of Directors. The Plan allows us to award or grant to officers, directors and employees incentive, non-qualified and deferred compensation stock options, stock appreciation rights (SARs), performance shares, and restricted and unrestricted stock. We use authorized and unissued common shares for grants of restricted stock or for stock option exercises. At December 31, 2019 approximately 1.4 million common shares were available for issuance under the Plan.
Restricted stock awarded under the Plan generally vests over one, three or five years. Certain restricted stock grants contain accelerated vesting provisions, based on the satisfaction of certain performance criteria related to the achievement of certain financial and operational results. Performance shares awarded under the Plan are issuable as restricted stock upon meeting performance goals and generally have a total performance and vesting period of three years. Stock options awarded under the Plan are generally subject to graded vesting over three years and expire seven to ten years from the date of grant. The options are granted at a price equal to fair market value at the date of grant. We did not grant any stock options in 2019 or 2018.
We recognize the fair value of stock-based compensation awards, which is based upon the market price of the underlying common stock at the grant date, on a straight-line basis over the estimated requisite service period, which may be based on a service condition, a performance condition, a market condition, or any combination of these. The fair value of performance shares as of the date of grant is estimated assuming that performance goals will be achieved at target levels. If such goals are not probable of being met, or are probable of being met at different levels, recognized compensation cost is adjusted to reflect the change in estimated fair value of restricted stock to be issued at the end of the performance period.
Total share-based compensation expense for December 31, 2019 and 2018 was $15.2 million and $16.0 million, with recognized tax benefits of $4.0 million and $4.1 million. Unrecognized compensation cost related to nonvested restricted stock awards, net of estimated forfeitures, was $18.1 million at December 31, 2019. This amount is expected to be recognized over a weighted-average period of 1.9 years, based on the maximum remaining vesting period required under the awards. Unrecognized compensation cost related to nonvested performance share awards as of December 31, 2019 was $1.7 million and will be recognized primarily in 2020 if the related performance targets are met.
The following table summarizes the activity and value of nonvested restricted stock and performance share awards for the years ended December 31, 2019 and 2018:
 
2019
 
2018
 
Number  of
Shares
 
Weighted
Average
Grant-date
Value
Per Share
 
Number  of
Shares
 
Weighted
Average
Grant-date
Value
Per Share
Nonvested awards at beginning of year
2,585

 
$
19.94

 
1,760

 
$
31.88

Granted
3,624

 
5.29

 
2,249

 
15.34

Vested
(729
)
 
18.90

 
(615
)
 
31.60

Forfeited
(965
)
 
11.86

 
(809
)
 
22.59

Nonvested awards at end of year
4,515

 
9.69

 
2,585

 
19.94


The total fair value of restricted stock vesting during the years ended December 31, 2019 and 2018 was $13.8 million and $19.5 million.
Note 13—Retirement Plans
Savings and Retirement Plans. We maintain a voluntary 401(k) savings and retirement plan covering substantially all full-time and certain part-time employees in the United States who have completed one month of service and have attained age 18. We match a certain percentage of each employee’s contribution. The plan also provides for a discretionary contribution by us to the plan for all eligible employees of 1% of their salary, subject to certain limits, and discretionary profit-sharing contributions. We may increase or decrease our contributions at our discretion, on a prospective basis. We incurred $10.5 million and $10.7 million of expense related to this plan in 2019 and 2018. We also maintain defined contribution plans in some of the European countries in which we operate. Expenses related to these plans were not material in 2019 and 2018.
U.S. Retirement Plans. We have a noncontributory, unfunded retirement plan for certain retirees in the United States (U.S. Retirement Plan). In February 2012, our Board of Directors amended the U.S. Retirement Plan to freeze benefit levels and modify vesting provisions under the plan effective as of March 31, 2012.

46


The following table sets forth the U.S. Retirement Plan’s financial status and the amounts recognized in our consolidated balance sheets:
December 31,
2019
 
2018
Change in benefit obligation
 
 
 
Benefit obligation, beginning of year
$
48,163

 
$
53,274

Interest cost
1,858

 
1,674

Actuarial (gain) loss
7,075

 
(3,207
)
Benefits paid
(3,494
)
 
(3,578
)
Benefit obligation, end of year
$
53,602

 
$
48,163

Change in plan assets
 
 
 
Fair value of plan assets, beginning of year
$

 
$

Employer contribution
3,494

 
3,578

Benefits paid
(3,494
)
 
(3,578
)
Fair value of plan assets, end of year
$

 
$

Funded status, end of year
$
(53,602
)
 
$
(48,163
)
Amounts recognized in the consolidated balance sheets
 
 
 
Other current liabilities
$
(3,929
)
 
$
(3,410
)
Other liabilities
(49,672
)
 
(44,752
)
Accumulated other comprehensive loss
19,732

 
13,722

Net amount recognized
$
(33,869
)
 
$
(34,440
)
Accumulated benefit obligation
$
53,602

 
$
48,163

Weighted average assumptions used to determine benefit obligation
 
 
 
Discount rate
2.75
%
 
4.00
%
Rate of increase in compensation levels
N/A

 
N/A


Plan benefit obligations of the U.S. Retirement Plan were measured as of December 31, 2019 and 2018. Plan benefit obligations are determined using assumptions developed at the measurement date. The weighted average discount rate, which is used to calculate the present value of plan liabilities, is an estimate of the interest rate at which the plan liabilities could be effectively settled at the measurement date. When estimating the discount rate, we review yields available on high-quality, fixed-income debt instruments and use a yield curve model from which the discount rate is derived by applying the projected benefit payments under the plan to points on a published yield curve.
The components of net periodic benefit cost for the U.S. Retirement Plan were as follows:
Year ended December 31,
2019
 
2018
Interest cost
$
1,858

 
$
1,674

Recognized net actuarial loss
1,065

 
2,091

Net periodic benefit cost
$
2,923

 
$
3,765

Weighted average assumptions used to determine net periodic benefit cost
 
 
 
Discount rate
4.00
%
 
3.25
%
Rate of increase in future compensation levels
N/A

 
N/A


Amounts recognized for the U.S. Retirement Plan as a component of accumulated other comprehensive loss as of the end of the year that have not been recognized as a component of the net periodic benefit cost are presented in the following table. We expect to recognize approximately $0.9 million of the net actuarial loss reported in the following table as of December 31, 2019, as a component of net periodic benefit cost during 2020.

47


Year ended December 31,
2019
 
2018
Net actuarial loss
$
(19,732
)
 
$
(13,722
)
Deferred tax benefit
7,866

 
5,562

Amounts included in accumulated other comprehensive loss, net of tax
$
(11,866
)
 
$
(8,160
)

As of December 31, 2019, the expected benefit payments required for each of the next five years and the five-year period thereafter for the U.S. Retirement Plan were as follows:
Year
 
2020
$
3,901

2021
3,734

2022
3,584

2023
3,436

2024
3,279

2025-2029
14,045


International Retirement Plans. Certain of our foreign subsidiaries have defined benefit pension plans covering substantially all of their respective employees. As of December 31, 2019 and 2018, the accumulated benefit obligation under these plans was $7.3 million and $7.2 million. We recorded $1.0 million in net periodic benefit cost in Other expense, net for the year ended December 31, 2019 and $1.0 million for the year ended December 31, 2018.
Note 14—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 use a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in cash flows. We account for the designated foreign exchange forward contracts as cash flow hedges. These foreign exchange forward contracts, the remaining of which expired during 2019, generally had maturities up to 12 months and the counterparties to the transactions were typically large international financial institutions.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest under our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreements are included in interest expense.
We determine the fair value of our foreign currency derivatives and our interest rate swaps based on observable market-based inputs or unobservable inputs that are corroborated by market data. We do not view the fair value of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying exposure. Our derivatives are over-the-counter instruments with liquid markets. All derivatives are carried at fair value in our consolidated balance sheets in other assets and other liabilities. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2019:

48


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

 
May 2022 and May 2025
 
Other assets, net
 
$

 
Other liabilities
 
$
17,436

The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2018:
 
 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional Amount
 
Maturity Date
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
450,000

 
May 2022 and May 2025
 
Other assets, net
 
$

 
Other liabilities
 
$
6,875

Foreign currency contracts
$
25,592

 
January 2019 - December 2019
 
Other assets, net
 
$
20

 
Other liabilities
 
$

 
 
 
 
 
 
 
 
 
 
 
 
Economic (non-designated) hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
32,683

 
January 2019 - April 2019
 
Other assets, net
 
$

 
Other liabilities
 
$
198


The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the year ended December 31, 2019:
 
Amount of Loss Recognized in Other Comprehensive 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 Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Interest rate swaps
$
(12,983
)
Interest expense, net
$
(98,113
)
$
(2,423
)
Foreign currency contracts
$
(28
)
Cost of goods sold
$
(8,082,448
)
$
517


The amount of ineffectiveness associated with these contracts was immaterial for the periods presented.
For the year ended December 31, 2019 we recognized a gain of $1.0 million associated with our economic (non-designated) foreign currency contracts. For the year ended December 31, 2018, we recognized a loss of $1.6 million associated with our economic (non-designated) foreign currency contracts.
We recorded the change in fair value of derivative instruments and the remeasurement adjustment on the foreign currency denominated asset or liability in acquisition-related and exit and realignment charges for contracts assumed with the Halyard acquisition and in other operating expense, net for all other foreign exchange contracts.
For the year ended December 31, 2019, we reclassified $2.4 million associated with our interest rate swaps and $0.5 million associated with our foreign currency contracts out of accumulated other comprehensive loss. For the year ended December 31, 2018, we reclassified $1.0 million associated with our interest rate swaps and $0.1 million associated with our foreign currency contracts out of accumulated other comprehensive loss.



Note 15—Income Taxes

The components of loss before income taxes consist of the following:
Year ended December 31,
2019
 
2018
Income (loss) before income taxes:
 
 
 
U.S.
$
(32,953
)
 
$
(419,964
)
Foreign
4,234

 
(7,130
)
Loss before income taxes
$
(28,719
)
 
$
(427,094
)
The income tax provision (benefit) consists of the following:
Year ended December 31,
2019
 
2018
Current tax provision (benefit):
 
 
 
Federal
 
$
2,501

 
 
 
$
(7,991
)
 
State
197
 
 
 
1,901
 
 
Foreign
8,569
 
 
 
8,798
 
 
Total current tax provision
11,267
 
 
 
2,708
 
 
Deferred tax benefit:
 
 
 
Federal
(6,150
)
 
 
(23,956
)
 
State
(1,575
)
 
 
(7,640
)
 
Foreign
(9,677
)
 
 
(3,541
)
 
Total deferred tax benefit
(17,402
)

 
(35,137
)
 
Total income tax benefit
 
$
(6,135
)

 
 
$
(32,429
)
 
A reconciliation of the federal statutory rate to our effective income tax rate is shown below:
Year ended December 31,
2019
 
2018
Federal statutory rate
21.0
 %
 
21.0
 %
Increases (decreases) in the rate resulting from:
 
 
 
State income taxes, net of federal income tax impact
6.6
 %
 
1.5
 %
Foreign income taxes
(3.7
)%
 
(0.1
)%
Valuation allowance
(1.4
)%
 
 %
Research and development credit
9.8
 %
 
0.2
 %
Uncertain tax positions
(5.0
)%
 
0.2
 %
Tax Reform and other prior period adjustments
 %
 
0.4
 %
Restricted stock vestings
(6.7
)%
 
(0.2
)%
Goodwill and intangible asset impairment charges
 %
 
(14.2
)%
Other
0.8
 %
 
(1.2
)%
Effective income tax rate
21.4
 %
 
7.6
 %


49


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31,
2019
2018
Deferred tax assets:
 
 
Employee benefit plans
$
26,401

$
24,733

Accrued liabilities not currently deductible
24,441

25,659

Finance charges
2,678

2,661

Lease liabilities
42,077

3,694

Allowance for losses on accounts receivable
4,157

3,890

Net operating loss carryforwards
8,394

9,098

Goodwill

1,048

Outside basis difference
12,408


Interest limitation
12,905

4,473

Derivatives
5,057

1,788

     Other
10,611

7,797

Total deferred tax assets
149,129

84,841

Less: valuation allowances
(14,282
)
(1,473
)
Net deferred tax assets
134,847

83,368

Deferred tax liabilities:
 
 
Merchandise inventories
42,872

44,015

Goodwill
296


Property and equipment
32,689

37,443

Right-of-use assets
39,043


Computer software
9,032

10,177

Insurance
1,082

767

Intangible assets
35,451

29,414

Withholding tax liabilities
6,965

7,963

Other
697

342

Total deferred tax liabilities
168,127

130,121

Net deferred tax liability
$
(33,280
)
$
(46,753
)

The valuation allowances relate to deferred tax assets in various state and non-U.S. jurisdictions. Based on management’s judgments using available evidence about historical and expected future taxable earnings, management believes it is more likely than not that we will realize the benefit of the existing deferred tax assets, net of valuation allowances, at December 31, 2019.
The valuation allowances primarily relate to deferred tax assets recorded on an outside basis difference, representing the difference between the book and tax bases of our Movianto foreign subsidiaries. The valuation allowances also relate to net operating loss carryforwards in state jurisdictions which have various expiration dates ranging from five years to an unlimited carryforward period. As of December 31, 2019, the U.S. federal net operating loss was $17.4 million, which has an unlimited carryforward period.
Cash payments for income taxes, including interest, for 2019 and 2018 were $18.1 million and $28.9 million, respectively. Cash tax refunds received for 2019 and 2018 were $24.3 million and $9.8 million, respectively.

50


At December 31, 2019 and 2018, the liability for unrecognized tax benefits was $11.5 million and $9.6 million, respectively. A reconciliation of the changes in unrecognized tax benefits from the beginning to the end of the reporting period is as follows:
 
2019
 
2018
Unrecognized tax benefits at January 1,
 
$
9,568

 
 
 
$
13,585

Increases for positions taken during current period
394
 
 
 
1,035
 
Increases for positions taken during prior periods
1,629
 
 
 
29
 
Decreases for positions taken during prior periods
 
 
 
(142
)
Lapse of statute of limitations
(71
)
 
 
(4,939
)
Unrecognized tax benefits at December 31,
 
$
11,520

 
 
 
$
9,568


Included in the liability for unrecognized tax benefits at December 31, 2019 and 2018, were $3.1 million and $1.9 million, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. These tax positions are temporary differences which do not impact the annual effective tax rate under deferred tax accounting. Any change in the deductibility period of these tax positions would impact the timing of cash payments to taxing jurisdictions. Unrecognized tax benefits of $8.4 million and $7.7 million at December 31, 2019 and 2018, respectively, would impact our effective tax rate if recognized.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest at December 31, 2019 and 2018 was $1.3 million and $0.6 million, respectively. The amounts recognized in interest expense for the years ended December 31, 2019 and 2018 were $0.7 million and less than $0.1 million, respectively. There were no penalties accrued at December 31, 2019 and 2018 or recognized in 2019 and 2018.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions. Our U.S. federal income tax returns for the years 2015, 2016, 2017 and 2018 are subject to examination. Our income tax returns for U.S. state and local jurisdictions are generally open for the years 2016 through 2018; however, certain returns may be subject to examination for differing periods. The former owners are contractually obligated to indemnify us for all income tax liabilities incurred by Byram entities prior to its acquisition on August 1, 2017, and for all income tax liabilities incurred by the Halyard foreign entities located in Thailand, Mexico, and Honduras prior to its acquisition on April 30, 2018.
Note 16—Net Loss per Common Share
The following table summarizes the calculation of net loss per share attributable to common shareholders for the years ended December 31, 2019 and 2018:
Year ended December 31,
2019
 
2018
 
Weighted average shares outstanding - basic and diluted
60,574

 
60,014

 
 
 
 
 
 
Loss from continuing operations
$
(22,584
)
 
$
(394,665
)
 
Basic and diluted per share
$
(0.37
)
 
$
(6.58
)
 
 
 
 
 
 
Loss from discontinued operations
$
(39,787
)
 
(42,347
)
 
Basic and diluted per share
$
(0.66
)
 
$
(0.70
)
 
 
 
 
 
 
Net loss
$
(62,371
)
 
$
(437,012
)
 
Basic and diluted per share
$
(1.03
)
 
$
(7.28
)
 
 
 
 
 
 

Note 17—Shareholders’ Equity
In October 2016, our Board of Directors authorized a three-year share repurchase program of up to $100 million of the company’s outstanding common stock to be executed at the discretion of management over a three-year period. The authorization took effect in December 2016 upon the completion of the previous authorization and ended in December 2019.
We did not repurchase any shares during the years ended December 31, 2019 and 2018.
Note 18—Accumulated Other Comprehensive Loss
The following tables show the changes in accumulated other comprehensive loss by component for the years ended December 31, 2019 and 2018:
 
Retirement Plans
 
Currency Translation Adjustments
 
Derivatives and Other
 
Total
Accumulated other comprehensive loss, December 31, 2018
$
(8,146
)
 
$
(32,551
)
 
$
(4,915
)
 
$
(45,612
)
Other comprehensive income (loss) before reclassifications
(10,040
)
 
7,250

 
(13,011
)
 
(15,801
)
Income tax
2,610

 

 
3,915

 
6,525

Other comprehensive income (loss) before reclassifications, net of tax
(7,430
)
 
7,250

 
(9,096
)
 
(9,276
)
Amounts reclassified from accumulated other comprehensive income (loss)
1,196

 

 
1,906

 
3,102

Income tax
(311
)
 

 
(610
)
 
(921
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
885

 

 
1,296

 
2,181

Other comprehensive income (loss)
(6,545
)
 
7,250

 
(7,800
)
 
(7,095
)
Accumulated other comprehensive loss, December 31, 2019
$
(14,691
)
 
$
(25,301
)
 
$
(12,715
)
 
$
(52,707
)
 
Retirement Plans
 
Currency Translation Adjustments
 
Derivatives and Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2017
$
(12,066
)
 
$
(13,185
)
 
$
167

 
$
(25,084
)
Other comprehensive income (loss) before reclassifications
3,207

 
(19,366
)
 
(7,867
)
 
(24,026
)
Income tax
(834
)
 

 
2,099

 
1,265

Other comprehensive income (loss) before reclassifications, net of tax
2,373

 
(19,366
)
 
(5,768
)
 
(22,761
)
Amounts reclassified from accumulated other comprehensive income (loss)
2,090

 

 
954

 
3,044

Income tax
(543
)
 

 
(268
)
 
(811
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
1,547

 

 
686

 
2,233

Other comprehensive income (loss)
3,920

 
(19,366
)
 
(5,082
)
 
(20,528
)
Accumulated other comprehensive loss, December 31, 2018
$
(8,146
)
 
$
(32,551
)
 
$
(4,915
)
 
$
(45,612
)
 
     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, net. For the years ended December 31, 2019 and 2018, we reclassified $1.2 million and $2.1 million, respectively, of actuarial net losses. For the year ended December 31, 2019, we reclassified $2.4 million associated with our interest rate swaps and $0.5 million associated with our foreign currency contracts out of accumulated other comprehensive loss. For the year ended December 31, 2018, we reclassified $1.0 million associated with our interest rate swaps and $0.1 million associated with our foreign currency contracts out of accumulated other comprehensive loss.
Note 19—Commitments and Contingencies
We have a contractual commitment to outsource information technology operations, including the management and operation of our information technology systems and distributed services processing, as well as application support, development and enhancement services. This agreement expires in November 2021, with an optional 180 day extension. The commitment is cancelable with 180 days notice and payment of a termination fee based upon the remaining period left under the agreement.

51


We pay scheduled fees under the agreement, which can vary based on changes in the level of support required. Assuming no early termination of the contract, our estimated remaining annual obligations under this agreement are $28.9 million in 2020, and $25.4 million in 2021.
In 2018, we transitioned the management of our U.S. private fleet transportation and drivers to a third party company, which provides a robust technology platform that includes customer tracking and additional delivery capabilities.  Under this contractual commitment, we pay scheduled fees which can vary based on changes in the level of support required. Assuming no early termination of this contract, our estimated remaining annual obligations under this agreement are $2.3 million in 2020, $2.3 million in 2021, $2.3 million in 2022, $2.3 million in 2023, and $2.1 million in 2024. In addition to these fixed annual obligations disclosed herein, we are also contractually obligated to reimburse the third party company for variable costs including, but not limited to, vehicle costs, driver wages and fringe benefits, fuel, and insurance premiums.
Note 20—Legal Proceedings
We are subject to various legal actions that are ordinary and incidental to our business, including contract disputes, employment, workers’ compensation, product liability, regulatory and other matters. We have insurance coverage for employment, product liability, workers’ compensation and other personal injury litigation matters, subject to policy limits, applicable deductibles and insurer solvency. We establish reserves from time to time based upon periodic assessment of the potential outcomes of pending matters.
Based on current knowledge and the advice of counsel, we believe that the accrual as of December 31, 2019 for currently pending matters considered probable of loss, which is not material, is sufficient. In addition, we believe that other currently pending matters are not reasonably likely to result in a material loss, as payment of the amounts claimed is remote, the claims are insignificant, individually and in the aggregate, or the claims are expected to be adequately covered by insurance.
Note 21—Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under two segments: Global Solutions and Global Products. The Global Solutions segment includes our United States distribution, outsourced logistics and value-added services business. Global Products manufactures and sources medical surgical products through our production and kitting operations. The Halyard S&IP business, acquired on April 30, 2018, is a part of Global Products.
We evaluate the performance of our segments based on their operating income excluding acquisition-related and exit and realignment charges, certain purchase price fair value adjustments, and other substantive items that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis.
Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading and not meaningful. We believe all inter-segment sales are at prices that approximate market.

52


The following tables present financial information by segment:
Year ended December 31,
2019
 
2018
Net revenue:
 
 
 
Segment net revenue
 
 
 
Global Solutions
$
8,243,867

 
$
8,767,549

Global Products
1,433,977

 
1,111,322

Total segment net revenue
9,677,844

 
9,878,871

Inter-segment net revenue


 
 
Global Products
(466,905
)
 
(460,679
)
Total inter-segment net revenue
(466,905
)
 
(460,679
)
Consolidated net revenue
$
9,210,939

 
$
9,418,192

 
 
 
 
Operating income (loss):
 
 
 
Global Solutions
$
83,592

 
$
108,761

Global Products
65,054

 
75,688

Inter-segment eliminations
45

 
(3,014
)
Goodwill and intangible asset impairment charges

 
(413,945
)
Intangible amortization
(44,009
)
 
(35,132
)
Acquisition-related and exit and realignment charges
(30,050
)
 
(59,101
)
Other (1)
(1,481
)
 
(25,603
)
Consolidated operating income (loss)
$
73,151

 
$
(352,346
)
 
 
 
 
Depreciation and amortization: 
 
 
 
Global Solutions
$
42,444

 
$
45,182

Global Products
54,302

 
38,217

Discontinued operations
19,932

 
18,528

Consolidated depreciation and amortization
$
116,678

 
$
101,927

 
 
 
 
Capital expenditures:
 
 
 
Global Solutions
$
10,987

 
$
38,169

Global Products
22,289

 
16,161

Discontinued operations
18,952

 
11,355

Consolidated capital expenditures
$
52,228

 
$
65,685


(1) 2019 and 2018 included interest cost and net actuarial losses related to the U.S. Retirement Plan as well as software as a service (Saas) implementation costs associated with the upgrading of our global IT platforms in connection with the redesign of our global information system strategy. 2018 also includes the incremental charge to cost of goods sold from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value.








53


December 31,
2019
 
2018
Total assets:
 
 
 
Global Solutions
$
2,205,134

 
$
2,237,427

Global Products
930,937

 
1,051,662

Segment assets
3,136,071

 
3,289,089

Discontinued operations
439,983

 
418,391

Cash and cash equivalents
67,030

 
66,308

Consolidated total assets
$
3,643,084

 
$
3,773,788


The following tables present information by geographic area. Net revenues were attributed to geographic areas based on the locations from which we ship products or provide services.
Year ended December 31,
2019
 
2018
Net revenue:
 
 
 
United States
$
8,871,599

 
$
9,261,149

International
339,340

 
157,043

Consolidated net revenue
$
9,210,939

 
$
9,418,192

 
December 31,
2019
 
2018
Long-lived assets:
 
 
 
United States
$
632,643

 
$
582,667

International
153,604

 
193,322

Consolidated long-lived assets
$
786,247

 
$
775,989



Note 22—Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information for: Owens & Minor, Inc. (O&M); the guarantors of Owens & Minor, Inc.’s 2021 Notes and 2024 Notes, on a combined basis; and the non-guarantor subsidiaries of the 2021 Notes and 2024 Notes, on a combined basis. 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, and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries. The prior period has been recast for the change in guarantor structure as a result of the amended Credit Agreement.

54


Condensed Consolidating Financial Information

Year ended December 31, 2019
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Operations
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
9,135,401

 
$
956,217

 
$
(880,679
)
 
$
9,210,939

Cost of goods sold

 
8,066,842

 
895,851

 
(880,245
)
 
8,082,448

Gross margin

 
1,068,559

 
60,366

 
(434
)
 
1,128,491

Distribution, selling and administrative expenses
(1,056
)
 
909,263

 
118,549

 
(3,691
)
 
1,023,065

Goodwill and intangible asset impairment charges

 

 

 

 

Acquisition-related and exit and realignment charges

 
24,757

 
5,293

 

 
30,050

Other operating (income) expense, net
(379
)
 
56,434

 
(53,830
)
 

 
2,225

Operating income (loss)
1,435

 
78,105

 
(9,646
)
 
3,257

 
73,151

Interest expense, net
(67,483
)
 
147,988

 
17,608

 

 
98,113

Other (income) expense, net
(1,173
)
 
2,003

 
2,927

 

 
3,757

Income (loss) from continuing operations before income taxes
70,091

 
(71,886
)
 
(30,181
)
 
3,257

 
(28,719
)
Income tax (benefit) provision

 
(5,207
)
 
(928
)
 

 
(6,135
)
Equity in earnings (loss) of subsidiaries
(92,675
)
 
(59,710
)
 

 
152,385

 

Income (loss) from continuing operations
(22,584
)
 
(126,389
)
 
(29,253
)
 
155,642

 
(22,584
)
Income (loss) from discontinued operations, net of tax

 

 
(39,787
)
 

 
(39,787
)
Net income (loss)
(22,584
)
 
(126,389
)
 
(69,040
)
 
155,642

 
(62,371
)
Other comprehensive income (loss), net of tax
(7,095
)
 
6,890

 
13,930

 
(20,820
)
 
(7,095
)
Comprehensive income (loss)
$
(29,679
)
 
$
(119,499
)
 
$
(55,110
)
 
$
134,822

 
$
(69,466
)


55


Year ended December 31, 2018
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Operations
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
9,420,326

 
$
691,073

 
$
(693,207
)
 
$
9,418,192

Cost of goods sold

 
8,418,859

 
618,834

 
(690,027
)
 
8,347,666

Gross margin

 
1,001,467

 
72,239

 
(3,180
)
 
1,070,526

Distribution, selling and administrative expenses
(4,242
)
 
882,224

 
74,883

 

 
952,865

Goodwill and intangible asset impairment charges

 
180,006

 
233,939

 

 
413,945

Acquisition-related and exit and realignment charges

 
45,997

 
13,104

 

 
59,101

Other operating (income) expense, net

 
3,881

 
(6,920
)
 

 
(3,039
)
Operating income (loss)
4,242

 
(110,641
)
 
(242,767
)
 
(3,180
)
 
(352,346
)
Interest expense, net
21,896

 
58,265

 
(9,178
)
 

 
70,983

Other (income) expense, net
3,765

 

 

 

 
3,765

Income (loss) from continuing operations before income taxes
(21,419
)
 
(168,906
)
 
(233,589
)
 
(3,180
)
 
(427,094
)
Income tax (benefit) provision
(5,569
)
 
(31,285
)
 
4,425

 

 
(32,429
)
Equity in earnings (loss) of subsidiaries
(421,162
)
 
(90,771
)
 

 
511,933

 

Income (loss) from continuing operations
(437,012
)
 
(228,392
)
 
(238,014
)
 
508,753

 
(394,665
)
Income (loss) from discontinued operations, net of tax

 

 
(42,347
)
 

 
(42,347
)
Net income (loss)
(437,012
)
 
(228,392
)
 
(280,361
)
 
508,753

 
(437,012
)
Other comprehensive income (loss), net of tax
(20,528
)
 
(14,940
)
 
(18,873
)
 
33,813

 
(20,528
)
Comprehensive income (loss)
$
(457,540
)
 
$
(243,332
)
 
$
(299,234
)
 
$
542,566

 
$
(457,540
)

 



56


December 31, 2019
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
45,187

 
$
3,011

 
$
18,808

 
$
24

 
$
67,030

Accounts receivable, net
77

 
890,548

 
915,798

 
(1,131,717
)
 
674,706

Merchandise inventories

 
973,529

 
177,853

 
(5,190
)
 
1,146,192

Other current assets
180

 
69,761

 
78,319

 
(68,888
)
 
79,372

Current assets of discontinued operations

 

 
439,983

 

 
439,983

Total current assets
45,444

 
1,936,849

 
1,630,761

 
(1,205,771
)
 
2,407,283

Property and equipment, net

 
196,708

 
118,719

 

 
315,427

Operating lease assets, net

 
142,219

 

 

 
142,219

Goodwill, net

 
109,276

 
283,905

 

 
393,181

Intangible assets, net

 
198,392

 
86,626

 

 
285,018

Due from O&M and subsidiaries

 

 

 

 

Advances to and investments in consolidated subsidiaries
1,608,017

 
363,122

 

 
(1,971,139
)
 

Other assets, net
5,948

 
824,349

 
27,750

 
(758,091
)
 
99,956

Total assets
$
1,659,409

 
$
3,770,915

 
$
2,147,761

 
$
(3,935,001
)
 
$
3,643,084

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,558,074

 
$
391,386

 
$
(1,141,425
)
 
$
808,035

Accrued payroll and related liabilities

 
38,755

 
14,829

 

 
53,584

Other current liabilities
4,403

 
235,955

 
93,243

 
(102,572
)
 
231,029

Current liabilities of discontinued operations

 

 
323,511

 

 
323,511

Total current liabilities
4,403

 
1,832,784

 
822,969

 
(1,243,997
)
 
1,416,159

Long-term debt, excluding current portion
688,110

 
809,565

 
10,740

 

 
1,508,415

Due to O&M and subsidiaries
487,306

 
80,093

 
786,382

 
(1,353,781
)
 

Intercompany debt

 
816,785

 
752,105

 
(1,568,890
)
 

Operating Lease Liabilities, excluding current portion

 
117,080

 

 

 
117,080

Deferred income taxes

 

 
40,550

 

 
40,550

Other liabilities
17,436

 
64,612

 
16,658

 
20

 
98,726

Total liabilities
1,197,255

 
3,720,919

 
2,429,404

 
(4,166,648
)
 
3,180,930

Equity
 
 
 
 
 
 
 
 

Common stock
125,686

 

 

 

 
125,686

Paid-in capital
251,401

 
174,614

 
123,869

 
(298,483
)
 
251,401

Retained earnings (deficit)
137,774

 
(88,615
)
 
(388,676
)
 
477,291

 
137,774

Accumulated other comprehensive income (loss)
(52,707
)
 
(36,003
)
 
(16,836
)
 
52,839

 
(52,707
)
Total equity
462,154

 
49,996

 
(281,643
)
 
231,647

 
462,154

Total liabilities and equity
$
1,659,409

 
$
3,770,915

 
$
2,147,761

 
$
(3,935,001
)
 
$
3,643,084




57


Condensed Consolidating Financial Information
 
December 31, 2018
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
37,254

 
$
5,294

 
$
23,760

 
$

 
$
66,308

Accounts receivable, net

 
804,638

 
415,944

 
(463,895
)
 
756,687

Merchandise inventories

 
1,060,083

 
218,401

 
(4,758
)
 
1,273,726

Other current assets
117

 
117,163

 
5,914

 
(1,268
)
 
121,926

Current assets of discontinued operations

 

 
319,930

 

 
319,930

Total current assets
37,371

 
1,987,178

 
983,949

 
(469,921
)
 
2,538,577

Property and equipment, net

 
201,055

 
122,888

 

 
323,943

Goodwill, net

 
414,122

 

 

 
414,122

Intangible assets, net

 
290,814

 
23,361

 

 
314,175

Due from O&M and subsidiaries

 
880,901

 

 
(880,901
)
 

Advances to and investments in consolidated subsidiaries
1,697,191

 
93,278

 

 
(1,790,469
)
 

Other assets, net
1,788

 
56,221

 
26,501

 

 
84,510

Other assets of discontinued operations

 

 
98,461

 

 
98,461

Total assets
$
1,736,350

 
$
3,923,569

 
$
1,255,160

 
$
(3,141,291
)
 
$
3,773,788

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,190,283

 
$
350,272

 
$
(475,358
)
 
$
1,065,197

Accrued payroll and related liabilities

 
23,071

 
15,287

 

 
38,358

Other current liabilities
9,641

 
161,371

 
7,918

 

 
178,930

Current liabilities of discontinued operations

 

 
189,526

 

 
189,526

Total current liabilities
9,641

 
1,374,725

 
563,003

 
(475,358
)
 
1,472,011

Long-term debt, excluding current portion
595,856

 
1,040,664

 
11,398

 

 
1,647,918

Due to O&M and subsidiaries
605,558

 

 
67,900

 
(673,458
)
 

Intercompany debt

 
1,246,787

 
322,101

 
(1,568,888
)
 

Deferred income taxes

 
29,288

 
21,564

 

 
50,852

Other liabilities
6,876

 
51,366

 
19,448

 

 
77,690

Other liabilities of discontinued operations

 

 
6,898

 

 
6,898

Total liabilities
1,217,931

 
3,742,830

 
1,012,312

 
(2,717,704
)
 
3,255,369

Equity
 
 
 
 
 
 
 
 

Common stock
124,588

 

 

 

 
124,588

Paid-in capital
238,773

 
174,614

 
583,869

 
(758,483
)
 
238,773

Retained earnings (deficit)
200,670

 
37,777

 
(319,636
)
 
281,859

 
200,670

Accumulated other comprehensive income (loss)
(45,612
)
 
(31,652
)
 
(21,385
)
 
53,037

 
(45,612
)
Total equity
518,419

 
180,739

 
242,848

 
(423,587
)
 
518,419

Total liabilities and equity
$
1,736,350

 
$
3,923,569

 
$
1,255,160

 
$
(3,141,291
)
 
$
3,773,788




 



58


Condensed Consolidating Financial Information
Year ended December 31, 2019
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(22,584
)
 
$
(126,389
)
 
$
(69,040
)
 
$
155,642

 
$
(62,371
)
Adjustments to reconcile net income (loss) to cash (used for) provided by operating activities:
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
92,675

 
59,710

 

 
(152,385
)
 

Depreciation and amortization

 
45,165

 
71,513

 

 
116,678

Share-based compensation expense

 
15,803

 

 

 
15,803

Impairment charges

 

 
32,112

 
 
 
32,112

Deferred income tax (benefit) expense

 
(7,725
)
 
(9,677
)
 

 
(17,402
)
Provision for losses on accounts receivable

 
(45
)
 
12,959

 

 
12,914

Change in operating right of use assets and lease liabilities

 
(226
)
 
(2,373
)
 

 
(2,599
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable
(77
)
 
(85,865
)
 
(518,355
)
 
667,823

 
63,526

Merchandise inventories

 
86,554

 
40,933

 
434

 
127,921

Accounts payable

 
367,791

 
62,645

 
(666,067
)
 
(235,631
)
Net change in other assets and liabilities
(243
)
 
(709,524
)
 
819,991

 
(5,423
)
 
104,801

Other, net
1,297

 
4,566

 
4,470

 

 
10,333

Cash provided by (used for) operating activities
71,068

 
(350,185
)
 
445,178

 
24

 
166,085

Investing activities:
 
 
 
 
 
 
 
 
 
Additions to property and equipment

 
(25,298
)
 
(17,121
)
 

 
(42,419
)
Additions to computer software

 
(7,978
)
 
(1,831
)
 

 
(9,809
)
Proceeds from sale of property and equipment

 

 
331

 

 
331

Cash used for investing activities

 
(33,276
)
 
(18,621
)
 

 
(51,897
)
Financing activities:
 
 
 
 
 
 
 
 
 
Change in intercompany advances
(19,558
)
 
465,972

 
(446,414
)
 

 

Repayments from revolving credit facility

 
(32,200
)
 

 

 
(32,200
)
Repayment of debt
(37,311
)
 
(48,281
)
 

 

 
(85,592
)
Financing costs paid

 
(4,313
)
 

 

 
(4,313
)
Cash dividends paid
(5,226
)
 

 

 

 
(5,226
)
Other, net
(1,040
)
 

 
(1,826
)
 

 
(2,866
)
Cash (used for) provided by financing activities
(63,135
)
 
381,178

 
(448,240
)
 

 
(130,197
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 
(2,671
)
 

 
(2,671
)
Net increase (decrease) in cash and cash, cash equivalents and restricted cash
7,933

 
(2,283
)
 
(24,354
)
 
24

 
(18,680
)
Cash, cash equivalents and restricted cash at beginning of year
37,254

 
5,294

 
60,819

 

 
103,367

Cash, cash equivalents and restricted at end of year
$
45,187

 
$
3,011

 
$
36,465

 
$
24

 
$
84,687



59


Year ended December 31, 2018
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(437,012
)
 
$
(228,392
)
 
$
(280,361
)
 
$
508,753

 
$
(437,012
)
Adjustments to reconcile net income to cash (used for) provided by operating activities:
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
421,162

 
90,771

 

 
(511,933
)
 

Intercompany dividend


 
30,000

 


 
(30,000
)
 

Depreciation and amortization

 
45,096

 
56,831

 

 
101,927

Share-based compensation expense

 
16,376

 

 

 
16,376

Goodwill and intangible asset impairment charges

 
180,006

 
259,607

 

 
439,613

Provision for losses on accounts receivable

 
9,654

 
(224
)
 

 
9,430

Deferred income tax (benefit) expense

 
(31,435
)
 
(3,583
)
 

 
(35,018
)
Changes in operating assets and liabilities:

 

 

 

 


Accounts receivable

 
(113,989
)
 
(332,056
)
 
457,151

 
11,106

Merchandise inventories

 
81,330

 
(149,959
)
 
3,178

 
(65,451
)
Accounts payable

 
225,119

 
335,650

 
(468,590
)
 
92,179

Net change in other assets and liabilities
2,355

 
(29,825
)
 
(7,575
)
 
11,441

 
(23,604
)
Other, net
854

 
5,741

 
(552
)
 

 
6,043

Cash provided by (used for) operating activities
(12,641
)
 
280,452

 
(122,222
)
 
(30,000
)
 
115,589

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisition, net of cash acquired

 
(751,834
)
 

 

 
(751,834
)
Additions to computer software and intangible assets

 
(15,076
)
 
(5,736
)
 

 
(20,812
)
Additions to property and equipment

 
(33,245
)
 
(11,628
)
 

 
(44,873
)
Proceeds from sale of property and equipment

 
1,429

 
261

 

 
1,690

Cash used for investing activities

 
(798,726
)
 
(17,103
)
 

 
(815,829
)
Financing activities:
 
 
 
 
 
 
 
 
 
Change in intercompany advances
87,295

 
(242,609
)
 
155,314

 

 

Intercompany dividend

 

 
(30,000
)
 
30,000

 

Proceeds from issuance of debt

 
695,750

 

 

 
695,750

Proceed from revolving credit facility

 
105,500

 

 

 
105,500

Repayment of debt

 
(16,250
)
 

 

 
(16,250
)
Financing costs paid

 
(28,512
)
 

 

 
(28,512
)
Cash dividends paid
(48,200
)
 

 

 

 
(48,200
)
Other, net
(2,900
)
 
(1,391
)
 
(2,926
)
 

 
(7,217
)
Cash provided by financing activities
36,195

 
512,488

 
122,388

 
30,000

 
701,071

Effect of exchange rate changes on cash and cash equivalents

 

 
(1,986
)
 

 
(1,986
)
Net increase (decrease) in cash and cash equivalents
23,554

 
(5,786
)
 
(18,923
)
 

 
(1,155
)
Cash and cash equivalents at beginning of year
13,700

 
11,080

 
79,742

 

 
104,522

Cash and cash equivalents at end of year
$
37,254

 
$
5,294

 
$
60,819

 
$

 
$
103,367




 

60


Note 23—Subsequent Events

On February 13, 2020, we entered into a Fifth Amendment to the Credit Agreement, dated as of July 27, 2017. The Fifth Amendment implements certain changes to the Credit Agreement, including modification to the leverage and interest coverage financial covenants; changes to certain negative covenants, including to increase the limit on accounts receivable securitization obligations to $350 million and to permit the use of asset sale proceeds from our previously announced intention to sell our Movianto business to repay our 2021 Notes; amendments to certain other affirmative and negative covenants in connection with the transactions; changes to increase the interest rate margin on revolving loans, swingline loans, term A loans, and the standby letter of credit fee from 3.50% to 4.25% with one stepdown based on a leverage calculation; and modifications that limit our ability to borrow $60 million from the revolving credit facility without the consent of all Revolving Lenders (as defined in the Credit Agreement).
On February 19, 2020, we entered into an accounts receivable securitization program with certain lenders. The aggregate principal amount of the loans made by the lenders will not exceed $325 million outstanding at any time. The proceeds from the sale of receivables pursuant to the accounts receivable securitization program may be used to repay higher interest indebtedness and for other general corporate purposes. The accounts receivable securitization program contains certain customary representations and warranties and affirmative and negative covenants and matures on February 17, 2023.

61



Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Owens & Minor, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Owens & Minor, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 4, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP
We have served as the Company’s auditor since 1987.
Richmond, Virginia
March 4, 2020


62


Index to Exhibits

2.1
 
2.2
 
 
3.1
 
3.2
 
 
4.1
 
4.2
 
4.3
 
4.4
 
 
4.5
 
 
4.6
 
 
 
4.7
 
 
 
10.1
 
 
10.2
 
 
10.3
 
10.4
 
 
10.5
 
 
10.6
 
 

63


10.7
 
10.8
 
10.9
 
10.10
 
10.11
 
10.12
 
10.13
 
10.14
 
 
10.15
 
 
10.16
 
 
10.17
 
 
10.18
 
 
10.19
 
 
10.20
 
 
10.21
 
 
10.22
 
 
10.23
 
 
 
10.24
 
 
 
10.25
 
 
 
10.26
 
 
 

64


10.27
 
 
 
10.28
 
 
10.29
 
 
10.30
 
 
10.31
 
 
10.32
 
 
10.33
 
 
10.34
 
 
10.35
 
 
10.36
 
 
10.37
 
 
10.38
 
 

65


10.39
 
 
10.40
 
 
10.41
 
 
10.42
 
 
10.43
 
 
10.44
 
 
10.45
 
 
10.46
 
 
10.47
 
 
10.48
 
 
11.1
 
 
21.1
 
 
23.1
 
 
31.1
 
 
 
31.2
 
 

66


32.1
 
 
32.2
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*  Management contract or compensatory plan or arrangement.
** Certain exhibits and schedules to the Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the SEC.


67


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th day of March, 2020.
 
 
OWENS & MINOR, INC.
 
 
 
 
 
/s/ Edward A. Pesicka
 
Edward A. Pesicka
 
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 4th day of March, 2020:
 
 
 
 
 
 
 
/s/ Edward A. Pesicka

 
/s/ Robert J. Henkel
Edward A. Pesicka
  
Robert J. Henkel
President & Chief Executive Officer
  
Director
 
 
 
 
 
 
/s/ Andrew G. Long
  
/s/ Mark F. McGettrick
Andrew G. Long
  
Mark F. McGettrick
Chief Financial Officer
  
Director
 
 
 
 
  
 
/s/ Robert C. Sledd
 
/s/ Eddie N. Moore, Jr.
Robert C. Sledd
  
Eddie N. Moore, Jr.
Chairman of the Board of Directors
  
Director
 
 
 
 
 
 
/s/ Mark Beck
  
/s/ Michael Riordan
Mark Beck
  
Michael Riordan
Director
 
Director
 
 
 
 
 
 







68


Corporate Officers

        
Edward A. Pesicka (52)
President & Chief Executive Officer

President and Chief Executive Officer since joining Owens & Minor in March 2019. Mr. Pesicka was also appointed to the board of directors at the time he joined the company. Previously Mr. Pesicka served as an independent consultant and advisor in the healthcare, life sciences and distribution industries since January 1, 2016. From January 2000 through April 2015, Mr. Pesicka served in various roles of increasing responsibility at Thermo Fisher Scientific Inc., including, most recently, Chief Commercial Officer and Senior Vice President from January 2014 to April 2015. Prior to that, he was President, Customer Channels at Thermo Fisher from July 2008 to January 2014 and President, Research Market from November 2006 to July 2008. Earlier in his career, Mr. Pesicka held various Vice President-level roles in Thermo Fischer Scientific’s finance department, serving as Chief Financial Officer of numerous divisions. Prior to Thermo Fisher Scientific, Mr. Pesicka spent eight years with TRW, Inc. in its finance department and three years with PricewaterhouseCoopers as an auditor.

Andrew G. Long (54)
Executive Vice President & Chief Financial Officer

Executive Vice President & Chief Financial Officer of Owens & Minor since joining the company on November 11, 2019. Prior to that, Mr. Long served as the Chief Executive Officer of Insys Therapeutics, Inc. (“Insys”) from April 2019 to November 8, 2019. Prior to that, Mr. Long served as the Chief Financial Officer of Insys from August 2017.  Prior to joining Insys, Mr. Long served as senior vice president of Global Finance at Patheon, a pharmaceutical company, from 2015 to 2017.  Prior to working at Patheon, Mr. Long served as Vice President of Finance for multiple divisions at Thermo Fisher Scientific from 2006 until 2015. Mr. Long has served as a Member of the Board of Directors of Insys, which filed for Chapter 11 bankruptcy protection in June 2019, from April 2019 until his resignation on November 8, 2019.

Christopher Lowery (56)
President, Global Products

President, Global Products business unit of Owens & Minor since January 2018. Prior to that, from November 2014 to December 2017, Mr. Lowery served as Senior Vice President and Chief Operating Officer at Halyard Health, Inc. From April 2010 to October 2014, Mr. Lowery served as Vice President of Sales and Marketing at Kimberly-Clark Health Care. Prior to joining Kimberly-Clark Health Care, he held several senior marketing and sales roles at Covidien, a global health care products company.

Jeffery T. Jochims (52)
Executive Vice President & Chief Operating Officer

Executive Vice President & Chief Operating Officer since November 1, 2019. Mr. Jochims joined Owens & Minor in April 2019 and served as Executive Vice President, Strategy & Solutions until November 2019. Mr. Jochims is responsible for operations, including the Company’s supply chain, services, IT, marketing and strategy and client engagement center functions. Prior to joining the company, Mr. Jochims served from 2015 to 2019 as an executive consultant and board member to companies in the healthcare, pharmaceutical and life sciences industries. Additionally during that period, Mr. Jochims was a co-founder and principal of 4C Measures, a start-up technology business. Prior to that, from 2000 until 2014, Mr. Jochims served in positions of increasing authority at Thermo Fisher Scientific, including January 2012 - December 2014 as President of the global Research & Safety Market division publicly known as Fisher Scientific. Prior to that, he was Vice President of Global Development & Strategy from May 2007 to December 2009 and Vice President - Division General Counsel & Deputy General Counsel from May 2000-2007.


Shana C. Neal (54)
Executive Vice President & Chief Human Resources Officer

Executive Vice President & Chief Human Resources Officer since February 2020. Prior to that, Ms. Neal served as Senior Vice President & Chief Human Resources Officer, after joining Owens & Minor in March 2018. A global Human Resources professional, Ms. Neal worked for Becton Dickinson (BD), from 2005 to 2018, where she most recently served as Senior Vice

69


President, Human Resources, Life Sciences. Additionally, Ms. Neal led the organization and talent integration for BD’s acquisitions of Bard and CareFusion.

Nicholas J. Pace (49)
Executive Vice President, General Counsel & Corporate Secretary

Executive Vice President, General Counsel and Corporate Secretary since May 2018. Mr. Pace joined Owens & Minor in 2016, serving as its Senior Vice President, General Counsel & Corporate Secretary. Prior to joining the company, Mr. Pace served as Executive Vice President, General Counsel & Secretary of Landmark Health, LLC, from July-December 2015.  From January 2014 to July 2015, he served in simultaneous roles of Senior Vice President, Strategy & General Counsel of Landmark Health, LLC and Executive Vice President, Corporate Development & General Counsel of Avalon Health Services, LLC, two Francisco Partners portfolio companies. From March to October 2013, Mr. Pace served as Executive Vice President, Operations & Compliance for Health Diagnostic Laboratory, Inc., which filed for Chapter 11 bankruptcy protection in June 2015. Prior to that role, he served as Executive Vice President, General Counsel & Secretary of Amerigroup Corporation, where he worked from 2006-2013 until its sale to Anthem, Inc. 


Mark P. Zacur (57)
Executive Vice President, Chief Commercial Officer

Executive Vice President & Chief Commercial Officer since November 1, 2019. Mr. Zacur joined Owens & Minor in June 2019 and served as Senior Vice President & Chief Procurement Officer until November 2019. Prior to joining the company, Mr. Zacur served as Vice President & General Manager of Fisher Healthcare, a national diagnostics laboratory distributor and operating division of Thermo Fisher Scientific, from November 2014 to May 2019. Previously, he held a variety of marketing, product management, procurement and operations leadership roles at Thermo Fisher Scientific, Bayer Corporation and Reichhold Chemicals.


Jonathan A. Leon (53)
Senior Vice President, Corporate Treasurer

Senior Vice President, Corporate Treasurer of Owens & Minor since May 2018. Prior to that, Mr. Leon served as Vice President, Treasurer, after joining Owens & Minor in January 2017. Before joining Owens & Minor, Mr. Leon worked for the Brinks Company for nineteen years, beginning in 1998, where he served as Treasurer.

Michael W. Lowry (58)
Senior Vice President, Corporate Controller & Chief Accounting Officer

Senior Vice President, Corporate Controller & Chief Accounting Officer since June 2018. Prior to that, from May 2016 to June 2018, Mr. Lowry was Senior Vice President, Corporate Controller and Vice President, Corporate Controller beginning in 2013. Prior to that, from 2009 to 2013 Mr. Lowry was the Vice President, Treasurer. Mr. Lowry joined Owens & Minor in 1988.








70

DESCRIPTION OF THE COMPANY’S SECURITIES REGISTERED
PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

The following is a brief description of the common stock, $2.00 par value per share (the “Common Stock”), of Owens & Minor, Inc. (the “Company,” “we,” “us,” and “our”), which is the only security of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”).

DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $2.00 per share, and 10,000,000 shares of cumulative preferred stock, par value $100.00 per share. As of February 14, 2020, 62,849,712 shares of our common stock were issued and outstanding and no shares of our preferred stock were issued and outstanding.
The following summary description sets forth some of the general terms and provisions of our common stock. Because this is a summary description, it does not contain all of the information that may be important to you. For a more detailed description of our common stock, you should refer to the provisions of our amended and restated articles of incorporation and our amended and restated bylaws, as amended, each of which is an exhibit to the Form 10-K to which this description is an exhibit.
Common Stock
Dividends
Subject to the rights of any series of preferred stock that we may issue, the holders of common stock may receive dividends when, as and if declared by our board of directors, out of our assets legally available therefor.
Voting Rights
Holders of shares of our common stock are entitled to one vote for each share held of record on all matters on which shareholders are entitled to vote generally, including the election or removal of directors. In uncontested elections, directors are elected by a majority of the votes cast in the election for such director nominee. The holders of our common stock do not have cumulative voting rights in the election of directors. The affirmative vote of more than two-thirds of the outstanding shares of common stock is required for certain amendments to our amended and restated articles of incorporation and the approval of mergers, statutory share exchanges, certain sales or other dispositions of assets outside the usual and regular course of business, conversions, domestications and dissolutions. All other matters to be voted on by shareholders must be approved by a majority of the votes cast on the matter.
Liquidation Rights
Upon our dissolution, liquidation or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of shares of our preferred stock having liquidation preferences, if any, the holders of shares of our common stock will be entitled to receive pro rata our remaining assets available for distribution.
Other Rights
Holders of shares of our common stock do not have preemptive, subscription, redemption or conversion rights. Shares of our common stock will not be subject to further calls or assessment by us. There will be no redemption or sinking fund provisions applicable to shares of our common stock. The rights, powers, preferences and privileges of holders of shares of our common stock will be subject to those of the holders of any shares of our preferred stock that we may authorize and issue in the future.
Transfer Agent



The transfer agent and registrar for shares of our common stock is Computershare Shareowner Services.
Listing
Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “OMI.”
Preferred Stock
Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of shares of preferred stock (including shares of convertible preferred stock). Unless required by law or by the NYSE, the authorized shares of preferred stock will be available for issuance without further action by our shareholders. Our board of directors is able to determine, with respect to any series of shares of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including:
 
 
 
the rate of dividend, the time of payment and the dates from which any dividends shall be cumulative and the extent of participation rights, if any;
 
 
 
any right to vote with holders of shares of any other series or class and any right to vote as a class either generally or as a condition to specified corporate action, subject to certain limitations;
 
 
 
the price at which and the terms and conditions upon which shares may be redeemed;
 
 
 
the amount payable upon shares in the event of involuntary or voluntary liquidation;
 
 
 
sinking fund provisions of the redemption or purchase of shares, if any; and
 
 
 
the terms and conditions upon which shares may be converted, if the shares of any series are issued with the privilege of conversion.
Anti-Takeover Provisions
Certain provisions in our amended and restated articles of incorporation and our amended and restated bylaws, as well as certain provisions of Virginia law, may make more difficult or discourage a takeover of our business or removal of our incumbent directors or officers.
Certain Provisions of Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
Election and Removal of Directors; Vacancies. Each of our directors is elected by the vote of a majority of the votes cast at any meeting of shareholders for the election of directors at which a quorum is present, provided that if the number of director nominees at such meeting exceeds the number of directors to be elected, the directors are elected by a plurality of the votes cast. Under our amended and restated bylaws, a majority of the votes cast means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director.
Our directors are elected for one-year terms and can be removed, with or without cause, if the number of votes cast for removal at a shareholder meeting called for that purpose at which a quorum is present constitutes a majority of the votes entitled to be cast at an election of directors. Our amended and restated bylaws currently provide that the total number of directors is 11. The number of directors may be increased or decreased by amendment of our amended and restated bylaws.



Vacancies in the board may be filled by shareholders or by the board. Subject to the rights of any preferred stock, any vacancy on our board of directors resulting from any death, resignation, retirement, disqualification, removal from office or newly created directorship resulting from an increase in the authorized number of directors or otherwise may be filled by majority vote of the remaining directors then in office, even if less than a quorum, or shareholders.
Special Meetings of Shareholders. Special meetings of shareholders may be called at any time and from time to time only by the chairman of our board of directors, our chief executive officer or by a majority of the board of directors.
Advance Notice Requirements for Shareholder Director Nominations and Shareholder Business. Our amended and restated bylaws require that advance notice of shareholder director nominations and shareholder business for annual meetings be made in writing and given to our corporate secretary, together with certain specified information, not later than 120 days before the anniversary of the immediately preceding annual meeting of shareholders, subject to other timing requirements as specified in our amended and restated bylaws.
 
Authorized but Unissued Capital Stock. Our amended and restated articles of incorporation currently authorize more capital stock than we have issued. The listing requirements of the NYSE, which will apply so long as our common stock remains listed on the NYSE, require shareholder approval of certain issuances equal to or exceeding 20% of then-outstanding voting power or then-outstanding number of shares of common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
Certain Provisions of Virginia Law
Control Share Acquisitions Statute. Virginia law contains provisions relating to “control share acquisitions,” which are transactions causing the voting power of any person acquiring beneficial ownership of shares of a Virginia public corporation to meet or exceed certain threshold percentages (20%, 33 1/3% or 50%) of the total votes entitled to be cast for the election of directors. Under Virginia law, shares acquired in a control share acquisition have no voting rights unless granted by a majority vote of all outstanding shares entitled to vote in the election of directors other than those held by the acquiring person or held by any officer or employee director of the corporation, unless at the time of any control share acquisition, the articles of incorporation or bylaws of the corporation provide that this statute does not apply to acquisitions of its shares. An acquiring person that owns 5% or more of the corporation’s voting stock may require that a special meeting of the shareholders be held, within 50 days of the acquiring person’s request, to consider the grant of voting rights to the shares acquired or to be acquired in the control share acquisition. If voting rights are not granted and the corporation’s articles of incorporation or bylaws permit, the acquiring person’s shares may be redeemed by the corporation, at the corporation’s option, at a price per share equal to the acquiring person’s cost. Unless otherwise provided in the corporation’s articles of incorporation or bylaws, the Virginia law grants appraisal rights to any shareholder who objects to a control share acquisition that is approved by a vote of disinterested shareholders and that gives the acquiring person control of a majority of the corporation’s voting shares. As permitted by Virginia law, we have opted out of the Virginia anti-takeover law regulating control share acquisitions.
Affiliated Transactions Statute. Virginia law also contains provisions governing “affiliated transactions.” An affiliated transaction is generally defined as a merger, a share exchange, a material disposition of corporate assets not in the ordinary course of business, any dissolution of the corporation proposed by or on behalf of a holder of more than 10% of any class of the corporation’s outstanding voting shares (a “10% holder”) or any reclassification, including reverse stock splits, recapitalization or merger of the corporation with its subsidiaries, that increases the



percentage of voting shares owned beneficially by a 10% holder by more than 5%. In general, these provisions prohibit a Virginia corporation from engaging in affiliated transactions with any 10% holder for a period of three years following the date that such person became a 10% holder unless (1) the board of directors of the corporation and the holders of two-thirds of the voting shares, other than the shares beneficially owned by the 10% holder, approve the affiliated transaction or (2) before the date the person became a 10% holder, the board of directors approved the transaction that resulted in the shareholder becoming a 10% holder. Virginia law permits corporations to opt out of the affiliated transactions provisions. We have not opted out of the Virginia anti-takeover law regulating affiliated transactions.
Shareholder Action by Unanimous Consent. Virginia law provides that, unless provided otherwise in a Virginia corporation’s articles of incorporation, any action that could be taken by shareholders at a meeting may be taken, instead, without a meeting and without notice if a consent in writing is signed by all the shareholders entitled to vote on the action. Our amended and restated articles of incorporation do not include a provision that permits shareholders to take action without a meeting other than by unanimous written consent.
 
Limitations on Liability and Indemnification of Officers and Directors
Virginia law permits, and our amended and restated articles of incorporation provide for, the indemnification of our directors and officers with respect to certain liabilities and expenses imposed upon them in connection with any civil, criminal or other proceeding by reason of having been a director or officer of our company. This indemnification does not apply in the case of willful misconduct or a knowing violation of the criminal law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, indemnification for liabilities under the Securities Act is against public policy and is unenforceable.
 
 


DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 CONFIDENTIAL EXECUTIVE SEPARATION AGREEMENT & GENERAL RELEASE This Confidential Executive Separation Agreement & General Release (the “Agreement”) is entered into as of the Effective Date (as defined in Section 13 below), by and between Robert K. Snead (“Executive”) and Owens & Minor, Inc. (together with all Related Entities (as defined herein), “O&M” or the “Company”) (Executive and O&M are each referred to herein as a “Party” and, collectively, as the “Parties”) and in light of the following circumstances: WHEREAS, Executive has been employed by and an officer of the Company, most recently as its Executive Vice President and Chief Financial Officer; WHEREAS, Executive has, at the request of the Company, resigned from his employment with the Company effective December 31, 2019 (the “Separation Date”) and stepped down from all officer and director roles effective November 1, 2019; WHEREAS, this Agreement is a condition precedent to Executive’s receipt of severance benefits under the Owens & Minor, Inc. Officer Severance Policy (the “Policy”). NOW, THEREFORE, in consideration of the Parties’ promises and obligations hereunder, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Separation Date. a. Executive’s last day of employment with the Company was the Separation Date, and Executive acknowledges and agrees that his employment relationship with the Company ended on such date. Executive further acknowledges and agrees that this Agreement shall be deemed and shall be immediately effective as Executive’s resignation as Executive Vice President and Chief Financial Officer, and from all other officer, director, or other positions with Owens & Minor, Inc. and all Related Entities. For purposes of this Agreement, “Related Entities” means Owens & Minor, Inc.’s subsidiary and affiliated entities and each of their predecessors. b. Executive understands and acknowledges that some matters that fell under Executive’s responsibility in his position with the Company may be ongoing after the Separation Date. Accordingly, Executive agrees that for a period of six (6) months after the Separation Date Executive will cooperate and make himself reasonably available to Company representatives to respond to questions regarding Executive’s experience with and knowledge about the Company. Additionally, Executive agrees that he will, for a reasonable fee, assist O&M, as reasonably requested by the Company, in the case of any litigation, regulatory inquiry, audits, or other such Page 1 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 matters. Executive reserves the right to decline a request or demand for assistance by the Company of Executive that unreasonably interferes or is in material conflict with, or otherwise materially compromises, Executive’s professional responsibilities as an employee of another employer or as a director or officer of another entity. 2. Accrued Benefits. a. The Company shall pay Executive his normal base salary earned through the Separation Date in accordance with its usual payroll practices. b. The Company shall reimburse Executive for any expenses incurred by Executive prior to the Separation Date related to his employment with the Company, subject to the requirements of the Company’s expense reimbursement policy and preapproval of any travel related to Company business by the Company’s Chief Executive Officer. All such reimbursement will be made in accordance with the Company’s expense reimbursement policy. c. Executive acknowledges and agrees that as of the Separation Date, except as otherwise set forth in this Agreement, the Company shall have no obligation to continue Executive’s coverage under the Company’s medical, dental, life insurance, or other employee insurance or benefit plans; provided, however, that Executive will be eligible for COBRA coverage to the extent required by applicable law. Executive understands and acknowledges that COBRA coverage will be at Executive’s sole expense and will be offered at 102% of the full cost of coverage. Executive will receive applicable COBRA election forms under separate cover following the Separation Date. d. The Parties acknowledge and agree that, subject to the Company’s compliance with the terms of this Agreement, the Company has paid or will pay to Executive in full all accrued salary, expenses, reimbursements, vacation, sick leave, and other payments to which Executive is or may have been entitled, and that there will be no sums or other benefits, other than as described in this Agreement, due or owing to Executive by the Company. 3. Severance Benefits. a. In consideration of Executive’s promises, covenants and agreements set forth in this Agreement (including but not limited to the covenants regarding Confidentiality, Non- Competition and Non-Solicitation), and in accordance with Section 5 of the Policy, the Company shall provide Executive with the payments and benefits set forth in this Section 3 (collectively, the “Severance Benefits”). Executive acknowledges and Agrees that Executive would not be entitled to the Severance Benefits in the absence of Executive’s acceptance of this Agreement and adherence with its terms. b. The Company shall pay Executive a lump-sum in the gross amount of EIGHT HUNDRED FIFTY-THREE THOUSAND, EIGHT HUNDRED THIRTY-NINE DOLLARS AND NO CENTS ($853,839.00), less all applicable withholdings and deductions, which equates to one and one- half (1 ½) times the sum of the amount of Executive’s annual salary as of the Separation Date plus the average of Executive’s annual bonus for the last three completed years. The Company Page 2 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 shall make this payment on the first regularly scheduled Company payday following the Effective Date of this Agreement. For purposes of this Agreement, “Severance Period” shall mean the eighteen (18) month period immediately following the Separation Date. c. The Company shall pay Executive a lump-sum cash Welfare Benefit Payment (as defined in the Policy) equal to FIFTEEN THOUSAND FOUR HUNDRED FIFTY-FIVE DOLLARS AND NO CENTS ($15,455.00), less all applicable withholdings and deductions. The Company shall make this payment on the first regularly scheduled Company payday following the Effective Date. d. Executive will receive a pro-rated amount of his unvested restricted stock awards based on his Separation Date as provided by the applicable plan documents and award agreements. Executive currently holds 106,997 unvested shares of restricted stock in the Company (the “Restricted Stock”) issued and outstanding under O&M’s 2015 Stock Incentive Plan and/or 2018 Stock Incentive Plan (as amended). Under the applicable plan and award agreements, the restrictions on 44,222 shares will lapse and such shares shall become vested to Employee as of the Effective Date. The remaining 62,775 shares of Restricted Stock shall be forfeited. Executive understands and agrees that all of his outstanding performance share awards shall not be affected by this Agreement and shall remain subject to the not for cause termination and other terms and provisions of the applicable performance share award agreements. e. Provided this Agreement is binding and effective, the Company shall reimburse Executive for (i) expenses incurred from November 1, 2019 through June 30, 2020, in procuring outplacement services in an amount not to exceed TEN THOUSAND DOLLARS ($10,000.00), and (ii) expenses incurred from November 1, 2019 through June 30, 2020, prior to the commencement of alternate employment for tax preparation related to 2019 and financial counseling services (including but not limited to the services of a tax attorney) in an amount not to exceed FIVE THOUSAND TWO HUNDRED FIFTY DOLLARS ($5,250.00), in each case conditioned upon Executive providing the Company with proper and timely documentation of such expenses. f. Provided this Agreement is binding and effective, the Company shall reimburse to Executive actual expenses incurred by Executive (up to a cumulative amount not to exceed TEN THOUSAND DOLLARS ($10,000.00)) for legal services arising from or related to Executive’s separation from employment with the Company, including legal counsel’s negotiation and drafting of, and provision of advice regarding, this Agreement (“Legal Services Reimbursements”). The Company’s payment of the Legal Services Reimbursement is conditioned upon the Executive providing the Company with documentation of such expenses, redacted to conceal all narrative that is subject to the attorney-client privilege, that contains attorney work product or mental impressions, or that addresses or references any matter of a private or confidential nature. g. Any amount described in this Section 3, to the extent earned, shall be paid to Executive in no event later than the fifteenth day of the third month following the end of the year in which such amount was no longer subject to a substantial risk of forfeiture, within the meaning Page 3 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 of Code Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), except as may be permitted pursuant to Treasury Regulation Section 1.409A-1(b)(4)(ii). 4. Covenant to Maintain Confidentiality. a. During his employment with the Company, Executive has been exposed to certain Confidential Information of the Company. For purposes of this Agreement “Confidential Information” means information, in any form, related to the Company’s business (i) that is not generally known or available to others in the Company’s industry, (ii) in which the Company has an interest, (iii) from which the Company derives value by virtue of – in whole or in part – its confidentiality, and (iv) with respect to which the Company takes reasonable measures to maintain as confidential. Such Confidential Information includes but is not limited to: information technology and computer systems; trade secrets; financial or investor relations information; sales activity information; accounting information; revenue recognition information; cash-flow information; lists of and other information about current and prospective customers, vendors or suppliers; prices or pricing strategy or information; sales and account records; reports, pricing, sales manuals and training manuals regarding selling, strategic planning and business development information; purchasing, and pricing procedures and financing methods of the Company, together with any specific and proprietary techniques utilized by the Company in designing, developing, testing or marketing its products, product mix and supplier information or in performing services for clients, customers and accounts of the Company; information concerning existing or contemplated software, products, services, technology, designs, processes and research or product developments of the Company; and, any other information of a similar nature made available to Executive and not known to the public, which, if misused or disclosed, could adversely affect the business or interests of the Company. Confidential Information includes any such information that Executive may have prepared or created during his employment with the Company, as well as such information that has been or may be created or prepared by others. Confidential Information shall not include any information that has been voluntarily disclosed to the public by the Company, has been independently developed and disclosed to the public by others without violating any legal obligation, or otherwise enters the public domain through lawful means. b. Subject to the limited exclusions and limitations set forth in this Agreement, Executive agrees that for as long as such information remains confidential to the Company, including after the Severance Period, or is a trade secret under applicable law, Executive will not disclose any Confidential Information to any person, agency, institution, company, or other entity, and Executive will not use any Confidential Information in any way, except as required by my duties to the Company or by law, or as permitted under Section 9 of this Agreement. In the event that Executive is unsure whether or not certain information is Confidential Information, Executive will send the Company a written inquiry about whether such information is covered under this Agreement. Page 4 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 c. Notwithstanding anything to the contrary contained herein, this Agreement does not prohibit Executive from complying with a lawful subpoena or other legal compulsion. If Executive becomes legally compelled (by interrogatories, requests for information or documents, subpoenas, civil investigative demands, applicable regulations, or similar processes) to disclose any Confidential Information, Executive shall, if permitted by applicable law, provide Company with prompt notice so that Company may seek an appropriate protective order or other appropriate remedy or waive Executive’s compliance with this Section 4, which waiver must be in writing to be effective. If a protective order or other remedy is not obtained by the Company by the date that Executive must comply with the request, or if Company waives compliance with this Section 4 in writing, Executive shall furnish only that portion of the Confidential Information that Executive is legally required to produce in the reasonable opinion of Executive’s counsel (after consultation with Company’s counsel, if allowed by law). The Parties agree that Executive’s obligations under this Section 4 are expressly limited by the provisions of Section 9 of this Agreement. 5. Covenant not to Compete. a. During the Severance Period, Executive agrees not to engage in Competitive Work for or on behalf of a Competitor to conduct or support the conduct of Competitive Business within the continental United States. Notwithstanding the foregoing, this Section 5 does not restrict Executive from owning stock or other securities of a publicly held corporation in which Executive does not possess beneficial ownership of more than 2% of the voting stock of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, whether or not such enterprise is a Competitor (as defined below). b. For purposes of this Agreement, “Competitive Business” means providing or soliciting to provide a product or service that competes with a product or service provided, offered or planned to be offered by O&M at any time during the last twelve (12) months of Executive’s employment with the Company (the “Recent Period”). “Competitive Work” means the performance of duties and/or provision of services (whether as an employee, independent contractor or otherwise) that are substantially similar to duties and/or services that Executive performed or provided for or on behalf of O&M at any time during the Recent Period. “Competitor” means each entity listed on Exhibit A attached hereto and any parent, subsidiary or affiliated entity of each of them that is engaged in Competitive Business. c. Executive understands and agrees, and the Company intends, that nothing in this Section 5 shall prevent Executive from performing services or activities for or on behalf of a Competitor that are not the same as or similar to the services and activities Executive performed for an O&M Company. Further, the Parties agree that the restrictions of this Section 5 shall not prevent Executive from seeking or accepting employment, or performing services or activities, in Page 5 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 any capacity with a Covered Customer or a Covered Supplier (as defined below) that is not identified as a Competitor in Exhibit A attached hereto. d. Prior to providing services or activities to any person or business that Executive believes may be restricted or prohibited by this Section 5, Executive may request the Company’s written approval of the Executive’s provision of services or activities to such person or business. 6. Non-Solicitation of Customers & Suppliers. a. During the Severance Period, Executive agrees that he will not, personally or through another, conduct or offer to conduct any Competitive Business with any Covered Customer, or encourage or induce any Covered Customer or Covered Supplier to cease doing business with the Company or change the terms of an existing business relationship with the Company to the material detriment of the Company. Notwithstanding the foregoing, this Section 6 does not prohibit general advertising or solicitation that is not specifically directed to a Covered Customer(s) or Covered Supplier(s). b. For purposes of this Agreement, (i) “Covered Customer” means any individual or entity with which O&M, at any time during the Recent Period, has conducted, or made a written or in-person proposal to conduct, business or to which the Company has provided or offered to provide goods or services, and with whom or which Executive had Material Contact, (ii) “Covered Supplier” means any manufacturer or supplier of medical or surgical products or devices with which O&M, at any time during the Recent Period, has conducted or made a written or in-person proposal to conduct business, and with which Executive had Material Contact, and (iii) “Material Contact” means that (x) Executive personally communicated with a person or entity employed or engaged by, or representing, a Covered Customer or Covered Supplier, either orally or in writing, regarding an O&M company or the products or services of, or provided to, an O&M company, or (y) Executive received Confidential Information regarding a Covered Customer or Covered Supplier, in each instance, at any time during the Recent Period. c. Nothing in this Section 6 is intended to prohibit Executive’s employment by a Covered Customer or Covered Supplier that is not identified in Exhibit A hereto, provided Executive, during the Severance Period, does not personally or through another directly or indirectly encourage or induce such employer to cease doing business with the Company or change the terms of an existing business relationship with the Company to the material detriment of the Company. 7. Non-Solicitation of Workers. During the Severance Period, Executive agrees that he will not, personally or through another, solicit for employment or hire a Covered Worker for employment or engagement by any person or entity other than O&M or encourage a Covered Worker to leave employment with the Company. Notwithstanding the foregoing, the restrictions contained in this Section 7 shall not apply to any individual that has been separated from employment with the Company for six (6) months or more as of the time of recruitment, solicitation or hiring by Executive. This Section 7 also does not prohibit general advertising or Page 6 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 solicitation not specifically directed to a Covered Worker or Covered Workers. For purposes of this Agreement, “Covered Worker” means any person who at any time during the Recent Period (i) was employed or engaged by the Company; and (ii) had business-related contact with or reported to Executive. 8. Non-Disparagement. a. Executive agrees that during the Severance Period he will refrain from printing or communicating any comments to any person, audience, or assembly of persons, including shareholders of O&M (but exclusive of his family members; personal banking, financial, and tax professionals; and attorneys), or to the print or broadcast media, or in any form of electronic, Internet, or social media communications, that may reasonably be interpreted as disparaging of the Releasees (as defined below). Similarly, O&M agrees that during the Severance Period the Officers and Directors of OMI shall refrain from printing or communicating any comments to any person, audience, or assembly of persons (but exclusive of officers or directors of the Company or O&M’s banking, financial, and tax professionals; and attorneys), or to the print or broadcast media, or in any form of electronic, Internet, or social media communications, that may reasonably be interpreted as disparaging of Executive. b. For purposes of this Agreement, “disparaging” is defined to mean critical, derogatory, deprecating, detracting, or pejorative, or harmful to or impugning the business, professional, or personal reputation or integrity of another. Further, these provisions are in addition to, and not in lieu of, the substantive protections under applicable law relating to defamation, libel, slander, interference with contractual or business relationships, or other statutory, contractual or tort theories. c. Notwithstanding the foregoing, Executive and O&M understand and agree that their obligations under this Section 8 are expressly limited by the provisions of Section 9 of this Agreement. Further, nothing herein shall be construed to require Executive or O&M or any other person to engage in any unlawful act. 9. Limitations on Obligations. Nothing in this Agreement shall prohibit or impede Executive from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (each, a “Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. Executive does not need the prior authorization of (or to give notice to) the Company regarding any such communication or disclosure. This Agreement also does not limit Executive’s right to receive an award for information provided to any federal, state or local government agency or self-regulatory organization, or to engage in any future activities protected under whistleblower statutes. Additionally, Executive hereby confirms that she or he understands and acknowledges that an Page 7 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Executive understands and acknowledges further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Notwithstanding the foregoing, under no circumstance will Executive be authorized to disclose any information covered by the Company’s attorney-client privilege or the Company’s attorney work product without prior written consent of the Company’s General Counsel or other officer designated by the Company, or unless such disclosure of that information would otherwise be permitted pursuant to 17 CFR 205.3(d)(2), applicable state attorney conduct rules, or otherwise under applicable law or court order. 10. Reasonableness & Remedies. a. The covenants contained in Sections 4, 5, 6, 7 & 8 of this Agreement (the “Protective Covenants”) are, in light of the nature of Executive’s employment by the Company, reasonable and necessary for the protection of the Company’s legitimate business interests, specifically including the Company’s interest in the Confidential Information and the Company’s significant investment to develop and maintain its business relationships and goodwill. b. The Company will suffer irreparable harm if Executive breaches any provision of the Protective Covenants, and the Company shall be entitled to, in addition to any other available remedies, temporary and/or permanent injunctive relief against Executive barring any conduct in violation of any provision of the Protective Covenants. Additionally, the duration of the restrictions in the Protective Covenants shall be extended by the length of time Executive is in breach of any such restriction. No claim or cause of action Executive may have or assert against the Company, whether predicated on this Agreement or otherwise, shall serve as or constitute a defense to the enforcement of any provision of the Protective Covenants. c. A Party wishing to file a suit or action against the other for a material breach of this Agreement, including the provisions of the Protective Covenants (“Claimant Party”), shall not file such suit or action before the expiration of thirty (30) days next following the delivery by the Claimant Party to the other of written notice of the alleged material breach (“Waiting Period”). Such written notice by the Claimant Party to the other party shall include, in reasonable detail and to the best of the Claimant Party’s knowledge and belief, the factual bases for the claim of alleged material breach of the provisions of this Agreement (the “Notice of Claims”). Notwithstanding the foregoing, the Waiting Period shall not apply to the Company’s pursuit of temporary injunctive or similar equitable relief for alleged violation of the Protective Covenants Page 8 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 d. No suit or action by a Claimant Party for a material breach of this Agreement, including the provisions of the Protective Covenants of this Agreement, or for any remedies associated with such material breach, including injunctive relief or any other legal or equitable remedy, shall be filed, allowed, or granted in any court of law or equity unless such suit or action is commenced within one (1) year following the date that the Claimant Party knew of such material breach. e. The Parties agree that in any action arising out of or relating to this Agreement, including any claims or counterclaims brought by either Party to enforce its terms, the Party that substantially prevails in such action shall be entitled to recover the reasonable attorneys’ fees and costs incurred by such Party in connection with such action. 11. General Release. a. For purposes of this Agreement, “Releasee” and “Releasees” means the Company and any and all O&M boards, past and present directors, trustees, officers, shareholders, members, partners, managers, supervisors, employees, attorneys, agents, representatives, insurers and consultants, as well as the predecessors, successors and assigns of any of them, and all persons or entities acting by, with, through, under or in contract with any of them. Except as specifically provided below, for purposes of this Agreement the term “Claims” means: each and every claim, complaint, cause of action, grievance, demand, controversy, allegation, or accusation, whether known or unknown; each and every promise, assurance, contract, representation, obligation, guarantee, warranty, liability, right, agreement and commitment of any kind, whether known or unknown; and all forms of relief, including, but not limited to, all remedies, costs, expenses, losses, damages, debts and attorneys’ and other professionals’ fees and related disbursements, whether known or unknown. Notwithstanding the foregoing, Claims do not include a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). Thus, this Agreement does not preclude Executive from filing an EEOC charge or participating in an EEOC investigation. b. Subject to the limited exclusions and limitations set forth below and in Section 9 of this Agreement, Executive hereby irrevocably releases and forever discharges all Releasees from any and all Claims that Executive, or anyone on his behalf ever had or now has against any and all of the Releasees, or which Executive, or any of his executors, administrators, representatives, attorneys or assigns, hereafter can, shall or may have against any and all of the Releasees for or by reason of any cause, matter, thing, occurrence, or event whatsoever from the date of Executive’s birth to the date that Executive signs this Agreement. Executive acknowledges and agrees that the Claims released in this paragraph include, but are not limited to, (a) any and all Claims based on any law, statute, or constitution or based on contract or in tort or in common law, and any and all Claims based on or arising under any civil rights laws, such as the civil rights laws of any state or jurisdiction, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Equal Pay Act, the Americans with Disabilities Act of 1990, the Page 9 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 Civil Rights Act of 1991, the Family Medical Leave Act, or the Virginia Human Rights Act; (b) any and all Claims under any grievance or complaint procedure of any kind; and (c) any and all Claims based on or arising out of or related to Executive’s recruitment by, employment with, the termination of Executive employment with, or Executive’s performance of any service in any capacity for, or any business transaction with, each or any of the Releasees (collectively, the “Released Claims”). Executive also hereby waives any and all right to personal recovery of money damages or other relief for any of the Claims released by this Section 11. Executive hereby represents and warrants that he has not assigned any claim to any third party. c. Notwithstanding the foregoing, Executive does not release or waive, and Released Claims shall not include: i. Any rights Claims, or protections that Executive may have under this Agreement; ii. Any rights, Claims, and protections based on any cause, matter, thing, or event arising or occurring at any time after Executive signs this Agreement; iii. Executive’s rights, Claims, and protections, if any, to vested or guaranteed benefits under the Company’s qualified and non-qualified benefit plans, including, without limitation, the Management Equity Ownership Program, the Executive Deferred Compensation and Retirement Plan, restricted and unrestricted stock awards, stock options, stock appreciation rights, stock units, and incentive awards, and all other vested retirement, executive compensation, deferred compensation, and stock grant or option plans; iv. Any rights, Claims, or protections that Executive may have under his Executive Severance Agreement with the Company and the change-in-control provisions therein; v. Any rights, Claims, or protections Executive may have under the applicable terms of such policy or plan to convert his existing coverage under any group life, disability, and/or accidental death and dismemberment plan offered by the Company; vi. Any rights, Claims, or protections Executive may have to continuation of group health, dental, or vision insurance as provided by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), as amended by the Health Insurance Portability and Accountability Act of 1996 and the American Recovery and Reinvestment Act of 2009; vii. Any rights, Claims, or protections Executive has, had, or may have under Article V of the Amended and Restated Articles of Incorporation of Owens & Minor, Inc. (“Articles of Incorporation”), including the indemnification and advancement provisions contained therein, as of the Effective Date of this Agreement; Page 10 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 viii. Any rights, Claims, or protections Executive has, had, or may have under any policy or contract of indemnification, liability or other type of insurance, or other undertaking from and/or against any Claims asserted, liability incurred, or proceeding initiated or maintained against Executive arising from, related or pertaining to, or serving as its basis or their bases, Executive’s capacity as an officer of the Company or his alleged acts, omissions, or inaction in such capacity, the foregoing being without regard to whether the Company has, had, or may have the power or obligation to indemnify Executive or provide advancements against such liability under Article V of the Articles of Incorporation; or ix. Any rights, Claims, or protections that Executive may have arising under the Age Discrimination in Employment Act of 1967 (“ADEA”), or the Older Workers Benefit Protection Act of 1990, which amends the ADEA, after Executive signs this Agreement; or x. Any rights, Claims or protections that Executive, by law, is prohibited from releasing under this Agreement. d. Indemnification and Advancement Obligations of O&M. Notwithstanding any provision of this Agreement to the contrary, O&M reaffirms and restates its obligations to Executive under Article V of its Articles of Incorporation, amended and current as of the Separation Date, including the indemnification and advancement provisions contained therein. In no way limiting the foregoing, and as an inducement to Executive’s acceptance and execution of this Agreement, O&M acknowledges and agrees that as of the date that it executes this Agreement (a) the Company’s officers and directors are not aware of any actions, omissions, or inaction by Executive that would negate Executive’s rights to indemnification and advancements under the Articles of Incorporation of O&M; and (b) the Company’s officers and directors are not aware of any actions, omissions, or inaction by Executive that could give rise to any Claims by O&M or its Related Entities against Executive. 12. No Admission. The offer of this Agreement and the Agreement itself are not an admission, and shall not be construed to be an admission, by each or any of the Releasees, that the personnel, employment, termination and any other decisions involving Executive or any conduct or actions at any time affecting or involving Executive were wrongful, discriminatory, or in any way unlawful or in violation of any right of Executive; moreover, any such liability or wrongdoing is denied by Executive. Executive shall not attempt to offer this Agreement or any of its terms as evidence of any liability or wrongdoing by each or any of the Releasees in any judicial, administrative or other proceeding now pending or hereafter instituted by any person or entity. 13. Period for Review & Revocation. Executive acknowledges that he has been afforded twenty-one (21) days after receiving this Agreement to consider whether or not to enter into it. Executive may use as much or as little of this 21-day period as Employee wishes to decide Page 11 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 whether or not to sign this Agreement. Executive may revoke this Agreement within seven (7) days of signing it by delivering a written notice of revocation to the Company’s General Counsel at 9120 Lockwood Boulevard, Mechanicsville, Virginia 23116. For a revocation to be effective, written notice must be received no later than the close of business on the seventh (7th) day after Executive signs this Agreement. If Executive revokes this Agreement, it shall not be effective or enforceable, and the Company shall not be obligated to provide Employee any benefits hereunder. If Executive has not revoked the Agreement, the eighth (8th) day after Executive signs this Agreement shall be the “Effective Date” for purposes of this Agreement. 14. Encouragement to Consult with an Attorney. The Company has advised Executive to consult an attorney about this Agreement before signing it. By signing this Agreement, Executive represents that he has consulted with an attorney about this Agreement or has voluntarily chosen not to do so. Executive acknowledges and agrees that, except as expressly provided for in this Agreement, the Company is not obligated to pay any of Executive’s attorneys’ fees, costs or expenses relating to this Agreement and that the release in Section 11, above, releases, among other things, all Claims for attorneys’ fees, costs and expenses. Executive acknowledges that he is signing this Agreement voluntarily, with full knowledge of the nature and consequences of its terms and without duress or undue influence by the Company or any other person or entity. 15. No Release of Future Claims. This Agreement does not waive or release any rights or claims that Employee may have under the ADEA or otherwise which arise after the date that Employee signs this Agreement. The parties acknowledge and agree that the decision to end Employee’s employment with the Company was made prior to Employee signing this Agreement. 16. Taxes; Section 409A. The Company will withhold from any amounts due Executive under this Agreement payroll deductions as required by law and determined by the Company. Executive understands and acknowledges that he is responsible for all taxes that he may incur with respect to any of the consideration to be delivered to him under this Agreement. Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit provided hereto that is considered nonqualified deferred compensation subject to Section 409A of the Code, will be exempt from, or comply with or be provided or paid in a manner and at such time and in such form as complies with the applicable requirements of, Section 409A of the Code, and the interpretive guidance thereunder, including, without limitation, the exemptions for short-term deferrals, separation pay arrangements, reimbursements, and in-kind distributions. This Agreement shall be administered, interpreted and construed in a manner that does not result in the imposition of additional taxes, penalties or interest under Section 409A of the Code. The Company and Employee agree to negotiate in good faith to make amendments to the Agreement, as the parties mutually agree are necessary or desirable to avoid the imposition of taxes, penalties or interest under Section 409A of the Code. Neither the Company nor Employee will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A of the Code. Notwithstanding any other Page 12 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 provision of this Agreement, however, none of the Releasees shall be liable to Executive in the event any provision of this Agreement fails to comply with, or be exempt from, Section 409A of the Code. 17. Governing Law. The Company is a global business headquartered in the Richmond metropolitan area of Virginia, and this contract was made in whole or in part in Virginia. This Agreement shall be construed and enforced under the laws of the Commonwealth of Virginia, without regard to its conflicts of law principles. 18. Forum Jurisdiction & Venue. The exclusive forums and venues for any Covered Claim, shall be the federal courts located in Richmond, Virginia, and the state courts located in Henrico County, Virginia (each a “Chosen Forum” and, collectively, the “Chosen Forums”); provided, however, that the Company may, in its sole discretion, choose to bring a Covered Claim in any other court located within a jurisdiction in which Executive resides or is employed and which has jurisdiction over such Covered Claim. Executive expressly and irrevocably consents and submits to the personal jurisdiction of each Chosen Forum over Executive for any Covered Claim and expressly agrees that venue for any Covered Claim is appropriate therein. Executive shall not file any Covered Claim in any forum other than a Chosen Forum and waives any and all objections to the jurisdiction of or venue in a Chosen Forum for a Covered Claim. A final judgment in any action or proceeding in a Chosen Forum shall be conclusive and may be enforced in other jurisdictions in accordance with applicable law; provided, however, that this Section 18 does not affect either party’s right to appeal a judgment. Executive acknowledges that Executive has read this Section 18, understands it and has voluntarily agreed to its terms. 19. Waiver of Jury Trial. Executive knowingly and willfully waives any right he may have under applicable law to a trial by jury in any dispute or issue arising out of or in any way related to a Covered Claim. 20. Severability & Reformation. a. The provisions of this Agreement, including the Protective Covenants, are expressly intended to be severable and separately enforceable. If any clause or provision of this Agreement is ruled invalid or limited by any regulatory agency or court of competent jurisdiction, the invalidity of such clause or provision shall not affect the validity of the other provisions, which provisions shall be enforced to the fullest extent permitted by law. b. In the event that a court of competent jurisdiction determines that any provision of the Protective Covenants is invalid or unenforceable under applicable law by reason of its geographic, temporal or other scope, or the extent of restriction imposed on Executive’s activity, the court making such determination shall reduce the applicable scope and/or the extent of restriction by such amount as is minimally necessary to render such provision, as so amended, valid and enforceable under applicable law. Notwithstanding the foregoing, should it be determined that the provisions of this Section 20.b are impermissible under applicable law then Page 13 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 this subsection shall be deemed null and void, and such determination shall not affect the validity of the remainder of this Agreement. 21. Notices. All notices permitted or required under this Agreement shall be given in writing and addressed or delivered to the persons specified in this Agreement. Any notice or communication required hereunder shall be given by hand; FedEx or UPS next-business-day delivery service; registered, certified, or express United States mail (postage prepaid). The date of receipt of any notice shall be the date the notice is deemed to have been given. Notices permitted or required hereunder shall be given to the following individuals: Notices to the Company: Owens & Minor, Inc. Attn: General Counsel 9120 Lockwood Boulevard Mechanicsville, Virginia 23116 Notices to Executive: Robert K. Snead [Address] With a copy to: Christian & Barton, LLP Attn: Warren David Harless 909 East Main Street Suite 1200 Richmond, Virginia 23219 Each Party may change the persons and addresses designated to receive notice hereunder by written notice to the other Party in accordance herewith. 22. Entire Agreement & Modification. This Agreement contains the entire understanding and agreement of the parties regarding the subject matter hereof. The terms of this Agreement are contractual and, except as provided under Section 20.b hereof, shall not be deemed to have been altered, modified or in any way changed by any statements, promises, discussions or agreements not appearing herein. Except as provided under Section 20.b hereof, this Agreement may not be modified, amended or altered except by a writing signed by both the parties. 23. Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and any corporation or other entity to which the Company may transfer all or substantially all of its assets or to which the Company may assign this Agreement. Executive hereby consents to any such assignment without further notice to or consent from Executive. Page 14 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 Executive may not assign this Agreement or any part hereof without the prior written consent of O&M’s General Counsel. 24. Return of Company Property. Following the Separation Date, Executive will immediately return to the Company any Company property and all such records without deleting, destroying, or otherwise damaging the utility of same. 25. Miscellaneous. This Agreement may be executed in one or more counterparts each of which will constitute one and the same instrument, and all executed copies of this Agreement and facsimiles thereof shall be as legally binding and enforceable as the original. Executive’s obligations under this Agreement shall survive the termination of Executive’s employment with the Company regardless of the reason and any breach by the Company of this Agreement or any other obligation of the Company. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by the other party shall not operate or be construed as a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. The captions and headings in this Agreement are included for convenience only and shall not be construed to define or limit any of the provisions contained herein. - SIGNATURE PAGE FOLLOWS - Page 15 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 IN WITNESS WHEREOF, and intending to be legally bound, each of the parties has caused this Confidential Executive Separation Agreement & General Release to be executed either individually or in its entity name by its duly authorized representative. BY SIGNING BELOW, EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT EXECUTIVE IS SIGNING THIS AGREEMENT VOLUNTARILY AND OF HIS/HER OWN FREE WILL, WITH FULL KNOWLEDGE OF THE NATURE AND CONSEQUENCES OF ITS TERMS. EXECUTIVE HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS THAT IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. ROBERT K. SNEAD OWENS & MINOR, INC. By: 1/10/2020 Date: _______________________________ Title: EVP AND GC 1/10/2020 Date: _______________________________ Page 16 of 17


 
DocuSign Envelope ID: 84F27DBD-E575-4F17-95C5-79CEF31BE521 EXHIBIT A Prohibited Competitor List 1. Cardinal Health, Inc. 2. Medline Industries, Inc. 3. Concordance Healthcare Solutions 4. Deutsche Post AG d/b/a DHL Supply Chain 5. FedEx Corporation 6. United Parcel Service, Inc. 7. Alloga 8. Mölnlycke Health Care 9. Hogy Medical 10. Multigate Medical Products 11. HARTMANN Group Page 17 of 17


 


Exhibit 21.1
Subsidiaries of Registrant
Subsidiary
State of Incorporation/Organization
Country
Assumed Name
500 Expressway Drive South LLC
Delaware
USA
 
Access Diabetic Supply, L.L.C.
Florida
USA
AOM Healthcare Solutions
Access Respiratory Supply Inc
Florida
USA
 
AVID Medical, Inc.
Delaware
USA
 
Barista Acquisition I, LLC
Virginia
USA
 
Barista Acquisition II, LLC
Virginia
USA
 
Byram Healthcare Centers, Inc.
New Jersey
USA
 
Byram Holdings I, Inc.
New Jersey
USA
 
Clinical Care Services, L.L.C.
Utah
USA
 
Diabetes Specialty Center, L.L.C.
Utah
USA
 
Fusion 5 Inc.
Delaware
USA
 
GNB Associates, LLC
Virginia
USA
 
Halyard North Carolina, LLC
North Carolina
USA
 
Key Diabetes Supply Co.
Michigan
USA
AOM Healthcare Solutions
MAI Acquisition Corp.
Delaware
USA
 
Medegen Newco, LLC
Delaware
USA
 
Medical Action Industries, Inc.
Delaware
USA
 
Medical Supply Group, Inc.
Virginia
USA
 
O&M Byram Holdings, GP
Delaware
USA
 
O&M Funding LLC
Virginia
USA
 
O&M Halyard, Inc.
Virginia
USA
 
O&M Worldwide, LLC
Virginia
USA
 
OMSolutions International, Inc.
Virginia
USA
 
Owens & Minor Canada, Inc.
Virginia
USA
 
Owens & Minor Distribution, Inc.
Virginia
USA
OM Healthcare Logistics
Owens & Minor Global Resources, LLC
Virginia
USA
 
Owens & Minor Healthcare Supply, Inc.
Virginia
USA
 
Owens & Minor International Logistics, Inc.
Virginia
USA
 
Owens & Minor Medical, Inc.
Virginia
USA
 
Owens & Minor, Inc.
Virginia
USA
 
Owens & Minor, Inc. Executive Deferred Compensation Trust
Virginia
USA
 
Arabian Medical Products Manufacturing Company (19%)
N/A
Saudi Arabia
 
ArcRoyal Holdings Unlimited Company
N/A
Ireland
 
ArcRoyal Unlimited Company
N/A
Ireland
 
AVS Health Espana SL
N/A
Spain
 
Halyard Malaysia SND BHD
N/A
Malaysia
 
Healthcare Product Services Ltd.
N/A
United Kingdom
 
Healthcare Services Group Limited
N/A
United Kingdom
 
La Ada de Acuna, S. de R.L. de C.V
N/A
Mexico
 
MIRA Medsource (Malaysia) SDN. BHD.
N/A
Malaysia
 
Mira MEDsource (Shanghai) Co., LTD
N/A
China
 





Mira MEDsource Holding Company Limited
N/A
China
 
Movianto Belgium NV
N/A
Belgium
 
Movianto Ceska republika sro
N/A
Czech Republic
 
Movianto Deutschland GmbH
N/A
Germany
 
Movianto Espana SLU
N/A
Spain
 
Movianto France SAS
N/A
France
 
Movianto GmbH
N/A
Germany
 
Movianto Nordic ApS
N/A
Denmark
 
Movianto Polska SP ZOO
N/A
Poland
 
Movianto Portugal, Unipessoal LDA
N/A
Portugal
 
Movianto Schweiz GmbH
N/A
Switzerland
 
Movianto Slovensko sro
N/A
Slovak Republic
 
Movianto Transport Solutions Ltd.
N/A
United Kingdom
 
Movianto UK Ltd.
N/A
United Kingdom
 
Nalvest Limited
N/A
Jersey
 
O and M Halyard South Africa Pty Ltd
N/A
South Africa
 
O&M Brasil Consultoria Ltda
N/A
Brazil
 
O&M Halyard Australia PTY LTD
N/A
Australia
 
O&M Halyard Belgium
N/A
Belgium
 
O&M Halyard Canada ULC
N/A
Canada
 
O&M Halyard France
N/A
France
 
O&M Halyard Germany GmbH
N/A
Germany
 
O&M Halyard Health India Private Limited
N/A
India
 
O&M Halyard Honduras S.A. de C.V.
N/A
Honduras
 
O&M Halyard International Unlimited Company
N/A
Ireland
 
O&M Halyard Ireland Limited
N/A
Ireland
 
O&M Halyard Japan GK
N/A
Japan
 
O&M Halyard Mexico, S. DE R.L. DE C.V.
N/A
Mexico
 
O&M Halyard Netherlands B.V.
N/A
Netherlands
 
O&M Halyard Singapore PTE Ltd
N/A
Singapore
 
O&M Halyard UK Limited
N/A
United Kingdom
 
O&M Healthcare Italia S.R.L.
N/A
Italy
 
O&M International Healthcare C.V.
N/A
Netherlands
 
O&M-Movianto France Holdings S.A.S.
N/A
France
 
O&M-Movianto Nederland B.V.
N/A
Netherlands
 
O&M-Movianto UK Holdings Ltd.
N/A
United Kingdom
 
Owens & Minor Global Services Unlimited Company
N/A
Ireland
 
Owens & Minor International Unlimited Company
N/A
Ireland
 
Owens & Minor Ireland Unlimited Company
N/A
Ireland
 
Owens & Minor Jersey Holdings Limited
N/A
Jersey
 
Owens & Minor Jersey Unlimited
N/A
Jersey
 
Pharmacare Logistics Ltd.
N/A
United Kingdom
 
Rutherford Holdings C.V.
N/A
Netherlands
 
Safeskin Medical & Scientific (Thailand) Ltd.
N/A
Thailand
 





Exhibit 23.1

Consent of Independent Registered Public Accounting Firm


The Board of Directors
Owens & Minor, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 33-32497, 333-124965, 333-142716, 333-203826, 333-217783, 333-224787, and 333-231386) on Form S-8 and registration statements (Nos. 333-198635 and 333-222004) on Form S-3 of Owens & Minor, Inc. of our reports dated March 4, 2020, with respect to the consolidated balance sheets of Owens & Minor, Inc. as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended and the related notes (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in the December 31, 2019 annual report on Form 10‑K of Owens & Minor, Inc.

Our report on the consolidated financial statements refers to a change in accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842).



/s/ KPMG LLP

Richmond, Virginia
March 4, 2020





Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward A. Pesicka, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Owens & Minor, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:  March 4, 2020
 
/s/ Edward A. Pesicka
Edward A. Pesicka
President & Chief Executive Officer





Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew G. Long, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019, of Owens & Minor, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:  March 4, 2020
 
/s/ Andrew G. Long
Andrew G. Long
Chief Financial Officer





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Owens & Minor, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward A. Pesicka, President & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Edward A. Pesicka
Edward A. Pesicka
President & Chief Executive Officer
Owens & Minor, Inc.
March 4, 2020





Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Owens & Minor, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew G. Long, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Andrew G. Long
Andrew G. Long
Chief Financial Officer
Owens & Minor, Inc.
March 4, 2020