OWENS & MINOR, INC. The following discussion and analysis describes results of operations and material changes in the financial condition ofOwens & Minor, Inc. and its subsidiaries sinceDecember 31, 2019 . Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Overview and Divestiture of MoviantoOwens & Minor, Inc. , along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company. OnJune 18, 2020 (the Divestiture Date), we completed the previously announced divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in ourDublin, Ireland office, to Walden Group SAS (the Buyer) andEHDH (as Buyer's guarantor) for cash consideration of$133 million . The Divestiture provides us with a greater ability to focus on and invest in our differentiated products, services andU.S. distribution businesses. A portion of the net proceeds was used to repurchase$54.1 million of our 2021 Notes through a tender offer (see Note 6, "Debt"). We recorded a loss of$65.5 million in connection with the Divestiture for the nine months endedSeptember 30, 2020 . We have entered into transition services agreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the Buyer will provide to each other various transitional services. Transition service expenses and reimbursements were immaterial for the three and nine months endedSeptember 30, 2020 . 22 -------------------------------------------------------------------------------- Table of Contents As a result of the Divestiture, the results of operations from our Movianto business are reported as "Loss from discontinued operations, net of tax" through the Divestiture Date and the related assets and liabilities were classified as "held-for-sale" in the consolidated balance sheet as ofDecember 31, 2019 . See Note 3, "Discontinued Operations," of the Notes to Consolidated Financial Statements for further information. Unless otherwise indicated, the following information relates to continuing operations. Income (loss) from continuing operations per diluted share was$0.76 and$0.61 for the three and nine months endedSeptember 30, 2020 , respectively, as compared to$0.06 and$(0.28) for the three and nine months endedSeptember 30, 2019 , respectively. Global Solutions segment operating income was$11.0 million and$8.5 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$24.9 million and$64.3 million for the three and nine months endedSeptember 30, 2019 , respectively. The declines were a result of lower revenues in part from a reduction in elective surgeries as compared to prior year. Global Products segment operating income was$89.9 million and$160.3 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$16.9 million and$42.6 million for the three and nine months endedSeptember 30, 2019 , respectively. The increases were a result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with continued operating efficiencies compared to 2019. COVID-19 Update We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels. We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders. Revenue in the first nine months of 2020 of$6.1 billion includes a significant overall impact from COVID-19 related to the reduction of surgical procedures beginning in mid-March, which was partially offset by a greater demand for personal protective equipment (PPE). Operating income also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies. We have expanded our PPE production operations to 24 hours a day, 7 days a week, and have taken measures to increase and improve our production such as retooling existing equipment, installing and optimizing new production lines and ramping up our new non-woven fabric machinery. We have delivered nearly 11 billion units of PPE, of which approximately 4 billion units were produced with materials manufactured in our American factories or Owens & Minor owned facilities, sinceJanuary 2020 . We expect that we will continue servicing our customers' needs related to the heightened demand for our PPE as a result of various factors, including the implementation of new regulations and healthcare protocols calling for increased use of PPE, healthcare professional preference for medical grade PPE, stockpile PPE demand and the creation of new channels for PPE demand in healthcare, non-healthcare and international markets. We are evaluating various government-sponsored COVID-response stimulus, relief, and production initiatives such as under the Defense Production Act (DPA) and recent Coronavirus Aid, Relief and Economic Security (CARES) Act. InApril 2020 , under the DPA, theU.S. Department of Defense initiated a technology investment agreement with us involving up to$30 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks to theU.S. government. The nature of the agreement provides a program of expedited partial funding to begin expansion while final terms are completed. ThroughSeptember 30, 2020 , approximately$20.4 million had been expended and reimbursed in accordance with this arrangement. In addition, as allowed under the CARES Act, we filed for$13.0 million and$17.6 million income tax refunds with the Internal Revenue Service (IRS) related to the carryback of net operating losses (NOL) incurred in 2018 and 2019, respectively. As ofSeptember 30, 2020 , the$13.0 million refund was received and the$17.6 million refund was included in other current assets on our consolidated balance sheet. In connection with these NOL carryback items, we recorded a$7.0 million and$12.2 million benefit to the income tax benefit for the three and nine months endedSeptember 30, 2020 . We are unable to predict the length of the pandemic and the full impact that COVID-19 will have on our future financial position and operating results due to numerous variables and continued uncertainties. Although we have experienced growth in sales volumes for certain of our products (such as PPE) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic. 23
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Results of Operations
Net revenue.
Three Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Global Solutions $ 1,865,182 $ 2,047,379 $ (182,197) (8.9) %
Global Products 473,797 359,835 113,962 31.7 %
Inter-segment (151,051) (114,462) (36,589) (32.0) %
Net revenue $ 2,187,928 $ 2,292,752 $ (104,824) (4.6) %
Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Global Solutions $ 5,261,415 $ 6,305,448 $ (1,044,033) (16.6) %
Global Products 1,235,391 1,070,808 164,583 15.4 %
Inter-segment (378,466) (355,960) (22,506) (6.3) %
Net revenue $ 6,118,340 $ 7,020,296 $ (901,956) (12.8) %
The change in net revenue for the three and nine months ended September 30, 2020
reflected the impact of a reduction in elective surgical procedures, primarily
due to the impact of COVID-19, and lower distribution revenues as a result of
customer non-renewals that occurred in 2019. These were partially offset by
revenue growth in Global Products from increased demand for PPE and growth in
Byram, our Home Healthcare business. Foreign currency translation had a
favorable impact on net revenue of $1.9 million for the three months ended
September 30, 2020 and an unfavorable impact on net revenue of $1.7 million for
the nine months ended September 30, 2020 , as compared to the prior year.
Cost of goods sold.
Three Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Cost of goods sold $ 1,843,589 $ 2,012,130 $ (168,541) (8.4) %
Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Cost of goods sold $ 5,236,035 $ 6,176,537 $ (940,502) (15.2) %
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.
Gross margin.
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Three Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Gross margin $ 344,339 $ 280,622 $ 63,717 22.7 %
As a % of net revenue 15.74 % 12.24 %
Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Gross margin $ 882,305 $ 843,759 $ 38,546 4.6 %
As a % of net revenue 14.42 % 12.02 %
Gross margin in the three and nine months ended
Operating expenses.
Three Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Distribution, selling and administrative
expenses $ 262,538 $ 248,661 $ 13,877 5.6 %
As a % of net revenue 12.00 % 10.85 %
Acquisition-related and exit and realignment
charges $ 6,382 $ 4,522 $ 1,860 41.1 %
Other operating (income) expense, net $ (134) $ 1,329 $ (1,463) (110.1) %
Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Distribution, selling and administrative
expenses $ 758,320 $ 767,986 $ (9,666) (1.3) %
As a % of net revenue 12.39 % 10.94 %
Acquisition-related and exit and realignment
charges $ 18,500 $ 14,776 $ 3,724 25.2 %
Other operating (income) expense, net $ (3,020) $ 2,385 $ (5,405) (226.6) %
Distribution, selling and administrative (DS&A) expenses include labor and
warehousing costs associated with our distribution and outsourced logistics
services and all costs associated with our fee-for-service arrangements.
Shipping and handling costs are primarily included in DS&A expenses and include
costs to store, move, and prepare products for shipment, as well as costs to
deliver products to customers.
Overall DS&A expenses were affected by the revenue decline and change in mix and
investments in the business, partially offset by operational efficiencies. DS&A
expenses also included an unfavorable impact for foreign currency translation of
$0.3 million for the three months ended September 30, 2020 and a favorable
impact for foreign currency translation of $0.3 million for the nine months
ended September 30, 2020 .
Acquisition-related charges were $0.8 million and $8.9 million for the three and
nine months ended September 30, 2020 , compared to $3.5 million and $11.4 million
for the same periods of 2019. Acquisition-related charges in 2020 and 2019
consist primarily of transition costs for the Halyard acquisition. Exit and
realignment charges were $5.6 million and $9.6 million for the three and nine
months ended September 30, 2020 , compared to $1.0 million and $3.4 million for
the same periods of 2019. Amounts in 2020 were associated with severance from
reduction in force, post divestiture costs related to the Movianto business and
other costs related to the reorganization of the U.S. commercial, operations and
executive teams. Amounts in 2019 were associated with severance costs, the
establishment of our client engagement center, and IT restructuring charges.
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The change in other operating (income) expense, net was attributed primarily to
higher foreign currency transaction gains compared to prior year, gain on legal
settlement, and lower software as a service implementation expenses due to the
adoption of ASU No. 2018-15 as of January 1, 2020 . See Note 14 in Notes to
Consolidated Financial Statements.
Interest expense, net.
Three Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Interest expense, net $ 20,975 $ 24,050 $ (3,075) (12.8) %
Effective interest rate 5.64 % 6.04 %
Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ % Interest expense, net$ 65,923 $ 75,557 $ (9,634) (12.8) % Effective interest rate 6.35 % 7.38 % Interest expense, net for the three and nine months endedSeptember 30, 2020 decreased primarily due to a reduction in debt and a decrease in our effective interest rate, which were partially offset by the amortization of additional deferred financing costs as a result of the Fifth Amendment to the Credit Agreement inFebruary 2020 . See Note 6 in Notes to Consolidated Financial Statements. Other expense, net. Three Months Ended September 30, Change (Dollars in thousands) 2020 2019 $ % Other expense, net$ 1,093 $ 550 $ 543 98.7 % Nine Months Ended September 30, Change (Dollars in thousands) 2020 2019 $ % Other expense, net$ 1,387 $ 4,014 $ (2,627) (65.4) % Other expense, net for the three months endedSeptember 30, 2020 andSeptember 30, 2019 primarily relate to interest cost and net actuarial losses related to theU.S. Retirement Plan. Other expense, net for the nine months endedSeptember 30, 2020 includes the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to theU.S. Retirement Plan, offset by a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes. Other expense, net for the nine months endedSeptember 30, 2019 includes interest cost and net actuarial losses related to theU.S. Retirement Plan, the write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement inFebruary 2019 , and gain on extinguishment of debt related to the partial repurchase of our 2021 Notes. Income taxes. Three Months Ended September 30, Change (Dollars in thousands) 2020 2019 $ % Income tax provision (benefit)$ 7,404 $ (1,910) $ 9,314 487.6 % Effective tax rate 13.8 % -126.5 % 26
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Nine Months Ended September 30, Change
(Dollars in thousands) 2020 2019 $ %
Income tax provision (benefit) $ 3,863 (3,726) $ 7,589 203.7 %
Effective tax rate 9.4 % 17.8 %
The change in the effective tax rates compared to 2019 resulted primarily from
an income tax benefit recorded in the first and third quarters of 2020
associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act,
year over year changes in, and mixture of, income and losses in jurisdictions in
which we operate, and the incremental income tax expense associated with the
vesting of restricted stock. In addition, the provision for income taxes
reflects an increase in our reserve for uncertain tax positions for the three
and nine months ended September 30, 2020 in connection with the IRS' audit of
our 2015 and 2016 consolidated income tax returns described in Note 9 in the
Notes to Consolidated Financial Statements.
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, collections of accounts receivable, and payments to
suppliers.
September 30, December 31, Change
(Dollars in thousands) 2020 2019 $ %
Cash and cash equivalents $ 77,256 $ 67,030 $ 10,226 15.3 %
Accounts receivable, net of allowances $ 688,884 $ 674,706 $ 14,178 2.1 %
Consolidated DSO (1) 27.7 27.1
Merchandise inventories $ 1,095,410 $ 1,146,192 $ (50,782) (4.4) %
Consolidated inventory turnover (2) 6.8 6.6
Accounts payable $ 946,116 $ 808,035 $ 138,081 17.1 %
(1) Based on period end accounts receivable and net revenue for the quarter
(2) Based on average inventory and annualized costs of goods sold for the quarter endedSeptember 30, 2020 and year endedDecember 31, 2019 Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the nine months endedSeptember 30, 2020 and 2019, which relates to continuing operations and discontinued operations: (Dollars in thousands) 2020
2019
Net cash provided by (used for): Operating activities$ 268,196 $ 139,105 Investing activities 112,830 (37,932) Financing activities (244,955) (89,294) Effect of exchange rate changes 6,721
(2,243)
Net increase in cash, cash equivalents and restricted cash
Cash provided by operating activities in the first nine months of 2020 reflected fluctuations in net income along with favorable changes in working capital. Cash provided by investing activities in the first nine months of 2020 included cash consideration received of$133.0 million from the sale of Movianto, proceeds of$6.0 million from the surrender of company-owned life insurance policies, and capital expenditures of$26.4 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in theAmericas , and capitalized software. Cash used for investing activities in 2019 included capital expenditures for our strategic and operational efficiency initiatives associated with property and equipment and capitalized software. 27 -------------------------------------------------------------------------------- Table of Contents Cash used for financing activities in the first nine months of 2020 included dividend payments of$0.5 million and repayments of$107.9 million under our revolving credit facility, compared to$5.1 million and$36.1 million , respectively, for the same period of 2019. We also had proceeds from borrowings of$150.0 million related to the Accounts Receivable Securitization Program in the first nine months of 2020. Financing activities also included repayments of$270.4 million in the first nine months of 2020 compared to$40.7 million in the same period of 2019 on our term loans (under the Credit Agreement) and 2021 and 2024 Notes. We used$83.3 million of cash to repurchase$87.9 million aggregate principal amount of the 2021 and 2024 Notes during the first nine months of 2020. We also paid$10.4 million in financing costs related to theFebruary 2020 Accounts Receivable Securitization Program and theFebruary 2020 Fifth Amendment to the Credit Agreement, as compared to$4.3 million in financing costs related to theFebruary 2019 Fourth Amendment to the Credit Agreement. Capital resources. Our sources of liquidity include cash and cash equivalents, a revolving credit facility under our Credit Agreement withBank of America, N.A ,JPMorgan Chase Bank, N.A .,Wells Fargo Bank, N.A ., and a syndicate of lenders (the Credit Agreement), and the Receivables Securitization Program. The Credit Agreement provides a revolving borrowing capacity of$400 million . The interest rate on our revolving credit facility and Term A Loans is based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement). Our credit spread on the revolving credit facility and Term A Loans atSeptember 30, 2020 was Eurocurrency Rate plus 4.25%. Our Term B Loan accrues interest based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of 3.50% per annum for Base Rate Loans, and 4.50% per annum for Eurocurrency Rate Loans (each as defined in the Credit Agreement). Our credit spread on the Term B Loan atSeptember 30, 2020 was Eurocurrency Rate plus 4.50%. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility. AtSeptember 30, 2020 andDecember 31, 2019 , we had borrowings of$70.0 million and$177.9 million , respectively, under the revolver and letters of credit of$13.9 million and$11.7 million , respectively, outstanding under the Credit Agreement. AtSeptember 30, 2020 andDecember 31, 2019 , we had$316.1 million and$209.3 million , respectively, available for borrowing. TheDecember 31, 2019 availability reflected letters of credit associated with discontinued operations of$1.1 million . There were no letters of credit associated with discontinued operations as ofSeptember 30, 2020 . We also had letters of credit and bank guarantees outstanding for$2.4 million , of which$0.8 million are in process of being transferred to the buyer of Movianto, and$1.6 million and$1.5 million as ofSeptember 30, 2020 andDecember 31, 2019 , respectively, which supports certain leased facilities as well as other normal business activities inthe United States andEurope . These letters of credit and guarantees were issued independent of the Credit Agreement. We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes, the holders of the 2024 Notes, and the parties secured under the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties' present and future subsidiaries of eachCredit Party and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions. The Fifth Amendment to the Credit Agreement included additional collateral requirements if the Credit Parties, including an obligation to pledge our ownedU.S. real estate and the remaining equity interests in foreign subsidiaries. Our Credit Agreement has a "springing maturity date" with respect to the revolving credit facility, the Term A Loans, and the Term B Loan. If the outstanding balance of the 2021 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2021 Notes, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility, the Term A Loans, and the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2021 Notes. Likewise, if the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes. OnFebruary 19, 2020 , we entered into an accounts receivable securitization program (the Receivables Securitization Program). Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed$325 million outstanding at any time. The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued. Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity,O&M Funding LLC . The Receivables Securitization Program matures onFebruary 17, 2023 . Our Receivables Securitization Program has a "springing maturity date" with respect to the Term A Loans. If the outstanding balance of the Term A loans have not been paid in full as of the date 91 days prior to the maturity date of the Term A Loans, then the Scheduled Termination Date (as defined in the Receivables Financing Agreement) of the Receivables Securitization Program shall be the date that is 91 days prior to the maturity date of the Term A Loans. InFebruary 2020 , we drew$150 million from the Receivables Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement. The Fifth Amendment to the 28 -------------------------------------------------------------------------------- Table of Contents Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A loans to the extent those instruments are outstanding. The Credit Agreement, Receivables Securitization Program, and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. The terms of the Credit Agreement also require the company to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture. We were in compliance with our debt covenants atSeptember 30, 2020 . Current maturities include scheduled principal payments within the next 12 months of$44.6 million and$5.0 million for our Term A and Term B Loans, respectively,$1.0 million in short-term finance leases, and$178.5 million related to our 2021 Notes. InMay 2020 , we entered into an equity distribution agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to$50 million . We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and working capital purposes. As ofSeptember 30, 2020 no shares were issued and$50 million of common stock remained available under the at-the-market equity financing program. OnOctober 6, 2020 , we completed a follow-on equity offering wherein we sold an aggregate of 8,475,000 shares of our common stock at an offering price of$20.50 , resulting in net proceeds to us of approximately$165 million , after deducting expenses relating to the follow-on equity offering, including the underwriters' discounts and commissions. Pursuant to the underwriting agreement, we granted the underwriters an option to purchase up to an additional 1,271,250 shares of our common stock, which the underwriters exercised in full. Inclusive of this exercised option, net proceeds to us were approximately$190 million , after deducting expenses relating to the follow-on equity offering, including the underwriters' discounts and commissions. We used the proceeds from the follow-on equity offering to repay the remaining$109 million outstanding balance of Term Loan A-1 at par onOctober 8, 2020 , to repay$52 million of our Term Loan A-2 at par onOctober 15, 2020 , and to repay$30 million of borrowings under the revolving credit facility. OnOctober 30, 2020 , we issued a notice of redemption to redeem all of our outstanding 2021 Notes onNovember 30, 2020 (the "Redemption Date"). The redemption price will include accrued and unpaid interest to, but not including, the Redemption Date, and a redemption premium, equal to the greater of (i) 100% of the principal amount of the 2021 Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points. 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. The third quarter dividend of$0.0025 per share was paid inSeptember 2020 . The payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements, current and future limitations under our Credit Agreement (as amended) and other factors. We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, debt repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing. We earn a portion of our operating income in foreign jurisdictions outsidethe United States . Our cash and cash equivalents held by our foreign subsidiaries totaled$32.0 million and$52.9 million atSeptember 30, 2020 andDecember 31, 2019 , respectively. We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary inThailand . We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located inThailand as ofSeptember 30, 2020 . As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to theU.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings forThailand . We will continue to evaluate our foreign earnings repatriation policy in 2020 for all our foreign subsidiaries. 29
-------------------------------------------------------------------------------- Table of Contents Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year endedDecember 31, 2019 and Note 14 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended onSeptember 30, 2020 . Forward-looking Statements Certain statements in this discussion constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to: •our ability to achieve revenue and operating income goals may be affected by: COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic or future pandemics, related governmental responses, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, or temporary production and distribution center and office closures due to reduced workforces or government mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19; •competitive pressures in the marketplace, including intense pricing pressure; •our ability to retain existing and attract new customers in a market characterized by significant customer consolidation and intense cost-containment initiatives; •our dependence on sales to certain customers or the loss or material reduction in purchases by key customers; •our dependence on distribution of product of certain suppliers; •our ability to successfully identify, manage or integrate acquisitions; •our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, changes in regulatory conditions, deteriorating economic conditions, adverse tax consequences, and other risks of operating in international markets; •uncertainties related to and our ability to adapt to changes in government regulations, including healthcare laws and regulations; •risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate; •uncertainties related to general economic, regulatory and business conditions; •our ability to successfully implement our strategic initiatives; •the availability of and modifications to existing supplier funding programs and our ability to meet the terms to qualify for certain of these programs; •the effect of price volatility in the commodities markets, including fuel price fluctuations, on our operating costs and supplier product prices; •our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product; •the ability of customers and suppliers to meet financial commitments due to us; •changes in manufacturer preferences between direct sales and wholesale distribution; •changing trends in customer profiles and ordering patterns and our ability to meet customer demand for additional value-added services; 30
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Table of Contents •our ability to manage operating expenses and improve operational efficiencies in response to changing customer profiles; •our ability to meet performance targets specified by customer contracts under contractual commitments; •availability of and our ability to access special inventory buying opportunities; •the ability of business partners and financial institutions to perform their contractual responsibilities; •our ability to continue to obtain financing, obtain financing at reasonable rates and to manage financing costs and interest rate risk, and our ability to refinance, extend or repay our substantial indebtedness; •the risk that information systems are interrupted or damaged or fail for any extended period of time, that new information systems are not successfully implemented or integrated, or that there is a data security breach in our information systems; •the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets; •our ability to timely or adequately respond to technological advances in the medical supply industry; •the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims; •adverse changes inU.S. and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals; •our ability to successfully implement the expense reduction and productivity and efficiency increasing initiatives; •our ability to continue to comply with the terms and conditions ofByram Healthcare's Corporate Integrity Agreement; •the potentially adverse impact of theUnited Kingdom's withdrawal from theEuropean Union ; and •other factors detailed from time to time in the reports we file with theSEC , including those described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as updated and supplemented by Item 8.01 of our Current Report on Form 8-K filed with theSEC onMarch 27, 2020 and our Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2020 . We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.
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