Owens & Minor, inc.
OWENS & MINOR INC/VA/ (Form: 10-Q, Received: 08/02/2017 17:07:35)
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________ 
FORM 10-Q
________________________________________________ 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                       to                     
Commission file number 1-9810
_______________________________________________________
Owens & Minor, Inc.
(Exact name of Registrant as specified in its charter)
_______________________________________________________

Virginia
54-1701843
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
9120 Lockwood Boulevard,
Mechanicsville, Virginia
23116
(Address of principal executive offices)
(Zip Code)
 
 
Post Office Box 27626,
Richmond, Virginia
23261-7626
(Mailing address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (804) 723-7000
_________________________________________________________
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   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o   (Do not check if a smaller reporting company)
Smaller reporting company
o
Emerging growth company
o
 
 
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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of July 28, 2017, was 61,226,413 shares.
 
 
 
 
 



Table of Contents

Owens & Minor, Inc. and Subsidiaries
Index
 
Page
 
 
 
 
 
 
 
 
 
 

2


Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2017
 
2016
 
2017
 
2016
Net revenue
$
2,265,907

 
$
2,483,676

 
$
4,594,480

 
$
4,939,469

Cost of goods sold
1,992,374

 
2,184,256

 
4,039,768

 
4,343,413

Gross margin
273,533

 
299,420

 
554,712


596,056

Distribution, selling, and administrative expenses
236,615

 
242,914

 
474,308

 
485,639

Acquisition-related and exit and realignment charges
2,893

 
6,752

 
11,835

 
17,235

Other operating (income) expense, net
1,188

 
(2,300
)
 
216

 
(3,842
)
Operating earnings
32,837

 
52,054

 
68,353

 
97,024

Interest expense, net
6,736

 
6,765

 
13,480

 
13,554

Income before income taxes
26,101

 
45,289

 
54,873

 
83,470

Income tax provision
5,960

 
17,573

 
15,947

 
31,619

Net income
$
20,141

 
$
27,716

 
$
38,926

 
$
51,851

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.33

 
$
0.45

 
$
0.64

 
$
0.83

Diluted
$
0.33

 
$
0.45

 
$
0.64

 
$
0.83

Cash dividends per common share
$
0.2575

 
$
0.255

 
$
0.515

 
$
0.51



See accompanying notes to consolidated financial statements.
3


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 
 
Three Months Ended    June 30,
 
Six Months Ended    June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Net income
$
20,141

 
$
27,716

 
$
38,926

 
$
51,851

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2017 and 2016)
22,405

 
(7,120
)
 
27,897

 
1,042

Change in unrecognized net periodic pension costs (net of income tax of $219 and $445 in 2017 and $168 and $339 in 2016)
230

 
245

 
466

 
483

Other (net of income tax of $0 in 2017 and 2016)
84

 
18

 
194

 
37

Total other comprehensive income (loss), net of tax
22,719

 
(6,857
)
 
28,557

 
1,562

Comprehensive income (loss)
$
42,860

 
$
20,859

 
$
67,483

 
$
53,413



See accompanying notes to consolidated financial statements.
4


Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
June 30,
 
December 31,
(in thousands, except per share data)
2017
 
2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
57,066

 
$
185,488

Accounts receivable, net of allowances of $13,235 and $13,538
655,259

 
606,084

Merchandise inventories
1,004,076

 
916,311

Other current assets
306,452

 
254,156

Total current assets
2,022,853

 
1,962,039

Property and equipment, net of accumulated depreciation of $216,173 and $201,399
198,442

 
191,718

Goodwill, net
423,107

 
414,936

Intangible assets, net
80,051

 
82,511

Other assets, net
70,684

 
66,548

Total assets
$
2,795,137

 
$
2,717,752

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
798,454

 
$
750,750

Accrued payroll and related liabilities
23,819

 
45,051

Other current liabilities
241,091

 
238,837

Total current liabilities
1,063,364

 
1,034,638

Long-term debt, excluding current portion
579,117

 
564,583

Deferred income taxes
89,812

 
90,383

Other liabilities
69,273

 
68,110

Total liabilities
1,801,566

 
1,757,714

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,226 shares and 61,031 shares
122,453

 
122,062

Paid-in capital
221,681

 
219,955

Retained earnings
688,363

 
685,504

Accumulated other comprehensive loss
(38,926
)
 
(67,483
)
Total equity
993,571

 
960,038

Total liabilities and equity
$
2,795,137

 
$
2,717,752



See accompanying notes to consolidated financial statements.
5


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
 
Six Months Ended June 30,
(in thousands)
2017
 
2016
Operating activities:
 
 
 
Net income
$
38,926

 
$
51,851

Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
25,206

 
28,343

Share-based compensation expense
5,619

 
5,969

Provision for losses on accounts receivable
(368
)
 
(27
)
Deferred income tax (benefit) expense
(5,385
)
 
(2,071
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(41,863
)
 
(29,736
)
Merchandise inventories
(86,234
)
 
(17,947
)
Accounts payable
42,235

 
62,710

Net change in other assets and liabilities
(66,003
)
 
(56,599
)
Other, net
5,371

 
743

Cash provided by (used for) operating activities
(82,496
)
 
43,236

Investing activities:
 
 
 
Additions to property and equipment
(16,433
)
 
(8,857
)
Additions to computer software and intangible assets
(7,860
)
 
(4,602
)
Proceeds from sale of property and equipment
573

 
4,565

Cash used for investing activities
(23,720
)
 
(8,894
)
Financing activities:
 
 
 
Proceeds from revolving credit facility
15,400

 

Cash dividends paid
(31,476
)
 
(32,003
)
Repurchases of common stock
(4,998
)
 
(20,849
)
Other, net
(5,658
)
 
(5,968
)
Cash used for financing activities
(26,732
)
 
(58,820
)
Effect of exchange rate changes on cash and cash equivalents
4,526

 
2,409

Net decrease in cash and cash equivalents
(128,422
)
 
(22,069
)
Cash and cash equivalents at beginning of period
185,488

 
161,020

Cash and cash equivalents at end of period
$
57,066

 
$
138,951

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
24,969

 
$
49,567

Interest paid
$
13,028

 
$
13,513



See accompanying notes to consolidated financial statements.
6


Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
 
 
 
(in thousands, except per share data)
Common
Shares
Outstanding
 
Common 
Stock
($ 2 par value )
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Total
Equity
Balance December 31, 2015
62,803

 
$
125,606

 
$
211,943

 
$
706,866

 
$
(51,825
)
 
$
992,590

Net income
 
 
 
 
 
 
51,851

 
 
 
51,851

Other comprehensive income
 
 
 
 
 
 
 
 
1,562

 
1,562

Dividends declared ($0.51 per share)
 
 
 
 
 
 
(31,914
)
 
 
 
(31,914
)
Shares repurchased and retired
(575
)
 
(1,150
)
 
 
 
(19,699
)
 
 
 
(20,849
)
Share-based compensation expense, exercises and other
282

 
565

 
2,492

 
 
 
 
 
3,057

Balance June 30, 2016
62,510

 
$
125,021

 
$
214,435

 
$
707,104

 
$
(50,263
)
 
$
996,297

 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2016
61,031

 
$
122,062

 
$
219,955

 
$
685,504

 
$
(67,483
)
 
$
960,038

Net income
 
 
 
 
 
 
38,926

 
 
 
38,926

Other comprehensive income
 
 
 
 
 
 
 
 
28,557

 
28,557

Dividends declared ($0.515 per share)
 
 
 
 
 
 
(31,379
)
 
 
 
(31,379
)
Shares repurchased and retired
(155
)
 
(310
)
 
 
 
(4,688
)
 
 
 
(4,998
)
Share-based compensation expense, exercises and other
350

 
701

 
1,726

 
 
 
 
 
2,427

Balance June 30, 2017
61,226

 
$
122,453

 
$
221,681

 
$
688,363

 
$
(38,926
)
 
$
993,571



See accompanying notes to consolidated financial statements.
7


Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, unless otherwise indicated)
Note 1—Basis of Presentation and Use of Estimates
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year. The Clinical & Procedural Solutions (CPS) business segment has been renamed "Proprietary Products" effective January 1, 2017. There has been no change to the segment composition or our method of measuring segment operating earnings.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Note 2—Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, financing receivables, accounts payable and financing payables included in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of long-term 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). We determine the fair value of our derivatives, if any, based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies. See Note 7 for the fair value of long-term debt.
Note 3—Financing Receivables and Payables
At June 30, 2017 and December 31, 2016 , we had financing receivables of $168.3 million and $156.5 million and related payables of $95.2 million and $110.0 million outstanding under our order-to-cash program and product financing arrangements, which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.
Note 4—Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill through June 30, 2017 :
 
Domestic
 
International
 
Proprietary Products
 
Consolidated
Carrying amount of goodwill, December 31, 2016
$
180,006

 
$
19,391

 
$
215,539

 
$
414,936

Currency translation adjustments

 
6,676

 
1,495

 
8,171

Carrying amount of goodwill, June 30, 2017
$
180,006

 
$
26,067

 
$
217,034

 
$
423,107


8



Intangible assets at June 30, 2017 and December 31, 2016 , were as follows:
 
June 30, 2017
 
December 31, 2016
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
121,152

 
$
4,345

 
$
118,223

 
$
4,045

Accumulated amortization
(43,945
)
 
(1,501
)
 
(38,429
)
 
(1,328
)
Net intangible assets
$
77,207

 
$
2,844

 
$
79,794

 
$
2,717

At June 30, 2017 , $10.6 million in net intangible assets were held in the Domestic segment, $10.5 million were held in the International segment and $59.0 million were held in the Proprietary Products segment. Amortization expense for intangible assets was $2.3 million and $2.5 million for the three months ended June 30, 2017 and 2016 and $4.7 million and $5.1 million for the six months ended June 30, 2017 and 2016 .
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $4.7 million for the remainder of 2017 , $8.9 million for 2018 , $9.0 million for 2019 , $9.0 million for 2020 , $8.7 million for 2021 and $7.8 million for 2022.
Note 5—Exit and Realignment Charges
We periodically incur exit and realignment and other charges associated with optimizing our operations, which includes the consolidation of certain distribution and logistics centers, administrative offices and warehouses in the United States and Europe. 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 three and six months ended June 30, 2017 and 2016 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Domestic segment
$
1,793

 
$
4,894

 
$
8,540

 
$
12,968

International segment
448

 
1,128

 
832

 
2,828

Proprietary Products segment
(40
)
 

 
423

 
1,110

Total exit and realignment charges
$
2,201

 
$
6,022

 
$
9,795

 
$
16,906


9



The following table summarizes the activity related to exit and realignment cost accruals through June 30, 2017 and 2016:
 
Lease
Obligations
 
Severance and
Other
 
Total
Accrued exit and realignment costs, December 31, 2016
$

 
$
2,238

 
$
2,238

Provision for exit and realignment activities

 
3,211

 
3,211

Change in estimate

 
(304
)
 
(304
)
Cash payments

 
(3,034
)
 
(3,034
)
Accrued exit and realignment costs, March 31, 2017

 
2,111

 
2,111

Provision for exit and realignment activities

 
1,382

 
1,382

Change in estimate

 
(18
)
 
(18
)
Cash payments

 
(667
)
 
(667
)
Accrued exit and realignment costs, June 30, 2017
$

 
$
2,808

 
$
2,808

 
 
 
 
 
 
Accrued exit and realignment costs, December 31, 2015
$
486

 
$
1,840

 
$
2,326

Provision for exit and realignment activities

 
9,895

 
9,895

Cash payments
(486
)
 
(1,287
)
 
(1,773
)
Accrued exit and realignment costs, March 31, 2016

 
10,448

 
10,448

Provision for exit and realignment activities

 
1,254

 
1,254

Cash payments

 
(7,087
)
 
(7,087
)
Accrued exit and realignment costs, June 30, 2016
$

 
$
4,615

 
$
4,615

In addition to the exit and realignment accruals in the preceding table, we incurred $0.8 million of costs that were expensed as incurred for the three months ended June 30, 2017, including $0.2 million in information systems costs and $0.6 million in other costs. In the first quarter of 2017, we incurred $4.7 million of costs that were expensed as incurred, including $4.5 million in asset write-downs and $0.2 million in other costs.

For the three months ended June 30, 2016, we recognized  $4.7 million  of costs that were expensed as incurred, including  $3.2 million  in consulting costs,  $0.9 million  in information systems costs and  $0.6 million  in other costs. In the first quarter of 2016, we also incurred  $1.0 million  of costs that were expensed as incurred, including  $0.5 million  in information systems costs,  $0.4 million  in consulting costs and  $0.1 million  in other costs.
Note 6—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain officers and other key employees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.
The components of net periodic benefit cost, which are included in distribution, selling and administrative expenses, for the three and six months ended June 30, 2017 and 2016 , were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
16

 
$
20

 
$
28

 
$
43

Interest cost
474

 
510

 
948

 
1,015

Recognized net actuarial loss
449

 
413

 
911

 
822

Net periodic benefit cost
$
939

 
$
943

 
$
1,887

 
$
1,880

Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.4 million for the three months ended June 30, 2017 and 2016 and $0.8 million for the six months ended June 30, 2017 and 2016 .
Note 7—Debt
We have $275 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

10



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. As of June 30, 2017 and December 31, 2016, the estimated fair value of the 2021 Notes was $281.9 million and $274.5 million and the estimated fair value of the 2024 Notes was $279.1 million and $270.0 million , respectively.
We have a Credit Agreement with a $450 million borrowing capacity which extends through September 2019. Under the Amended Credit Agreement, we have the ability to request two one -year extensions and to request an increase in aggregate commitments by up to $200 million . The interest rate on the Amended Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Amended 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 Amended 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. Based on our leverage ratio at June 30, 2017, the interest rate under the credit facility is LIBOR plus 1.375% .
At June 30, 2017, we had borrowings of $15.4 million under the revolver and letters of credit of approximately $5.1 million outstanding under the Amended Credit Agreement, leaving $429.5 million available for borrowing. We also had a letter of credit outstanding for $1.2 million at June 30, 2017 and $1.1 million at December 31, 2016, which supports our facilities leased in Europe.
The Amended 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 June 30, 2017.
On July 27, 2017, we entered into a new Credit Agreement to replace the existing Amended Credit Agreement. The new agreement provides borrowing capacity of $600 million and a $250 million term loan. The revolving credit and term loan have a five-year maturity. All other significant terms are the same as the previously disclosed Amended Credit Agreement. The proceeds from the new borrowing were primarily used to fund the Byram acquisition which closed on August 1, 2017. See Note 15 for more information.
Note 8—Income Taxes
The effective tax rate was 22.8% and 29.1% for the three and six months ended June 30, 2017 , compared to 38.8% and 37.9% in the same periods of 2016 . The change in rates resulted primarily from the release of a valuation allowance in Europe for $3.4 million in the second quarter of 2017 as well as from a higher percentage of the company's pretax income earned in lower tax rate jurisdictions compared to prior year. The liability for unrecognized tax benefits was $11.3 million at June 30, 2017 , and $10.7 million at December 31, 2016 . Included in the liability at June 30, 2017 were $5.0 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

11



Note 9—Net Income per Common Share
The following summarizes the calculation of net income per common share attributable to common shareholders for the three and six months ended June 30, 2017 and 2016.
 
Three Months Ended    June 30,
 
Six Months Ended    June 30,
(in thousands, except per share data)
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income
$
20,141

 
$
27,716

 
$
38,926

 
$
51,851

Less: income allocated to unvested restricted shares
(229
)
 
(281
)
 
(469
)
 
(560
)
Net income attributable to common shareholders - basic
19,912

 
27,435

 
38,457

 
51,291

Add: undistributed income attributable to unvested restricted shares - basic
27

 
72

 
51

 
131

Less: undistributed income attributable to unvested restricted shares - diluted
(27
)
 
(72
)
 
(51
)
 
(131
)
Net income attributable to common shareholders - diluted
$
19,912

 
$
27,435

 
$
38,457

 
$
51,291

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic and diluted
59,863

 
61,502

 
60,020

 
61,588

Net income per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
$
0.33

 
$
0.45

 
$
0.64

 
$
0.83

Diluted
$
0.33

 
$
0.45

 
$
0.64

 
$
0.83

Note 10—Shareholders’ Equity
Our Board of Directors has authorized a share repurchase program of up to  $100 million  of our outstanding common stock to be executed at the discretion of management over a  three -year period, expiring in December 2019. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and may be suspended or discontinued at any time. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. During the six months ended June 30, 2017 , we repurchased in open-market transactions and retired approximately 0.2 million shares of our common stock for an aggregate of $5.0 million , or an average price per share of $32.27 . As of June 30, 2017 , we have approximately $94.0 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

12



Note 11—Accumulated Other Comprehensive Income
The following table shows the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2017 and 2016 :  
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), March 31, 2017
$
(10,973
)
 
$
(50,753
)
 
$
81

 
$
(61,645
)
Other comprehensive income (loss) before reclassifications

 
22,405

 
84

 
22,489

Income tax

 

 

 

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

 
22,405

 
84

 
22,489

Amounts reclassified from accumulated other comprehensive income (loss)
449

 

 

 
449

Income tax
(219
)
 

 

 
(219
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
230



 

 
230

Other comprehensive income (loss)
230

 
22,405

 
84

 
22,719

Accumulated other comprehensive income (loss), June 30, 2017
$
(10,743
)
 
$
(28,348
)
 
$
165

 
$
(38,926
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), March 31, 2016
$
(10,244
)
 
$
(33,066
)
 
$
(96
)
 
$
(43,406
)
Other comprehensive income (loss) before reclassifications

 
(7,120
)
 
18

 
(7,102
)
Income tax

 

 

 

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

 
(7,120
)
 
18

 
(7,102
)
Amounts reclassified from accumulated other comprehensive income (loss)
413

 

 

 
413

Income tax
(168
)
 

 

 
(168
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
245



 

 
245

Other comprehensive income (loss)
245

 
(7,120
)
 
18

 
(6,857
)
Accumulated other comprehensive income (loss), June 30, 2016
$
(9,999
)
 
$
(40,186
)
 
$
(78
)
 
$
(50,263
)
 


13



 
Retirement Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2016
$
(11,209
)
 
$
(56,245
)
 
$
(29
)
 
$
(67,483
)
Other comprehensive income (loss) before reclassifications

 
27,897

 
194

 
28,091

Income tax

 

 

 

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

 
27,897

 
194

 
28,091

Amounts reclassified from accumulated other comprehensive income (loss)
911

 

 

 
911

Income tax
(445
)
 

 

 
(445
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
466

 

 

 
466

Other comprehensive income (loss)
466

 
27,897

 
194

 
28,557

Accumulated other comprehensive income (loss), June 30, 2017
$
(10,743
)
 
$
(28,348
)
 
$
165

 
$
(38,926
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), December 31, 2015
$
(10,482
)
 
$
(41,228
)
 
$
(115
)
 
$
(51,825
)
Other comprehensive income (loss) before reclassifications

 
1,042

 
37

 
1,079

Income tax

 

 

 

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

 
1,042

 
37

 
1,079

Amounts reclassified from accumulated other comprehensive income (loss)
822

 

 

 
822

Income tax
(339
)
 

 

 
(339
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
483

 

 

 
483

Other comprehensive income (loss)
483

 
1,042

 
37

 
1,562

Accumulated other comprehensive income (loss), June 30, 2016
$
(9,999
)
 
$
(40,186
)
 
$
(78
)
 
$
(50,263
)
We include amounts reclassified out of accumulated other comprehensive income related to defined benefit pension plans as a component of net periodic pension cost recorded in distribution, selling and administrative expenses. For the three and six months ended June 30, 2017 , we reclassified $0.4 million and $0.9 million of actuarial net losses. For the three and six months ended June 30, 2016, we reclassified $0.4 million and $0.8 million of actuarial net losses.
Note 12—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 three segments: Domestic, International and Proprietary Products. The Domestic segment includes our United States distribution, logistics and value-added services business. The International segment consists of our European distribution, logistics and value-added services business. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing.
We evaluate the performance of our segments based on their operating earnings 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 or not meaningful. We believe all inter-segment sales are at prices that approximate market.

14



The following tables present financial information by segment:
 
Three Months Ended   June 30,
 
Six Months Ended   June 30,
 
2017
 
2016
 
2017
 
2016
Net revenue:
 
 
 
 
 
 
 
Segment net revenue
 
 
 
 
 
 
 
Domestic
$
2,130,468

 
$
2,345,746

 
$
4,324,428

 
$
4,667,455

International
95,899

 
88,559

 
190,894

 
172,110

Proprietary Products
130,959

 
134,964

 
268,112

 
276,317

Total segment net revenue
$
2,357,326

 
$
2,569,269

 
$
4,783,434

 
$
5,115,882

Inter-segment revenue
 
 
 
 
 
 
 
Proprietary Products
(91,419
)
 
(85,593
)
 
(188,954
)
 
(176,413
)
Total inter-segment revenue
(91,419
)
 
(85,593
)
 
(188,954
)
 
(176,413
)
Consolidated net revenue
$
2,265,907

 
$
2,483,676

 
$
4,594,480

 
$
4,939,469

 
 
 
 
 
 
 
 
Operating earnings (loss):
 
 
 
 
 
 
 
Domestic
$
29,460

 
$
43,451

 
$
66,756

 
$
85,169

International
752

 
893

 
1,408

 
2,021

Proprietary Products
8,810

 
14,255

 
16,938

 
27,526

Inter-segment eliminations
19

 
207

 
(681
)
 
(457
)
Acquisition-related and exit and realignment charges  
(2,893
)
 
(6,752
)
 
(11,835
)
 
(17,235
)
Other (1)
(3,311
)
 

 
(4,233
)
 

Consolidated operating earnings
$
32,837

 
$
52,054

 
$
68,353

 
$
97,024

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Domestic
$
6,769

 
$
7,497

 
$
13,630

 
$
15,038

International
3,964

 
4,416

 
7,768

 
8,865

Proprietary Products
1,915

 
2,213

 
3,808

 
4,440

Consolidated depreciation and amortization
$
12,648

 
$
14,126

 
$
25,206

 
$
28,343

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Domestic
$
4,986

 
$
2,659

 
$
13,804

 
$
7,202

International
3,431

 
2,860

 
8,453

 
4,830

Proprietary Products
1,105

 
880

 
2,036

 
1,427

Consolidated capital expenditures
$
9,522

 
$
6,399

 
$
24,293

 
$
13,459

 
June 30, 2017
 
December 31, 2016
Total assets:
 
 
 
Domestic
$
1,945,271

 
$
1,778,481

International
405,020

 
352,898

Proprietary Products
387,780

 
400,885

Segment assets
2,738,071

 
2,532,264

Cash and cash equivalents
57,066

 
185,488

Consolidated total assets
$
2,795,137

 
$
2,717,752

( 1) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.

15



Note 13—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.
Three Months Ended June 30, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
2,129,863

 
$
184,187

 
$
(48,143
)
 
$
2,265,907

Cost of goods sold

 
1,936,554

 
103,971

 
(48,151
)
 
1,992,374

Gross margin

 
193,309

 
80,216

 
8

 
273,533

Distribution, selling and administrative expenses
399

 
160,422

 
75,794

 

 
236,615

Acquisition-related and exit and realignment charges

 
2,325

 
568

 

 
2,893

Other operating (income) expense, net

 
1,407

 
(219
)
 

 
1,188

Operating earnings (loss)
(399
)
 
29,155

 
4,073

 
8

 
32,837

Interest expense (income), net
6,889

 
(804
)
 
651

 

 
6,736

Income (loss) before income taxes
(7,288
)
 
29,959

 
3,422

 
8

 
26,101

Income tax (benefit) provision

 
7,409

 
(1,449
)
 

 
5,960

Equity in earnings of subsidiaries
27,429

 

 

 
(27,429
)
 

Net income (loss)
20,141

 
22,550

 
4,871

 
(27,421
)
 
20,141

Other comprehensive income (loss)
22,719

 
313

 
22,406

 
(22,719
)
 
22,719

Comprehensive income (loss)
$
42,860

 
$
22,863

 
$
27,277

 
$
(50,140
)
 
$
42,860

Three Months Ended June 30, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
2,345,746

 
$
176,010

 
$
(38,080
)
 
$
2,483,676

Cost of goods sold

 
2,129,586

 
92,660

 
(37,990
)
 
2,184,256

Gross margin

 
216,160

 
83,350

 
(90
)
 
299,420

Distribution, selling and administrative expenses
357

 
166,047

 
76,510

 

 
242,914

Acquisition-related and exit and realignment charges

 
5,249

 
1,503

 

 
6,752

Other operating income, net

 
(1,363
)
 
(937
)
 

 
(2,300
)
Operating earnings (loss)
(357
)
 
46,227

 
6,274

 
(90
)
 
52,054

Interest expense (income), net
6,903

 
(846
)
 
708

 

 
6,765

Income (loss) before income taxes
(7,260
)
 
47,073

 
5,566

 
(90
)
 
45,289

Income tax (benefit) provision

 
14,555

 
3,018

 

 
17,573

Equity in earnings of subsidiaries
34,976

 

 

 
(34,976
)
 

Net income (loss)
27,716

 
32,518

 
2,548

 
(35,066
)
 
27,716

Other comprehensive income (loss)
(6,857
)
 
264

 
(7,120
)
 
6,856

 
(6,857
)
Comprehensive income (loss)
$
20,859

 
$
32,782

 
$
(4,572
)
 
$
(28,210
)
 
$
20,859


16



Six Months Ended June 30, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
4,323,149

 
$
371,135

 
$
(99,804
)
 
$
4,594,480

Cost of goods sold

 
3,926,740

 
212,157

 
(99,129
)
 
4,039,768

Gross margin

 
396,409

 
158,978

 
(675
)
 
554,712

Distribution, selling and administrative expenses
551

 
321,657

 
152,100

 

 
474,308

Acquisition-related and exit and realignment charges

 
10,124

 
1,711

 

 
11,835

Other operating (income) expense, net

 
1,033

 
(817
)
 

 
216

Operating earnings (loss)
(551
)
 
63,595

 
5,984

 
(675
)
 
68,353

Interest expense (income), net
13,737

 
(1,593
)
 
1,336

 

 
13,480

Income (loss) before income taxes
(14,288
)
 
65,188

 
4,648

 
(675
)
 
54,873

Income tax (benefit) provision

 
15,422

 
525

 

 
15,947

Equity in earnings of subsidiaries
53,214

 

 

 
(53,214
)
 

Net income (loss)
38,926

 
49,766

 
4,123

 
(53,889
)
 
38,926

Other comprehensive income (loss)
28,557

 
660

 
27,897

 
(28,557
)
 
28,557

Comprehensive income (loss)
$
67,483

 
$
50,426

 
$
32,020

 
$
(82,446
)
 
$
67,483

Six Months Ended June 30, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
4,667,454

 
$
348,110

 
$
(76,095
)
 
$
4,939,469

Cost of goods sold

 
4,234,851

 
184,734

 
(76,172
)
 
4,343,413

Gross margin

 
432,603

 
163,376

 
77

 
596,056

Distribution, selling and administrative expenses
891

 
335,357

 
149,391

 

 
485,639

Acquisition-related and exit and realignment charges

 
13,652

 
3,583

 

 
17,235

Other operating income, net

 
(2,747
)
 
(1,095
)
 

 
(3,842
)
Operating earnings (loss)
(891
)
 
86,341

 
11,497

 
77

 
97,024

Interest expense (income), net
13,743

 
(1,475
)
 
1,286

 

 
13,554

Income (loss) before income taxes
(14,634
)
 
87,816

 
10,211

 
77

 
83,470

Income tax (benefit) provision

 
26,101

 
5,518

 

 
31,619

Equity in earnings of subsidiaries
66,485

 

 

 
(66,485
)
 

Net income (loss)
51,851

 
61,715

 
4,693

 
(66,408
)
 
51,851

Other comprehensive income (loss)
1,562

 
521

 
1,041

 
(1,562
)
 
1,562

Comprehensive income (loss)
$
53,413

 
$
62,236

 
$
5,734

 
$
(67,970
)
 
$
53,413



17



June 30, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
19,415

 
$
4,159

 
$
33,492

 
$

 
$
57,066

Accounts receivable, net

 
563,304

 
101,874

 
(9,919
)
 
655,259

Merchandise inventories

 
934,746

 
71,764

 
(2,434
)
 
1,004,076

Other current assets
285

 
120,655

 
185,512

 

 
306,452

Total current assets
19,700

 
1,622,864

 
392,642

 
(12,353
)
 
2,022,853

Property and equipment, net

 
101,611

 
96,831

 

 
198,442

Goodwill, net

 
180,006

 
243,101

 

 
423,107

Intangible assets, net

 
10,619

 
69,432

 

 
80,051

Due from O&M and subsidiaries

 
604,922

 

 
(604,922
)
 

Advances to and investment in consolidated subsidiaries
2,083,889

 

 

 
(2,083,889
)
 

Other assets, net

 
43,197

 
27,487

 

 
70,684

Total assets
$
2,103,589

 
$
2,563,219

 
$
829,493

 
$
(2,701,164
)
 
$
2,795,137

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
745,418

 
$
62,284

 
$
(9,248
)
 
$
798,454

Accrued payroll and related liabilities

 
13,532

 
10,287

 

 
23,819

Other current liabilities
7,031

 
107,183

 
126,877