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OMI 3.31.2014-10Q
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 March 31, 2014
OR
¨
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, or a smaller reporting company. See the definitions of “larger accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
¨
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 April 25, 2014, was 63,091,091 shares.
 
 
 
 
 


Table of Contents

Owens & Minor, Inc. and Subsidiaries
Index
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.

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 
 March 31,
(in thousands, except per share data)
 
2014
 
2013
Net revenue
 
$
2,256,380

 
$
2,246,384

Cost of goods sold
 
1,975,185

 
1,967,332

Gross margin

281,195


279,052

Selling, general and administrative expenses
 
225,610

 
217,721

Acquisition-related and exit and realignment charges
 
3,262

 
2,010

Depreciation and amortization
 
13,864

 
12,629

Other operating income, net
 
(7,825
)
 
(1,192
)
Operating earnings
 
46,284

 
47,884

Interest expense, net
 
3,246

 
3,199

Income before income taxes
 
43,038

 
44,685

Income tax provision
 
17,553

 
18,587

Net income
 
$
25,485

 
$
26,098

Net income per common share:
 
 
 
 
Basic
 
$
0.41

 
$
0.41

Diluted
 
$
0.41

 
$
0.41

Cash dividends per common share
 
$
0.25

 
$
0.24



See accompanying notes to consolidated financial statements.
3
Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
 
 
Three Months Ended 
 March 31,
(in thousands)
 
2014
 
2013
Net income
 
$
25,485

 
$
26,098

Other comprehensive income (loss), net of tax:
 
 
 
 
Currency translation adjustments (net of income tax benefit of $0 in 2014 and of $385 in 2013)
 
467

 
(7,827
)
Change in unrecognized net periodic pension costs (net of income tax expense of $97 in 2014 and $134 in 2013)
 
107

 
208

Other (net of income tax benefit of $8 in 2014 and 2013)
 
(9
)
 
(13
)
Total other comprehensive income (loss), net of tax
 
565

 
(7,632
)
Comprehensive income
 
$
26,050

 
$
18,466



See accompanying notes to consolidated financial statements.
4
Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
March 31,
 
December 31,
(in thousands, except per share data)
2014
 
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
182,373

 
$
101,905

Accounts and notes receivable, net of allowances of $15,330 and $15,030
543,214

 
572,854

Merchandise inventories
768,148

 
771,663

Other current assets
275,179

 
279,510

Total current assets
1,768,914

 
1,725,932

Property and equipment, net of accumulated depreciation of $136,782 and $137,526
192,245

 
191,961

Goodwill, net
275,562

 
275,439

Intangible assets, net
39,437

 
40,406

Other assets, net
93,042

 
90,304

Total assets
$
2,369,200

 
$
2,324,042

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
659,550

 
$
643,872

Accrued payroll and related liabilities
21,741

 
23,296

Deferred income taxes
41,975

 
41,613

Other accrued liabilities
302,244

 
280,398

Total current liabilities
1,025,510

 
989,179

Long-term debt, excluding current portion
214,826

 
213,815

Deferred income taxes
42,779

 
43,727

Other liabilities
52,918

 
52,278

Total liabilities
1,336,033

 
1,298,999

Commitments and contingencies

 

Equity
 
 
 
Owens & Minor, Inc. shareholders’ equity:
 
 
 
Preferred stock, par value $100 per share, authorized - 10,000 shares, Series A Participating Cumulative Preferred Stock; none issued


 


Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 63,091 shares and 63,096 shares
126,182

 
126,193

Paid-in capital
199,148

 
196,605

Retained earnings
696,574

 
691,547

Accumulated other comprehensive income
10,133

 
9,568

Total Owens & Minor, Inc. shareholders’ equity
1,032,037

 
1,023,913

Noncontrolling interest
1,130

 
1,130

Total equity
1,033,167

 
1,025,043

Total liabilities and equity
$
2,369,200

 
$
2,324,042



See accompanying notes to consolidated financial statements.
5
Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
 
Three Months Ended March 31,
(in thousands)
2014
 
2013
Operating activities:
 
 
 
Net income
$
25,485

 
$
26,098

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
13,864

 
12,629

Share-based compensation expense
2,642

 
1,910

Provision for losses on accounts and notes receivable
54

 
107

Deferred income tax benefit
(822
)
 
(56
)
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
29,828

 
(34,575
)
Merchandise inventories
3,707

 
21,784

Accounts payable
15,815

 
98,198

Net change in other assets and liabilities
3,921

 
28,981

Other, net
(1,292
)
 
(465
)
Cash provided by operating activities
93,202

 
154,611

Investing activities:
 
 
 
Additions to property and equipment
(7,299
)
 
(7,513
)
Additions to computer software and intangible assets
(6,930
)
 
(7,264
)
Proceeds from sale of investment
1,937

 
—

Proceeds from sale of property and equipment
105

 
44

Cash used for investing activities
(12,187
)
 
(14,733
)
Financing activities:
 
 
 
Change in bank overdraft
20,578

 
—

Cash dividends paid
(15,785
)
 
(15,199
)
Repurchases of common stock
(5,000
)
 
(2,282
)
Excess tax benefits related to share-based compensation
346

 
207

Proceeds from exercise of stock options
937

 
1,792

Other, net
(1,868
)
 
(1,958
)
Cash used for financing activities
(792
)
 
(17,440
)
Effect of exchange rate changes on cash and cash equivalents
245

 
(1,763
)
Net increase in cash and cash equivalents
80,468

 
120,675

Cash and cash equivalents at beginning of period
101,905

 
97,888

Cash and cash equivalents at end of period
$
182,373

 
$
218,563

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
15,161

 
$
1,540

Interest paid
$
539

 
$
698



See accompanying notes to consolidated financial statements.
6
Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
 
 
Owens & Minor, Inc. Shareholders’ Equity
 
 
 
 
(in thousands, except per share data)
Common
Shares
Outstanding
 
Common 
Stock
($ 2 par value )
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Noncontrolling
Interest
 
Total
Equity
Balance December 31, 2012
63,271

 
$
126,544

 
$
187,394

 
$
658,994

 
$
(406
)
 
$
1,130

 
$
973,656

Net income
 
 
 
 
 
 
26,098

 
 
 
 
 
26,098

Other comprehensive income
 
 
 
 
 
 
 
 
(7,632
)
 
 
 
(7,632
)
Dividends declared ($0.24 per share)
 
 
 
 
 
 
(15,176
)
 
 
 
 
 
(15,176
)
Shares repurchased and retired
(74
)
 
(148
)
 
 
 
(2,134
)
 
 
 
 
 
(2,282
)
Share-based compensation expense, exercises and other
138

 
276

 
2,610

 
 
 
 
 
 
 
2,886

Balance March 31, 2013
$
63,335

 
$
126,672

 
$
190,004

 
$
667,782

 
$
(8,038
)
 
$
1,130

 
$
977,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2013
63,096

 
$
126,193

 
$
196,605

 
$
691,547

 
$
9,568

 
$
1,130

 
$
1,025,043

Net income
 
 
 
 
 
 
25,485

 
 
 
 
 
25,485

Other comprehensive income
 
 
 
 
 
 
 
 
565

 
 
 
565

Dividends declared ($0.25 per share)
 
 
 
 
 
 
(15,744
)
 
 
 
 
 
(15,744
)
Shares repurchased and retired
(143
)
 
(286
)
 
 
 
(4,714
)
 
 
 
 
 
(5,000
)
Share-based compensation expense, exercises and other
138

 
275

 
2,543

 
 
 
 
 
 
 
2,818

Balance March 31, 2014
63,091

 
$
126,182

 
$
199,148

 
$
696,574

 
$
10,133

 
$
1,130

 
$
1,033,167



See accompanying notes to consolidated financial statements.
7
Table of Contents

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). For the consolidated subsidiary in which our ownership is less than 100%, the outside stockholder’s interest is presented as a noncontrolling interest. 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.
Reclassification and Correction
Certain prior year amounts have been reclassified to conform to current year presentation. In addition, after completing a review of customer contracts in the International segment in the fourth quarter of 2013, we determined a net presentation of revenues for certain contracts is more representative of the customer arrangement. Certain amounts in the prior period statement of income were revised to reflect this net presentation of revenues. As a result, net revenue and cost of goods sold each decreased by $29.3 million. The change did not affect cash flows, gross margin, operating earnings or net income in 2013.
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). See Note 7 for the fair value of long-term debt.
Note 3—Financing Receivables and Payables
At March 31, 2014 and December 31, 2013, we had financing receivables of $179.5 million and $198.5 million and related payables of $146.2 million and $165.3 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 March 31, 2014:
 
Domestic
Segment
 
International
Segment
 
Total
Carrying amount of goodwill, December 31, 2013
$
248,498

 
$
26,941

 
$
275,439

Currency translation adjustments
—

 
123

 
123

Carrying amount of goodwill, March 31, 2014
$
248,498

 
$
27,064

 
$
275,562


8

Table of Contents

Intangible assets at March 31, 2014, and December 31, 2013, were as follows:
 
March 31, 2014
 
December 31, 2013
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
51,686

 
$
3,957

 
$
51,544

 
$
3,933

Accumulated amortization
(15,461
)
 
(745
)
 
(14,281
)
 
(790
)
Net intangible assets
$
36,225

 
$
3,212

 
$
37,263

 
$
3,143

At March 31, 2014, $17.3 million in net intangible assets were held in the Domestic segment and $22.1 million were held in the International segment. Amortization expense for intangible assets was $1.1 million and $0.9 million for the three months ended March 31, 2014 and 2013.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $3.4 million for the remainder of 2014, $5.1 million for 2015, $5.1 million for 2016, $5.0 million for 2017 and $4.1 million for 2018.
Note 5—Exit and Realignment Costs
We periodically incur exit and realignment and other charges associated with optimizing our operations, which includes the consolidation of distribution centers, the realignment of our distribution network, and the closure of offsite warehouses.
In the current quarter, we recognized total charges of $2.6 million associated with exit and realignment activities, of which $1.3 million was in the Domestic segment and $1.3 million was in the International segment. These charges include $1.3 million in loss accruals associated with our operating leases and estimated severance. The remaining charges of $1.3 million are comprised of costs that were expensed as incurred in the quarter and not reflected in the table below, including $0.5 million in relocation costs, $0.5 million in property related costs, and $0.3 million in labor and other costs. We expect additional exit and realignment charges of approximately $2.2 million over the remainder of 2014 for activities initiated in the Domestic segment through March 31, 2014.
During the first three months of 2013, we recognized total charges of $0.9 million in the Domestic segment and $0.5 million in the International segment associated with these activities. These charges include $0.5 million in loss accruals for operating leases. The remaining charges of $0.9 million are comprised of costs that are expensed as incurred and not reflected in the table below, including losses on property and equipment and other expenses.
The following table summarizes the activity related to exit and realignment cost accruals through March 31, 2014 and 2013:
 
Lease
Obligations
 
Severance and
Other
 
Total
Accrued exit and realignment costs, December 31, 2013
$
2,434

 
$
475

 
$
2,909

Provision for exit and realignment activities
532

 
807

 
1,339

Cash payments, net of sublease income
(411
)
 
(327
)
 
(738
)
Accrued exit and realignment costs, March 31, 2014
$
2,555

 
$
955

 
$
3,510

 
 
 
 
 
 
 
 
 
 
 
 
Accrued exit and realignment costs, December 31, 2012
$
5,098

 
$
1,116

 
$
6,214

Provision for exit and realignment activities
538

 
3

 
541

Cash payments, net of sublease income
(4,844
)
 
(147
)
 
(4,991
)
Accrued exit and realignment costs, March 31, 2013
$
792

 
$
972

 
$
1,764


9

Table of Contents

Note 6—Retirement Plan
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 selling, general and administrative expenses, for the three months ended March 31, 2014 and 2013, were as follows:
 
Three Months Ended 
 March 31,
 
2014
 
2013
Service cost
$
36

 
$
33

Interest cost
482

 
414

Recognized net actuarial loss
204

 
342

Net periodic benefit cost
$
722

 
$
789

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 and $0.2 million for the three months ended March 31, 2014 and 2013.
Note 7—Debt
We have $200 million of senior notes outstanding, which mature on April 15, 2016 and bear interest at 6.35% payable semi-annually (Senior Notes). We may redeem the Senior Notes, in whole or in part, at a redemption price of the greater of 100% of the principal amount of the Senior Notes or the present value of remaining scheduled payments of principal and interest discounted at the applicable Treasury Rate plus 0.25%. As of March 31, 2014 and December 31, 2013, the estimated fair value of the Senior Notes was $217 million and $219 million, and the related carrying amount was $204 million for both periods. The observed yield of the Senior Notes at March 31, 2014 and December 31, 2013 was 2.00% and 2.12%.
We have a five-year $350 million Credit Agreement with Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A. and a syndicate of financial institutions (the Credit Agreement) expiring June 5, 2017. Under the Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $150 million. The interest rate on the 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 Credit Agreement. We are charged a commitment fee of between 17.5 and 42.5 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 March 31, 2014, we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Credit Agreement, leaving $345.0 million available for borrowing. We also have a $1.5 million letter of credit outstanding as of March 31, 2014 and December 31, 2013, which supports our facilities leased in Europe.
Note 8—Income Taxes
The effective tax rate was 40.8% for the three months ended March 31, 2014, compared to 41.6% in the same quarter of 2013. The change in rate is due to the impact of foreign taxes. The liability for unrecognized tax benefits was $5.0 million at March 31, 2014, and $4.6 million at December 31, 2013. Included in the liability at March 31, 2014 were $3.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

10

Table of Contents

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 months ended March 31, 2014 and 2013.
 
Three Months Ended 
 March 31,
(in thousands, except per share data)
2014
 
2013
Numerator:
 
 
 
Net income
$
25,485

 
$
26,098

Less: income allocated to unvested restricted shares
(188
)
 
(195
)
Net income attributable to common shareholders - basic
25,297

 
25,903

Add: undistributed income attributable to unvested restricted shares - basic
51

 
58

Less: undistributed income attributable to unvested restricted shares - diluted
(51
)
 
(58
)
Net income attributable to common shareholders - diluted
$
25,297

 
$
25,903

Denominator:
 
 
 
Weighted average shares outstanding - basic
62,304

 
62,687

Dilutive shares - stock options
13

 
58

Weighted average shares outstanding - diluted
62,317

 
62,745

Net income per share attributable to common shareholders:
 
 
 
Basic
$
0.41

 
$
0.41

Diluted
$
0.41

 
$
0.41

Note 10—Shareholders’ Equity
In February 2014, our Board of Directors 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 February 2017. The program is intended, in part, to offset shares issued in conjunction with our stock incentive plans and return capital to shareholders. The program may be suspended or discontinued at any time. During the three months ended March 31, 2014, we repurchased in open-market transactions and retired approximately 143 thousand shares of our common stock for an aggregate of $5.0 million, or an average price per share of $34.99. As of March 31, 2014, we have approximately $95.0 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

11

Table of Contents

Note 11—Accumulated Other Comprehensive Income
The following table shows the changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2014 and 2013: 
 
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2013
$
(6,479
)
 
$
15,892

 
$
155

 
$
9,568

Other comprehensive income (loss) before reclassifications
—

 
467

 
—

 
467

Income tax
—

 
—

 
—

 
—

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

 
467

 
—

 
467

Amounts reclassified from accumulated other comprehensive income (loss)
204

 
—

 
(17
)
 
187

Income tax
(97
)
 
—

 
8

 
(89
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
107

 
—

 
(9
)
 
98

Other comprehensive income (loss)
107

 
467

 
(9
)
 
565

Accumulated other comprehensive income (loss), March 31, 2014
$
(6,372
)
 
$
16,359

 
$
146

 
$
10,133

 
 
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2012
$
(10,318
)
 
$
9,749

 
$
163

 
$
(406
)
Other comprehensive income (loss) before reclassifications
—

 
(8,212
)
 
 
 
(8,212
)
Income tax
—

 
385

 
—

 
385

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

 
(7,827
)
 
—

 
(7,827
)
Amounts reclassified from accumulated other comprehensive income (loss)
342

 
—

 
(21
)
 
321

Income tax
(134
)
 
—

 
8

 
(126
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
208

 
—

 
(13
)
 
195

Other comprehensive income (loss)
208

 
(7,827
)
 
(13
)
 
(7,632
)
Accumulated other comprehensive income (loss), March 31, 2013
$
(10,110
)
 
$
1,922

 
$
150

 
$
(8,038
)
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 selling, general & administrative expenses. For the three months ended March 31, 2014 and 2013, we reclassified $0.2 million and $0.3 million of actuarial net losses.

12

Table of Contents

Note 12—Commitments and Contingencies
We have contractual obligations that are required to be paid to customers in the event that certain contractual performance targets are not achieved as of specified dates, generally within 36 months from inception of the contract. These contingent obligations totaled $1.0 million as of March 31, 2014. If none of the performance targets are met as of the specified dates, and customers have met their contractual commitments, payment will be due as follows: 2015 - $0.2 million; 2016 - $0.8 million. None of these contingent obligations were accrued at March 31, 2014, as we do not consider any of them probable. We deferred the recognition of fees that are contingent upon our future performance under the terms of these contracts. As of March 31, 2014, $0.9 million of deferred revenue related to outstanding contractual performance targets was included in other current liabilities.
Prior to exiting the direct-to-consumer business in January 2009, we received reimbursements from Medicare, Medicaid, and private healthcare insurers for certain customer billings. We are subject to audits of these reimbursements for up to seven years from the date of the service.
Various issues and potential claims related to the acquisition and transition of Movianto remain outstanding and under review and discussion with the former owner. The ultimate outcomes of these issues and potential claims, including their impact on future financial results, cannot be ascertained or estimated at this time.
Note 13—Segment Information
We evaluate the performance of our segments based on the operating earnings of the segments, excluding acquisition-related and exit and realignment charges.
The following tables present financial information by segment:
 
Three Months Ended 
 March 31,
 
2014
 
2013
Net revenue:
 
 
 
Domestic
$
2,148,915

 
$
2,154,715

International
107,465

 
91,669

Consolidated net revenue
$
2,256,380

 
$
2,246,384

 
 
 
 
Operating earnings (loss):
 
 
 
Domestic
$
52,734

 
$
52,907

International
(3,188
)
 
(3,013
)
Acquisition-related and exit and realignment charges
(3,262
)
 
(2,010
)
Consolidated operating earnings
$
46,284

 
$
47,884

 
 
 
 
Depreciation and amortization:
 
 
 
Domestic
$
8,975

 
$
9,082

International
4,889

 
3,547

Consolidated depreciation and amortization
$
13,864

 
$
12,629

 
 
 
 
Capital expenditures:
 
 
 
Domestic
$
10,175

 
$
11,602

International
4,054

 
3,175

Consolidated capital expenditures
$
14,229

 
$
14,777

 

13

Table of Contents

 
March 31, 2014
 
December 31, 2013
Total assets:
 
 
 
Domestic
$
1,712,214

 
$
1,747,572

International
474,613

 
474,565

Segment assets
2,186,827

 
2,222,137

Cash and cash equivalents
182,373

 
101,905

Consolidated total assets
$
2,369,200

 
$
2,324,042


Note 14—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 Senior Notes, on a combined basis; and the non-guarantor subsidiaries of the Senior 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 March 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Income
 
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
2,148,365

 
$
119,873

 
$
(11,858
)
 
$
2,256,380

 
Cost of goods sold
—

 
1,939,464

 
47,599

 
(11,878
)
 
1,975,185

 
Gross margin
—

 
208,901

 
72,274

 
20

 
281,195

 
Selling, general and administrative expenses
47

 
154,156

 
71,407

 
—

 
225,610

 
Acquisition-related and exit and realignment charges
—

 
1,294

 
1,968

 
—

 
3,262

 
Depreciation and amortization
2

 
8,952

 
4,910

 
—

 
13,864

 
Other operating income, net
—

 
(7,062
)
 
(763
)
 
—

 
(7,825
)
 
Operating earnings (loss)
(49
)
 
51,561

 
(5,248
)
 
20

 
46,284

 
Interest expense (income), net
2,472

 
1,243

 
(469
)
 
—

 
3,246

 
Income (loss) before income taxes
(2,521
)
 
50,318

 
(4,779
)
 
20

 
43,038

 
Income tax (benefit) provision
(952
)
 
20,160

 
(1,655
)
 
—

 
17,553

 
Equity in earnings of subsidiaries
27,054

 
—

 
—

 
(27,054
)
 
—

 
Net income (loss)
25,485

 
30,158

 
(3,124
)
 
(27,034
)
 
25,485

 
Other comprehensive income (loss)
565

 
106

 
467

 
(573
)
 
565

 
Comprehensive income (loss)
$
26,050

 
$
30,264

 
$
(2,657
)
 
$
(27,607
)
 
$
26,050


14

Table of Contents

Three Months Ended March 31, 2013
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
2,154,716

 
$
101,980

 
$
(10,312
)
 
$
2,246,384

Cost of goods sold
—

 
1,936,091

 
41,282

 
(10,041
)
 
1,967,332

Gross margin
—

 
218,625

 
60,698

 
(271
)
 
279,052

Selling, general and administrative expenses
654

 
156,347

 
60,720

 
—

 
217,721

Acquisition-related and exit and realignment charges
—

 
862

 
1,148

 
—

 
2,010

Depreciation and amortization
3

 
9,060

 
3,566

 
—

 
12,629

Other operating income, net
—

 
(643
)
 
(549
)
 
—

 
(1,192
)
Operating earnings (loss)
(657
)
 
52,999

 
(4,187
)
 
(271
)
 
47,884

Interest expense (income), net
4,395

 
(911
)
 
(285
)
 
—

 
3,199

Income (loss) before income taxes
(5,052
)
 
53,910

 
(3,902
)
 
(271
)
 
44,685

Income tax (benefit) provision
(1,962
)
 
21,455

 
(906
)
 
—

 
18,587

Equity in earnings of subsidiaries
29,188

 
—

 
—

 
(29,188
)
 
—

Net income (loss)
26,098

 
32,455

 
(2,996
)
 
(29,459
)
 
26,098

Other comprehensive income (loss)
(7,632
)
 
208

 
(7,828
)
 
7,620

 
(7,632
)
Comprehensive income (loss)
$
18,466

 
$
32,663

 
$
(10,824
)
 
$
(21,839
)
 
$
18,466


15

Table of Contents

 
 
March 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
133,300

 
$
25,569

 
$
23,504

 
$
—

 
$
182,373

 
Accounts and notes receivable, net
—

 
469,335

 
77,475

 
(3,596
)
 
543,214

 
Merchandise inventories
—

 
744,219

 
25,373

 
(1,444
)
 
768,148

 
Other current assets
—

 
71,141

 
203,846

 
192

 
275,179

 
Total current assets
133,300

 
1,310,264

 
330,198

 
(4,848
)
 
1,768,914

 
Property and equipment, net
—

 
95,814

 
96,431

 
—

 
192,245

 
Goodwill, net
—

 
247,271

 
28,291

 
—

 
275,562

 
Intangible assets, net
—

 
17,360

 
22,077

 
—

 
39,437

 
Due from O&M and subsidiaries
—

 
453,120

 
—

 
(453,120
)
 
—

 
Advances to and investment in consolidated subsidiaries
1,561,013

 
—

 
—

 
(1,561,013
)
 
—

 
Other assets, net
363

 
66,071

 
26,608

 
—

 
93,042

 
Total assets
$
1,694,676

 
$
2,189,900

 
$
503,605

 
$
(2,018,981
)
 
$
2,369,200

 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
619,240

 
$
43,906

 
$
(3,596
)
 
$
659,550

 
Accrued payroll and related liabilities
—

 
10,781

 
10,960

 
—

 
21,741

 
Deferred income taxes
—

 
41,855

 
120

 
—

 
41,975

 
Other accrued liabilities
9,747

 
101,643

 
190,854

 
—

 
302,244

 
Total current liabilities
9,747

 
773,519

 
245,840

 
(3,596
)
 
1,025,510

 
Long-term debt, excluding current portion
203,596

 
7,252

 
3,978

 
—

 
214,826

 
Due to O&M and subsidiaries
449,296

 
—

 
2,671

 
(451,967
)
 
—

 
Intercompany debt
—

 
138,890

 
—

 
(138,890
)
 
—

 
Deferred income taxes
—

 
31,285

 
11,494

 
—

 
42,779

 
Other liabilities
—

 
48,021

 
4,897

 
—

 
52,918

 
Total liabilities
662,639

 
998,967

 
268,880

 
(594,453
)
 
1,336,033

 
Equity
 
 
 
 
 
 
 
 
 
 
Common stock
126,182

 
—

 
1,500

 
(1,500
)
 
126,182

 
Paid-in capital
199,148

 
242,024

 
259,864

 
(501,888
)
 
199,148

 
Retained earnings (deficit)
696,574

 
955,374

 
(44,267
)
 
(911,107
)
 
696,574

 
Accumulated other comprehensive income (loss)
10,133

 
(6,465
)
 
16,498

 
(10,033
)
 
10,133

 
Total O&M shareholders’ equity
1,032,037

 
1,190,933

 
233,595

 
(1,424,528
)
 
1,032,037

 
Noncontrolling Interest
—

 
—

 
1,130

 
—

 
1,130

 
Total equity
1,032,037

 
1,190,933

 
234,725

 
(1,424,528
)
 
1,033,167

 
Total liabilities and equity
$
1,694,676

 
$
2,189,900

 
$
503,605

 
$
(2,018,981
)
 
$
2,369,200



16

Table of Contents

December 31, 2013
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
74,391

 
$
2,012

 
$
25,502

 
$
—

 
$
101,905

Accounts and notes receivable, net
—

 
496,310

 
79,722

 
(3,178
)
 
572,854

Merchandise inventories
—

 
750,999

 
22,128

 
(1,464
)
 
771,663

Other current assets
201

 
72,049

 
207,058

 
202

 
279,510

Total current assets
74,592

 
1,321,370

 
334,410

 
(4,440
)
 
1,725,932

Property and equipment, net
2

 
96,500

 
95,459

 
—

 
191,961

Goodwill, net
—

 
247,271

 
28,168

 
—

 
275,439

Intangible assets, net
—

 
17,881

 
22,525

 
—

 
40,406

Due from O&M and subsidiaries
—

 
377,786

 
—

 
(377,786
)
 
—

Advances to and investments in consolidated subsidiaries
1,533,294

 
—

 
—

 
(1,533,294
)
 
—

Other assets, net
408

 
63,848

 
26,048

 
—

 
90,304

Total assets
$
1,608,296

 
$
2,124,656

 
$
506,610

 
$
(1,915,520
)
 
$
2,324,042

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
595,865

 
$
51,185

 
$
(3,178
)
 
$
643,872

Accrued payroll and related liabilities
—

 
12,792

 
10,504

 
—

 
23,296

Deferred income taxes
—

 
41,464

 
149

 
—

 
41,613

Other current liabilities
6,811

 
87,795

 
185,792

 
—

 
280,398

Total current liabilities
6,811

 
737,916

 
247,630

 
(3,178
)
 
989,179

Long-term debt, excluding current portion
204,028

 
7,228

 
2,559

 
—

 
213,815

Due to O&M and subsidiaries
373,544

 
—

 
2,910

 
(376,454
)
 
—

Intercompany debt
—

 
138,890

 
—

 
(138,890
)
 
—

Deferred income taxes
—

 
32,173

 
11,554

 
—

 
43,727

Other liabilities
—

 
47,816

 
4,462

 
—

 
52,278

Total liabilities
584,383

 
964,023

 
269,115

 
(518,522
)
 
1,298,999

Equity
 
 
 
 
 
 
 
 
 
Common stock
126,193

 
—

 
1,500

 
(1,500
)
 
126,193

Paid-in capital
196,605

 
242,024

 
259,864

 
(501,888
)
 
196,605

Retained earnings (deficit)
691,547

 
925,184

 
(41,029
)
 
(884,155
)
 
691,547

Accumulated other comprehensive income (loss)
9,568

 
(6,575
)
 
16,030

 
(9,455
)
 
9,568

Total Owens & Minor, Inc. shareholders’ equity
1,023,913

 
1,160,633

 
236,365

 
(1,396,998
)
 
1,023,913

Noncontrolling interest
—

 
—

 
1,130

 
—

 
1,130

Total equity
1,023,913

 
1,160,633

 
237,495

 
(1,396,998
)
 
1,025,043

Total liabilities and equity
$
1,608,296

 
$
2,124,656

 
$
506,610

 
$
(1,915,520
)
 
$
2,324,042


 

17

Table of Contents

 
Three Months Ended March 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
25,485

 
$
30,158

 
$
(3,124
)
 
$
(27,034
)
 
$
25,485

 
Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
 
 
 
 
 

 
Equity in earnings of subsidiaries
(27,054
)
 
—

 
—

 
27,054

 
—

 
Depreciation and amortization
2

 
8,952

 
4,910

 
—

 
13,864

 
Share-based compensation expense
—

 
2,570

 
72

 
—

 
2,642

 
Provision for losses on accounts and notes receivable
—

 
96

 
(42
)
 
—

 
54

 
Deferred income tax expense (benefit)
—

 
(588
)
 
(234
)
 
—

 
(822
)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 

 
Accounts and notes receivable
—

 
26,879

 
2,530

 
419

 
29,828

 
Merchandise inventories
—

 
7,563

 
(3,835
)
 
(21
)
 
3,707

 
Accounts payable
—

 
23,375

 
(7,142
)
 
(418
)
 
15,815

 
Net change in other assets and liabilities
3,138

 
12,734

 
(11,951
)
 
—

 
3,921

 
Other, net
(388
)
 
(745
)
 
(159
)
 
—

 
(1,292
)
 
Cash provided by (used for) operating activities
1,183

 
110,994

 
(18,975
)
 
—

 
93,202

 
Investing activities:
 
 
 
 
 
 
 
 


 
Proceeds from the sale of investment
—

 
1,937

 
—

 
—

 
1,937

 
Additions to property and equipment
—

 
(4,036
)
 
(3,263
)
 
—

 
(7,299
)
 
Additions to computer software and intangible assets
—

 
(6,139
)
 
(791
)
 
—

 
(6,930
)
 
Proceeds from the sale of property and equipment
—

 
11

 
94

 
—

 
105

 
Cash used for investing activities
—

 
(8,227
)
 
(3,960
)
 
—

 
(12,187
)
 
Financing activities:
 
 
 
 
 
 
 
 

 
Change in bank overdraft
—

 
—

 
20,578

 
—

 
20,578

 
Change in intercompany advances
78,263

 
(78,631
)
 
368

 
—

 
—

 
Cash dividends paid
(15,785
)
 
—

 
—

 
—

 
(15,785
)
 
Repurchases of common stock
(5,000
)
 
—

 
—

 
—

 
(5,000
)
 
Excess tax benefits related to share-based compensation
346

 
—

 
—

 
—

 
346

 
Proceeds from exercise of stock options
937

 
—

 
—

 
—

 
937

 
Other, net
(1,035
)
 
(579
)
 
(254
)
 
—

 
(1,868
)
 
Cash provided by (used for) financing activities
57,726

 
(79,210
)
 
20,692

 
—

 
(792
)
 
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
245

 
—

 
245

 
Net increase (decrease) in cash and cash equivalents
58,909

 
23,557

 
(1,998
)
 
—

 
80,468

 
Cash and cash equivalents at beginning of period
74,391

 
2,012

 
25,502

 
—

 
101,905

 
Cash and cash equivalents at end of period
$
133,300

 
$
25,569

 
$
23,504

 
$
—

 
$
182,373


18

Table of Contents

 
Three months ended March 31, 2013
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
26,098

 
$
32,455

 
$
(2,996
)
 
$
(29,459
)
 
$
26,098

Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
 
 
 
 
 
—

Equity in earnings of subsidiaries
(29,188
)
 
—

 
—

 
29,188

 
—

Depreciation and amortization
3

 
9,060

 
3,56