OMI 6.30.2014-10Q
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 June 30, 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 July 25, 2014, was 63,066,654 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)
2014
 
2013
 
2014
 
2013
Net revenue
$
2,305,858

 
$
2,236,077

 
$
4,562,239

 
$
4,482,461

Cost of goods sold
2,023,586

 
1,962,646

 
3,998,771

 
3,929,979

Gross margin
282,272

 
273,431

 
563,468


552,482

Selling, general and administrative expenses
225,838

 
212,548

 
451,448

 
430,269

Acquisition-related and exit and realignment charges
7,593

 
638

 
10,855

 
2,648

Depreciation and amortization
13,892

 
12,276

 
27,756

 
24,905

Other operating income, net
(2,152
)
 
(2,081
)
 
(9,978
)
 
(3,274
)
Operating earnings
37,101

 
50,050

 
83,387

 
97,934

Interest expense, net
3,342

 
3,248

 
6,589

 
6,446

Income before income taxes
33,759

 
46,802

 
76,798

 
91,488

Income tax provision
13,883

 
17,930

 
31,436

 
36,518

Net income
$
19,876

 
$
28,872

 
$
45,362

 
$
54,970

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.46

 
$
0.72

 
$
0.87

Diluted
$
0.32

 
$
0.46

 
$
0.72

 
$
0.87

Cash dividends per common share
$
0.25

 
$
0.24

 
$
0.50

 
$
0.48



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    June 30,
 
Six Months Ended    June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Net income
$
19,876

 
$
28,872

 
$
45,362

 
$
54,970

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2014 and income tax expense of $56 and benefit of $539 in 2013)
(570
)
 
1,683

 
(103
)
 
(6,144
)
Change in unrecognized net periodic pension costs (net of income tax expense of $90 and $187 in 2014 and $132 and $266 in 2013)
112

 
209

 
219

 
417

Other (net of income tax benefit of $8 and $16 in 2014 and $8 and $16 in 2013)
15

 
(12
)
 
6

 
(25
)
Total other comprehensive income (loss), net of tax
(443
)
 
1,880

 
122

 
(5,752
)
Comprehensive income
$
19,433

 
$
30,752

 
$
45,484

 
$
49,218



See accompanying notes to consolidated financial statements.
4

Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
June 30,
 
December 31,
(in thousands, except per share data)
2014
 
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
92,027

 
$
101,905

Accounts and notes receivable, net of allowances of $15,328 and $15,030
545,179

 
572,854

Merchandise inventories
820,882

 
771,663

Other current assets
287,844

 
279,510

Total current assets
1,745,932

 
1,725,932

Property and equipment, net of accumulated depreciation of $149,361 and $137,526
207,140

 
191,961

Goodwill, net
275,975

 
275,439

Intangible assets, net
38,679

 
40,406

Other assets, net
96,085

 
90,304

Total assets
$
2,363,811

 
$
2,324,042

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
698,648

 
$
643,872

Accrued payroll and related liabilities
29,691

 
23,296

Deferred income taxes
38,951

 
41,613

Other accrued liabilities
251,015

 
280,398

Total current liabilities
1,018,305

 
989,179

Long-term debt, excluding current portion
219,098

 
213,815

Deferred income taxes
42,080

 
43,727

Other liabilities
52,943

 
52,278

Total liabilities
1,332,426

 
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 - 63,066 shares and 63,096 shares
126,133

 
126,193

Paid-in capital
199,019

 
196,605

Retained earnings
696,543

 
691,547

Accumulated other comprehensive income
9,690

 
9,568

Total Owens & Minor, Inc. shareholders’ equity
1,031,385

 
1,023,913

Noncontrolling interest

 
1,130

Total equity
1,031,385

 
1,025,043

Total liabilities and equity
$
2,363,811

 
$
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)
 
 
Six Months Ended June 30,
(in thousands)
2014
 
2013
Operating activities:
 
 
 
Net income
$
45,362

 
$
54,970

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
27,756

 
24,905

Share-based compensation expense
4,190

 
3,449

Provision for losses on accounts and notes receivable
334

 
315

Deferred income tax (benefit) expense
(5,151
)
 
5,777

Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
28,477

 
1,789

Merchandise inventories
(48,575
)
 
(31,176
)
Accounts payable
54,922

 
191,406

Net change in other assets and liabilities
(32,765
)
 
(69,462
)
Other, net
(1,078
)
 
(2,794
)
Cash provided by operating activities
73,472

 
179,179

Investing activities:
 
 
 
Additions to property and equipment
(25,657
)
 
(16,221
)
Additions to computer software and intangible assets
(13,166
)
 
(14,826
)
Proceeds from sale of investment
1,937

 

Proceeds from sale of property and equipment
45

 
68

Cash used for investing activities
(36,841
)
 
(30,979
)
Financing activities:
 
 
 
Cash dividends paid
(31,564
)
 
(30,411
)
Repurchases of common stock
(9,448
)
 
(8,297
)
Excess tax benefits related to share-based compensation
444

 
550

Proceeds from exercise of stock options
1,180

 
4,195

Purchase of noncontrolling interest
(1,500
)
 

Other, net
(4,441
)
 
(5,167
)
Cash used for financing activities
(45,329
)
 
(39,130
)
Effect of exchange rate changes on cash and cash equivalents
(1,180
)
 
868

Net increase (decrease) in cash and cash equivalents
(9,878
)
 
109,938

Cash and cash equivalents at beginning of period
101,905

 
97,888

Cash and cash equivalents at end of period
$
92,027

 
$
207,826

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
40,680

 
$
40,364

Interest paid
$
7,402

 
$
7,691



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
 
 
 
 
 
 
54,970

 
 
 
 
 
54,970

Other comprehensive income
 
 
 
 
 
 
 
 
(5,752
)
 
 
 
(5,752
)
Dividends declared ($0.48 per share)
 
 
 
 
 
 
(30,324
)
 
 
 
 
 
(30,324
)
Shares repurchased and retired
(257
)
 
(515
)
 
 
 
(7,782
)
 
 
 
 
 
(8,297
)
Share-based compensation expense, exercises and other
319

 
636

 
4,932

 
 
 
 
 
 
 
5,568

Balance June 30, 2013
63,333

 
$
126,665

 
$
192,326

 
$
675,858

 
$
(6,158
)
 
$
1,130

 
$
989,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2013
63,096

 
$
126,193

 
$
196,605

 
$
691,547

 
$
9,568

 
$
1,130

 
$
1,025,043

Net income
 
 
 
 
 
 
45,362

 
 
 
 
 
45,362

Other comprehensive income
 
 
 
 
 
 
 
 
122

 
 
 
122

Dividends declared ($0.50 per share)
 
 
 
 
 
 
(31,473
)
 
 
 
 
 
(31,473
)
Shares repurchased and retired
(277
)
 
(555
)
 
 
 
(8,893
)
 
 
 
 
 
(9,448
)
Share-based compensation expense, exercises and other
247

 
495

 
3,109

 
 
 
 
 
 
 
3,604

Purchase of noncontrolling interest
 
 
 
 
(695
)
 
 
 
 
 
(1,130
)
 
(1,825
)
Balance June 30, 2014
63,066

 
$
126,133

 
$
199,019

 
$
696,543

 
$
9,690

 
$

 
$
1,031,385



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). During the quarter, we purchased the remaining outside stockholder's interest in a consolidated subsidiary that was partially owned. Therefore we no longer present a noncontrolling interest as a component of equity as of June 30, 2014. 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, prior year net revenue and cost of goods sold each decreased by $30.6 million for the three month period and $59.9 million for the six month period ended June 30, 2013. 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 June 30, 2014 and December 31, 2013, we had financing receivables of $174.6 million and $198.5 million and related payables of $134.3 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 June 30, 2014:
 
Domestic
Segment
 
International
Segment
 
Total
Carrying amount of goodwill, December 31, 2013
$
248,498

 
$
26,941

 
$
275,439

Currency translation adjustments

 
536

 
536

Carrying amount of goodwill, June 30, 2014
$
248,498

 
$
27,477

 
$
275,975


8


Table of Contents

Intangible assets at June 30, 2014, and December 31, 2013, were as follows:
 
June 30, 2014
 
December 31, 2013
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
52,047

 
$
4,012

 
$
51,544

 
$
3,933

Accumulated amortization
(16,669
)
 
(711
)
 
(14,281
)
 
(790
)
Net intangible assets
$
35,378

 
$
3,301

 
$
37,263

 
$
3,143

At June 30, 2014, $16.8 million in net intangible assets were held in the Domestic segment and $21.8 million were held in the International segment. Amortization expense for intangible assets was $1.1 million and $1.0 million for the three months ended June 30, 2014 and 2013 and $2.2 million and $1.9 million for the six months ended June 30, 2014 and 2013.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $2.3 million for the remainder of 2014, $5.1 million for 2015, $5.2 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.
For the six months ended June 30, 2014, we recognized $6.7 million in total charges associated with exit and realignment activities. Of this amount, $4.1 million was incurred in the current quarter, of which $2.3 million was in the Domestic segment and $1.8 million was in the International segment. These charges include $2.2 million in estimated severance accruals. The remaining charges of $1.9 million were comprised of costs that were expensed as incurred in the quarter and not reflected in the table below, including $0.9 million in property related costs, $0.7 million in labor costs, and $0.2 million in information technology costs. Charges in the first quarter of 2014 were $2.6 million, of which $1.3 million was in the Domestic segment and $1.3 million was in the International segment. These charges included $1.3 million in loss accruals associated with our operating leases and estimated severance. The remaining charges of $1.3 million were comprised of costs that were expensed as incurred in the first 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 $5.0 million over the remainder of 2014 for activities initiated in the Domestic and International segments through June 30, 2014.
For the six month period ended June 30, 2013, we recognized total charges of $1.8 million. The second quarter 2013 charges of $0.4 million were expensed as incurred in the Domestic segment. During the first quarter of 2013, we recognized total charges of $1.4 million, of which $0.9 million was in the Domestic segment and $0.5 million in the International segment. These charges included $0.5 million in loss accruals for operating leases. The remaining charges of $0.9 million were comprised of costs that were expensed as incurred and not reflected in the table below, including losses on property and equipment and other expenses.

9


Table of Contents

The following table summarizes the activity related to exit and realignment cost accruals through June 30, 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

Provision for exit and realignment activities
6

 
$
2,236

 
$
2,242

Cash payments, net of sublease income
(383
)
 
$
(1,095
)
 
$
(1,478
)
Accrued exit and realignment costs, June 30, 2014
$
2,178

 
$
2,096

 
$
4,274

 
 
 
 
 
 
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

Cash payments, net of sublease income
(118
)
 
(137
)
 
(255
)
Accrued exit and realignment costs, June 30, 2013
$
674

 
$
835

 
$
1,509

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 and six months ended June 30, 2014 and 2013, were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Service cost
$
40

 
$
33

 
$
75

 
$
66

Interest cost
482

 
413

 
965

 
827

Recognized net actuarial loss
202

 
341

 
406

 
683

Net periodic benefit cost
$
724

 
$
787

 
$
1,446

 
$
1,576

Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.5 million and $0.3 million for the three months ended June 30, 2014 and 2013 and $1.0 million and $0.5 million for the six months ended June 30, 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 June 30, 2014 and December 31, 2013, the estimated fair value of the Senior Notes was $215 million and $219 million, and the related carrying amount was $204 million for both periods. The observed yield of the Senior Notes at June 30, 2014 and December 31, 2013 was 1.91% 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

10


Table of Contents

acquisition. At June 30, 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 June 30, 2014 and December 31, 2013, which supports our facilities leased in Europe.
Note 8—Income Taxes
The effective tax rate was 41.1% and 40.9% for the three and six months ended June 30, 2014, compared to 38.3% and 39.9% in the same periods of 2013. The change in rate is mainly due to the impact of foreign taxes and the effect of certain acquisition-related costs which are not deductible for tax purposes. The liability for unrecognized tax benefits was $5.0 million at June 30, 2014, and $4.6 million at December 31, 2013. Included in the liability at June 30, 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.
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, 2014 and 2013.
 
Three Months Ended    June 30,
 
Six Months Ended    June 30,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income
$
19,876

 
$
28,872

 
$
45,362

 
$
54,970

Less: income allocated to unvested restricted shares
(159
)
 
(156
)
 
(345
)
 
(351
)
Net income attributable to common shareholders - basic
19,717

 
28,716

 
45,017

 
54,619

Add: undistributed income attributable to unvested restricted shares - basic
19

 
64

 
68

 
122

Less: undistributed income attributable to unvested restricted shares - diluted
(19
)
 
(64
)
 
(68
)
 
(122
)
Net income attributable to common shareholders - diluted
$
19,717

 
$
28,716

 
$
45,017

 
$
54,619

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
62,311

 
62,707

 
62,271

 
62,695

Dilutive shares - stock options
5

 
45

 
9

 
51

Weighted average shares outstanding - diluted
62,316

 
62,752

 
62,280

 
62,746

Net income per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.46

 
$
0.72

 
$
0.87

Diluted
$
0.32

 
$
0.46

 
$
0.72

 
$
0.87

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 six months ended June 30, 2014, we repurchased in open-market transactions and retired approximately 0.3 million shares of our common stock for an aggregate of $9.5 million, or an average price per share of $34.30. As of June 30, 2014, we have approximately $90.5 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 and six months ended June 30, 2014 and 2013: 
 
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), March 31, 2014
$
(6,372
)
 
$
16,359

 
$
146

 
$
10,133

Other comprehensive income (loss) before reclassifications

 
(570
)
 
29

 
(541
)
Income tax

 

 

 

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

 
(570
)
 
29

 
(541
)
Amounts reclassified from accumulated other comprehensive income (loss)
202

 

 
(22
)
 
180

Income tax
(90
)
 

 
8

 
(82
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
112

 

 
(14
)
 
98

Other comprehensive income (loss)
112

 
(570
)
 
15

 
(443
)
Accumulated other comprehensive income (loss), June 30, 2014
$
(6,260
)
 
$
15,789

 
$
161

 
$
9,690

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

 
$
150

 
$
(8,038
)
Other comprehensive income (loss) before reclassifications

 
1,739

 

 
1,739

Income tax

 
(56
)
 

 
(56
)
Other comprehensive income (loss) before reclassifications, net of tax

 
1,683

 

 
1,683

Amounts reclassified from accumulated other comprehensive income (loss)
341

 

 
(20
)
 
321

Income tax
(132
)
 

 
8

 
(124
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
209

 

 
(12
)
 
197

Other comprehensive income (loss)
209

 
1,683

 
(12
)
 
1,880

Accumulated other comprehensive income (loss), June 30, 2013
$
(9,901
)
 
$
3,605

 
$
138

 
$
(6,158
)
 


12


Table of Contents

 
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

 
(103
)
 
31

 
(72
)
Income tax

 

 

 

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

 
(103
)
 
31

 
(72
)
Amounts reclassified from accumulated other comprehensive income (loss)
406

 

 
(41
)
 
365

Income tax
(187
)
 

 
16

 
(171
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
219

 

 
(25
)
 
194

Other comprehensive income (loss)
219

 
(103
)
 
6

 
122

Accumulated other comprehensive income (loss), June 30, 2014
$
(6,260
)
 
$
15,789

 
$
161

 
$
9,690

 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), December 31, 2012
$
(10,318
)
 
$
9,749

 
$
163

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

 
(6,683
)
 

 
(6,683
)
Income tax

 
539

 

 
539

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

 
(6,144
)
 

 
(6,144
)
Amounts reclassified from accumulated other comprehensive income (loss)
683

 

 
(41
)
 
642

Income tax
(266
)
 

 
16

 
(250
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
417

 

 
(25
)
 
392

Other comprehensive income (loss)
417

 
(6,144
)
 
(25
)
 
(5,752
)
Accumulated other comprehensive income (loss), June 30, 2013
$
(9,901
)
 
$
3,605

 
$
138

 
$
(6,158
)
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 and six months ended June 30, 2014, we reclassified $0.2 million and $0.4 million of actuarial net losses. For the three and six months ended June 30, 2013, we reclassified $0.3 million and $0.7 million of actuarial net losses.
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 $1.4 million as of June 30, 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: 2014 - $0.9 million; 2015 - $0.2 million; 2016 -$0.3 million. None of these contingent obligations were accrued at June 30, 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 June 30, 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 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 claims, including their impact on future financial results, cannot be ascertained or estimated at this time.

13


Table of Contents

During the second quarter, we entered into a definitive agreement to acquire all outstanding shares of Medical Action Industries Inc. (Medical Action) for $13.80 per share in cash, representing a total transaction value of approximately $208 million, including assumed debt, net of cash. The transaction, which is expected to close in the fourth quarter of 2014, is subject to customary closing conditions, including Medical Action shareholder approval and regulatory clearances.

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   June 30,
 
Six Months Ended   June 30,
 
2014
 
2013
 
2014
 
2013
Net revenue:
 
 
 
 
 
 
 
Domestic
$
2,187,535

 
$
2,143,691

 
$
4,336,451

 
$
4,298,406

International
118,323

 
92,386

 
225,788

 
184,055

Consolidated net revenue
$
2,305,858

 
$
2,236,077

 
$
4,562,239

 
$
4,482,461

 
 
 
 
 
 
 
 
Operating earnings (loss):
 
 
 
 
 
 
 
Domestic
$
48,317

 
$
51,245

 
$
101,053

 
$
104,151

International
(3,623
)
 
(557
)
 
(6,811
)
 
(3,569
)
Acquisition-related and exit and realignment charges
(7,593
)
 
(638
)
 
(10,855
)
 
(2,648
)
Consolidated operating earnings
$
37,101

 
$
50,050

 
$
83,387

 
$
97,934

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Domestic
$
8,812

 
$
8,887

 
$
17,787

 
$
17,969

International
5,080

 
3,389

 
9,969

 
6,936

Consolidated depreciation and amortization
$
13,892

 
$
12,276

 
$
27,756

 
$
24,905

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Domestic
$
18,858

 
$
12,872

 
$
29,033

 
$
24,474

International
5,737

 
3,398

 
9,790

 
6,573

Consolidated capital expenditures
$
24,595

 
$
16,270

 
$
38,823

 
$
31,047

 
 
June 30, 2014
 
December 31, 2013
Total assets:
 
 
 
Domestic
$
1,787,026

 
$
1,747,572

International
484,758

 
474,565

Segment assets
2,271,784

 
2,222,137

Cash and cash equivalents
92,027

 
101,905

Consolidated total assets
$
2,363,811

 
$
2,324,042



14


Table of Contents

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 June 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
2,187,130

 
$
137,683

 
$
(18,955
)
 
$
2,305,858

Cost of goods sold

 
1,978,815

 
63,299

 
(18,528
)
 
2,023,586

Gross margin

 
208,315

 
74,384

 
(427
)
 
282,272

Selling, general and administrative expenses
61

 
152,122

 
73,655

 

 
225,838

Acquisition-related and exit and realignment charges

 
3,886

 
3,707

 

 
7,593

Depreciation and amortization
2

 
8,790

 
5,100

 

 
13,892

Other operating income, net

 
(814
)
 
(1,338
)
 

 
(2,152
)
Operating earnings (loss)
(63
)
 
44,331

 
(6,740
)
 
(427
)
 
37,101

Interest expense (income), net
2,924

 
791

 
(373
)
 

 
3,342

Income (loss) before income taxes
(2,987
)
 
43,540

 
(6,367
)
 
(427
)
 
33,759

Income tax (benefit) provision
(1,200
)
 
17,808

 
(2,725
)
 

 
13,883

Equity in earnings of subsidiaries
21,663

 

 

 
(21,663
)
 

Net income (loss)
19,876

 
25,732

 
(3,642
)
 
(22,090
)
 
19,876

Other comprehensive income (loss)
(443
)
 
111

 
(570
)
 
459

 
(443
)
Comprehensive income (loss)
$
19,433

 
$
25,843

 
$
(4,212
)
 
$
(21,631
)
 
$
19,433

Three Months Ended June 30, 2013
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
2,143,576

 
$
104,259

 
$
(11,758
)
 
$
2,236,077

Cost of goods sold

 
1,932,112

 
42,201

 
(11,667
)
 
1,962,646

Gross margin

 
211,464

 
62,058

 
(91
)
 
273,431

Selling, general and administrative expenses
221

 
152,387

 
59,940

 

 
212,548

Acquisition-related and exit and realignment charges

 
397

 
241

 

 
638

Depreciation and amortization
3

 
8,865

 
3,408

 

 
12,276

Other operating income, net

 
(1,498
)
 
(583
)
 

 
(2,081
)
Operating earnings (loss)
(224
)
 
51,313

 
(948
)
 
(91
)
 
50,050

Interest expense (income), net
5,154

 
(1,696
)
 
(210
)
 

 
3,248

Income (loss) before income taxes
(5,378
)
 
53,009

 
(738
)
 
(91
)
 
46,802

Income tax (benefit) provision
(2,045
)
 
20,594

 
(618
)
 
(1
)
 
17,930

Equity in earnings of subsidiaries
32,205

 

 

 
(32,205
)
 

Net income (loss)
28,872

 
32,415

 
(120
)
 
(32,295
)
 
28,872

Other comprehensive income (loss)
1,880

 
209

 
1,682

 
(1,891
)
 
1,880

Comprehensive income (loss)
$
30,752

 
$
32,624

 
$
1,562

 
$
(34,186
)
 
$
30,752


15


Table of Contents

Six Months Ended June 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net revenue
$

 
$
4,335,495

 
$
257,558

 
$
(30,814
)
 
$
4,562,239

Cost of goods sold

 
3,918,280

 
110,897

 
(30,406
)
 
3,998,771

Gross margin

 
417,215

 
146,661

 
(408
)
 
563,468

Selling, general and administrative expenses
14

 
306,372

 
145,062

 

 
451,448

Acquisition-related and exit and realignment charges

 
5,180

 
5,675

 

 
10,855

Depreciation and amortization
1

 
17,741

 
10,014

 

 
27,756

Other operating income, net

 
(7,877
)
 
(2,101
)
 

 
(9,978
)
Operating earnings (loss)
(15
)
 
95,799

 
(11,989
)
 
(408
)
 
83,387

Interest expense (income), net
5,399

 
2,034

 
(844
)
 

 
6,589

Income (loss) before income taxes
(5,414
)
 
93,765

 
(11,145
)
 
(408
)
 
76,798

Income tax (benefit) provision
(2,155
)
 
37,994

 
(4,403
)
 

 
31,436

Equity in earnings of subsidiaries
48,621

 

 

 
(48,621
)
 

Net income (loss)
45,362

 
55,771

 
(6,742
)
 
(49,029
)
 
45,362

Other comprehensive income (loss)
122

 
218

 
(103
)
 
(115
)
 
122

Comprehensive income (loss)
$
45,484

 
$
55,989

 
$
(6,845
)
 
$
(49,144
)
 
$
45,484

Six Months Ended June 30, 2013
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net revenue
$

 
$
4,298,290

 
$
206,240

 
$
(22,069
)
 
$
4,482,461

Cost of goods sold

 
3,868,204

 
83,483

 
(21,708
)
 
3,929,979

Gross margin

 
430,086

 
122,757

 
(361
)
 
552,482

Selling, general and administrative expenses
874

 
308,735

 
120,660

 

 
430,269

Acquisition-related and exit and realignment charges

 
1,259

 
1,389

 

 
2,648

Depreciation and amortization
7

 
17,924

 
6,974

 

 
24,905

Other operating income, net

 
(2,142
)
 
(1,132
)
 

 
(3,274
)
Operating earnings (loss)
(881
)
 
104,310

 
(5,134
)
 
(361
)
 
97,934

Interest expense (income), net
9,549

 
(2,585
)
 
(518
)
 

 
6,446

Income (loss) before income taxes
(10,430
)
 
106,895

 
(4,616
)
 
(361
)
 
91,488

Income tax (benefit) provision
(4,007
)
 
42,051

 
(1,526
)
 

 
36,518

Equity in earnings of subsidiaries
61,393

 

 

 
(61,393
)
 

Net income (loss)
54,970

 
64,844

 
(3,090
)
 
(61,754
)
 
54,970

Other comprehensive income (loss)
(5,752
)
 
416

 
(6,146
)
 
5,730

 
(5,752
)
Comprehensive income (loss)
$
49,218

 
$
65,260

 
$
(9,236
)
 
$
(56,024
)
 
$
49,218



16


Table of Contents

June 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
56,792

 
$
13,098

 
$
22,137

 
$

 
$
92,027

Accounts and notes receivable, net

 
467,878

 
80,241

 
(2,940
)
 
545,179

Merchandise inventories

 
789,732

 
33,021

 
(1,871
)
 
820,882

Other current assets
281

 
94,250

 
193,118

 
195

 
287,844

Total current assets
57,073

 
1,364,958

 
328,517

 
(4,616
)
 
1,745,932

Property and equipment, net

 
102,897

 
104,243

 

 
207,140

Goodwill, net

 
247,271

 
28,704

 

 
275,975

Intangible assets, net

 
16,841

 
21,838

 

 
38,679

Due from O&M and subsidiaries

 
435,286

 

 
(435,286
)
 

Advances to and investment in consolidated subsidiaries
1,582,217

 

 

 
(1,582,217
)
 

Other assets, net
320

 
69,262

 
26,502

 
1

 
96,085

Total assets
$
1,639,610

 
$
2,236,515

 
$
509,804

 
$
(2,022,118
)
 
$
2,363,811

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
650,725

 
$
50,863

 
$
(2,940
)
 
$
698,648

Accrued payroll and related liabilities

 
18,364

 
11,327

 

 
29,691

Deferred income taxes

 
38,818

 
133

 

 
38,951

Other accrued liabilities
5,938

 
87,285

 
157,792

 

 
251,015

Total current liabilities
5,938

 
795,192

 
220,115

 
(2,940
)
 
1,018,305

Long-term debt, excluding current portion
203,165

 
6,759

 
9,174

 

 
219,098

Due to O&M and subsidiaries
399,122

 

 
36,825

 
(435,947
)
 

Intercompany debt

 
138,890

 

 
(138,890
)
 

Deferred income taxes

 
30,872

 
11,208

 

 
42,080

Other liabilities

 
48,114

 
4,829

 

 
52,943

Total liabilities
608,225

 
1,019,827

 
282,151

 
(577,777
)
 
1,332,426

Equity
 
 
 
 
 
 
 
 
 
Common stock
126,133

 

 
1,500

 
(1,500
)
 
126,133

Paid-in capital
199,019

 
242,024

 
258,047

 
(500,071
)
 
199,019

Retained earnings (deficit)
696,543

 
980,988

 
(47,820
)
 
(933,168
)
 
696,543

Accumulated other comprehensive income (loss)
9,690

 
(6,324
)
 
15,926

 
(9,602
)
 
9,690

Total O&M shareholders’ equity
1,031,385

 
1,216,688

 
227,653

 
(1,444,341
)
 
1,031,385

Noncontrolling Interest

 

 

 

 

Total equity
1,031,385

 
1,216,688

 
227,653

 
(1,444,341
)
 
1,031,385

Total liabilities and equity
$
1,639,610

 
$
2,236,515

 
$
509,804

 
$
(2,022,118
)
 
$
2,363,811



17


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