SEC Filing | Owens & Minor, Inc.

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OMI 9.30.2014-10Q

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 September 30, 2014



¨	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 October 24, 2014, was 63,079,623 shares.

Table of Contents

Owens & Minor, Inc. and Subsidiaries

Index



Part I. Financial Information		Page

Item 1.	Financial Statements	3
	Consolidated Statements of Income—Three and Nine Months Ended September 30, 2014 and 2013	3
	Consolidated Statements of Comprehensive Income—Three and Nine Months Ended September 30, 2014 and 2013	4
	Consolidated Balance Sheets—September 30, 2014 and December 31, 2013	5
	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2014 and 2013	6
	Consolidated Statements of Changes in Equity—Nine Months Ended September 30, 2014 and 2013	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	31
Item 6.	Exhibits	33

Part I. Financial Information

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Income

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2014			2013			2014			2013
Net revenue	$	2,386,126		$	2,270,547		$	6,948,365		$	6,753,008
Cost of goods sold	2,093,643			1,997,218			6,092,413			5,927,196
Gross margin	292,483			273,329			855,952			825,812
Selling, general and administrative expenses	231,377			211,344			682,825			641,613
Acquisition-related and exit and realignment charges	13,957			2,747			24,813			5,395
Depreciation and amortization	13,841			12,441			41,597			37,347
Other operating income, net	(2,069		)	(2,418		)	(12,046		)	(5,693		)
Operating earnings	35,377			49,215			118,763			147,150
Interest expense, net	4,304			3,389			10,893			9,835
Loss on early retirement of debt	14,890			—			14,890			—
Income before income taxes	16,183			45,826			92,980			137,315
Income tax provision	9,028			17,856			40,464			54,374
Net income	$	7,155		$	27,970		$	52,516		$	82,941
Net income per common share:
Basic	$	0.11		$	0.44		$	0.84		$	1.31
Diluted	$	0.11		$	0.44		$	0.84		$	1.31
Cash dividends per common share	$	0.25		$	0.24		$	0.75		$	0.72

See accompanying notes to consolidated financial statements.

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2014			2013		2014			2013
Net income	$	7,155		$	27,970	$	52,516		$	82,941
Other comprehensive income (loss), net of tax:
Currency translation adjustments (net of income tax of $0 in 2014 and $1,072 and $533 in 2013)	(16,796		)	8,340		(16,899		)	2,196
Change in unrecognized net periodic pension costs (net of income tax of $57 and $245 in 2014 and $134 and $400 in 2013)	132			208		351			625
Other (net of income tax of $56 and $72 in 2014 and $8 and $24 in 2013)	(133		)	1		(127		)	(24		)
Total other comprehensive income (loss), net of tax	(16,797		)	8,549		(16,675		)	2,797
Comprehensive income (loss)	$	(9,642	)	$	36,519	$	35,841		$	85,738

See accompanying notes to consolidated financial statements.

Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)



	September 30,			December 31,
(in thousands, except per share data)	2014			2013
Assets
Current assets
Cash and cash equivalents	$	610,147		$	101,905
Accounts and notes receivable, net of allowances of $15,067 and $15,030	590,140			572,854
Merchandise inventories	834,476			771,663
Other current assets	295,441			279,510
Total current assets	2,330,204			1,725,932
Property and equipment, net of accumulated depreciation of $157,331 and $137,526	203,955			191,961
Goodwill	274,533			275,439
Intangible assets, net	36,457			40,406
Other assets, net	98,749			90,304
Total assets	$	2,943,898		$	2,324,042
Liabilities and equity
Current liabilities
Current portion of long-term debt	$	202,401		$	2,428
Accounts payable	692,616			643,872
Accrued payroll and related liabilities	28,709			23,296
Deferred income taxes	39,406			41,613
Other accrued liabilities	315,581			277,970
Total current liabilities	1,278,713			989,179
Long-term debt, excluding current portion	563,882			213,815
Deferred income taxes	41,725			43,727
Other liabilities	52,054			52,278
Total liabilities	1,936,374			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 - 63,080 shares and 63,096 shares	126,159			126,193
Paid-in capital	200,961			196,605
Retained earnings	687,511			691,547
Accumulated other comprehensive income (loss)	(7,107		)	9,568
Total Owens & Minor, Inc. shareholders’ equity	1,007,524			1,023,913
Noncontrolling interest	—			1,130
Total equity	1,007,524			1,025,043
Total liabilities and equity	$	2,943,898		$	2,324,042

See accompanying notes to consolidated financial statements.

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)



	Nine Months Ended September 30,
(in thousands)	2014			2013
Operating activities:
Net income	$	52,516		$	82,941
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	41,597			37,347
Loss on early retirement of debt	14,890			—
Share-based compensation expense	6,136			5,162
Provision for losses on accounts and notes receivable	(356		)	179
Deferred income tax (benefit) expense	(7,387		)	8,424
Changes in operating assets and liabilities:
Accounts and notes receivable	(21,456		)	(20,703		)
Merchandise inventories	(63,883		)	(23,690		)
Accounts payable	54,634			93,950
Net change in other assets and liabilities	3,131			(21,285		)
Other, net	1,322			(1,159		)
Cash provided by operating activities	81,144			161,166
Investing activities:
Additions to property and equipment	(36,169		)	(25,144		)
Additions to computer software and intangible assets	(17,988		)	(20,361		)
Proceeds from sale of investment	1,937			—
Proceeds from sale of property and equipment	151			2,020
Cash used for investing activities	(52,069		)	(43,485		)
Financing activities:
Long-term debt borrowings	547,693			—
Cash dividends paid	(47,335		)	(45,587		)
Repurchases of common stock	(9,934		)	(15,701		)
Excess tax benefits related to share-based compensation	514			733
Proceeds from exercise of stock options	1,180			4,821
Purchase of noncontrolling interest	(1,500		)	—
Debt issuance costs	(4,178		)	—
Other, net	(5,671		)	(6,769		)
Cash provided by (used for) financing activities	480,769			(62,503		)
Effect of exchange rate changes on cash and cash equivalents	(1,602		)	723
Net increase in cash and cash equivalents	508,242			55,901
Cash and cash equivalents at beginning of period	101,905			97,888
Cash and cash equivalents at end of period	$	610,147		$	153,789
Supplemental disclosure of cash flow information:
Income taxes paid, net	$	65,140		$	51,567
Interest paid	$	8,417		$	7,926

See accompanying notes to consolidated financial statements.

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									82,941									82,941
Other comprehensive income												2,797						2,797
Dividends declared ($0.72 per share)									(45,466		)							(45,466		)
Shares repurchased and retired	(471	)	(942		)				(14,758		)							(15,700		)
Share-based compensation expense, exercises and other	362		724			7,368												8,092
Balance September 30, 2013	63,162		$	126,326		$	194,762		$	681,711		$	2,391		$	1,130		$	1,006,320

Balance December 31, 2013	63,096		$	126,193		$	196,605		$	691,547		$	9,568		$	1,130		$	1,025,043
Net income									52,516									52,516
Other comprehensive loss												(16,675		)				(16,675		)
Dividends declared ($0.75 per share)									(47,201		)							(47,201		)
Shares repurchased and retired	(291	)	(583		)				(9,351		)							(9,934		)
Share-based compensation expense, exercises and other	275		549			5,051												5,600
Purchase of noncontrolling interest						(695		)							(1,130		)	(1,825		)
Balance September 30, 2014	63,080		$	126,159		$	200,961		$	687,511		$	(7,107	)	$	—		$	1,007,524

See accompanying notes to consolidated financial statements.

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 second quarter of 2014, we purchased the remaining outside stockholder's interest in a consolidated subsidiary that was partially owned. Therefore we do not present a noncontrolling interest as a component of equity as of September 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 $34.1 million for the three month period and $94.0 million for the nine month period ended September 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 September 30, 2014 and December 31, 2013, we had financing receivables of $186.8 million and $198.5 million and related payables of $163.4 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 September 30, 2014:



	Domestic Segment		International Segment			Total
Carrying amount of goodwill, December 31, 2013	$	248,498	$	26,941		$	275,439
Currency translation adjustments	—		(906		)	(906		)
Carrying amount of goodwill, September 30, 2014	$	248,498	$	26,035		$	274,533

Intangible assets at September 30, 2014, and December 31, 2013, were as follows:



	September 30, 2014						December 31, 2013
	Customer Relationships			Other Intangibles			Customer Relationships			Other Intangibles

Gross intangible assets	$	50,995		$	3,805		$	51,544		$	3,933
Accumulated amortization	(17,706		)	(636		)	(14,281		)	(790		)
Net intangible assets	$	33,289		$	3,169		$	37,263		$	3,143

At September 30, 2014, $16.3 million in net intangible assets were held in the Domestic segment and $20.1 million were held in the International segment. Amortization expense for intangible assets was $1.1 million and $0.7 million for the three months ended September 30, 2014 and 2013 and $3.4 million and $2.7 million for the nine months ended September 30, 2014 and 2013.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $1.1 million for the remainder of 2014, $4.9 million for 2015, $5.0 million for 2016, $4.8 million for 2017, $4.1 million for 2018 and $3.9 million for 2019.

Note 5—Exit and Realignment Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations which include the closure and consolidation of certain distribution and logistics centers, administrative offices and warehouses in the United States and Europe. These charges also include other 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 nine month periods ended September 30, 2014 and 2013 were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Domestic segment	$	4,654	$	1,856	$	8,250	$	3,162
International segment	4,738		235		7,869		685
Total exit and realignment charges	$	9,392	$	2,091	$	16,119	$	3,847

The following table summarizes the activity related to exit and realignment cost accruals through September 30, 2014 and 2013:



	Lease Obligations			Severance			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
Provision for exit and realignment activities	912			2,215			3,127
Cash payments, net of sublease income	(867		)	(460		)	(1,327		)
Accrued exit and realignment costs, September 30, 2014	$	2,223		$	3,851		$	6,074

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
Provision for exit and realignment activities	648			76			724
Change in estimate	—			(79		)	(79		)
Cash payments, net of sublease income	(463		)	(105		)	(568		)
Accrued exit and realignment costs, September 30, 2013	$	859		$	727		$	1,586

In addition to the exit and realignment accruals in the preceding table, we also incurred $6.3 million and $9.4 million of costs that were expensed as incurred for the three and nine months ended September 30, 2014, including $3.1 million and $4.3 million in other facility costs and asset write-downs, $0.6 million and $1.4 million in labor costs, $1.2 million and $1.3 million in professional fees, $0.7 million and $0.9 million in information systems costs and $0.7 million and $1.5 million in other costs.

We incurred $1.4 million and $2.5 million of costs that were expensed as incurred for the three and nine months ended September 30, 2013, including $0.7 million and $1.4 million in staff and labor costs and $0.7 million and $1.1 million in other facility costs and asset write-downs.

We expect additional charges of approximately $12.0 million over the remainder of 2014 for activities initiated in the Domestic and International segments through September 30, 2014.

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 nine months ended September 30, 2014 and 2013, were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Service cost	$	60	$	24	$	136	$	89
Interest cost	482		414		1,446		1,241
Recognized net actuarial loss	204		341		612		1,024
Net periodic benefit cost	$	746	$	779	$	2,194	$	2,354

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 $0.2 million for the three months ended September 30, 2014 and 2013 and $1.4 million and $0.7 million for the nine months ended September 30, 2014 and 2013.

Note 7—Debt

Debt consists of the following:



	September 30, 2014						December 31, 2013
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
6.35% Senior Notes, $200 million par value, maturing April 2016	$	200,000		$	217,352		$	204,028		$	218,750
3.875% Senior Notes, $275 million par value, maturing September 2021	273,732			274,973			—			—
4.375% Senior Notes, $275 million par value, maturing December 2024	273,961			276,430			—			—
Capital leases	18,590			18,590			12,215			12,215
Total debt	766,283			787,345			216,243			230,965
Less current maturities	(202,401		)	(219,753		)	(2,428		)	(2,428		)
Long-term debt	$	563,882		$	567,592		$	213,815		$	228,537

On September 16, 2014, we issued $275 million of 3.875% senior notes due September 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due December 2024 (the “2024 Notes”). 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%. Interest on the 2021 Notes and 2024 Notes is payable semiannually in arrears, commencing on March 15, 2015 and December 15, 2014, respectively. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 25-30 basis points. We are deferring and amortizing over the respective terms $4.2 million in costs incurred through September 30, 2014 in connection with the issuance of the 2021 Notes and the 2024 Notes.

On October 16, 2014, we used a portion of the net proceeds from the 2021 Notes and the 2024 Notes to fund the early retirement of all of our $200 million of 6.35% senior notes due in 2016 (2016 Notes), which included the payment of a $17.4 million redemption premium. We recorded a net loss on the early retirement of our 2016 Notes of $14.9 million, which includes the redemption premium offset by the recognition of a gain on previously settled interest rate swaps. The 2016 Notes are reflected in current portion of long-term debt at September 30, 2014.

On September 17, 2014, we amended our existing Credit Agreement, increasing our borrowing capacity from $350 million to $450 million and extending the term through September 2019 (the Amended Credit Agreement). 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. At September 30, 2014, we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Amended Credit Agreement, leaving $445.0 million available for

borrowing. We also have a $1.3 million and $1.5 million letter of credit outstanding as of September 30, 2014 and December 31, 2013, which supports our facilities leased in Europe.

Note 8—Income Taxes

The effective tax rate was 55.8% and 43.5% for the three and nine months ended September 30, 2014, compared to 39.0% and 39.6% 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 September 30, 2014, and $4.6 million at December 31, 2013. Included in the liability at September 30, 2014 were $3.8 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 nine months ended September 30, 2014 and 2013.



	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2014			2013			2014			2013
Numerator:
Net income	$	7,155		$	27,970		$	52,516		$	82,941
Less: income allocated to unvested restricted shares	(150		)	(186		)	(453		)	(541		)
Net income attributable to common shareholders - basic	7,005			27,784			52,063			82,400
Add: undistributed income attributable to unvested restricted shares - basic	—			59			26			185
Less: undistributed income attributable to unvested restricted shares - diluted	—			(59		)	(26		)	(185		)
Net income attributable to common shareholders - diluted	$	7,005		$	27,784		$	52,063		$	82,400
Denominator:
Weighted average shares outstanding - basic	62,175			62,605			62,238			62,678
Dilutive shares - stock options	4			26			7			41
Weighted average shares outstanding - diluted	62,179			62,631			62,245			62,719
Net income per share attributable to common shareholders:
Basic	$	0.11		$	0.44		$	0.84		$	1.31
Diluted	$	0.11		$	0.44		$	0.84		$	1.31

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 nine months ended September 30, 2014, we repurchased in open-market transactions and retired approximately 0.3 million shares of our common stock for an aggregate of $9.9 million, or an average price per share of $34.31. As of September 30, 2014, we have approximately $90.1 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

Note 11—Accumulated Other Comprehensive Income

The following table shows the changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2014 and 2013:



	Defined Benefit Pension Plans			Currency Translation Adjustments			Other			Total
Accumulated other comprehensive income (loss), June 30, 2014	$	(6,260	)	$	15,789		$	161		$	9,690
Other comprehensive income (loss) before reclassifications	—			(16,796		)	(44		)	(16,840		)
Income tax	—			—			—			—
Other comprehensive income (loss) before reclassifications, net of tax	—			(16,796		)	(44		)	(16,840		)
Amounts reclassified from accumulated other comprehensive income (loss)	189			—			(145		)	44
Income tax	(57		)	—			56			(1		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	132			—			(89		)	43
Other comprehensive income (loss)	132			(16,796		)	(133		)	(16,797		)
Accumulated other comprehensive income (loss), September 30, 2014	$	(6,128	)	$	(1,007	)	$	28		$	(7,107	)

Accumulated other comprehensive income (loss), June 30, 2013	$	(9,901	)	$	3,605		$	138		$	(6,158	)
Other comprehensive income (loss) before reclassifications	—			9,412			14			9,426
Income tax	—			(1,072		)	—			(1,072		)
Other comprehensive income (loss) before reclassifications, net of tax	—			8,340			14			8,354
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			8,340			1			8,549
Accumulated other comprehensive income (loss), September 30, 2013	$	(9,693	)	$	11,945		$	139		$	2,391



	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	—			(16,899		)	(14		)	(16,913		)
Income tax	—			—			—			—
Other comprehensive income (loss) before reclassifications, net of tax	—			(16,899		)	(14		)	(16,913		)
Amounts reclassified from accumulated other comprehensive income (loss)	596			—			(185		)	411
Income tax	(245		)	—			72			(173		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	351			—			(113		)	238
Other comprehensive income (loss)	351			(16,899		)	(127		)	(16,675		)
Accumulated other comprehensive income (loss), September 30, 2014	$	(6,128	)	$	(1,007	)	$	28		$	(7,107	)

Accumulated other comprehensive income (loss), December 31, 2012	$	(10,318	)	$	9,749		$	163		$	(406	)
Other comprehensive income (loss) before reclassifications	—			2,729			14			2,743
Income tax	—			(533		)	—			(533		)
Other comprehensive income (loss) before reclassifications, net of tax	—			2,196			14			2,210
Amounts reclassified from accumulated other comprehensive income (loss)	1,025			—			(62		)	963
Income tax	(400		)	—			24			(376		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	625			—			(38		)	587
Other comprehensive income (loss)	625			2,196			(24		)	2,797
Accumulated other comprehensive income (loss), September 30, 2013	$	(9,693	)	$	11,945		$	139		$	2,391

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 nine months ended September 30, 2014, we reclassified $0.2 million and $0.6 million of actuarial net losses. For the three and nine months ended September 30, 2013, we reclassified $0.3 million and $1.0 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 $0.9 million as of September 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 - $0.7 million; 2015 - $0.1 million; 2016 -$0.1 million. None of these contingent obligations were accrued at September 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 September 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.

We are in discussions with a customer in our International Segment to resolve a dispute related to services provided. In the event we are unable to resolve this dispute, we may choose to terminate this relationship in which case we could potentially incur costs including but not limited to facility closures, personnel, transportation and/or other contract termination costs. We have outstanding accounts receivable totaling approximately $14.7 million at September 30, 2014 related to services provided to this customer. The outcome of these discussions or the impact on financial results is not known at this time; however, we do not believe that loss with respect to this issue is probable.

During September 2014, we entered into a definitive agreement to acquire ArcRoyal, a privately held surgical kitting company based in Ireland. The transaction is expected to close in the fourth quarter of 2014.

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 September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net revenue:
Domestic	$	2,262,081		$	2,175,663		$	6,598,531		$	6,474,069
International	124,045			94,884			349,834			278,939
Consolidated net revenue	$	2,386,126		$	2,270,547		$	6,948,365		$	6,753,008

Operating earnings (loss):
Domestic	$	50,797		$	51,213		$	151,849		$	155,364
International	(1,463		)	749			(8,273		)	(2,819		)
Acquisition-related and exit and realignment charges	(13,957		)	(2,747		)	(24,813		)	(5,395		)
Consolidated operating earnings	$	35,377		$	49,215		$	118,763		$	147,150

Depreciation and amortization:
Domestic	$	8,986		$	8,805		$	26,772		$	26,775
International	4,855			3,636			14,825			10,572
Consolidated depreciation and amortization	$	13,841		$	12,441		$	41,597		$	37,347

Capital expenditures:
Domestic	$	11,077		$	10,032		$	40,110		$	34,506
International	4,257			4,426			14,047			10,999
Consolidated capital expenditures	$	15,334		$	14,458		$	54,157		$	45,505



	September 30, 2014		December 31, 2013
Total assets:
Domestic	$	1,834,169	$	1,747,572
International	499,582		474,565
Segment assets	2,333,751		2,222,137
Cash and cash equivalents	610,147		101,905
Consolidated total assets	$	2,943,898	$	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 September 30, 2014	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	2,261,448		$	141,086		$	(16,408	)	$	2,386,126
Cost of goods sold	—			2,047,328			62,850			(16,535		)	2,093,643
Gross margin	—			214,120			78,236			127			292,483
Selling, general and administrative expenses	25			155,950			75,402			—			231,377
Acquisition-related and exit and realignment charges	—			7,893			6,064			—			13,957
Depreciation and amortization	—			8,966			4,875			—			13,841
Other operating income, net	—			(1,167		)	(1,235		)	333			(2,069		)
Operating earnings (loss)	(25		)	42,478			(6,870		)	(206		)	35,377
Interest expense (income), net	3,925			1,002			(623		)	—			4,304
Loss on early retirement of debt	14,890			—			—			—			14,890
Income (loss) before income taxes	(18,840		)	41,476			(6,247		)	(206		)	16,183
Income tax (benefit) provision	(7,144		)	16,463			(291		)	—			9,028
Equity in earnings of subsidiaries	18,851			—			—			(18,851		)	—
Net income (loss)	7,155			25,013			(5,956		)	(19,057		)	7,155
Other comprehensive income (loss)	(16,797		)	131			(16,795		)	16,664			(16,797		)
Comprehensive income (loss)	$	(9,642	)	$	25,144		$	(22,751	)	$	(2,393	)	$	(9,642	)



Three Months Ended September 30, 2013	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	2,175,663		$	106,784		$	(11,900	)	$	2,270,547
Cost of goods sold	—			1,965,696			43,238			(11,716		)	1,997,218
Gross margin	—			209,967			63,546			(184		)	273,329
Selling, general and administrative expenses	264			151,107			59,973			—			211,344
Acquisition-related and exit and realignment charges	—			1,856			891			—			2,747
Depreciation and amortization	3			8,780			3,658			—			12,441
Other operating income, net	—			(1,454		)	(964		)	—			(2,418		)
Operating earnings (loss)	(267		)	49,678			(12		)	(184		)	49,215
Interest expense (income), net	5,791			(2,364		)	(38		)	—			3,389
Income (loss) before income taxes	(6,058		)	52,042			26			(184		)	45,826
Income tax (benefit) provision	(2,319		)	20,694			(519		)	—			17,856
Equity in earnings of subsidiaries	31,709			—			—			(31,709		)	—
Net income (loss)	27,970			31,348			545			(31,893		)	27,970
Other comprehensive income (loss)	8,549			207			8,341			(8,548		)	8,549
Comprehensive income (loss)	$	36,519		$	31,555		$	8,886		$	(40,441	)	$	36,519



Nine Months Ended September 30, 2014	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	6,596,941		$	398,646		$	(47,222	)	$	6,948,365
Cost of goods sold	—			5,965,607			173,747			(46,941		)	6,092,413
Gross margin	—			631,334			224,899			(281		)	855,952
Selling, general and administrative expenses	36			462,325			220,464			—			682,825
Acquisition-related and exit and realignment charges	—			13,074			11,739			—			24,813
Depreciation and amortization	2			26,703			14,892			—			41,597
Other operating income, net	—			(9,043		)	(3,336		)	333			(12,046		)
Operating earnings (loss)	(38		)	138,275			(18,860		)	(614		)	118,763
Interest expense (income), net	9,328			3,502			(1,937		)	—			10,893
Loss on early retirement of debt	14,890			—			—			—			14,890
Income (loss) before income taxes	(24,256		)	134,773			(16,923		)	(614		)	92,980
Income tax (benefit) provision	(9,299		)	53,989			(4,226		)	—			40,464
Equity in earnings of subsidiaries	67,473			—			—			(67,473		)	—
Net income (loss)	52,516			80,784			(12,697		)	(68,087		)	52,516
Other comprehensive income (loss)	(16,675		)	350			(16,898		)	16,548			(16,675		)
Comprehensive income (loss)	$	35,841		$	81,134		$	(29,595	)	$	(51,539	)	$	35,841



Nine Months Ended September 30, 2013	Owens & Minor, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Statements of Income
Net revenue	$	—		$	6,473,954		$	313,023		$	(33,969	)	$	6,753,008
Cost of goods sold	—			5,833,900			126,720			(33,424		)	5,927,196
Gross margin	—			640,054			186,303			(545		)	825,812
Selling, general and administrative expenses	1,138			459,780			180,695			—			641,613
Acquisition-related and exit and realignment charges	—			3,116			2,279			—			5,395
Depreciation and amortization	10			26,705			10,632			—			37,347
Other operating income, net	—			(3,597		)	(2,096		)	—			(5,693		)
Operating earnings (loss)	(1,148		)	154,050			(5,207		)	(545		)	147,150
Interest expense (income), net	15,340			(5,096		)	(409		)	—			9,835
Income (loss) before income taxes	(16,488		)	159,146			(4,798		)	(545		)	137,315
Income tax (benefit) provision	(6,327		)	62,758			(2,057		)	—			54,374
Equity in earnings of subsidiaries	93,102			—			—			(93,102		)	—
Net income (loss)	82,941			96,388			(2,741		)	(93,647		)	82,941
Other comprehensive income (loss)	2,797			623			2,195			(2,818		)	2,797
Comprehensive income (loss)	$	85,738		$	97,011		$	(546	)	$	(96,465	)	$	85,738



September 30, 2014	Owens & Minor, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheets
Assets
Current assets
Cash and cash equivalents	$	563,559	$	32,924	$	13,664	$	—		$	610,147
Accounts and notes receivable, net	—		496,444		97,325		(3,629		)	590,140
Merchandise inventories	—		804,409		31,811		(1,744		)	834,476
Other current assets	253		91,582		204,901		(1,295		)	295,441
Total current assets	563,812		1,425,359		347,701		(6,668		)	2,330,204
Property and equipment, net	—		105,689		98,266		—			203,955
Goodwill	—		247,271		27,262		—			274,533
Intangible assets, net	—		16,323		20,134		—			36,457
Due from O&M and subsidiaries	—		409,280		—		(409,280		)	—
Advances to and investment in consolidated subsidiaries	1,587,331		—		—		(1,587,331		)