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OMI 3.31.2015-10Q
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, 2015
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 23, 2015, was 63,102,497 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)
 
2015
 
2014
Net revenue
 
$
2,391,196

 
$
2,256,380

Cost of goods sold
 
2,093,595

 
1,975,185

Gross margin

297,601


281,195

Selling, general and administrative expenses
 
233,825

 
225,610

Acquisition-related and exit and realignment charges
 
9,916

 
3,262

Depreciation and amortization
 
15,869

 
13,864

Other operating income, net
 
(2,984
)
 
(7,825
)
Operating earnings
 
40,975

 
46,284

Interest expense, net
 
6,880

 
3,246

Income before income taxes
 
34,095

 
43,038

Income tax provision
 
15,155

 
17,553

Net income
 
$
18,940

 
$
25,485

Net income per common share:
 
 
 
 
Basic
 
$
0.30

 
$
0.41

Diluted
 
$
0.30

 
$
0.41

Cash dividends per common share
 
$
0.2525

 
$
0.25



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)
 
2015
 
2014
Net income
 
$
18,940

 
$
25,485

Other comprehensive income (loss), net of tax:
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2015 and 2014)
 
(27,941
)
 
467

Change in unrecognized net periodic pension costs (net of income tax of $143 in 2015 and $97 in 2014)
 
258

 
107

Other (net of income tax of $0 in 2015 and $8 in 2014)
 
38

 
(9
)
Total other comprehensive income (loss), net of tax
 
(27,645
)
 
565

Comprehensive income (loss)
 
$
(8,705
)
 
$
26,050



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)
2015
 
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
159,056

 
$
56,772

Accounts and notes receivable, net of allowances of $13,295 and $13,306
597,235

 
626,192

Merchandise inventories
874,738

 
872,457

Other current assets
233,318

 
315,285

Total current assets
1,864,347

 
1,870,706

Property and equipment, net of accumulated depreciation of $167,835 and $163,377
221,950

 
232,979

Goodwill, net
419,453

 
423,276

Intangible assets, net
102,122

 
108,593

Other assets, net
91,638

 
99,852

Total assets
$
2,699,510

 
$
2,735,406

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
693,699

 
$
608,846

Accrued payroll and related liabilities
24,991

 
31,507

Deferred income taxes
37,820

 
37,979

Other accrued liabilities
273,104

 
326,223

Total current liabilities
1,029,614

 
1,004,555

Long-term debt, excluding current portion
574,606

 
608,551

Deferred income taxes
63,321

 
63,901

Other liabilities
63,696

 
67,561

Total liabilities
1,731,237

 
1,744,568

Commitments and contingencies

 

Equity
 
 
 
Owens & Minor, Inc. shareholders’ equity:
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 63,102 shares and 63,070 shares
126,205

 
126,140

Paid-in capital
204,901

 
202,934

Retained earnings
688,813

 
685,765

Accumulated other comprehensive income
(51,646
)
 
(24,001
)
Total equity
968,273

 
990,838

Total liabilities and equity
$
2,699,510

 
$
2,735,406



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)
2015
 
2014
Operating activities:
 
 
 
Net income
$
18,940

 
$
25,485

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
19,123

 
13,864

Share-based compensation expense
2,597

 
2,642

Provision for losses on accounts and notes receivable
220

 
54

Deferred income tax expense (benefit)
510

 
(822
)
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
27,356

 
29,828

Merchandise inventories
(3,888
)
 
3,707

Accounts payable
88,944

 
15,815

Net change in other assets and liabilities
13,580

 
3,921

Other, net
1,321

 
(1,292
)
Cash provided by operating activities
168,703

 
93,202

Investing activities:
 
 
 
Additions to property and equipment
(7,619
)
 
(7,299
)
Additions to computer software and intangible assets
(3,947
)
 
(6,930
)
Proceeds from sale of investment
—

 
1,937

Proceeds from sale of property and equipment
50

 
105

Cash used for investing activities
(11,516
)
 
(12,187
)
Financing activities:
 
 
 
Change in bank overdraft
1,179

 
20,578

Repayment of revolving credit facility
(33,700
)
 
—

Cash dividends paid
(15,934
)
 
(15,785
)
Repurchases of common stock
—

 
(5,000
)
Excess tax benefits related to share-based compensation
240

 
346

Proceeds from exercise of stock options
125

 
937

Other, net
(2,324
)
 
(1,868
)
Cash used for financing activities
(50,414
)
 
(792
)
Effect of exchange rate changes on cash and cash equivalents
(4,489
)
 
245

Net increase in cash and cash equivalents
102,284

 
80,468

Cash and cash equivalents at beginning of period
56,772

 
101,905

Cash and cash equivalents at end of period
$
159,056

 
$
182,373

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
4,509

 
$
15,161

Interest paid
$
5,924

 
$
539



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, 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 (loss)
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2014
63,070

 
$
126,140

 
$
202,934

 
$
685,765

 
$
(24,001
)
 
$
—

 
$
990,838

Net income
 
 
 
 
 
 
18,940

 
 
 
 
 
18,940

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
(27,645
)
 
 
 
(27,645
)
Dividends declared ($0.2525 per share)
 
 
 
 
 
 
(15,892
)
 
 
 
 
 
(15,892
)
Shares repurchased and retired


 


 
 
 


 
 
 
 
 
—

Share-based compensation expense, exercises and other
32

 
65

 
1,967

 
 
 
 
 
 
 
2,032

Balance March 31, 2015
63,102

 
$
126,205

 
$
204,901

 
$
688,813

 
$
(51,646
)
 
$
—

 
$
968,273



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). 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Note 2—Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, financing receivables, accounts payable and financing payables included in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings and average remaining maturities (Level 2). We determine the fair value of our derivatives based on quoted market prices. See Note 8 for the fair value of long-term debt and Note 9 for the fair value of derivatives.
Note 3—Acquisitions
On October 1, 2014, we completed the acquisition of Medical Action Industries Inc., (Medical Action), a leading producer of surgical kits and procedure trays, which will enable an expansion of our capabilities in the assembly of kits, packs and trays for the healthcare market.
On November 1, 2014, we acquired ArcRoyal, a privately held surgical kitting company based in Ireland (ArcRoyal). The transaction expanded our capabilities in the assembly of kits, packs and trays in the European healthcare market.
The combined consideration for these two acquisitions was $261.6 million, net of cash acquired, and including debt assumed of $13.4 million (capitalized lease obligations).

8

Table of Contents

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon our preliminary estimate of their fair values at the date of acquisition, with certain exceptions permitted under GAAP. The combined purchase price exceeded the preliminary estimated fair value of the net tangible and identifiable intangible assets by $150.6 million, which was allocated to goodwill. The following table presents, in the aggregate, the preliminary estimated fair value of the assets acquired and liabilities assumed recognized as of the acquisition date. Adjustments relate to revised estimates pending completion of our valuation. The allocation of purchase price to assets and liabilities acquired is not yet complete.
 
Preliminary Fair
Value Estimated as of
Acquisition Date
 
Differences Between Prior and Current Period Preliminary Fair Value Estimate
 
Preliminary Fair
Value Currently Estimated as of
Acquisition Date
Assets acquired:
 
 
 
 
 
Current assets
$
90,608

 
$
98

 
$
90,706

Property and equipment
34,048

 
(448
)
 
33,600

Goodwill
150,492

 
79

 
150,571

Intangible assets
77,623

 
—

 
77,623

Total assets
352,771

 
(271
)
 
352,500

Liabilities assumed:
 
 
 
 

Current liabilities
64,736

 
(271
)
 
64,465

Noncurrent liabilities
26,426

 
—

 
26,426

Total liabilities
91,162

 
(271
)
 
90,891

Fair value of net assets acquired, net of cash
$
261,609

 
$
—

 
$
261,609

We are amortizing the fair value of acquired intangible assets, primarily customer relationships, over their remaining weighted average useful lives of 14 years.
Goodwill of $150.6 million consists largely of expected opportunities to expand our kitting capabilities. We assigned goodwill of $21.9 million to our International segment and $128.7 million to our Domestic segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
Pro forma results of operations for these acquisitions have not been presented because the effects on revenue and net income were not material to our historic consolidated financial statements.
Acquisition-related expenses in the current quarter consisted primarily of transition costs incurred to integrate the acquired operations (including certain severance and contractual payments to former management). We recognized pre-tax acquisition-related expenses of $2.6 million in 2015 related to these activities.
Acquisition-related expenses of $0.6 million for the quarter ended March 31, 2014 consisted primarily of costs to resolve certain contingencies with the former Movianto owner as well as remaining costs to transition Movianto’s information technology and administrative functions.
Note 4—Financing Receivables and Payables
At March 31, 2015 and December 31, 2014, we had financing receivables of $135.1 million and $196.2 million and related payables of $133.7 million and $168.8 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.

9

Table of Contents

Note 5—Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill through March 31, 2015:
 
Domestic
Segment
 
International
Segment
 
Total
Carrying amount of goodwill, December 31, 2014
$
377,089

 
$
46,187

 
$
423,276

Currency translation adjustments
—

 
(3,902
)
 
(3,902
)
Acquisitions (see Note 3)
79

 
—

 
79

Carrying amount of goodwill, March 31, 2015
$
377,168

 
$
42,285

 
$
419,453

Intangible assets at March 31, 2015, and December 31, 2014, were as follows:
 
March 31, 2015
 
December 31, 2014
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
121,783

 
$
2,565

 
$
125,448

 
$
3,405

Accumulated amortization
(22,117
)
 
(109
)
 
(19,773
)
 
(487
)
Net intangible assets
$
99,666

 
$
2,456

 
$
105,675

 
$
2,918

At March 31, 2015, $64.6 million in net intangible assets were held in the Domestic segment and $37.5 million were held in the International segment. Amortization expense for intangible assets was $2.4 million and $1.1 million for the three months ended March 31, 2015 and 2014.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $7.6 million for the remainder of 2015, $10.0 million for 2016, $9.9 million for 2017, $9.2 million for 2018, $9.1 million for 2019 and $9.1 million for 2020.
Note 6—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 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 months ended March 31, 2015 and 2014 were as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Domestic segment
$
2,639

 
$
1,294

International segment
4,672

 
1,330

Total exit and realignment charges
$
7,311

 
$
2,624


10

Table of Contents

The following table summarizes the activity related to exit and realignment cost accruals through March 31, 2015 and 2014:
 
Lease
Obligations
 
Severance and
Other
 
Total
Accrued exit and realignment costs, December 31, 2014
$
3,575

 
$
2,887

 
$
6,462

Provision for exit and realignment activities
256

 
142

 
398

Cash payments, net of sublease income
(385
)
 
(873
)
 
(1,258
)
Accrued exit and realignment costs, March 31, 2015
$
3,446

 
$
2,156

 
$
5,602

 
 
 
 
 
 
 
 
 
 
 
 
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

In addition to the exit and realignment accruals in the preceding table, we also incurred $6.9 million of costs that were expensed as incurred for the quarter ended March 31, 2015, including $3.0 million in accelerated amortization of an information system that is being replaced, $1.8 million in facility costs, $1.3 million in labor costs, $0.3 million in information systems costs and $0.5 million in other costs.
We incurred $1.3 million in charges that were expensed as incurred for the quarter ended March 31, 2014 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 $7.0 million over the remainder of 2015 for activities initiated through March 31, 2015.
Note 7—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain officers and other key employees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.
The components of net periodic benefit cost, which are included in selling, general and administrative expenses, for the three months ended March 31, 2015 and 2014, were as follows:
 
Three Months Ended 
 March 31,
 
2015
 
2014
Service cost
$
33

 
$
36

Interest cost
464

 
482

Recognized net actuarial loss
401

 
204

Net periodic benefit cost
$
898

 
$
722

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 $0.4 million for the three months ended March 31, 2015 and 2014.
Note 8—Debt
We have $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points. As of March 31, 2015 and December 31, 2014, the estimated fair value of the 2021 Notes was $287.4 million and $275.1 million and the estimated fair value of the 2024 Notes was $291.4 million and $283.9 million, respectively.

11

Table of Contents

We have a Credit Agreement with a $450 million borrowing capacity which extends through September 2019. Under the Amended Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million. The interest rate on the Amended Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Amended Credit Agreement. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Amended Credit Agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition. Based on our leverage ratio at March 31, 2015, the interest rate under the credit facility is LIBOR plus 1.375%.
At March 31, 2015, we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Amended Credit Agreement, leaving $445 million available for borrowing. We also have a $1.2 million letter of credit outstanding as of March 31, 2015 and 2014, which supports our facilities leased in Europe.
The Amended Credit Agreement and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at March 31, 2015.
Note 9—Derivatives
When deemed appropriate, we use derivatives, primarily forward contracts, as a risk management tool to mitigate the potential impact of foreign currency exchange risk. The total notional values of our foreign currency derivatives was $7.0 million at March 31, 2015 and $10.0 million as of December 31, 2014. We do not currently have any derivatives designated as hedging instruments and all gains and losses resulting from changes in the fair value of derivative instruments are immediately recognized into earnings. At March 31, 2015 and December 31, 2014 the fair value of our foreign currency contracts included in other assets on the consolidated balance sheet was $1.3 million and $0.7 million. The impact from changes in the fair value of these foreign currency derivatives included in other operating income, net was $0.8 million for the first quarter of 2015. We did not hold foreign currency contracts in the first quarter of 2014. We consider the risk of counterparty default to be minimal.
Note 10—Income Taxes
The effective tax rate was 44.4% for the three months ended March 31, 2015, compared to 40.8% in the same quarter of 2014. The change in rate is due to the impact of foreign taxes and certain acquisition-related charges which are not deductible for tax purposes. The liability for unrecognized tax benefits was $6.9 million at March 31, 2015 and $6.7 million at December 31, 2014. Included in the liability at March 31, 2015 were $4.3 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

12

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Note 11—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, 2015 and 2014.
 
Three Months Ended 
 March 31,
(in thousands, except per share data)
2015
 
2014
Numerator:
 
 
 
Net income
$
18,940

 
$
25,485

Less: income allocated to unvested restricted shares
(161
)
 
(188
)
Net income attributable to common shareholders - basic
18,779

 
25,297

Add: undistributed income attributable to unvested restricted shares - basic
18

 
51

Less: undistributed income attributable to unvested restricted shares - diluted
(18
)
 
(51
)
Net income attributable to common shareholders - diluted
$
18,779

 
$
25,297

Denominator:
 
 
 
Weighted average shares outstanding - basic
62,264

 
62,304

Dilutive shares - stock options
2

 
13

Weighted average shares outstanding - diluted
62,266

 
62,317

Net income per share attributable to common shareholders:
 
 
 
Basic
$
0.30

 
$
0.41

Diluted
$
0.30

 
$
0.41

Note 12—Shareholders’ Equity
Our Board of Directors has authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in 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. We did not purchase any shares during the three months ended March 31, 2015. As of March 31, 2015, 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.

13

Table of Contents

Note 13—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, 2015 and 2014: 
 
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2014
$
(10,323
)
 
$
(13,647
)
 
$
(31
)
 
$
(24,001
)
Other comprehensive income (loss) before reclassifications
—

 
(27,941
)
 
38

 
(27,903
)
Income tax
—

 
—

 
—

 
—

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

 
(27,941
)
 
38

 
(27,903
)
Amounts reclassified from accumulated other comprehensive income (loss)
401

 
—

 
—

 
401

Income tax
(143
)
 
—

 
—

 
(143
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
258

 
—

 
—

 
258

Other comprehensive income (loss)
258

 
(27,941
)
 
38

 
(27,645
)
Accumulated other comprehensive income (loss), March 31, 2015
$
(10,065
)
 
$
(41,588
)
 
$
7

 
$
(51,646
)

 
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

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, 2015 and 2014, we reclassified $0.4 million and $0.2 million of actuarial net losses.
Note 14—Commitments and Contingencies
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.
In the first quarter of 2015, we settled our dispute and terminated the service contract with a customer in the United Kingdom. As part of the settlement, we entered into a transition agreement for the transfer of services back to this customer and paid approximately $3.9 million that was fully accrued at December 31, 2014. Substantially all outstanding accounts receivable as of December 31, 2014 related to this contract have been received.

14

Table of Contents

Note 15—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,
 
2015
 
2014
Net revenue:
 
 
 
Domestic
$
2,285,635

 
$
2,148,915

International
105,561

 
107,465

Consolidated net revenue
$
2,391,196

 
$
2,256,380

 
 
 
 
Operating earnings (loss):
 
 
 
Domestic
$
50,512

 
$
52,734

International
379

 
(3,188
)
Acquisition-related and exit and realignment charges (1)
(9,916
)
 
(3,262
)
Consolidated operating earnings
$
40,975

 
$
46,284

 
 
 
 
Depreciation and amortization:
 
 
 
Domestic
$
10,738

 
$
8,975

International
5,431

 
4,889

Consolidated depreciation and amortization
$
16,169

 
$
13,864

 
 
 
 
Capital expenditures:
 
 
 
Domestic
$
8,651

 
$
10,175

International
2,915

 
4,054

Consolidated capital expenditures
$
11,566

 
$
14,229

 
March 31, 2015
 
December 31, 2014
Total assets:
 
 
 
Domestic
$
2,101,477

 
$
2,139,972

International
438,977

 
538,662

Segment assets
2,540,454

 
2,678,634

Cash and cash equivalents
159,056

 
56,772

Consolidated total assets
$
2,699,510

 
$
2,735,406

 (1) The first quarter of 2015 includes $3.0 million in accelerated amortization related to an information system that is being replaced.



15

Table of Contents

Note 16—Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information for: Owens & Minor, Inc. (O&M); the guarantors of Owens & Minor, Inc.’s 2021 Notes and 2024 Notes, on a combined basis; and the non-guarantor subsidiaries of the 2021 Notes and 2024 Notes, on a combined basis. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several, and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.
 
Three Months Ended March 31, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Income
 
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
2,250,704

 
$
180,361

 
$
(39,869
)
 
$
2,391,196

 
Cost of goods sold
—

 
2,034,032

 
99,818

 
(40,255
)
 
2,093,595

 
Gross margin
—

 
216,672

 
80,543

 
386

 
297,601

 
Selling, general and administrative expenses
39

 
160,577

 
73,209

 
—

 
233,825

 
Acquisition-related and exit and realignment charges
—

 
3,577

 
6,339

 
—

 
9,916

 
Depreciation and amortization
—

 
9,103

 
6,766

 
—

 
15,869

 
Other operating income, net
—

 
(976
)
 
(2,008
)
 
—

 
(2,984
)
 
Operating earnings (loss)
(39
)
 
44,391

 
(3,763
)
 
386

 
40,975

 
Interest expense (income), net
5,947

 
764

 
169

 
—

 
6,880

 
Income (loss) before income taxes
(5,986
)
 
43,627

 
(3,932
)
 
386

 
34,095

 
Income tax (benefit) provision
(773
)
 
15,231

 
697

 
—

 
15,155

 
Equity in earnings of subsidiaries
24,153

 
—

 
—

 
(24,153
)
 
—

 
Net income (loss)
18,940

 
28,396

 
(4,629
)
 
(23,767
)
 
18,940

 
Other comprehensive income (loss)
(27,645
)
 
504

 
(28,149
)
 
27,645

 
(27,645
)
 
Comprehensive income (loss)
$
(8,705
)
 
$
28,900

 
$
(32,778
)
 
$
3,878

 
$
(8,705
)
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


16

Table of Contents

 
 
March 31, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
115,613

 
$
10,135

 
$
33,308

 
$
—

 
$
159,056

 
Accounts and notes receivable, net
—

 
494,303

 
112,957

 
(10,025
)
 
597,235

 
Merchandise inventories
—

 
819,263

 
59,608

 
(4,133
)
 
874,738

 
Other current assets
15

 
78,295

 
155,008

 
—

 
233,318

 
Total current assets
115,628

 
1,401,996

 
360,881

 
(14,158
)
 
1,864,347

 
Property and equipment, net
—

 
110,753

 
111,197

 
—

 
221,950

 
Goodwill, net
—

 
247,271

 
172,182

 
—

 
419,453

 
Intangible assets, net
—

 
15,286

 
86,836

 
—

 
102,122

 
Due from O&M and subsidiaries
—

 
480,429

 
—

 
(480,429
)
 
—

 
Advances to and investment in consolidated subsidiaries
1,855,506

 
—

 
—

 
(1,855,506
)
 
—

 
Other assets, net
4,498

 
64,961

 
22,179

 
—

 
91,638

 
Total assets
$
1,975,632

 
$
2,320,696

 
$
753,275

 
$
(2,350,093
)
 
$
2,699,510

 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
659,644

 
$
43,038

 
$
(8,983
)
 
$
693,699

 
Accrued payroll and related liabilities
—

 
14,227

 
10,764

 
—

 
24,991

 
Deferred income taxes
—

 
39,602

 
(1,782
)
 
—

 
37,820

 
Other accrued liabilities
6,709

 
89,991

 
176,404

 
—

 
273,104

 
Total current liabilities
6,709

 
803,464

 
228,424

 
(8,983
)
 
1,029,614

 
Long-term debt, excluding current portion
547,834

 
5,728

 
21,044

 
—

 
574,606

 
Due to O&M and subsidiaries
452,816

 
—

 
62,924

 
(515,740
)
 
—

 
Intercompany debt
—

 
138,890

 
—

 
(138,890
)
 
—

 
Deferred income taxes
—

 
33,908

 
29,413

 
—

 
63,321

 
Other liabilities
—

 
56,079

 
7,617

 
—

 
63,696

 
Total liabilities
1,007,359

 
1,038,069

 
349,422

 
(663,613
)
 
1,731,237

 
Equity
 
 
 
 
 
 
 
 
 
 
Common stock
126,205

 
—

 
—

 
—

 
126,205

 
Paid-in capital
204,901

 
241,875

 
516,608

 
(758,483
)
 
204,901

 
Retained earnings (deficit)
688,813

 
1,050,782

 
(71,116
)
 
(979,666
)
 
688,813

 
Accumulated other comprehensive income (loss)
(51,646
)
 
(10,030
)
 
(41,639
)
 
51,669

 
(51,646
)
 
Total equity
968,273

 
1,282,627

 
403,853

 
(1,686,480
)
 
968,273

 
Total liabilities and equity
$
1,975,632

 
$
2,320,696

 
$
753,275

 
$
(2,350,093
)
 
$
2,699,510



17

Table of Contents

December 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
22,013

 
$
3,912

 
$
30,847

 
$
—

 
$
56,772

Accounts and notes receivable, net
—

 
519,951

 
144,463

 
(38,222
)
 
626,192

Merchandise inventories
—

 
816,915

 
60,061

 
(4,519
)
 
872,457

Other current assets
(24,748
)
 
90,733

 
224,220

 
25,080

 
315,285

Total current assets
(2,735
)
 
1,431,511

 
459,591

 
(17,661
)
 
1,870,706

Property and equipment, net
—

 
110,076

 
122,903

 
—

 
232,979

Goodwill, net
—

 
247,271

 
176,005

 
—

 
423,276

Intangible assets, net
—

 
15,805

 
92,788

 
—

 
108,593

Due from O&M and subsidiaries
—

 
357,304

 
—

 
(357,304
)
 
—

Advances to and investments in consolidated subsidiaries
1,893,767

 
—

 
—

 
(1,893,767
)
 
—

Other assets, net
4,637

 
66,836

 
28,379

 
—

 
99,852

Total assets
$
1,895,669

 
$
2,228,803

 
$
879,666

 
$
(2,268,732
)
 
$
2,735,406

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
567,285

 
$
54,898

 
$
(13,337
)
 
$
608,846

Accrued payroll and related liabilities
—

 
16,434

 
15,073

 
—

 
31,507

Deferred income taxes
—

 
39,667

 
(1,688
)
 
—

 
37,979

Other current liabilities
6,441

 
83,698

 
236,084

 
—

 
326,223

Total current liabilities
6,441

 
707,084

 
304,367

 
(13,337
)
 
1,004,555

Long-term debt, excluding current portion
547,763

 
39,915

 
20,873

 
—

 
608,551

Due to O&M and subsidiaries
350,627

 
—

 
77,788

 
(428,415
)
 
—

Intercompany debt
—

 
138,890

 
—

 
(138,890
)
 
—

Deferred income taxes
—

 
33,162

 
30,739

 
—

 
63,901

Other liabilities
—

 
55,794

 
11,767

 
—

 
67,561

Total liabilities
904,831

 
974,845

 
445,534

 
(580,642
)
 
1,744,568

Equity
 
 
 
 
 
 
 
 
—

Common stock
126,140

 
—

 
—

 
—

 
126,140

Paid-in capital
202,934

 
241,877

 
514,314

 
(756,191
)
 
202,934

Retained earnings (deficit)
685,765

 
1,022,379

 
(66,479
)
 
(955,900
)
 
685,765

Accumulated other comprehensive income (loss)
(24,001
)
 
(10,298
)
 
(13,703
)
 
24,001

 
(24,001
)
Total equity
990,838

 
1,253,958

 
434,132

 
(1,688,090
)
 
990,838

Total liabilities and equity
$
1,895,669

 
$
2,228,803

 
$
879,666

 
$
(2,268,732
)
 
$
2,735,406



18

Table of Contents

 
Three Months Ended March 31, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
18,940

 
$
28,396

 
$
(4,629
)
 
$
(23,767
)
 
$
18,940

 
Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
(24,153
)
 
—

 
—

 
24,153

 
—

 
Depreciation and amortization
—

 
9,105

 
10,018

 
—

 
19,123

 
Share-based compensation expense
—

 
2,597

 
—

 
—

 
2,597

 
Provision for losses on accounts and notes receivable
—

 
(36
)
 
256

 
—

 
220

 
Deferred income tax expense (benefit)
—

 
(373
)
 
883

 
—

 
510

 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts and notes receivable
—

 
26,519

 
(5,561
)
 
6,398

 
27,356

 
Merchandise inventories
—

 
(2,348
)
 
(3,928
)
 
2,388

 
(3,888
)
 
Accounts payable
—

 
92,359

 
3,424

 
(6,839
)
 
88,944

 
Net change in other assets and liabilities
541

 
16,418

 
(1,046
)
 
(2,333
)
 
13,580

 
Other, net
209

 
636

 
476

 
—

 
1,321

 
Cash provided by (used for) operating activities
(4,463
)
 
173,273

 
(107
)
 
—

 
168,703

 
Investing activities:
 
 
 
 
 
 
 
 
 
 
Additions to property and equipment
—

 
(6,552
)
 
(1,067
)
 
—

 
(7,619
)
 
Additions to computer software and intangible assets
—

 
(1,457
)
 
(2,490
)
 
—

 
(3,947
)
 
Proceeds from the sale of property and equipment
—

 
50

 
—

 
—

 
50

 
Cash used for investing activities
—

 
(7,959
)
 
(3,557
)
 
—

 
(11,516
)
 
Financing activities:
 
 
 
 
 
 
 
 
 
 
Change in bank overdraft
—

 
—

 
1,179

 
—

 
1,179

 
Change in intercompany advances
114,499

 
(124,681
)
 
10,182

 
—

 
—

 
Repayment of revolving credit facility
—

 
(33,700
)
 
—

 
—

 
(33,700
)
 
Cash dividends paid
(15,934
)
 
—

 
—

 
—

 
(15,934
)
 
Excess tax benefits related to share-based compensation
240

 
—

 
—

 
—

 
240

 
Proceeds from exercise of stock options
125

 
—

 
—

 
—

 
125

 
Other, net
(867
)
 
(710
)
 
(747
)
 
—

 
(2,324
)
 
Cash provided by (used for) financing activities
98,063

 
(159,091
)
 
10,614

 
—

 
(50,414
)
 
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(4,489
)
 
—

 
(4,489
)
 
Net increase (decrease) in cash and cash equivalents
93,600

 
6,223

 
2,461

 
—

 
102,284

 
Cash and cash equivalents at beginning of period
22,013

 
3,912

 
30,847

 
 
 
56,772

 
Cash and cash equivalents at end of period
$
115,613

 
$
10,135

 
$
33,308

 
$
—

 
$
159,056

 

19

Table of Contents

 
Three Months Ended March 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries