10-Q
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, 2016
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 29, 2016, was 62,794,080 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.

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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)
 
2016
 
2015
Net revenue
 
$
2,455,793

 
$
2,391,196

Cost of goods sold
 
2,159,157

 
2,093,595

Gross margin

296,636


297,601

Distribution, selling and administrative expenses
 
242,725

 
249,694

Acquisition-related and exit and realignment charges
 
10,483

 
9,916

Other operating income, net
 
(1,542
)
 
(2,984
)
Operating earnings
 
44,970

 
40,975

Interest expense, net
 
6,790

 
6,880

Income before income taxes
 
38,180

 
34,095

Income tax provision
 
14,045

 
15,155

Net income
 
$
24,135

 
$
18,940

Net income per common share:
 
 
 
 
Basic
 
$
0.39

 
$
0.30

Diluted
 
$
0.39

 
$
0.30

Cash dividends per common share
 
$
0.255

 
$
0.2525



See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 
 
 
Three Months Ended 
 March 31,
(in thousands)
 
2016
 
2015
Net income
 
$
24,135

 
$
18,940

Other comprehensive income (loss), net of tax:
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2016 and 2015)
 
8,162

 
(27,941
)
Change in unrecognized net periodic pension costs (net of income tax of $171 in 2016 and $143 in 2015)
 
238

 
258

Other (net of income tax of $0 in 2016 and 2015)
 
19

 
38

Total other comprehensive income (loss), net of tax
 
8,419

 
(27,645
)
Comprehensive income (loss)
 
$
32,554

 
$
(8,705
)


See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
March 31,
 
December 31,
(in thousands, except per share data)
2016
 
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
190,323

 
$
161,020

Accounts and notes receivable, net of allowances of $13,234 and $13,177
615,750

 
587,935

Merchandise inventories
925,714

 
940,775

Other current assets
269,698

 
284,970

Total current assets
2,001,485

 
1,974,700

Property and equipment, net of accumulated depreciation of $197,285 and $189,105
208,033

 
208,930

Goodwill, net
420,071

 
419,619

Intangible assets, net
93,347

 
95,250

Other assets, net
73,905

 
75,277

Total assets
$
2,796,841

 
$
2,773,776

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
758,585

 
$
710,609

Accrued payroll and related liabilities
30,327

 
45,907

Other current liabilities
278,026

 
307,073

Total current liabilities
1,066,938

 
1,063,589

Long-term debt, excluding current portion
567,711

 
568,495

Deferred income taxes
93,275

 
86,326

Other liabilities
63,996

 
62,776

Total liabilities
1,791,920

 
1,781,186

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,802 shares and 62,803 shares
125,604

 
125,606

Paid-in capital
213,016

 
211,943

Retained earnings
709,707

 
706,866

Accumulated other comprehensive income
(43,406
)
 
(51,825
)
Total equity
1,004,921

 
992,590

Total liabilities and equity
$
2,796,841

 
$
2,773,776



See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
 
Three Months Ended March 31,
(in thousands)
2016
 
2015
Operating activities:
 
 
 
Net income
$
24,135

 
$
18,940

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
14,218

 
19,123

Share-based compensation expense
2,603

 
2,597

Provision for losses on accounts and notes receivable
115

 
220

Deferred income tax expense
6,907

 
510

Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
(26,815
)
 
27,356

Merchandise inventories
15,178

 
(3,888
)
Accounts payable
46,751

 
88,944

Net change in other assets and liabilities
(38,100
)
 
13,580

Other, net
(97
)
 
1,321

Cash provided by operating activities
44,895

 
168,703

Investing activities:
 
 
 
Additions to property and equipment
(5,283
)
 
(7,619
)
Additions to computer software and intangible assets
(1,777
)
 
(3,947
)
Proceeds from sale of property and equipment
4,599

 
50

Cash used for investing activities
(2,461
)
 
(11,516
)
Financing activities:
 
 
 
Change in bank overdraft
8,359

 
1,179

Repayment of revolving credit facility

 
(33,700
)
Cash dividends paid
(16,029
)
 
(15,934
)
Repurchases of common stock
(5,630
)
 

Excess tax benefits related to share-based compensation
250

 
240

Proceeds from exercise of stock options

 
125

Other, net
(3,016
)
 
(2,324
)
Cash used for financing activities
(16,066
)
 
(50,414
)
Effect of exchange rate changes on cash and cash equivalents
2,935

 
(4,489
)
Net increase in cash and cash equivalents
29,303

 
102,284

Cash and cash equivalents at beginning of period
161,020

 
56,772

Cash and cash equivalents at end of period
$
190,323

 
$
159,056

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
20,028

 
$
4,509

Interest paid
$
6,226

 
$
5,924




See accompanying notes to consolidated financial statements.
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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)
 
 
Total
Equity
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
)
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

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2015
62,803

 
$
125,606

 
$
211,943

 
$
706,866

 
$
(51,825
)
 
 
$
992,590

Net income
 
 
 
 
 
 
24,135

 
 
 
 
24,135

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
8,419

 
 
8,419

Dividends declared ($0.255 per share)
 
 
 
 
 
 
(15,989
)
 
 
 
 
(15,989
)
Shares repurchased and retired
(163
)
 
(325
)
 
 
 
(5,305
)
 
 
 
 
(5,630
)
Share-based compensation expense, exercises and other
162

 
323

 
1,073

 
 
 
 
 
 
1,396

Balance March 31, 2016
62,802

 
$
125,604

 
$
213,016

 
$
709,707

 
$
(43,406
)
 
 
$
1,004,921



See accompanying notes to consolidated financial statements.
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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.
Recently, we have made certain changes to the leadership team, organizational structure, budgeting and financial reporting processes which drive changes to segment reporting. These changes align our operations into three distinct business units: Domestic, International and Clinical & Procedural Solutions (CPS). Domestic is our U.S.distribution, logistics and value-added services business, while International is our European distribution, logistics and value-added services business. CPS provides product-related solutions, including surgical and procedural kitting and sourcing. Beginning with the quarter ended March 31, 2016, we now report financial results using this three segment structure and have recast prior year segment results on the same basis.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation. Depreciation and amortization, previously reported as a separate financial statement line item in the consolidated statements of income is now included in distribution, selling and administrative expenses for all periods presented.
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 estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies. See Note 7 for the fair value of long-term debt and Note 8 for the fair value of derivatives.
Note 3—Financing Receivables and Payables
At March 31, 2016 and December 31, 2015, we had financing receivables of $165.5 million and $198.5 million and related payables of $105.4 million and $148.5 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
In connection with our new three segment structure, goodwill has been reallocated based on the relative fair value of the underlying reporting units. We performed an interim impairment analysis as a result of this change and noted no impairment. The following table summarizes the reallocated goodwill balances by segment and the changes in the carrying amount of goodwill through March 31, 2016:
 
Domestic
 
International
 
CPS
 
Consolidated
Carrying amount of goodwill, December 31, 2015
$
180,006

 
$
23,426

 
$
216,187

 
$
419,619

Currency translation adjustments

 
(280
)
 
732

 
452

Carrying amount of goodwill, March 31, 2016
$
180,006

 
$
23,146

 
$
216,919

 
$
420,071


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Table of Contents

Intangible assets at March 31, 2016, and December 31, 2015, were as follows:
 
March 31, 2016
 
December 31, 2015
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
122,467

 
$
4,733

 
$
121,888

 
$
4,621

Accumulated amortization
(32,419
)
 
(1,434
)
 
(29,872
)
 
(1,387
)
Net intangible assets
$
90,048

 
$
3,299

 
$
92,016

 
$
3,234

At March 31, 2016, $13.2 million in net intangible assets were held in the Domestic segment, $14.4 million were held in the International segment and $65.8 million were held in the CPS segment. Amortization expense for intangible assets was $2.2 million and $2.4 million for the three months ended March 31, 2016 and 2015.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $7.8 million for the remainder of 2016, $9.9 million for 2017, $9.3 million for 2018, $9.2 million for 2019, $9.0 million for 2020 and $8.6 million for 2021.
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 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, 2016 and 2015 were as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Domestic segment
$
8,074

 
$
2,639

International segment
1,700

 
4,672

CPS segment
1,108

 

Total exit and realignment charges
$
10,882

 
$
7,311

For the quarter ended March 31, 2016, $9.9 million in charges were associated with our voluntary employee separation program and other severance activities. The following table summarizes the activity related to exit and realignment cost accruals through March 31, 2016 and 2015:
 
Lease
Obligations
 
Severance and
Other
 
Total
Accrued exit and realignment costs, December 31, 2015
$
486

 
$
1,840

 
$
2,326

Provision for exit and realignment activities

 
9,895

 
9,895

Cash payments, net of sublease income
(486
)
 
(1,287
)
 
(1,773
)
Accrued exit and realignment costs, March 31, 2016
$

 
$
10,448

 
$
10,448

 
 
 
 
 
 
 
 
 
 
 
 
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

In addition to the exit and realignment accruals in the preceding table, we also incurred $1.0 million of costs that were expensed as incurred for the quarter ended March 31, 2016, including $0.5 million in information systems costs, $0.4 million in consulting costs and $0.1 million in other costs.

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Table of Contents

We 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 has been 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.
Note 6—Retirement Plans
We have a noncontributory, unfunded retirement plan for certain officers and other key employees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.
The components of net periodic benefit cost, which are included in distribution, selling and administrative expenses, for the three months ended March 31, 2016 and 2015, were as follows:
 
Three Months Ended 
 March 31,
 
2016
 
2015
Service cost
$
23

 
$
33

Interest cost
505

 
464

Recognized net actuarial loss
409

 
401

Net periodic benefit cost
$
937

 
$
898

Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.4 million and $0.5 million for the three months ended March 31, 2016 and 2015.
Note 7—Debt
We have $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We 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, 2016 and December 31, 2015, the estimated fair value of the 2021 Notes was $277.4 million and $273.7 million and the estimated fair value of the 2024 Notes was $277.0 million and $272.8 million, respectively.
We have a Credit Agreement with a $450 million borrowing capacity which extends through September 2019. Under the Amended Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million. The interest rate on the Amended Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Amended Credit Agreement. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Amended Credit Agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition. Based on our leverage ratio at March 31, 2016, the interest rate under the credit facility is LIBOR plus 1.375%.
At March 31, 2016, 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, 2016 and 2015, 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, 2016.
Note 8—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 $0.9 million at March 31, 2016 and $2.0 million as of December 31, 2015. 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, 2016 and December 31, 2015 the fair value of our foreign currency contracts included in other assets on the consolidated balance sheet was $0.1 million and $0.4 million. The impact from changes in the fair value

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of these foreign currency derivatives included in other operating income, net was a $0.3 million loss for the first quarter of 2016 and a $0.8 million gain for the first quarter of 2015. We consider the risk of counterparty default to be minimal.
Note 9—Income Taxes
The effective tax rate was 36.8% for the three months ended March 31, 2016, compared to 44.4% in the same quarter of 2015. The change in rate resulted from a higher percentage of the company's pretax income earned in lower tax rate jurisdictions compared to prior year and the deductibility of certain prior year acquisition-related charges for income tax purposes. The liability for unrecognized tax benefits was $8.5 million at March 31, 2016 and $7.7 million at December 31, 2015. Included in the liability at March 31, 2016 were $4.1 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
Note 10—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, 2016 and 2015.
 
Three Months Ended 
 March 31,
(in thousands, except per share data)
2016
 
2015
Numerator:
 
 
 
Net income
$
24,135

 
$
18,940

Less: income allocated to unvested restricted shares
(276
)
 
(161
)
Net income attributable to common shareholders - basic
23,859

 
18,779

Add: undistributed income attributable to unvested restricted shares - basic
57

 
18

Less: undistributed income attributable to unvested restricted shares - diluted
(57
)
 
(18
)
Net income attributable to common shareholders - diluted
$
23,859

 
$
18,779

Denominator:
 
 
 
Weighted average shares outstanding - basic
61,696

 
62,264

Dilutive shares - stock options

 
2

Weighted average shares outstanding - diluted
61,696

 
62,266

Net income per share attributable to common shareholders:
 
 
 
Basic
$
0.39

 
$
0.30

Diluted
$
0.39

 
$
0.30

Note 11—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. During the three months ended March 31, 2016, we repurchased in open-market transactions and retired approximately 0.2 million shares of our common stock for an aggregate of $5.6 million, or an average price per share of $34.61. As of March 31, 2016, we have approximately $64.4 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

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Note 12—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, 2016 and 2015: 
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2015
$
(10,482
)
 
$
(41,228
)
 
$
(115
)
 
$
(51,825
)
Other comprehensive income (loss) before reclassifications

 
8,162

 

 
8,162

Income tax

 

 

 

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

 
8,162

 

 
8,162

Amounts reclassified from accumulated other comprehensive income (loss)
409

 

 
19

 
428

Income tax
(171
)
 

 

 
(171
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
238

 

 
19

 
257

Other comprehensive income (loss)
238

 
8,162

 
19

 
8,419

Accumulated other comprehensive income (loss), March 31, 2016
$
(10,244
)
 
$
(33,066
)
 
$
(96
)
 
$
(43,406
)

 
Retirement 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
)
We include amounts reclassified out of accumulated other comprehensive income related to defined benefit pension plans as a component of net periodic pension cost recorded in distribution, selling and administrative expenses. For the three months ended March 31, 2016 and 2015, we reclassified $0.4 million of actuarial net losses.
Note 13—Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under three segments: Domestic, International and Clinical & Procedural Solutions (CPS). The Domestic segment includes our United States distribution, logistics and value-added services business. The International segment consists of our European distribution, logistics and value-added services business. CPS provides product-related solutions, including surgical and procedural kitting and sourcing.

12


Table of Contents

We evaluate the performance of our segments based on their operating earnings excluding acquisition-related and exit and realignment charges, certain purchase price fair value adjustments, and other substantive items that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis. Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading or not meaningful. We believe all inter-segment sales are at prices that approximate market.
The following tables present financial information by segment:
 
Three Months Ended March 31,
 
2016
 
2015
Net revenue:
 
 
 
Segment net revenue
 
 
 
Domestic
$
2,321,708

 
$
2,249,705

International
83,551

 
95,511

CPS
141,353

 
129,645

Total segment net revenue
2,546,612

 
2,474,861

Inter-segment revenue
 
 
 
CPS
(90,819
)
 
(83,665
)
       Total inter-segment revenue
(90,819
)
 
(83,665
)
Consolidated net revenue
$
2,455,793

 
$
2,391,196

 
 
 
 
Operating earnings (loss):
 
 
 
Domestic
$
41,718

 
$
38,106

International
1,128

 
(337
)
CPS
13,271

 
13,182

Inter-segment eliminations
(664
)
 
(60
)
Acquisition-related and exit and realignment charges (1)
(10,483
)
 
(9,916
)
Consolidated operating earnings
$
44,970

 
$
40,975

 
 
 
 
Depreciation and amortization:
 
 
 
Domestic
$
7,542

 
$
9,083

International
4,450

 
4,895

CPS
2,226

 
2,191

Consolidated depreciation and amortization
$
14,218

 
$
16,169

 
 
 
 
Capital expenditures:
 
 
 
Domestic
$
4,543

 
$
8,009

International
1,970

 
2,915

CPS
547

 
642

Consolidated capital expenditures
$
7,060

 
$
11,566

 
 
 
 
(1) The first quarter of 2015 included $3.0 million in accelerated amortization related to an information system that was replaced in the International segment.

13


Table of Contents

 
March 31, 2016
 
December 31, 2015
Total assets:
 
 
 
Domestic
$
1,742,187

 
$
1,728,345

International
448,969

 
464,003

CPS
415,362

 
420,408

Segment assets
2,606,518

 
2,612,756

Cash and cash equivalents
190,323

 
161,020

Consolidated total assets
$
2,796,841

 
$
2,773,776

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

 
$
2,321,708

 
$
172,101

 
$
(38,016
)
 
$
2,455,793

 
Cost of goods sold

 
2,105,264

 
92,075

 
(38,182
)
 
2,159,157

 
Gross margin

 
216,444

 
80,026

 
166

 
296,636

 
Distribution, selling and administrative expenses
534

 
169,310

 
72,881

 

 
242,725

 
Acquisition-related and exit and realignment charges

 
8,402

 
2,081

 

 
10,483

 
Other operating income, net

 
(1,384
)
 
(158
)
 

 
(1,542
)
 
Operating earnings (loss)
(534
)
 
40,116

 
5,222

 
166

 
44,970

 
Interest expense (income), net
6,840

 
(629
)
 
579

 

 
6,790

 
Income (loss) before income taxes
(7,374
)
 
40,745

 
4,643

 
166

 
38,180

 
Income tax (benefit) provision

 
11,547

 
2,498

 

 
14,045

 
Equity in earnings of subsidiaries
31,509

 

 

 
(31,509
)
 

 
Net income (loss)
24,135

 
29,198

 
2,145

 
(31,343
)
 
24,135

 
Other comprehensive income (loss)
8,419

 
257

 
8,162

 
(8,419
)
 
8,419

 
Comprehensive income (loss)
$
32,554

 
$
29,455

 
$
10,307

 
$
(39,762
)
 
$
32,554


14


Table of Contents

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

Distribution, selling and administrative expenses
39

 
169,680

 
79,975

 

 
249,694

Acquisition-related and exit and realignment charges

 
3,577

 
6,339

 

 
9,916

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
)

15


Table of Contents

 
 
March 31, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
132,179

 
$
9,514

 
$
48,630

 
$

 
$
190,323

 
Accounts and notes receivable, net

 
530,547

 
94,335

 
(9,132
)
 
615,750

 
Merchandise inventories

 
872,376

 
55,558

 
(2,220
)
 
925,714

 
Other current assets
7

 
85,246

 
184,445

 

 
269,698

 
Total current assets
132,186

 
1,497,683

 
382,968

 
(11,352
)
 
2,001,485

 
Property and equipment, net

 
102,937

 
105,096

 

 
208,033

 
Goodwill, net

 
180,006

 
240,065

 

 
420,071

 
Intangible assets, net

 
13,213

 
80,134

 

 
93,347

 
Due from O&M and subsidiaries

 
564,018

 

 
(564,018
)
 

 
Advances to and investment in consolidated subsidiaries
1,991,311

 

 

 
(1,991,311
)
 

 
Other assets, net

 
56,005

 
17,900

 

 
73,905

 
Total assets
$
2,123,497

 
$
2,413,862

 
$
826,163

 
$
(2,566,681
)
 
$
2,796,841

 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
707,358

 
$
60,359

 
$
(9,132
)
 
$
758,585

 
Accrued payroll and related liabilities

 
18,287

 
12,040

 

 
30,327

 
Other accrued liabilities
7,488

 
117,778

 
152,760

 

 
278,026

 
Total current liabilities
7,488

 
843,423

 
225,159

 
(9,132
)
 
1,066,938

 
Long-term debt, excluding current portion
544,197

 
4,121

 
19,393

 

 
567,711

 
Due to O&M and subsidiaries
566,891

 

 
59,213

 
(626,104
)
 

 
Intercompany debt

 
138,890

 

 
(138,890
)
 

 
Deferred income taxes

 
71,484

 
21,791

 

 
93,275

 
Other liabilities

 
57,586

 
6,410

 

 
63,996

 
Total liabilities
1,118,576

 
1,115,504

 
331,966

 
(774,126
)
 
1,791,920

 
Equity
 
 
 
 
 
 
 
 
 
 
Common stock
125,604

 

 

 

 
125,604

 
Paid-in capital
213,016

 
174,612

 
583,867

 
(758,479
)
 
213,016

 
Retained earnings (deficit)
709,707

 
1,133,985

 
(56,503
)
 
(1,077,482
)
 
709,707

 
Accumulated other comprehensive income (loss)
(43,406
)
 
(10,239
)
 
(33,167
)
 
43,406

 
(43,406
)
 
Total equity
1,004,921

 
1,298,358

 
494,197

 
(1,792,555
)
 
1,004,921

 
Total liabilities and equity
$
2,123,497

 
$
2,413,862

 
$
826,163

 
$
(2,566,681
)
 
$
2,796,841



16


Table of Contents

December 31, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
103,284

 
$
5,614

 
$
52,122

 
$

 
$
161,020

Accounts and notes receivable, net

 
507,673

 
89,895

 
(9,633
)
 
587,935

Merchandise inventories

 
883,232

 
59,930

 
(2,387
)
 
940,775

Other current assets
104

 
72,683

 
212,183

 

 
284,970

Total current assets
103,388

 
1,469,202

 
414,130

 
(12,020
)
 
1,974,700

Property and equipment, net

 
103,219

 
105,711

 

 
208,930

Goodwill, net

 
180,006

 
239,613

 

 
419,619

Intangible assets, net

 
13,731

 
81,519

 

 
95,250

Due from O&M and subsidiaries

 
518,473

 

 
(518,473
)
 

Advances to and investments in consolidated subsidiaries
1,967,176

 

 

 
(1,967,176
)
 

Other assets, net

 
57,409

 
17,868

 

 
75,277

Total assets
$
2,070,564

 
$
2,342,040

 
$
858,841

 
$
(2,497,669
)
 
$
2,773,776

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
662,909

 
$
56,073

 
$
(8,373
)
 
$
710,609

Accrued payroll and related liabilities

 
32,094

 
13,813

 

 
45,907

Other current liabilities
6,924

 
109,137

 
191,012

 

 
307,073

Total current liabilities
6,924

 
804,140

 
260,898

 
(8,373
)
 
1,063,589

Long-term debt, excluding current portion
543,982

 
4,527

 
19,986

 

 
568,495

Due to O&M and subsidiaries
527,068

 

 
70,089

 
(597,157
)
 

Intercompany debt

 
138,890

 

 
(138,890
)
 

Deferred income taxes

 
67,562

 
18,764

 

 
86,326

Other liabilities

 
57,573

 
5,203

 

 
62,776

Total liabilities
1,077,974

 
1,072,692

 
374,940

 
(744,420
)
 
1,781,186

Equity
 
 
 
 
 
 
 
 

Common stock
125,606

 

 

 

 
125,606

Paid-in capital
211,943

 
174,612

 
583,873

 
(758,485
)
 
211,943

Retained earnings (deficit)
706,866

 
1,104,787

 
(58,648
)
 
(1,046,139
)
 
706,866

Accumulated other comprehensive income (loss)
(51,825
)
 
(10,051
)
 
(41,324
)
 
51,375

 
(51,825
)
Total equity
992,590

 
1,269,348

 
483,901

 
(1,753,249
)
 
992,590

Total liabilities and equity
$
2,070,564

 
$
2,342,040

 
$
858,841

 
$
(2,497,669
)
 
$
2,773,776



17


Table of Contents

 
Three Months Ended March 31, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
24,135

 
$
29,198

 
$
2,145

 
$
(31,343
)
 
$
24,135

 
Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
(31,509
)
 

 

 
31,509

 

 
Depreciation and amortization

 
7,569

 
6,649

 

 
14,218

 
Share-based compensation expense

 
2,603

 

 

 
2,603

 
Provision for losses on accounts and notes receivable

 
128

 
(13
)
 

 
115

 
Deferred income tax expense (benefit)

 
3,922

 
2,985

 

 
6,907

 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts and notes receivable

 
(23,002
)
 
(4,569
)
 
756

 
(26,815
)
 
Merchandise inventories

 
10,856

 
4,490

 
(168
)
 
15,178

 
Accounts payable

 
44,449

 
3,056

 
(754
)
 
46,751

 
Net change in other assets and liabilities
661

 
(15,780
)
 
(22,981
)
 

 
(38,100
)
 
Other, net
214

 
123

 
(434
)
 

 
(97
)
 
Cash provided by (used for) operating activities
(6,499
)
 
60,066

 
(8,672
)
 

 
44,895

 
Investing activities:
 
 
 
 
 
 
 
 
 
 
Additions to property and equipment

 
(3,928
)
 
(1,355
)
 

 
(5,283
)
 
Additions to computer software and intangible assets

 
(615
)
 
(1,162
)
 

 
(1,777
)
 
Proceeds from the sale of property and equipment

 
3

 
4,596

 

 
4,599

 
Cash provided by (used for) investing activities

 
(4,540
)
 
2,079

 

 
(2,461
)
 
Financing activities:
 
 
 
 
 
 
 
 
 
 
Change in bank overdraft

 

 
8,359

 

 
8,359

 
Change in intercompany advances
58,435

 
(51,009
)
 
(7,426
)
 

 

 
Cash dividends paid
(16,029
)
 

 

 

 
(16,029
)
 
Repurchases of common stock
(5,630
)
 

 

 

 
(5,630
)
 
Excess tax benefits related to share-based compensation
250

 

 

 

 
250

 
Other, net
(1,632
)
 
(617
)
 
(767
)
 

 
(3,016
)
 
Cash provided by (used for) financing activities
35,394

 
(51,626
)
 
166

 

 
(16,066
)
 
Effect of exchange rate changes on cash and cash equivalents

 

 
2,935

 

 
2,935

 
Net increase (decrease) in cash and cash equivalents
28,895

 
3,900

 
(3,492
)
 

 
29,303

 
Cash and cash equivalents at beginning of period
103,284

 
5,614

 
52,122

 

 
161,020

 
Cash and cash equivalents at end of period
$
132,179

 
$
9,514

 
$
48,630

 
$

 
$
190,323

 

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