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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________ 
FORM 10-Q
________________________________________________ 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 2016, was 62,407,033 shares.
 
 
 
 
 


Table of Contents

Owens & Minor, Inc. and Subsidiaries
Index
 
Page
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net revenue
$
2,483,676

 
$
2,422,167

 
$
4,939,469

 
$
4,813,363

Cost of goods sold
2,184,256

 
2,123,830

 
4,343,413

 
4,217,425

Gross margin
299,420

 
298,337

 
596,056


595,938

Distribution, selling, and administrative expenses
242,914

 
246,958

 
485,639

 
496,652

Acquisition-related and exit and realignment charges
6,752

 
5,707

 
17,235

 
15,623

Other operating income, net
(2,300
)
 
(2,188
)
 
(3,842
)
 
(5,172
)
Operating earnings
52,054

 
47,860

 
97,024

 
88,835

Interest expense, net
6,765

 
6,680

 
13,554

 
13,560

Income before income taxes
45,289

 
41,180

 
83,470

 
75,275

Income tax provision
17,573

 
16,954

 
31,619

 
32,109

Net income
$
27,716

 
$
24,226

 
$
51,851

 
$
43,166

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.45

 
$
0.39

 
$
0.83

 
$
0.69

Diluted
$
0.45

 
$
0.39

 
$
0.83

 
$
0.69

Cash dividends per common share
$
0.255

 
$
0.2525

 
$
0.51

 
$
0.505



See accompanying notes to consolidated financial statements.
3

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
 
Three Months Ended    June 30,
 
Six Months Ended    June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Net income
$
27,716

 
$
24,226

 
$
51,851

 
$
43,166

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2016 and 2015)
(7,120
)
 
6,606

 
1,042

 
(21,335
)
Change in unrecognized net periodic pension costs (net of income tax of $168 and $339 in 2016 and $141 and $285 in 2015)
245

 
260

 
483

 
518

Other (net of income tax of $0 in 2016 and 2015)
18

 
(8
)
 
37

 
30

Total other comprehensive income (loss), net of tax
(6,857
)
 
6,858

 
1,562

 
(20,787
)
Comprehensive income
$
20,859

 
$
31,084

 
$
53,413

 
$
22,379



See accompanying notes to consolidated financial statements.
4

Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
June 30,
 
December 31,
(in thousands, except per share data)
2016
 
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
138,951

 
$
161,020

Accounts and notes receivable, net of allowances of $13,122 and $13,177
609,212

 
587,935

Merchandise inventories
957,972

 
940,775

Other current assets
268,645

 
284,970

Total current assets
1,974,780

 
1,974,700

Property and equipment, net of accumulated depreciation of $198,703 and $189,105
201,519

 
208,930

Goodwill, net
418,366

 
419,619

Intangible assets, net
89,599

 
95,250

Other assets, net
71,800

 
75,277

Total assets
$
2,756,064

 
$
2,773,776

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
775,970

 
$
710,609

Accrued payroll and related liabilities
28,268

 
45,907

Other current liabilities
239,887

 
307,073

Total current liabilities
1,044,125

 
1,063,589

Long-term debt, excluding current portion
566,955

 
568,495

Deferred income taxes
84,500

 
86,326

Other liabilities
64,187

 
62,776

Total liabilities
1,759,767

 
1,781,186

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,510 shares and 62,803 shares
125,021

 
125,606

Paid-in capital
214,435

 
211,943

Retained earnings
707,104

 
706,866

Accumulated other comprehensive loss
(50,263
)
 
(51,825
)
Total equity
996,297

 
992,590

Total liabilities and equity
$
2,756,064

 
$
2,773,776



See accompanying notes to consolidated financial statements.
5

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
 
Six Months Ended June 30,
(in thousands)
2016
 
2015
Operating activities:
 
 
 
Net income
$
51,851

 
$
43,166

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
28,343

 
36,138

Share-based compensation expense
5,969

 
5,048

Provision for losses on accounts and notes receivable
(27
)
 
41

Deferred income tax (benefit) expense
(2,071
)
 
2,992

Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
(29,736
)
 
41,622

Merchandise inventories
(17,947
)
 
(31,866
)
Accounts payable
62,710

 
145,682

Net change in other assets and liabilities
(56,599
)
 
2,771

Other, net
145

 
1,196

Cash provided by operating activities
42,638

 
246,790

Investing activities:
 
 
 
Additions to property and equipment
(8,857
)
 
(12,009
)
Additions to computer software and intangible assets
(4,602
)
 
(10,816
)
Proceeds from sale of property and equipment
4,565

 
837

Cash used for investing activities
(8,894
)
 
(21,988
)
Financing activities:
 
 
 
Change in bank overdraft
—

 
1,530

Repayment of revolving credit facility
—

 
(33,700
)
Cash dividends paid
(32,003
)
 
(31,867
)
Repurchases of common stock
(20,849
)
 
(7,440
)
Excess tax benefits related to share-based compensation
598

 
457

Other, net
(5,968
)
 
(5,112
)
Cash used for financing activities
(58,222
)
 
(76,132
)
Effect of exchange rate changes on cash and cash equivalents
2,409

 
(4,473
)
Net increase (decrease) in cash and cash equivalents
(22,069
)
 
144,197

Cash and cash equivalents at beginning of period
161,020

 
56,772

Cash and cash equivalents at end of period
$
138,951

 
$
200,969

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
49,567

 
$
27,542

Interest paid
$
13,513

 
$
13,260



See accompanying notes to consolidated financial statements.
6

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
 
 
 
(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
 
 
 
 
 
 
43,166

 
 
 
43,166

Other comprehensive loss
 
 
 
 
 
 
 
 
(20,787
)
 
(20,787
)
Dividends declared ($0.505 per share)
 
 
 
 
 
 
(31,779
)
 
 
 
(31,779
)
Shares repurchased and retired
(220
)
 
(440
)
 
 
 
(7,000
)
 
 
 
(7,440
)
Share-based compensation expense, exercises and other
168

 
336

 
2,793

 
 
 
 
 
3,129

Balance June 30, 2015
63,018

 
$
126,036

 
$
205,727

 
$
690,152

 
$
(44,788
)
 
$
977,127

 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2015
62,803

 
$
125,606

 
$
211,943

 
$
706,866

 
$
(51,825
)
 
$
992,590

Net income
 
 
 
 
 
 
51,851

 
 
 
51,851

Other comprehensive income
 
 
 
 
 
 
 
 
1,562

 
1,562

Dividends declared ($0.51 per share)
 
 
 
 
 
 
(31,914
)
 
 
 
(31,914
)
Shares repurchased and retired
(575
)
 
(1,150
)
 
 
 
(19,699
)
 
 
 
(20,849
)
Share-based compensation expense, exercises and other
282

 
565

 
2,492

 
 
 
 
 
3,057

Balance June 30, 2016
62,510

 
$
125,021

 
$
214,435

 
$
707,104

 
$
(50,263
)
 
$
996,297



See accompanying notes to consolidated financial statements.
7

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 our 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 June 30, 2016 and December 31, 2015, we had financing receivables of $165.9 million and $198.5 million and related payables of $87.2 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 in the first quarter of 2016 as a result of this change and noted no impairment. The following table summarizes the changes in the carrying amount of goodwill through June 30, 2016:
 
Domestic
 
International
 
CPS
 
Consolidated
Carrying amount of goodwill, December 31, 2015
$
180,006

 
$
23,426

 
$
216,187

 
$
419,619

Currency translation adjustments
—

 
(1,576
)
 
323

 
(1,253
)
Carrying amount of goodwill, June 30, 2016
$
180,006

 
$
21,850

 
$
216,510

 
$
418,366


8


Intangible assets at June 30, 2016, and December 31, 2015, were as follows:
 
June 30, 2016
 
December 31, 2015
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
120,784

 
$
4,364

 
$
121,888

 
$
4,621

Accumulated amortization
(34,201
)
 
(1,348
)
 
(29,872
)
 
(1,387
)
Net intangible assets
$
86,583

 
$
3,016

 
$
92,016

 
$
3,234

At June 30, 2016, $12.7 million in net intangible assets were held in the Domestic segment, $12.9 million were held in the International segment and $64.0 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 June 30, 2016 and 2015 and $4.5 million and $4.9 million for the six months ended June 30, 2016 and 2015.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $4.6 million for the remainder of 2016, $9.9 million for 2017, $9.2 million for 2018, $9.2 million for 2019, $9.0 million for 2020 and $8.6 million for 2021.
Note 5—Exit and Realignment Charges
We periodically incur exit and realignment and other charges associated with optimizing our operations, which includes the 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 and six months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Domestic segment
$
4,894

 
$
(124
)
 
$
12,968

 
$
2,515

International segment
1,128

 
4,045

 
2,828

 
8,717

CPS segment
—

 
—

 
1,110

 
—

Total exit and realignment charges
$
6,022

 
$
3,921

 
$
16,906

 
$
11,232


9


For the three and six months ended June 30, 2016, $1.3 million and $11.2 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 June 30, 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

Provision for exit and realignment activities


 
1,254

 
1,254

Cash payments, net of sublease income
—

 
(7,087
)
 
(7,087
)
Accrued exit and realignment costs, June 30, 2016
$
—

 
$
4,615

 
$
4,615

 
 
 
 
 
 
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

Provision for exit and realignment activities
572

 
392

 
964

Cash payments, net of sublease income
(349
)
 
(1,171
)
 
(1,520
)
Accrued exit and realignment costs, June 30, 2015
$
3,669

 
$
1,377

 
$
5,046

In addition to the exit and realignment accruals in the preceding table, we also incurred $4.7 million of costs that were expensed as incurred for the three months ended June 30, 2016, including $0.9 million in information systems costs, $3.2 million in consulting costs and $0.6 million in other costs. In the first quarter of 2016, we also incurred $1.0 million of costs that were expensed as incurred, including $0.5 million in information systems costs, $0.4 million in consulting costs and $0.1 million in other costs.
For the three months ended June 30, 2015, we recognized $2.9 million of costs that were expensed as incurred, including $1.2 million in accelerated amortization of an information system that has been replaced, $0.8 million in property related costs, $0.7 million in information systems costs and $0.2 million in other costs. In the first quarter of 2015, we also incurred $6.9 million of costs that were expensed as incurred, 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 and six months ended June 30, 2016 and 2015, were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
20

 
$
32

 
$
43

 
$
65

Interest cost
510

 
464

 
1,015

 
929

Recognized net actuarial loss
413

 
401

 
822

 
802

Net periodic benefit cost
$
943

 
$
897

 
$
1,880

 
$
1,796

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 June 30, 2016 and 2015 and $0.8 million and $1.0 million for the six months ended June 30, 2016 and 2015.

10


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 June 30, 2016 and December 31, 2015, the estimated fair value of the 2021 Notes was $283.2 million and $273.7 million and the estimated fair value of the 2024 Notes was $280.9 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 June 30, 2016, the interest rate under the credit facility is LIBOR plus 1.375%.
At June 30, 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 June 30, 2016 and December 31, 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 June 30, 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. At June 30, 2016, we did not have any derivatives outstanding. The total notional values of our foreign currency derivatives as of December 31, 2015 was $2.0 million. In 2016 and 2015, we did not have any derivatives designated as hedging instruments and all gains and losses resulting from changes in the fair value of derivative instruments were immediately recognized into earnings. At December 31, 2015, the fair value of our foreign currency contracts included in other assets on the consolidated balance sheet was $0.4 million. The impact from changes in the fair value of these foreign currency derivatives included in other operating expense was $0.1 million and $0.4 million for the three and six months ended June 30, 2016. The impact from changes in the fair value of these foreign currency derivatives included in other operating expense was $0.5 million and other operating income was $0.3 million for the three and six months ended June 30, 2015. We consider the risk of counterparty default to be minimal.
Note 9—Income Taxes
The effective tax rate was 38.8% and 37.9% for the three and six months ended June 30, 2016, compared to 41.2% and 42.7% in the same periods 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 $9.0 million at June 30, 2016, and $7.7 million at December 31, 2015. Included in the liability at June 30, 2016 were $4.4 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

11


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 and six months ended June 30, 2016 and 2015.
 
Three Months Ended    June 30,
 
Six Months Ended    June 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income
$
27,716

 
$
24,226

 
$
51,851

 
$
43,166

Less: income allocated to unvested restricted shares
(281
)
 
(195
)
 
(560
)
 
(359
)
Net income attributable to common shareholders - basic
27,435

 
24,031

 
51,291

 
42,807

Add: undistributed income attributable to unvested restricted shares - basic
72

 
42

 
131

 
63

Less: undistributed income attributable to unvested restricted shares - diluted
(72
)
 
(42
)
 
(131
)
 
(63
)
Net income attributable to common shareholders - diluted
$
27,435

 
$
24,031

 
$
51,291

 
$
42,807

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
61,502

 
62,226

 
61,588

 
62,281

Dilutive shares - stock options
—

 
—

 
—

 
1

Weighted average shares outstanding - diluted
61,502

 
62,226

 
61,588

 
62,282

Net income per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
$
0.45

 
$
0.39

 
$
0.83

 
$
0.69

Diluted
$
0.45

 
$
0.39

 
$
0.83

 
$
0.69

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. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. During the six months ended June 30, 2016, we repurchased in open-market transactions and retired approximately 0.6 million shares of our common stock for an aggregate of $20.8 million, or an average price per share of $36.25. As of June 30, 2016, we have approximately $49.2 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

12


Note 12—Accumulated Other Comprehensive Income
The following table shows the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2016 and 2015: 
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), March 31, 2016
$
(10,244
)
 
$
(33,066
)
 
$
(96
)
 
$
(43,406
)
Other comprehensive income (loss) before reclassifications
—

 
(7,120
)
 
—

 
(7,120
)
Income tax
—

 
—

 
—

 
—

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

 
(7,120
)
 
—

 
(7,120
)
Amounts reclassified from accumulated other comprehensive income (loss)
413

 
—

 
18

 
431

Income tax
(168
)
 
—

 
—

 
(168
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
245

—

—

 
18

 
263

Other comprehensive income (loss)
245

 
(7,120
)
 
18

 
(6,857
)
Accumulated other comprehensive income (loss), June 30, 2016
$
(9,999
)
 
$
(40,186
)
 
$
(78
)
 
$
(50,263
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), March 31, 2015
$
(10,065
)
 
$
(41,588
)
 
$
7

 
$
(51,646
)
Other comprehensive income (loss) before reclassifications
—

 
6,606

 
—

 
6,606

Income tax
—

 
—

 
—

 
—

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

 
6,606

 
—

 
6,606

Amounts reclassified from accumulated other comprehensive income (loss)
401

 
—

 
(8
)
 
393

Income tax
(141
)
 
—

 
—

 
(141
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
260

 
—

 
(8
)
 
252

Other comprehensive income (loss)
260

 
6,606

 
(8
)
 
6,858

Accumulated other comprehensive income (loss), June 30, 2015
$
(9,805
)
 
$
(34,982
)
 
$
(1
)
 
$
(44,788
)
 
 
 
 
 
 
 
 
 


13


 
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
—

 
1,042

 
—

 
1,042

Income tax
—

 
—

 
—

 
—

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

 
1,042

 
—

 
1,042

Amounts reclassified from accumulated other comprehensive income (loss)
822

 
—

 
37

 
859

Income tax
(339
)
 
—

 
—

 
(339
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
483

 
—

 
37

 
520

Other comprehensive income (loss)
483

 
1,042

 
37

 
1,562

Accumulated other comprehensive income (loss), June 30, 2016
$
(9,999
)
 
$
(40,186
)
 
$
(78
)
 
$
(50,263
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), December 31, 2014
$
(10,323
)
 
$
(13,647
)
 
$
(31
)
 
$
(24,001
)
Other comprehensive income (loss) before reclassifications
—

 
(21,335
)
 
—

 
(21,335
)
Income tax
—

 
—

 
—

 
—

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

 
(21,335
)
 
—

 
(21,335
)
Amounts reclassified from accumulated other comprehensive income (loss)
803

 
—

 
30

 
833

Income tax
(285
)
 
—

 
—

 
(285
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
518

 
—

 
30

 
548

Other comprehensive income (loss)
518

 
(21,335
)
 
30

 
(20,787
)
Accumulated other comprehensive income (loss), June 30, 2015
$
(9,805
)
 
$
(34,982
)
 
$
(1
)
 
$
(44,788
)
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 and six months ended June 30, 2016 and 2015, we reclassified $0.4 million and $0.8 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.
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.

14


The following tables present financial information by segment:
 
Three Months Ended   June 30,
 
Six Months Ended   June 30,
 
2016
 
2015
 
2016
 
2015
Net revenue:
 
 
 
 
 
 
 
Segment net revenue
 
 
 
 
 
 
 
Domestic
$
2,345,746

 
$
2,279,725

 
$
4,667,455

 
$
4,529,430

International
88,559

 
92,856

 
172,110

 
188,367

CPS
134,964

 
135,714

 
276,317

 
265,359

Total segment net revenue
$
2,569,269

 
$
2,508,295

 
$
5,115,882

 
$
4,983,156

Inter-segment revenue
 
 
 
 
 
 
 
CPS
(85,593
)
 
(86,128
)
 
(176,413
)
 
(169,793
)
Total inter-segment revenue
(85,593
)
 
(86,128
)
 
(176,413
)
 
(169,793
)
Consolidated net revenue
$
2,483,676

 
$
2,422,167

 
$
4,939,469

 
$
4,813,363

 
 
 
 
 
 
 
 
Operating earnings (loss):
 
 
 
 
 
 
 
Domestic
$
43,451

 
$
38,394

 
$
85,169

 
$
76,499

International
893

 
1,181

 
2,021

 
843

CPS
14,255

 
13,850

 
27,526

 
27,032

Inter-segment eliminations
207

 
142

 
(457
)
 
84

Acquisition-related and exit and realignment charges (1)
(6,752
)
 
(5,707
)
 
(17,235
)
 
(15,623
)
Consolidated operating earnings
$
52,054

 
$
47,860

 
$
97,024

 
$
88,835

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Domestic
$
7,497

 
$
8,888

 
$
15,038

 
$
17,971

International
4,416

 
4,743

 
8,865

 
9,638

CPS
2,213

 
2,150

 
4,440

 
4,341

Consolidated depreciation and amortization
$
14,126

 
$
15,781

 
$
28,343

 
$
31,950

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Domestic
$
2,659

 
$
3,349

 
$
7,202

 
$
11,358

International
2,860

 
7,875

 
4,830

 
10,790

CPS
880

 
35

 
1,427

 
677

Consolidated capital expenditures
$
6,399

 
$
11,259

 
$
13,459

 
$
22,825

 
 
June 30, 2016
 
December 31, 2015
Total assets:
 
 
 
Domestic
$
1,752,278

 
$
1,728,345

International
442,097

 
464,003

CPS
422,738

 
420,408

Segment assets
2,617,113

 
2,612,756

Cash and cash equivalents
138,951

 
161,020

Consolidated total assets
$
2,756,064

 
$
2,773,776

(1) The three and six months ended June 30, 2015 include $1.2 million and $4.2 million, respectively in accelerated amortization related to an information system that has been replaced in the International segment.

15


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 June 30, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
2,345,746

 
$
176,010

 
$
(38,080
)
 
$
2,483,676

Cost of goods sold
—

 
2,129,586

 
92,660

 
(37,990
)
 
2,184,256

Gross margin
—

 
216,160

 
83,350

 
(90
)
 
299,420

Distribution, selling and administrative expenses
357

 
166,047

 
76,510

 
—

 
242,914

Acquisition-related and exit and realignment charges
—

 
5,249

 
1,503

 


 
6,752

Other operating income, net
—

 
(1,363
)
 
(937
)
 
—

 
(2,300
)
Operating earnings (loss)
(357
)
 
46,227

 
6,274

 
(90
)
 
52,054

Interest expense (income), net
6,903

 
(846
)
 
708

 
—

 
6,765

Income (loss) before income taxes
(7,260
)
 
47,073

 
5,566

 
(90
)
 
45,289

Income tax (benefit) provision
—

 
14,555

 
3,018

 
—

 
17,573

Equity in earnings of subsidiaries
34,976

 
—

 
—

 
(34,976
)
 
—

Net income (loss)
27,716

 
32,518

 
2,548

 
(35,066
)
 
27,716

Other comprehensive income (loss)
(6,857
)
 
264

 
(7,120
)
 
6,856

 
(6,857
)
Comprehensive income (loss)
$
20,859

 
$
32,782

 
$
(4,572
)
 
$
(28,210
)
 
$
20,859

Three Months Ended June 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
2,279,725

 
$
178,844

 
$
(36,402
)
 
$
2,422,167

Cost of goods sold
—

 
2,064,515

 
95,570

 
(36,255
)
 
2,123,830

Gross margin
—

 
215,210

 
83,274

 
(147
)
 
298,337

Distribution, selling and administrative expenses
626

 
169,258

 
77,074

 
—

 
246,958

Acquisition-related and exit and realignment charges
—

 
256

 
5,451

 
—

 
5,707

Other operating income, net
—

 
(1,354
)
 
(834
)
 
—

 
(2,188
)
Operating earnings (loss)
(626
)
 
47,050

 
1,583

 
(147
)
 
47,860

Interest expense (income), net
6,938

 
(233
)
 
(25
)
 
—

 
6,680

Income (loss) before income taxes
(7,564
)
 
47,283

 
1,608

 
(147
)
 
41,180

Income tax (benefit) provision
—

 
16,973

 
(19
)
 
—

 
16,954

Equity in earnings of subsidiaries
31,790

 
—

 
—

 
(31,790
)
 
—

Net income (loss)
24,226

 
30,310

 
1,627

 
(31,937
)
 
24,226

Other comprehensive income (loss)
6,858

 
(21,839
)
 
28,696

 
(6,857
)
 
6,858

Comprehensive income (loss)
$
31,084

 
$
8,471

 
$
30,323

 
$
(38,794
)
 
$
31,084


16


Six Months Ended June 30, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
4,667,454

 
$
348,110

 
$
(76,095
)
 
$
4,939,469

Cost of goods sold
—

 
4,234,851

 
184,734

 
(76,172
)
 
4,343,413

Gross margin
—

 
432,603

 
163,376

 
77

 
596,056

Distribution, selling and administrative expenses
891

 
335,357

 
149,391

 
—

 
485,639

Acquisition-related and exit and realignment charges
—

 
13,652

 
3,583

 
—

 
17,235

Other operating income, net
—

 
(2,747
)
 
(1,095
)
 
—

 
(3,842
)
Operating earnings (loss)
(891
)
 
86,341

 
11,497

 
77

 
97,024

Interest expense (income), net
13,743

 
(1,475
)
 
1,286

 
—

 
13,554

Income (loss) before income taxes
(14,634
)
 
87,816

 
10,211

 
77

 
83,470

Income tax (benefit) provision
—

 
26,101

 
5,518

 
—

 
31,619

Equity in earnings of subsidiaries
66,485

 
—

 
—

 
(66,485
)
 
—

Net income (loss)
51,851

 
61,715

 
4,693

 
(66,408
)
 
51,851

Other comprehensive income (loss)
1,562

 
521

 
1,041

 
(1,562
)
 
1,562

Comprehensive income (loss)
$
53,413

 
$
62,236

 
$
5,734

 
$
(67,970
)
 
$
53,413

Six Months Ended June 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
4,529,430

 
$
360,204

 
$
(76,271
)
 
$
4,813,363

Cost of goods sold
—

 
4,098,327

 
195,608

 
(76,510
)
 
4,217,425

Gross margin
—

 
431,103

 
164,596

 
239

 
595,938

Distribution, selling and administrative expenses
665

 
338,939

 
157,048

 
—

 
496,652

Acquisition-related and exit and realignment charges
—

 
3,833

 
11,790

 
—

 
15,623

Other operating income, net
—

 
(2,331
)
 
(2,841
)
 
—

 
(5,172
)
Operating earnings (loss)
(665
)
 
90,662

 
(1,401
)
 
239

 
88,835

Interest expense (income), net
12,885

 
581

 
94

 
—

 
13,560

Income (loss) before income taxes
(13,550
)
 
90,081

 
(1,495
)
 
239

 
75,275

Income tax (benefit) provision
(773
)
 
31,759

 
1,123

 
—

 
32,109

Equity in earnings of subsidiaries
55,943

 
—

 
—

 
(55,943
)
 
—

Net income (loss)
43,166

 
58,322

 
(2,618
)
 
(55,704
)
 
43,166

Other comprehensive income (loss)
(20,787
)
 
(21,335
)
 
548

 
20,787

 
(20,787
)
Comprehensive income (loss)
$
22,379

 
$
36,987

 
$
(2,070
)
 
$
(34,917
)
 
$
22,379



17


June 30, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
105,390

 
$
5,109

 
$
28,452

 
$
—

 
$
138,951

Accounts and notes receivable, net
—

 
528,639

 
90,220

 
(9,647
)
 
609,212

Merchandise inventories
—

 
905,032

 
55,250

 
(2,310
)
 
957,972

Other current assets
175

 
82,304

 
186,166

 
—

 
268,645

Total current assets
105,565

 
1,521,084

 
360,088

 
(11,957
)
 
1,974,780

Property and equipment, net
—

 
100,704

 
100,815

 
—

 
201,519

Goodwill, net
—

 
180,006

 
238,360

 
—

 
418,366

Intangible assets, net
—

 
12,693

 
76,906

 
—

 
89,599

Due from O&M and subsidiaries
—

 
544,353

 
—

 
(544,353
)
 
—

Advances to and investment in consolidated subsidiaries
2,033,661

 
—

 
—

 
(2,033,661
)
 
—

Other assets, net
—

 
54,130

 
17,670

 
—

 
71,800

Total assets
$
2,139,226

 
$
2,412,970

 
$
793,839

 
$
(2,589,971
)
 
$
2,756,064

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
723,773

 
$
60,764

 
$
(8,567
)
 
$
775,970

Accrued payroll and related liabilities
—

 
17,718

 
10,550

 
—

 
28,268

Other current liabilities
8,028

 
109,397

 
122,462

 
—

 
239,887

Total current liabilities
8,028

 
850,888

 
193,776

 
(8,567
)
 
1,044,125

Long-term debt, excluding current portion
544,410

 
4,032

 
18,513

 
—

 
566,955

Due to O&M and subsidiaries
590,491

 
—

 
66,325

 
(656,816
)
 
—

Intercompany debt
—

 
138,890

 
—

 
(138,890
)
 
—

Deferred income taxes
—

 
62,673

 
21,827

 
—

 
84,500

Other liabilities
—

 
57,867

 
6,320

 
—

 
64,187

Total liabilities
1,142,929

 
1,114,350

 
306,761

 
(804,273
)
 
1,759,767

Equity
 
 
 
 
 
 
 
 
 
Common stock
125,021

 
—

 
—

 
—

 
125,021