Document
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, 2017
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, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth 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
¨
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
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 28, 2017, was 61,201,631 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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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)
 
2017
 
2016
Net revenue
 
$
2,328,573

 
$
2,455,793

Cost of goods sold
 
2,047,393

 
2,159,157

Gross margin

281,180


296,636

Distribution, selling and administrative expenses
 
237,693

 
242,725

Acquisition-related and exit and realignment charges
 
8,942

 
10,483

Other operating income, net
 
(972
)
 
(1,542
)
Operating earnings
 
35,517

 
44,970

Interest expense, net
 
6,744

 
6,790

Income before income taxes
 
28,773

 
38,180

Income tax provision
 
9,988

 
14,045

Net income
 
$
18,785

 
$
24,135

Net income per common share:
 
 
 
 
Basic
 
$
0.31

 
$
0.39

Diluted
 
$
0.31

 
$
0.39

Cash dividends per common share
 
$
0.2575

 
$
0.255



See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
 
 
Three Months Ended 
 March 31,
(in thousands)
 
2017
 
2016
Net income
 
$
18,785

 
$
24,135

Other comprehensive income, net of tax:
 
 
 
 
Currency translation adjustments (net of income tax of $0 in 2017 and 2016)
 
5,492

 
8,162

Change in unrecognized net periodic pension costs (net of income tax of $226 in 2017 and $171 in 2016)
 
236

 
238

Other (net of income tax of $0 in 2017 and 2016)
 
110

 
19

Total other comprehensive income, net of tax
 
5,838

 
8,419

Comprehensive income
 
$
24,623

 
$
32,554



See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
 
March 31,
 
December 31,
(in thousands, except per share data)
2017
 
2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
127,167

 
$
185,488

Accounts receivable, net of allowances of $13,020 and $13,538
605,249

 
606,084

Merchandise inventories
949,346

 
916,311

Other current assets
261,232

 
254,156

Total current assets
1,942,994

 
1,962,039

Property and equipment, net of accumulated depreciation of $208,749 and $201,399
195,312

 
191,718

Goodwill, net
416,697

 
414,936

Intangible assets, net
80,736

 
82,511

Other assets, net
64,810

 
66,548

Total assets
$
2,700,549

 
$
2,717,752

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
745,165

 
$
750,750

Accrued payroll and related liabilities
28,625

 
45,051

Other current liabilities
233,905

 
238,837

Total current liabilities
1,007,695

 
1,034,638

Long-term debt, excluding current portion
564,145

 
564,583

Deferred income taxes
90,115

 
90,383

Other liabilities
68,637

 
68,110

Total liabilities
1,730,592

 
1,757,714

Commitments and contingencies

 

Equity
 
 
 
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 61,202 shares and 61,031 shares
122,403

 
122,062

Paid-in capital
220,608

 
219,955

Retained earnings
688,591

 
685,504

Accumulated other comprehensive income (loss)
(61,645
)
 
(67,483
)
Total equity
969,957

 
960,038

Total liabilities and equity
$
2,700,549

 
$
2,717,752



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)
2017
 
2016
Operating activities:
 
 
 
Net income
$
18,785

 
$
24,135

Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
12,558

 
14,218

Share-based compensation expense
2,511

 
2,603

Provision for losses on accounts receivable
(603
)
 
115

Deferred income tax expense (benefit)
(825
)
 
6,907

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
1,554

 
(26,815
)
Merchandise inventories
(32,777
)
 
15,178

Accounts payable
(7,341
)
 
46,751

Net change in other assets and liabilities
(24,965
)
 
(38,100
)
Other, net
4,743

 
153

Cash provided by (used for) operating activities
(26,360
)
 
45,145

Investing activities:
 
 
 
Additions to property and equipment
(10,146
)
 
(5,283
)
Additions to computer software and intangible assets
(4,622
)
 
(1,777
)
Proceeds from sale of property and equipment
315

 
4,599

Cash used for investing activities
(14,453
)
 
(2,461
)
Financing activities:
 
 
 
Change in bank overdraft

 
8,359

Cash dividends paid
(15,740
)
 
(16,029
)
Repurchases of common stock

 
(5,630
)
Other, net
(2,759
)
 
(3,016
)
Cash used for financing activities
(18,499
)
 
(16,316
)
Effect of exchange rate changes on cash and cash equivalents
991

 
2,935

Net increase (decrease) in cash and cash equivalents
(58,321
)
 
29,303

Cash and cash equivalents at beginning of period
185,488

 
161,020

Cash and cash equivalents at end of period
$
127,167

 
$
190,323

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid, net
$
2,825

 
$
20,028

Interest paid
$
6,183

 
$
6,226




See accompanying notes to consolidated financial statements.
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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, 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

 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2016
61,031

 
$
122,062

 
$
219,955

 
$
685,504

 
$
(67,483
)
 
$
960,038

Net income
 
 
 
 
 
 
18,785

 
 
 
18,785

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
5,838

 
5,838

Dividends declared ($0.2575 per share)
 
 
 
 
 
 
(15,698
)
 
 
 
(15,698
)
Share-based compensation expense, exercises and other
171

 
341

 
653

 
 
 
 
 
994

Balance March 31, 2017
61,202

 
$
122,403

 
$
220,608

 
$
688,591

 
$
(61,645
)
 
$
969,957



See accompanying notes to consolidated financial statements.
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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. The Clinical & Procedural Solutions (CPS) business segment has been renamed "Proprietary Products" effective January 1, 2017. There has been no change to the segment composition or our method of measuring segment operating earnings.
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, if any, 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.
Note 3—Financing Receivables and Payables
At March 31, 2017 and December 31, 2016, we had financing receivables of $149.6 million and $156.5 million and related payables of $92.5 million and $110.0 million outstanding under our order-to-cash program and product financing arrangements, which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.
Note 4—Goodwill and Intangible Assets
The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through March 31, 2017:
 
Domestic
 
International
 
Proprietary Products
 
Consolidated
Carrying amount of goodwill, December 31, 2016
$
180,006

 
$
19,391

 
$
215,539

 
$
414,936

Currency translation adjustments

 
1,395

 
366

 
1,761

Carrying amount of goodwill, March 31, 2017
$
180,006

 
$
20,786

 
$
215,905

 
$
416,697


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Intangible assets at March 31, 2017, and December 31, 2016, were as follows:
 
March 31, 2017
 
December 31, 2016
 
Customer
Relationships
 
Other
Intangibles
 
Customer
Relationships
 
Other
Intangibles
 
 
 
 
 
 
 
 
Gross intangible assets
$
118,916

 
$
4,102

 
$
118,223

 
$
4,045

Accumulated amortization
(40,902
)
 
(1,380
)
 
(38,429
)
 
(1,328
)
Net intangible assets
$
78,014

 
$
2,722

 
$
79,794

 
$
2,717

At March 31, 2017, $11.1 million in net intangible assets were held in the Domestic segment, $10.4 million were held in the International segment and $59.2 million were held in the Proprietary Products segment. Amortization expense for intangible assets was $2.3 million and $2.2 million for the three months ended March 31, 2017 and 2016.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $6.9 million for the remainder of 2017, $9.0 million for 2018, $8.9 million for 2019, $8.7 million for 2020, $8.3 million for 2021 and $7.3 million for 2022.
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, 2017 and 2016 were as follows:
 
Three Months Ended March 31,
 
2017
 
2016
Domestic segment
$
6,748

 
$
8,074

International segment
384

 
1,700

Proprietary Products segment
463

 
1,108

Total exit and realignment charges
$
7,595

 
$
10,882


The following table summarizes the activity related to exit and realignment cost accruals through March 31, 2017 and 2016:
 
Lease
Obligations
 
Severance and
Other
 
Total
Accrued exit and realignment costs, December 31, 2016
$

 
$
2,238

 
$
2,238

Provision for exit and realignment activities

 
3,211

 
3,211

Change in estimate

 
(304
)
 
(304
)
Cash payments

 
(3,034
)
 
(3,034
)
Accrued exit and realignment costs, March 31, 2017
$

 
$
2,111

 
$
2,111

 
 
 
 
 
 
 
 
 
 
 
 
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

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 quarter ended March 31, 2017, including $4.5 million in asset write-downs and $0.2 million in other costs.

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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.
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, 2017 and 2016, were as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
Service cost
$
12

 
$
23

Interest cost
474

 
505

Recognized net actuarial loss
462

 
409

Net periodic benefit cost
$
948

 
$
937

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 $0.4 million for the three months ended March 31, 2017 and 2016.
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, 2017 and December 31, 2016, the estimated fair value of the 2021 Notes was $280.2 million and $274.5 million and the estimated fair value of the 2024 Notes was $276.9 million and $270.0 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, 2017, the interest rate under the credit facility is LIBOR plus 1.375%.
At March 31, 2017, we had no borrowings and letters of credit of approximately $5.1 million outstanding under the Amended Credit Agreement, leaving $445 million available for borrowing. 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, 2017.
We also have a $1.1 million letter of credit outstanding as of March 31, 2017 and December 31, 2016, which supports our facilities leased in Europe.
Note 8—Income Taxes
The effective tax rate was 34.7% for the three months ended March 31, 2017, compared to 36.8% in the same quarter of 2016. 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. The liability for unrecognized tax benefits was $11.0 million at March 31, 2017 and $10.7 million at December 31, 2016. Included in the liability at March 31, 2017 were $4.9 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

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Note 9—Net Income per Common Share
The following summarizes the calculation of net income per common share attributable to common shareholders for the three months ended March 31, 2017 and 2016.
 
Three Months Ended 
 March 31,
(in thousands, except per share data)
2017
 
2016
Numerator:
 
 
 
Net income
$
18,785

 
$
24,135

Less: income allocated to unvested restricted shares
(239
)
 
(276
)
Net income attributable to common shareholders - basic
18,546

 
23,859

Add: undistributed income attributable to unvested restricted shares - basic
23

 
57

Less: undistributed income attributable to unvested restricted shares - diluted
(23
)
 
(57
)
Net income attributable to common shareholders - diluted
$
18,546

 
$
23,859

Denominator:
 
 
 
Weighted average shares outstanding - basic and diluted
60,013

 
61,696

Net income per share attributable to common shareholders:
 
 
 
Basic
$
0.31

 
$
0.39

Diluted
$
0.31

 
$
0.39

Note 10—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 December 2019. The timing of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other factors and 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.We did not repurchase any shares during the three months ended March 31, 2017. As of March 31, 2017, we have approximately $99.0 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 11—Accumulated Other Comprehensive Income (Loss)
The following table shows the changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2017 and 2016: 
 
Retirement Plans
 
Currency
Translation
Adjustments
 
Other
 
Total
Accumulated other comprehensive income (loss), December 31, 2016
$
(11,209
)
 
$
(56,245
)
 
$
(29
)
 
$
(67,483
)
Other comprehensive income (loss) before reclassifications

 
5,492

 
110

 
5,602

Income tax

 

 

 

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

 
5,492

 
110

 
5,602

Amounts reclassified from accumulated other comprehensive income (loss)
462

 

 


 
462

Income tax
(226
)
 

 

 
(226
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
236

 

 

 
236

Other comprehensive income (loss)
236

 
5,492

 
110

 
5,838

Accumulated other comprehensive income (loss), March 31, 2017
$
(10,973
)
 
$
(50,753
)
 
$
81

 
$
(61,645
)

 
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

 
19

 
8,181

Income tax

 

 

 

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

 
8,162

 
19

 
8,181

Amounts reclassified from accumulated other comprehensive income (loss)
409

 

 


 
409

Income tax
(171
)
 

 

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

 

 

 
238

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
)
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, 2017 and 2016, we reclassified $0.5 million and $0.4 million of actuarial net losses.
Note 12—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 Proprietary Products. 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. Proprietary Products provides product-related solutions, including surgical and procedural kitting and sourcing.

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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,
 
2017
 
2016
Net revenue:
 
 
 
Segment net revenue
 
 
 
Domestic
$
2,193,960

 
$
2,321,708

International
94,995

 
83,551

Proprietary Products
137,153

 
141,353

Total segment net revenue
2,426,108

 
2,546,612

Inter-segment revenue
 
 
 
Proprietary Products
(97,535
)
 
(90,819
)
       Total inter-segment revenue
(97,535
)
 
(90,819
)
Consolidated net revenue
$
2,328,573

 
$
2,455,793

 
 
 
 
Operating earnings (loss):
 
 
 
Domestic
$
37,295

 
$
41,718

International
656

 
1,128

Proprietary Products
8,128

 
13,271

Inter-segment eliminations
(698
)
 
(664
)
Acquisition-related and exit and realignment charges
(8,942
)
 
(10,483
)
Other (1)
(922
)
 

Consolidated operating earnings
$
35,517

 
$
44,970

 
 
 
 
Depreciation and amortization:
 
 
 
Domestic
$
6,860

 
$
7,542

International
3,804

 
4,450

Proprietary Products
1,894

 
2,226

Consolidated depreciation and amortization
$
12,558

 
$
14,218

 
 
 
 
Capital expenditures:
 
 
 
Domestic
$
8,818

 
$
4,543

International
5,022

 
1,970

Proprietary Products
928

 
547

Consolidated capital expenditures
$
14,768

 
$
7,060

(1) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.


13


Table of Contents

 
March 31, 2017
 
December 31, 2016
Total assets:
 
 
 
Domestic
$
1,830,369

 
$
1,778,481

International
359,614

 
352,898

Proprietary Products
383,399

 
400,885

Segment assets
2,573,382

 
2,532,264

Cash and cash equivalents
127,167

 
185,488

Consolidated total assets
$
2,700,549

 
$
2,717,752

Note 13—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, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statements of Income
 
 
 
 
 
 
 
 
 
Net revenue
$

 
$
2,193,285

 
$
186,854

 
$
(51,566
)
 
$
2,328,573

Cost of goods sold

 
1,990,186

 
108,185

 
(50,978
)
 
2,047,393

Gross margin

 
203,099

 
78,669

 
(588
)
 
281,180

Distribution, selling and administrative expenses
156

 
161,235

 
76,302

 

 
237,693

Acquisition-related and exit and realignment charges

 
7,799

 
1,143

 

 
8,942

Other operating income, net

 
(374
)
 
(598
)
 

 
(972
)
Operating earnings (loss)
(156
)
 
34,439

 
1,822

 
(588
)
 
35,517

Interest expense (income), net
6,848

 
(790
)
 
686

 

 
6,744

Income (loss) before income taxes
(7,004
)
 
35,229

 
1,136

 
(588
)
 
28,773

Income tax (benefit) provision

 
8,013

 
1,975

 

 
9,988

Equity in earnings of subsidiaries
25,789

 

 

 
(25,789
)
 

Net income (loss)
18,785

 
27,216

 
(839
)
 
(26,377
)
 
18,785

Other comprehensive income (loss)
5,838

 
346

 
5,492

 
(5,838
)
 
5,838

Comprehensive income (loss)
$
24,623

 
$
27,562

 
$
4,653

 
$
(32,215
)
 
$
24,623


14


Table of Contents

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


15


Table of Contents

 
 
March 31, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
63,170

 
$
15,885

 
$
48,112

 
$

 
$
127,167

 
Accounts receivable, net

 
524,418

 
89,020

 
(8,189
)
 
605,249

 
Merchandise inventories

 
884,995

 
66,800

 
(2,449
)
 
949,346

 
Other current assets
17

 
93,060

 
168,155

 

 
261,232

 
Total current assets
63,187

 
1,518,358

 
372,087

 
(10,638
)
 
1,942,994

 
Property and equipment, net

 
102,030

 
93,282

 

 
195,312

 
Goodwill, net

 
180,006

 
236,691

 

 
416,697

 
Intangible assets, net

 
11,137

 
69,599

 

 
80,736

 
Due from O&M and subsidiaries

 
626,667

 

 
(626,667
)
 

 
Advances to and investment in consolidated subsidiaries
2,063,747

 

 

 
(2,063,747
)
 

 
Other assets, net

 
44,042

 
20,768

 

 
64,810

 
Total assets
$
2,126,934

 
$
2,482,240

 
$
792,427

 
$
(2,701,052
)
 
$
2,700,549

 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
37

 
$
693,256

 
$
60,127

 
$
(8,255
)
 
$
745,165

 
Accrued payroll and related liabilities

 
18,761

 
9,864

 

 
28,625

 
Other accrued liabilities
7,181

 
110,398

 
116,326

 

 
233,905

 
Total current liabilities
7,218

 
822,415

 
186,317

 
(8,255
)
 
1,007,695

 
Long-term debt, excluding current portion
545,053

 
2,865

 
16,227

 

 
564,145

 
Due to O&M and subsidiaries
604,706

 

 
71,673

 
(676,379
)
 

 
Intercompany debt

 
138,890

 

 
(138,890
)
 

 
Deferred income taxes

 
69,678

 
20,437

 

 
90,115

 
Other liabilities

 
60,911

 
7,726

 

 
68,637

 
Total liabilities
1,156,977

 
1,094,759

 
302,380

 
(823,524
)
 
1,730,592

 
Equity
 
 
 
 
 
 
 
 
 
 
Common stock
122,403

 

 

 

 
122,403

 
Paid-in capital
220,608

 
174,614

 
583,872

 
(758,486
)
 
220,608

 
Retained earnings (deficit)
688,591

 
1,223,558

 
(42,871
)
 
(1,180,687
)
 
688,591

 
Accumulated other comprehensive income (loss)
(61,645
)
 
(10,691
)
 
(50,954
)
 
61,645

 
(61,645
)
 
Total equity
969,957

 
1,387,481

 
490,047

 
(1,877,528
)
 
969,957

 
Total liabilities and equity
$
2,126,934

 
$
2,482,240

 
$
792,427

 
$
(2,701,052
)
 
$
2,700,549


16


Table of Contents

December 31, 2016
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheets
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
38,015

 
$
61,266

 
$
86,207

 
$

 
$
185,488

Accounts receivable, net

 
526,170

 
90,016

 
(10,102
)
 
606,084

Merchandise inventories

 
856,566

 
61,505

 
(1,760
)
 
916,311

Other current assets
106

 
86,907

 
167,143

 

 
254,156

Total current assets
38,121

 
1,530,909

 
404,871

 
(11,862
)
 
1,962,039

Property and equipment, net

 
97,725

 
93,993

 

 
191,718

Goodwill, net

 
180,006

 
234,930

 

 
414,936

Intangible assets, net

 
11,655

 
70,856

 

 
82,511

Due from O&M and subsidiaries

 
573,395

 

 
(573,395
)
 

Advances to and investments in consolidated subsidiaries
2,044,963

 

 

 
(2,044,963
)
 

Other assets, net

 
49,887

 
16,661

 

 
66,548

Total assets
$
2,083,084

 
$
2,443,577

 
$
821,311

 
$
(2,630,220
)
 
$
2,717,752

Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
683,189

 
$
75,512

 
$
(7,951
)
 
$
750,750

Accrued payroll and related liabilities

 
32,814

 
12,237

 

 
45,051

Other current liabilities
7,106

 
93,327

 
138,404

 

 
238,837

Total current liabilities
7,106

 
809,330

 
226,153

 
(7,951
)
 
1,034,638

Long-term debt, excluding current portion
544,838

 
3,219

 
16,526

 

 
564,583

Due to O&M and subsidiaries
571,102

 

 
48,044

 
(619,146
)
 

Intercompany debt

 
138,890

 

 
(138,890
)
 

Deferred income taxes

 
70,280

 
20,103

 

 
90,383

Other liabilities

 
60,578

 
7,532

 

 
68,110

Total liabilities
1,123,046

 
1,082,297

 
318,358

 
(765,987
)
 
1,757,714

Equity
 
 
 
 
 
 
 
 

Common stock
122,062

 

 

 

 
122,062

Paid-in capital
219,955

 
174,614

 
583,872

 
(758,486
)
 
219,955

Retained earnings (deficit)
685,504

 
1,196,341

 
(42,032
)
 
(1,154,309
)
 
685,504

Accumulated other comprehensive income (loss)
(67,483
)
 
(9,675
)
 
(38,887
)
 
48,562

 
(67,483
)
Total equity
960,038

 
1,361,280

 
502,953

 
(1,864,233
)
 
960,038

Total liabilities and equity
$
2,083,084

 
$
2,443,577

 
$
821,311

 
$
(2,630,220
)
 
$
2,717,752





17


Table of Contents

 
Three Months Ended March 31, 2017
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
18,785

 
$
27,216

 
$
(839
)
 
$
(26,377
)
 
$
18,785

 
Adjustments to reconcile net income to cash provided by (used for) operating activities:
 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
(25,789
)
 

 

 
25,789

 

 
Depreciation and amortization

 
6,876

 
5,682

 

 
12,558

 
Share-based compensation expense

 
2,511

 

 

 
2,511

 
Provision for losses on accounts receivable

 
(707
)
 
104

 

 
(603
)
 
Deferred income tax expense (benefit)

 
(825
)
 

 

 
(825
)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts receivable

 
2,459

 
(131
)
 
(774
)
 
1,554

 
Merchandise inventories

 
(3,311
)
 
(30,154
)
 
688

 
(32,777
)
 
Accounts payable
37

 
(15,051
)
 
6,999

 
674

 
(7,341
)
 
Net change in other assets and liabilities
164

 
(3,434
)
 
(21,695
)
 

 
(24,965
)
 
Other, net
214

 
4,549

 
(20
)
 

 
4,743

 
Cash provided by (used for) operating activities
(6,589
)
 
20,283

 
(40,054
)
 

 
(26,360
)
 
Investing activities:
 
 
 
 
 
 
 
 
 
 
Additions to property and equipment

 
(8,141
)
 
(2,005
)
 

 
(10,146
)
 
Additions to computer software and intangible assets

 
(677
)
 
(3,945
)
 

 
(4,622
)
 
Proceeds from the sale of property and equipment

 
45

 
270

 

 
315

 
Cash provided by (used for) investing activities

 
(8,773
)
 
(5,680
)
 

 
(14,453
)
 
Financing activities:
 
 
 
 
 
 
 
 

 
Change in intercompany advances
49,025

 
(56,375
)
 
7,350

 

 

 
Cash dividends paid
(15,740
)
 

 

 

 
(15,740
)
 
Other, net
(1,541
)
 
(516
)
 
(702
)
 

 
(2,759
)
 
Cash provided by (used for) financing activities
31,744

 
(56,891
)
 
6,648

 

 
(18,499
)
 
Effect of exchange rate changes on cash and cash equivalents

 

 
991

 

 
991

 
Net increase (decrease) in cash and cash equivalents
25,155

 
(45,381
)
 
(38,095
)
 

 
(58,321
)
 
Cash and cash equivalents at beginning of period
38,015

 
61,266

 
86,207

 

 
185,488

 
Cash and cash equivalents at end of period
$
63,170

 
$
15,885

 
$
48,112

 
$

 
$
127,167


18


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 receivable

 
128

 
(13
)
 

 
115

 
Deferred income tax expense (benefit)

 
3,922

 
2,985

 

 
6,907

 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts 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
464

 
123

 
(434
)
 

 
153

 
Cash provided by (used for) operating activities
(6,249
)
 
60,066

 
(8,672
)
 

 
45,145

 
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
)