SEC Filing | Owens & Minor, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $2 par value per share

OMI

New York Stock Exchange

_________________________________________________________

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 ☒ 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 ☒ 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

☐

Accelerated filer

☒

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

☒

Emerging growth company

☐

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.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Owens & Minor, Inc.’s common stock outstanding as of July 31, 2020, was 63,781,275 shares.

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Owens & Minor, Inc. and Subsidiaries

Index


Part I. Financial Information			Page

Item 1.	Financial Statements	3
	Consolidated Statements of Operations—Three a nd Six Months Ended June 30 , 2020 and 2019	3
	Consolidated Statements of Comprehensive Loss—Three and Six Months Ended June 30, 2020 and 2019	4
	Consolidated Balance Sheets—June 3 0 , 2020 and December 31, 2019	5
	Consolidated Statements of Cash Flows—Six Months Ended June 30 , 2020 and 2019	6
	Consolidated Statements of Changes in Equity—Three and Six Months Ended June 30 , 2020 and 2019	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. Other Information

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	31
Item 6.	Exhibits	31

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Part I. Financial Information

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2020		2019		2020		2019
Net revenue	$	1,807,719	$	2,376,705	$	3,930,412	$	4,727,544
Cost of goods sold	1,538,312		2,090,187		3,392,445		4,164,407
Gross margin	269,407		286,518		537,967		563,137
Distribution, selling and administrative expenses	241,734		264,215		495,782		519,326
Acquisition-related and exit and realignment charges	6,054		5,390		12,118		10,254
Other operating (income) expense, net	(577)		1,014		(2,886)		1,056
Operating income	22,196		15,899		32,953		32,501
Interest expense, net	21,605		26,048		44,948		51,506
Other (income) expense, net	(4,552)		731		294		3,464
Income (loss) from continuing operations before income taxes	5,143		(10,880)		(12,289)		(22,469)
Income tax provision (benefit)	4,982		(1,146)		(3,541)		(1,816)
Income (loss) from continuing operations, net of tax	161		(9,734)		(8,748)		(20,653)
Loss from discontinued operations, net of tax	(55,788)		(742)		(58,203)		(3,919)
Net loss	$	(55,627)	$	(10,476)	$	(66,951)	$	(24,572)

Income (loss) from continuing operations per common share: basic and diluted	$	—	$	(0.16)	$	(0.14)	$	(0.34)
Loss from discontinued operations per common share: basic and diluted	(0.91)		(0.01)		(0.96)		(0.07)
Net loss per common share: basic and diluted	$	(0.91)	$	(0.17)	$	(1.10)	$	(0.41)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Net loss	$	(55,627)	$	(10,476)	$	(66,951)	$	(24,572)
Other comprehensive income (loss), net of tax:
Currency translation adjustments (net of income tax of $0 in 2020 and 2019)	30,008		7,452		1,830		3,245
Change in unrecognized net periodic pension costs (net of income tax of $44 and $88 in 2020, and $63 and $126 in 2019)	595		197		765		394
Net unrealized loss on derivative instruments and other (net of income tax benefit of $238 and $4,064 in 2020, and $2,662 and $3,641 in 2019)	(76)		(5,262)		(11,473)		(7,675)
Total other comprehensive income (loss), net of tax	30,527		2,387		(8,878)		(4,036)
Comprehensive loss	$	(25,100)	$	(8,089)	$	(75,829)	$	(28,608)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)


	June 30,		December 31,
(in thousands, except per share data)	2020		2019
Assets
Current assets
Cash and cash equivalents	$	101,276	$	67,030
Accounts receivable, net of allowances of $23,319 and $21,015	633,647		674,706
Merchandise inventories	1,040,861		1,146,192
Other current assets	175,244		79,372
Current assets of discontinued operations	—		439,983
Total current assets	1,951,028		2,407,283
Property and equipment, net of accumulated depreciation of $264,169 and $245,718	297,033		315,427
Operating lease assets	142,200		142,219
Goodwill	391,670		393,181
Intangible assets, net	262,539		285,018
Other assets, net	93,316		99,956
Total assets	$	3,137,786	$	3,643,084
Liabilities and equity
Current liabilities
Accounts payable	$	824,131	$	808,035
Accrued payroll and related liabilities	54,445		53,584
Other current liabilities	317,658		231,029
Current liabilities of discontinued operations	—		323,511
Total current liabilities	1,196,234		1,416,159
Long-term debt, excluding current portion	1,269,854		1,508,415
Operating lease liabilities, excluding current portion	117,800		117,080
Deferred income taxes	41,430		40,550
Other liabilities	117,306		98,726
Total liabilities	2,742,624		3,180,930
Commitments and contingencies
Equity
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 63,737 shares and 62,843 shares	127,474		125,686
Paid-in capital	258,733		251,401
Retained earnings	70,540		137,774
Accumulated other comprehensive loss	(61,585)		(52,707)
Total equity	395,162		462,154
Total liabilities and equity	$	3,137,786	$	3,643,084

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
(in thousands)	2020		2019
Operating activities:
Net loss	$	(66,951)	$	(24,572)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	48,804		58,902
Share-based compensation expense	7,814		8,093
Loss on divestiture	65,472		—
Provision for losses on accounts receivable	7,589		6,534
Deferred income tax expense (benefit)	4,269		(14,597)
Changes in operating lease right-of-use assets and lease liabilities	(1,029)		(616)
Changes in operating assets and liabilities:
Accounts receivable	37,154		(23,346)
Merchandise inventories	107,083		52,346
Accounts payable	16,395		(71,704)
Net change in other assets and liabilities	(76,289)		32,226
Other, net	146		5,748
Cash provided by operating activities	150,457		29,014
Investing activities:
Proceeds from divestiture	133,000		—
Additions to property and equipment	(8,733)		(21,020)
Additions to computer software	(3,409)		(4,511)
Proceeds from sale of property and equipment	69		339
Proceeds from cash surrender value of life insurance policies	6,032		—
Cash provided by (used for) investing activities	126,959		(25,192)
Financing activities:
Proceeds from issuance of debt	150,000		—
(Repayments) borrowings under revolving credit facility	(47,900)		19,900
Repayments of debt	(258,005)		(24,788)
Financing costs paid	(10,367)		(4,313)
Cash dividends paid	(311)		(4,918)
Other, net	(4,479)		(1,934)
Cash used for financing activities	(171,062)		(16,053)
Effect of exchange rate changes on cash and cash equivalents	5,412		203
Net increase (decrease) in cash, cash equivalents and restricted cash	111,766		(12,028)
Cash, cash equivalents and restricted cash at beginning of period	84,687		103,367
Cash, cash equivalents and restricted cash at end of period	$	196,453	$	91,339
Supplemental disclosure of cash flow information:
Income taxes paid (received), net of refunds	$	5,975	$	(13,929)
Interest paid	$	43,840	$	53,183

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 Loss		Total Equity
Balance, December 31, 2018	62,294	$	124,588	$	238,773	$	200,670	$	(45,612)	$	518,419
Net loss						(14,096)				(14,096)
Other comprehensive loss								(6,423)		(6,423)
Dividends declared ($0.0025 per share)						(119)				(119)
Share-based compensation expense, exercises and other	642	1,284		2,774						4,058
Balance, March 31, 2019	62,936	125,872		241,547		186,455		(52,035)		501,839
Net loss						(10,476)				(10,476)
Other comprehensive income								2,387		2,387
Dividends declared ($0.0025 per share)						(114)				(114)
Share-based compensation expense, exercises and other	28	56		3,209						3,265
Balance, June 30, 2019	62,964	$	125,928	$	244,756	$	175,865	$	(49,648)	$	496,901

Balance, December 31, 2019	62,843	$	125,686	$	251,401	$	137,774	$	(52,707)	$	462,154
Net loss						(11,324)				(11,324)
Other comprehensive loss								(39,405)		(39,405)
Dividends declared ($0.0025 per share)						(127)				(127)
Share-based compensation expense, exercises and other	42	84		4,956						5,040
Balance, March 31, 2020	62,885	125,770		256,357		126,323		(92,112)		416,338
Net loss						(55,627)				(55,627)
Other comprehensive income								30,527		30,527
Dividends declared ($0.0025 per share)						(156)				(156)
Share-based compensation expense, exercises and other	852	1,704		2,376						4,080
Balance, June 30, 2020	63,737	$	127,474	$	258,733	$	70,540	$	(61,585)	$	395,162

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—Summary of Significant Accounting Policies

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 Movianto business represents a component that met accounting requirements to be classified as discontinued operations and held-for-sale beginning December 31, 2019. In accordance with GAAP, the results of operations and financial position of the Movianto business are presented as discontinued operations through June 18, 2020 (the Divestiture Date) and, as such, have been excluded from continuing operations for all periods presented. With the exception of Note 3, the Notes to Consolidated Financial Statements reflect the continuing operations of Owens & Minor, Inc. and its subsidiaries. See Note 3 for additional information regarding discontinued operations. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 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.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in the United States, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash included in Other current assets represents $78.9 million held in a designated account as of June 30, 2020 as required by the Fifth Amendment to the Credit Agreement, which stipulates that the cash proceeds from the sale of the Movianto business is to be used to repay the 2021 Notes or the Term Loans. Restricted cash included in Other assets, net as of June 30, 2020 represents $16.3 million held in an escrow account as required by the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Bundled Payments for Care Improvement (BPCI) Advanced Program.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows.


	June 30, 2020		December 31, 2019
Cash and cash equivalents	$	101,276	$	67,030
Restricted cash included in Other current assets	78,854		—
Restricted cash included in Other assets, net	16,323		16,261
Cash of discontinued operations	—		1,396
Total cash, cash equivalents and restricted cash	$	196,453	$	84,687

Note 2—Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The carrying amount of restricted cash also approximates fair value due to its nature. The fair value of debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). See Note 6 for the fair value of debt. The fair value of interest rate swaps and foreign currency contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 8 for the fair value of derivatives.

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Note 3—Discontinued Operations

On June 18, 2020, we completed the previously announced divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million. We concluded that the Movianto business met the criteria for discontinued operations as of December 31, 2019 and through the Divestiture Date, as the intention to sell represented a strategic shift and the criteria for held-for-sale were met. Movianto was previously reported in the Global Solutions segment.

Accordingly, the results of operations from the Movianto business are reported in the accompanying consolidated statements of operations as Loss from discontinued operations, net of tax for the three and six months ended June 30, 2020 and 2019, and the related assets and liabilities are classified as held-for-sale as of December 31, 2019 in the accompanying balance sheet. We are working with the Buyer on a final working capital adjustment that could result in a benefit in an amount up to $42 million. There is no benefit of any such adjustment reflected in our consolidated financial statements as of June 30, 2020.

The following table summarizes the financial results of our discontinued operations for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net revenue	$	104,417	$	107,495	$	226,759	$	218,043
Cost of goods sold	21,817		25,585		53,923		54,330
Gross margin	82,600		81,910		172,836		163,713
Distribution, selling, and administrative expenses	76,560		80,954		157,512		163,997

Loss on divestiture	56,392		—		65,472		—
Acquisition-related and exit and realignment charges	4,554		265		4,825		391
Other operating expense (income), net	73		(285)		(388)		(472)
Operating income (loss)	(54,979)		976		(54,585)		(203)
Interest expense, net	1,424		1,635		3,144		3,275
Loss from discontinued operations before income taxes	(56,403)		(659)		(57,729)		(3,478)
Income tax (benefit) provision from discontinued operations	(615)		83		474		441
Loss from discontinued operations, net of tax	$	(55,788)	$	(742)	$	(58,203)	$	(3,919)

We suspended depreciation and amortization on assets that are held-for-sale, including right-of-use assets recorded in accordance with ASU No. 2016-02, for the three and six months ended June 30, 2020.

All revenue and expense included in discontinued operations during the three and six months ended June 30, 2020 relates to activity through the Divestiture Date. No revenue or expense have been recorded in discontinued operations related to the disposal group subsequent to the Divestiture Date.

We have entered into transition services agreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the Buyer will provide to each other various transitional services. Certain transition service arrangement costs and reimbursements were recorded during the three and six months ended June 30, 2020. These amounts were immaterial for the period ended June 30, 2020.

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The assets and liabilities of the discontinued Movianto business reflected on the consolidated balance sheet at December 31, 2019 were as follows:


	December 31, 2019
Assets of discontinued operations
Cash and cash equivalents	$	1,396
Accounts receivable, net	78,643
Merchandise inventories	16,058
Other current assets	188,853
Current assets of discontinued operations	284,950
Property and equipment, net	65,710
Intangible assets, net	6,579
Other assets, net	27,431
Operating lease assets	87,425
Valuation allowance on disposal group classified as held-for-sale	(32,112)
Total assets of discontinued operations	$	439,983
Liabilities of discontinued operations
Accounts payable	$	53,981
Other current liabilities	182,980
Current liabilities of discontinued operations	236,961
Long-term debt, excluding current portion	5,523
Operating lease liabilities, excluding current portion	76,270
Other liabilities	4,757
Total liabilities of discontinued operations	$	323,511

Assets and liabilities held-for-sale as of December 31, 2019 were classified as current since we expected the Divestiture to be completed within one year of the balance sheet date.

The following table provides operating and investing cash flow information for our discontinued operations:


	June 30, 2020		June 30, 2019
Operating Activities:
Depreciation and amortization	$	—	$	10,834
Loss on divestiture	65,472		—

Investing Activities:
Capital expenditures	3,027		14,211

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 June 30, 2020:


	Global Solutions		Global Products		Consolidated
Carrying amount of goodwill, December 31, 2019	$	283,905	$	109,276	$	393,181
Currency translation adjustments	—		(1,511)		(1,511)
Carrying amount of goodwill, June 30, 2020	$	283,905	$	107,765	$	391,670

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Intangible assets at June 30, 2020 and December 31, 2019 were as follows:


	June 30, 2020										December 31, 2019
	Customer Relationships		Tradenames		Other Intangibles		Customer Relationships		Tradenames		Other Intangibles

Gross intangible assets	$	269,090	$	90,000	$	43,230	$	270,693	$	90,000	$	43,055
Accumulated amortization	(107,341)		(20,701)		(11,739)		(92,947)		(16,520)		(9,263)
Net intangible assets	$	161,749	$	69,299	$	31,491	$	177,746	$	73,480	$	33,792
Weighted average useful life	10 years		11 years		8 years		10 years		11 years		8 years

At June 30, 2020, $71.4 million in net intangible assets were held in the Global Solutions segment and $191.1 million were held in the Global Products segment. Amortization expense for intangible assets was $10.6 million and $12.8 million for the three months ended June 30, 2020 and 2019, respectively, and $21.2 million and $22.8 million for the six months ended June 30, 2020 and 2019, respectively.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $20.7 million for the remainder of 2020, $39.8 million for 2021, $38.9 million for 2022, $38.7 million for 2023, $33.9 million for 2024 and $28.2 million for 2025.

Note 5—Exit and Realignment Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain distribution and outsourced logistics centers, administrative offices and warehouses, and IT restructuring charges. 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, 2020 and 2019 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Global Solutions segment	$	1,713	$	1,614	$	3,542	$	2,180
Global Products segment	487		103		487		241
Total exit and realignment charges	$	2,200	$	1,717	$	4,029	$	2,421

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The following table summarizes the activity related to exit and realignment cost accruals through June 30, 2020 and 2019:


	Total
Accrued exit and realignment costs, December 31, 2019	$	8,162
Provision for exit and realignment activities:
Severance	1,391
Information system restructuring costs	183
Other	255

Cash payments	(5,799)
Accrued exit and realignment costs, March 31, 2020	4,192
Provision for exit and realignment activities:
Severance	809
Information system restructuring costs	671
Other	720

Cash payments	(2,072)
Accrued exit and realignment costs, June 30, 2020	$	4,320

Accrued exit and realignment costs, December 31, 2018