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 September 30, 2004March 31, 2005
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.) |
| 4800 Cox Road, Glen Allen, Virginia | 23060 | ||
| (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) 747-9794
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. Yesx No¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-212b.2 of the Exchange Act). Yes.Yes x No ¨
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of October 31, 2004,April 29, 2005, was 39,425,34839,702,127 shares.
Owens & Minor, Inc. and Subsidiaries
| Page | ||||||
Part I. | Financial Information | |||||
Item 1. | Financial Statements | |||||
| 3 | ||||||
Consolidated Balance Sheets – | 4 | |||||
| 5 | ||||||
| 6 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4. | ||||||
Part II. | Other Information | |||||
Item 1. | ||||||
Item | 19 | |||||
Item 6. | ||||||
Part I. Financial Information
| Item 1. | Financial Statements |
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| (in thousands, except per share data) | Three Months Ended March 31, | |||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2005 | 2004 | |||||||||||||||||||
Revenue | $ | 1,134,387 | $ | 1,063,509 | $ | 3,359,836 | $ | 3,135,980 | $ | 1,193,600 | $ | 1,106,074 | ||||||||||||
Cost of revenue | 1,019,537 | 954,289 | 3,016,095 | 2,811,067 | 1,067,762 | 992,014 | ||||||||||||||||||
Gross margin | 114,850 | 109,220 | 343,741 | 324,913 | 125,838 | 114,060 | ||||||||||||||||||
Selling, general and administrative expenses | 84,480 | 80,868 | 253,030 | 237,113 | 93,952 | 84,017 | ||||||||||||||||||
Depreciation and amortization | 3,676 | 3,868 | 11,197 | 11,801 | 3,447 | 3,706 | ||||||||||||||||||
Other operating income and expense, net | (903 | ) | (969 | ) | (3,175 | ) | (3,449 | ) | (1,111 | ) | (1,101 | ) | ||||||||||||
Operating earnings | 27,597 | 25,453 | 82,689 | 79,448 | 29,550 | 27,438 | ||||||||||||||||||
Interest expense, net | 3,086 | 4,142 | 9,375 | 11,153 | 3,325 | 3,246 | ||||||||||||||||||
Discount on accounts receivable securitization | — | 199 | 261 | 581 | — | 178 | ||||||||||||||||||
Distributions on mandatorily redeemable preferred securities | — | — | — | 2,898 | ||||||||||||||||||||
Other expense | — | — | — | 154 | ||||||||||||||||||||
Income before income taxes | 24,511 | 21,112 | 73,053 | 64,662 | 26,225 | 24,014 | ||||||||||||||||||
Income tax provision | 9,314 | 8,277 | 27,906 | 25,348 | 10,306 | 9,389 | ||||||||||||||||||
Net income | $ | 15,197 | $ | 12,835 | $ | 45,147 | $ | 39,314 | $ | 15,919 | $ | 14,625 | ||||||||||||
Net income per common share-basic | $ | 0.39 | $ | 0.37 | $ | 1.16 | $ | 1.16 | ||||||||||||||||
Net income per common share – basic | $ | 0.40 | $ | 0.38 | ||||||||||||||||||||
Net income per common share-diluted | $ | 0.38 | $ | 0.34 | $ | 1.14 | $ | 1.06 | ||||||||||||||||
Net income per common share – diluted | $ | 0.40 | $ | 0.37 | ||||||||||||||||||||
Cash dividends per common share | $ | 0.11 | $ | 0.09 | $ | 0.33 | $ | 0.26 | $ | 0.13 | $ | 0.11 | ||||||||||||
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
(unaudited)
| (in thousands, except per share data) | September 30, 2004 | December 31, 2003 | March 31, 2005 | December 31, 2004 | ||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 102,342 | $ | 16,335 | $ | 74,234 | $ | 55,796 | ||||||||
Accounts and notes receivable, net of allowance of $7,570 and $8,350 | 327,433 | 353,431 | ||||||||||||||
Accounts and notes receivable, net of allowances of $10,086 and $6,768 | 345,601 | 344,642 | ||||||||||||||
Merchandise inventories | 428,551 | 384,266 | 403,919 | 435,673 | ||||||||||||
Other current assets | 28,617 | 27,343 | 26,492 | 28,365 | ||||||||||||
Total current assets | 886,943 | 781,375 | 850,246 | 864,476 | ||||||||||||
Property and equipment, net of accumulated depreciation of $70,990 and $74,056 | 22,196 | 21,088 | ||||||||||||||
Goodwill | 198,960 | 198,063 | ||||||||||||||
Property and equipment, net of accumulated depreciation of $68,819 and $67,932 | 31,737 | 27,153 | ||||||||||||||
Goodwill, net | 252,389 | 200,467 | ||||||||||||||
Other assets, net | 42,643 | 45,222 | 37,099 | 39,737 | ||||||||||||
Total assets | $ | 1,150,742 | $ | 1,045,748 | $ | 1,171,471 | $ | 1,131,833 | ||||||||
Liabilities and shareholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 377,044 | $ | 314,723 | $ | 362,126 | $ | 336,326 | ||||||||
Accrued payroll and related liabilities | 13,460 | 13,279 | 10,572 | 13,962 | ||||||||||||
Other accrued liabilities | 71,070 | 67,630 | 86,157 | 80,243 | ||||||||||||
Total current liabilities | 461,574 | 395,632 | 458,855 | 430,531 | ||||||||||||
Long-term debt | 208,307 | 209,499 | 205,537 | 207,476 | ||||||||||||
Other liabilities | 31,704 | 30,262 | 34,202 | 33,570 | ||||||||||||
Total liabilities | 701,585 | 635,393 | 698,594 | 671,577 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Preferred stock, par value $100 per share; authorized - 10,000 shares Series A; Participating Cumulative Preferred Stock; none issued | — | — | — | — | ||||||||||||
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding – 39,416 shares and 38,979 shares | 78,832 | 77,958 | ||||||||||||||
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding – 39,675 shares and 39,519 shares | 79,349 | 79,038 | ||||||||||||||
Paid-in capital | 124,600 | 118,843 | 128,173 | 126,625 | ||||||||||||
Retained earnings | 252,639 | 220,468 | 274,408 | 263,646 | ||||||||||||
Accumulated other comprehensive loss | (6,914 | ) | (6,914 | ) | (9,053 | ) | (9,053 | ) | ||||||||
Total shareholders’ equity | 449,157 | 410,355 | 472,877 | 460,256 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 1,150,742 | $ | 1,045,748 | $ | 1,171,471 | $ | 1,131,833 | ||||||||
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | ||||||||||||||||
| (in thousands) | Three Months Ended March 31, | |||||||||||||||
| 2004 | 2003 | 2005 | 2004 | |||||||||||||
Operating activities | ||||||||||||||||
Net income | $ | 45,147 | $ | 39,314 | $ | 15,919 | $ | 14,625 | ||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 11,197 | 11,801 | 3,447 | 3,706 | ||||||||||||
Provision for LIFO reserve | 3,150 | 3,280 | 5,100 | 2,225 | ||||||||||||
Provision for losses on accounts and notes receivable | 1,176 | 1,938 | 743 | 373 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts and notes receivable | 24,844 | 29,815 | 7,434 | 18,030 | ||||||||||||
Merchandise inventories | (47,435 | ) | (38,801 | ) | 27,540 | (13,012 | ) | |||||||||
Accounts payable | 82,294 | 84,681 | 58,534 | 25,409 | ||||||||||||
Net change in other current assets and liabilities | 2,294 | (8,111 | ) | 3,272 | (516 | ) | ||||||||||
Other, net | 5,812 | 4,457 | 1,038 | 2,062 | ||||||||||||
Cash provided by operating activities | 128,479 | 128,374 | 123,027 | 52,902 | ||||||||||||
Investing activities | ||||||||||||||||
Additions to property and equipment | (8,105 | ) | (4,273 | ) | (5,338 | ) | (1,937 | ) | ||||||||
Additions to computer software | (3,713 | ) | (8,008 | ) | (825 | ) | (1,321 | ) | ||||||||
Net cash paid for acquisition of business | (2,512 | ) | — | |||||||||||||
Proceeds from sale of land | 1,820 | — | ||||||||||||||
Net cash paid for acquisitions | (57,920 | ) | (2,500 | ) | ||||||||||||
Other, net | 215 | 274 | 1 | 4 | ||||||||||||
Cash used for investing activities | (12,295 | ) | (12,007 | ) | (64,082 | ) | (5,754 | ) | ||||||||
Financing activities | ||||||||||||||||
Repurchase of mandatorily redeemable preferred securities | — | (20,439 | ) | |||||||||||||
Repurchase of common stock | — | (10,884 | ) | |||||||||||||
Net payments on revolving credit facility | — | (27,900 | ) | |||||||||||||
Cash dividends paid | (12,976 | ) | (9,220 | ) | (5,157 | ) | (4,319 | ) | ||||||||
Proceeds from exercise of stock options | 4,004 | 4,303 | 942 | 2,244 | ||||||||||||
Decrease in drafts payable | (20,000 | ) | (26,150 | ) | (36,246 | ) | (15,000 | ) | ||||||||
Other, net | (1,205 | ) | — | (46 | ) | (15 | ) | |||||||||
Cash used for financing activities | (30,177 | ) | (90,290 | ) | (40,507 | ) | (17,090 | ) | ||||||||
Net increase in cash and cash equivalents | 86,007 | 26,077 | 18,438 | 30,058 | ||||||||||||
Cash and cash equivalents at beginning of period | 16,335 | 3,361 | 55,796 | 16,335 | ||||||||||||
Cash and cash equivalents at end of period | $ | 102,342 | $ | 29,438 | $ | 74,234 | $ | 46,393 | ||||||||
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
| 1. | Accounting Policies |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which are comprised only of normal recurring accruals and the use of estimates) necessary to present fairly the consolidated financial position of Owens & Minor, Inc. and its wholly-owned subsidiaries (O&M or the company) as of September 30, 2004March 31, 2005 and the consolidated results of operations for the three and nine month periods and cash flows for the nine monththree-month periods ended September 30,March 31, 2005 and 2004, and 2003, in conformity with U.S. generally accepted accounting principles.
| 2. | Interim Results of Operations |
The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
| 3. |
Certain prior period amounts have been reclassified in order to conform to the current period presentation. The reclassifications have no effect on total revenue or net income as previously reported. The most significant reclassifications are as follows:
| Acquisition |
In March 2004,Effective January 31, 2005, the company acquired Access Diabetic Supply, LLC (Access), a Florida-based direct-to-consumer distributor of diabetic supplies and products for certain other chronic disease categories. The company paid $57 million in cash, as well as transaction and due diligence costs of $0.9 million. The purchase price is subject to adjustment upon a final determination of the net assetsworking capital acquired. Access, with 2004 revenues of 5nQ, a small, clinical inventory management solutions company. 5nQ developed an innovative software service, QSight™,approximately $32 million, primarily markets blood glucose monitoring devices, test strips and other ancillary products used by diabetics for clinical healthcare inventory management solutions. This strategic acquisition enables O&M to enhance the OMSolutionsSM technology and service offerings to hospitals and suppliers.self-testing.
The acquisition has been accounted for as a purchase of a business and, accordingly, the operating results of 5nQAccess have been included in the company’s consolidated financial statements sincefrom the date of acquisition. The company paid $2.5 million in cash forA preliminary allocation of the purchase price resulted in approximately $5 million of net tangible assets and will also make additional payments to the previous owners, who are now employed by O&M, based on the amount$53 million of QSight™ subscription revenues through March 2007.goodwill and intangible assets. The allocation of the purchase price included $1.5 millionis expected to be completed after the valuation of computer software and $0.2 million of intangiblecertain acquired assets both included in “other assets, net” on the consolidated balance sheet, and $0.9 million of goodwill.is complete. Had the acquisition taken place on January 1, 2003,2004, the consolidated revenue and net income of the company would not have materially differed from the amounts reported for the three months ended September 30, 2003March 31, 2005 or the nine months ended September 30, 2004 and 2003.2004.
The company uses the intrinsic value method as defined by Accounting Principles Board Opinion No. 25 to account for stock-based compensation. This method requires compensation expense to be recognized for the excess of the quoted market price of the stock at the grant date or the measurement date over the amount an employee must pay to acquire the stock. The following table presents the effect on net income and earnings per share had the company used the fair value
method, as defined in Statement of Financial Accounting Standards No. (SFAS) 123,Accounting for Stock-Based Compensation, to account for stock-based compensation:
Three Months Ended March 31, Net income Add: Stock-based employee compensation expense included in reported net income, net of tax Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax Pro forma net income Per common share – basic: Net income, as reported Pro forma net income Per common share – diluted: Net income, as reported Pro forma net income(in thousands, except per share data) 2005 2004 $ 15,919 $ 14,625 276 212 (540 ) (413 ) $ 15,655 $ 14,424 $ 0.40 $ 0.38 $ 0.40 $ 0.37 $ 0.40 $ 0.37 $ 0.39 $ 0.36
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share data) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Net income | $ | 15,197 | $ | 12,835 | $ | 45,147 | $ | 39,314 | ||||||||
Add: stock-based employee compensation expense included in reported net income, net of tax | 197 | 150 | 609 | 476 | ||||||||||||
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax | (486 | ) | (413 | ) | (1,515 | ) | (1,322 | ) | ||||||||
Pro forma net income | $ | 14,908 | $ | 12,572 | $ | 44,241 | $ | 38,468 | ||||||||
Per common share - basic: | ||||||||||||||||
Net income, as reported | $ | 0.39 | $ | 0.37 | $ | 1.16 | $ | 1.16 | ||||||||
Pro forma net income | $ | 0.38 | $ | 0.36 | $ | 1.13 | $ | 1.13 | ||||||||
Per common share - diluted: | ||||||||||||||||
Net income, as reported | $ | 0.38 | $ | 0.34 | $ | 1.14 | $ | 1.06 | ||||||||
Pro forma net income | $ | 0.38 | $ | 0.33 | $ | 1.11 | $ | 1.04 | ||||||||
| 5. | Direct-Response Advertising Costs |
Beginning with the acquisition of Access Diabetic Supply, LLC on January 31, 2005, the company capitalizes the costs of direct-response advertising of its direct-to-consumer diabetic supplies for campaigns that meet the capitalization requirements of American Institute of Certified Public Accountants Statement of Position 93-7,Reporting on Advertising Costs. The company amortizes these costs over a four-year period on an accelerated basis. The company’s ability to realize the value of these assets is evaluated at each balance sheet date by comparing the carrying amounts of the assets to the remaining net cash flows expected to result from sales to customers obtained through the advertising. In the quarter ended March 31, 2005, the company capitalized $826 thousand of direct-response advertising costs and recorded amortization of $35 thousand. At March 31, 2005, deferred advertising costs of $791 thousand were included in other assets, net on the company’s consolidated balance sheet.
| 6. | Retirement Plans |
In December 2003, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. (SFAS) 132,Employers’ Disclosures about Pensions and Other Postretirement Benefits. The revised statement requires disclosures in addition to those in the original SFAS 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. Most of the additional disclosure requirements were effective for the company as of December 31, 2003, with the remaining requirements effective in 2004. The adoption of the revised statement did not affect the company’s financial condition or results of operations. The revised statement requires interim disclosures to be made about the components of net periodic pension cost of the company’s retirement plans. The components of net periodic pension cost of the company’s retirement plans for the three and nine months ended September 30,March 31, 2005 and 2004 and 2003 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| (in thousands) | Three Months Ended March 31, | |||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2005 | 2004 | |||||||||||||||||||
Service cost | $ | 256 | $ | 282 | $ | 766 | $ | 635 | $ | 378 | $ | 255 | ||||||||||||
Interest cost | 723 | 719 | 2,249 | 2,162 | 805 | 764 | ||||||||||||||||||
Expected return on plan assets | (435 | ) | (394 | ) | (1,301 | ) | (1,094 | ) | (405 | ) | (434 | ) | ||||||||||||
Amortization of prior service cost | 8 | 71 | 149 | 212 | 39 | 70 | ||||||||||||||||||
Recognized net actuarial loss | 227 | 196 | 661 | 544 | 350 | 217 | ||||||||||||||||||
Net periodic pension cost | $ | 779 | $ | 874 | $ | 2,524 | $ | 2,459 | $ | 1,167 | $ | 872 | ||||||||||||
| 7. |
The company’s comprehensive income for the three and nine months ended September 30, 2004 and 2003 is shown in the table below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2004 | 2003 | 2004 | 2003 | ||||||||
Net income | $ | 15,197 | $ | 12,835 | $ | 45,147 | $ | 39,314 | ||||
Other comprehensive income – change in unrealized gain on investment, net of tax | — | 42 | — | 29 | ||||||||
Comprehensive income | $ | 15,197 | $ | 12,877 | $ | 45,147 | $ | 39,343 | ||||
| Net Income per Common Share |
The following sets forth the computation of basic and diluted net income per common share:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| (in thousands, except per share data) | 2004 | 2003 | 2004 | 2003 | ||||||||
Numerator: | ||||||||||||
Numerator for basic net income per common share – net income | $ | 15,197 | $ | 12,835 | $ | 45,147 | $ | 39,314 | ||||
Distributions on convertible mandatorily redeemable preferred securities, net of income taxes | — | 595 | — | 2,362 | ||||||||
Numerator for diluted net income per common share – net income attributable to common stock after assumed conversions | $ | 15,197 | $ | 13,430 | $ | 45,147 | $ | 41,676 | ||||
Denominator: | ||||||||||||
Denominator for basic net income per common share – weighted average shares | 39,083 | 35,128 | 38,986 | 34,021 | ||||||||
Effect of dilutive securities: | ||||||||||||
Conversion of mandatorily redeemable preferred securities | — | 3,498 | — | 4,703 | ||||||||
Stock options and restricted stock | 599 | 725 | 622 | 597 | ||||||||
Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions | 39,682 | 39,351 | 39,608 | 39,321 | ||||||||
Net income per common share – basic | $ | 0.39 | $ | 0.37 | $ | 1.16 | $ | 1.16 | ||||
Net income per common share – diluted | $ | 0.38 | $ | 0.34 | $ | 1.14 | $ | 1.06 | ||||
| (in thousands, except per share data) | Three Months Ended March 31, | |||||
| 2005 | 2004 | |||||
Numerator: | ||||||
Numerator for basic and diluted net income per common share – net income | $ | 15,919 | $ | 14,625 | ||
Denominator: | ||||||
Denominator for basic net income per common share – weighted average shares | 39,327 | 38,872 | ||||
Effect of dilutive securities - stock options and restricted stock | 536 | 633 | ||||
Denominator for diluted net income per common share – adjusted weighted average shares | 39,863 | 39,505 | ||||
Net income per common share – basic | $ | 0.40 | $ | 0.38 | ||
Net income per common share – diluted | $ | 0.40 | $ | 0.37 | ||
| Contingency |
In September 2004, the company received a notice from the Internal Revenue Service (IRS) proposing to disallow, effective for the 2001 tax year the reductionand all subsequent years, certain reductions in the company’s tax-basis last-in, first-out (LIFO) inventory for certain manufacturer discounts earned by the company and instead require the inclusion of the discounts in income.valuation. Since the proposed disallowanceadjustment involves the timing of deductions, it primarily affects the company’s liability for interest. Management believes that its treatmenttax-basis method of the discountsLIFO inventory valuation is consistent with a ruling received by the company on this matter from the IRS and is appropriate under the tax law. Accordingly,The company filed an appeal with the companyIRS in December 2004 and plans to contest the proposed disallowanceadjustment pursuant to all applicable administrative and legal procedures. If the company were unsuccessful, the deductionsadjustment would be disallowed effective for the 2001 tax year and all subsequent years, and the company would have to pay a deficiency of $32.3approximately $41.1 million in federal, state, and local taxes for tax years through 2004 on which deferred taxes have been provided, as well as interest calculated at statutory rates, of approximately $4.1 million as of March 31, 2005, net of any tax benefits, for which no reserve has been established. No penalties have been proposed. The payment of the deficiency and interest would adversely affect operating cash flow for the full amount of the payment, while the company’s net income and earnings per share would only be reduced by the
amount of any liability for interest, net of tax. The ultimate resolution of this matter may take several years and a determination adverse to the company could have a material effect on the company’s cash flows and results of operations.
In December 2003, the FASB issued FASB Interpretation No. (FIN) 46R (revised December 2003),Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The company was required to apply FIN 46R to interests in variable interest entities as of March 31, 2004. Application of this Interpretation did not affect the company’s financial condition or results of operations.
| Condensed Consolidating Financial Information |
The following tables present condensed consolidating financial information for: Owens & Minor, Inc.; on a combined basis, the guarantors of Owens & Minor, Inc.’s 8.5% Senior Subordinated 10-year Notes (the Notes);Notes; and the non-guarantor subsidiaries of the Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees and the company believes the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.
(in thousands)
For the three months ended March 31, 2005 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidated | |||||||||||
Statements of Operations | |||||||||||||||
Revenue | $ | — | $ | 1,193,600 | $ | — | $ | 1,193,600 | |||||||
Cost of revenue | — | 1,067,762 | — | 1,067,762 | |||||||||||
Gross margin | — | 125,838 | — | 125,838 | |||||||||||
Selling, general and administrative expenses | 30 | 93,922 | — | 93,952 | |||||||||||
Depreciation and amortization | — | 3,447 | — | 3,447 | |||||||||||
Other operating income and expense, net | — | (1,111 | ) | — | (1,111 | ) | |||||||||
Operating earnings (loss) | (30 | ) | 29,580 | — | 29,550 | ||||||||||
Interest expense (income), net | (87 | ) | 3,412 | — | 3,325 | ||||||||||
Income before income taxes | 57 | 26,168 | — | 26,225 | |||||||||||
Income tax provision | 22 | 10,284 | — | 10,306 | |||||||||||
Net income | $ | 35 | $ | 15,884 | $ | — | $ | 15,919 | |||||||
(in thousands)
For the three months ended March 31, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidated | |||||||||||
Statements of Operations | |||||||||||||||
Revenue | $ | — | $ | 1,106,074 | $ | — | $ | 1,106,074 | |||||||
Cost of revenue | — | 992,014 | — | 992,014 | |||||||||||
Gross margin | — | 114,060 | — | 114,060 | |||||||||||
Selling, general and administrative expenses | 66 | 83,833 | 118 | 84,017 | |||||||||||
Depreciation and amortization | — | 3,706 | — | 3,706 | |||||||||||
Other operating income and expense, net | — | 2 | (1,103 | ) | (1,101 | ) | |||||||||
Operating earnings (loss) | (66 | ) | 26,519 | 985 | 27,438 | ||||||||||
Interest expense (income), net | (815 | ) | 3,615 | 446 | 3,246 | ||||||||||
Discount on accounts receivable securitization | — | 5 | 173 | 178 | |||||||||||
Income before income taxes | 749 | 22,899 | 366 | 24,014 | |||||||||||
Income tax provision | 293 | 8,953 | 143 | 9,389 | |||||||||||
Net income | $ | 456 | $ | 13,946 | $ | 223 | $ | 14,625 | |||||||
| �� | |||||||||||||||
Condensed Consolidating Financial Information
(in thousands)
For the three months ended September 30, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
Statements of Operations | ||||||||||||||||||
Revenue | $ | — | $ | 1,134,387 | $ | — | $ | — | $ | 1,134,387 | ||||||||
Cost of revenue | — | 1,019,537 | — | — | 1,019,537 | |||||||||||||
Gross margin | — | 114,850 | — | — | 114,850 | |||||||||||||
Selling, general and administrative expenses | 43 | 84,437 | — | — | 84,480 | |||||||||||||
Depreciation and amortization | — | 3,676 | — | — | 3,676 | |||||||||||||
Other operating income and expense, net | — | (903 | ) | — | — | (903 | ) | |||||||||||
Operating earnings (loss) | (43 | ) | 27,640 | — | — | 27,597 | ||||||||||||
Interest (income) expense, net | (196 | ) | 3,282 | — | — | 3,086 | ||||||||||||
Income before income taxes | 153 | 24,358 | — | — | 24,511 | |||||||||||||
Income tax provision | 57 | 9,257 | — | — | 9,314 | |||||||||||||
Net income | $ | 96 | $ | 15,101 | $ | — | $ | — | $ | 15,197 | ||||||||
For the three months ended September 30, 2003 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
Statements of Operations | ||||||||||||||||||
Revenue | $ | — | $ | 1,063,509 | $ | — | $ | — | $ | 1,063,509 | ||||||||
Cost of revenue | — | 954,289 | — | — | 954,289 | |||||||||||||
Gross margin | — | 109,220 | — | — | 109,220 | |||||||||||||
Selling, general and administrative expenses | 5 | 80,601 | 262 | — | 80,868 | |||||||||||||
Depreciation and amortization | — | 3,868 | — | — | 3,868 | |||||||||||||
Other operating income and expense, net | — | 8 | (977 | ) | — | (969 | ) | |||||||||||
Operating earnings (loss) | (5 | ) | 24,743 | 715 | — | 25,453 | ||||||||||||
Interest (income) expense, net | (853 | ) | 4,153 | 842 | — | 4,142 | ||||||||||||
Discount on accounts receivable securitization | — | 5 | 194 | — | 199 | |||||||||||||
Income (loss) before income taxes | 848 | 20,585 | (321 | ) | — | 21,112 | ||||||||||||
Income tax provision (benefit) | 360 | 8,058 | (141 | ) | — | 8,277 | ||||||||||||
Net income (loss) | $ | 488 | $ | 12,527 | $ | (180 | ) | $ | — | $ | 12,835 | |||||||
March 31, 2005 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Balance Sheets | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 70,013 | $ | 4,221 | $ | — | $ | — | $ | 74,234 | ||||||||||
Accounts and notes receivable, net | — | 345,601 | — | — | 345,601 | |||||||||||||||
Merchandise inventories | — | 403,919 | — | — | 403,919 | |||||||||||||||
Intercompany advances, net | (151 | ) | 322 | (171 | ) | — | — | |||||||||||||
Other current assets | — | 26,492 | — | — | 26,492 | |||||||||||||||
Total current assets | 69,862 | 780,555 | (171 | ) | — | 850,246 | ||||||||||||||
Property and equipment, net | — | 31,737 | — | — | 31,737 | |||||||||||||||
Goodwill, net | — | 252,389 | — | — | 252,389 | |||||||||||||||
Intercompany investments | 441,355 | 65,713 | 1 | (507,069 | ) | — | ||||||||||||||
Other assets, net | 8,326 | 28,773 | — | — | 37,099 | |||||||||||||||
Total assets | $ | 519,543 | $ | 1,159,167 | $ | (170 | ) | $ | (507,069 | ) | $ | 1,171,471 | ||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | — | $ | 362,126 | $ | — | $ | — | $ | 362,126 | ||||||||||
Accrued payroll and related liabilities | — | 10,572 | — | — | 10,572 | |||||||||||||||
Other accrued liabilities | 3,620 | 82,537 | — | — | 86,157 | |||||||||||||||
Total current liabilities | 3,620 | 455,235 | — | — | 458,855 | |||||||||||||||
Long-term debt | 205,233 | 304 | — | — | 205,537 | |||||||||||||||
Intercompany long-term debt | — | 138,890 | — | (138,890 | ) | — | ||||||||||||||
Other liabilities | — | 34,202 | — | — | 34,202 | |||||||||||||||
Total liabilities | 208,853 | 628,631 | — | (138,890 | ) | 698,594 | ||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Common stock | 79,349 | — | 1,500 | (1,500 | ) | 79,349 | ||||||||||||||
Paid-in capital | 128,173 | 365,676 | 1,003 | (366,679 | ) | 128,173 | ||||||||||||||
Retained earnings (deficit) | 103,168 | 173,913 | (2,673 | ) | — | 274,408 | ||||||||||||||
Accumulated other comprehensive loss | — | (9,053 | ) | — | — | (9,053 | ) | |||||||||||||
Total shareholders’ equity | 310,690 | 530,536 | (170 | ) | (368,179 | ) | 472,877 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 519,543 | $ | 1,159,167 | $ | (170 | ) | $ | (507,069 | ) | $ | 1,171,471 | ||||||||
Condensed Consolidating Financial Information
(in thousands)
For the nine months ended September 30, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Operations | ||||||||||||||||||||
Revenue | $ | — | $ | 3,359,836 | $ | — | $ | — | $ | 3,359,836 | ||||||||||
Cost of revenue | — | 3,016,095 | — | — | 3,016,095 | |||||||||||||||
Gross margin | — | 343,741 | — | — | 343,741 | |||||||||||||||
Selling, general and administrative expenses | 500 | 252,407 | 123 | — | 253,030 | |||||||||||||||
Depreciation and amortization | — | 11,197 | — | — | 11,197 | |||||||||||||||
Other operating income and expense, net | — | (1,473 | ) | (1,702 | ) | — | (3,175 | ) | ||||||||||||
Operating earnings (loss) | (500 | ) | 81,610 | 1,579 | — | 82,689 | ||||||||||||||
Interest (income) expense, net | (1,320 | ) | 9,859 | 836 | — | 9,375 | ||||||||||||||
Intercompany dividend income | — | (20,342 | ) | — | 20,342 | — | ||||||||||||||
Discount on accounts receivable securitization | — | 8 | 253 | — | 261 | |||||||||||||||
Income before income taxes | 820 | 92,085 | 490 | (20,342 | ) | 73,053 | ||||||||||||||
Income tax provision | 313 | 27,401 | 192 | — | 27,906 | |||||||||||||||
Net income | $ | 507 | $ | 64,684 | $ | 298 | $ | (20,342 | ) | $ | 45,147 | |||||||||
For the nine months ended September 30, 2003 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Statements of Operations | |||||||||||||||||||
Revenue | $ | — | $ | 3,135,980 | $ | — | $ | — | $ | 3,135,980 | |||||||||
Cost of revenue | — | 2,811,067 | — | — | 2,811,067 | ||||||||||||||
Gross margin | — | 324,913 | — | — | 324,913 | ||||||||||||||
Selling, general and administrative expenses | 5 | 236,113 | 995 | — | 237,113 | ||||||||||||||
Depreciation and amortization | — | 11,801 | — | — | 11,801 | ||||||||||||||
Other operating income and expense, net | — | (75 | ) | (3,374 | ) | — | (3,449 | ) | |||||||||||
Operating earnings (loss) | (5 | ) | 77,074 | 2,379 | — | 79,448 | |||||||||||||
Interest (income) expense, net | (7,094 | ) | 20,063 | (1,816 | ) | — | 11,153 | ||||||||||||
Discount on accounts receivable securitization | — | 15 | 566 | — | 581 | ||||||||||||||
Distributions on mandatorily redeemable preferred securities | — | — | 2,898 | — | 2,898 | ||||||||||||||
Other expense | 154 | — | — | — | 154 | ||||||||||||||
Income before income taxes | 6,935 | 56,996 | 731 | — | 64,662 | ||||||||||||||
Income tax provision | 2,784 | 22,285 | 279 | — | 25,348 | ||||||||||||||
Net income | $ | 4,151 | $ | 34,711 | $ | 452 | $ | — | $ | 39,314 | |||||||||
December 31, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Balance Sheets | |||||||||||||||||||
Assets | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 53,441 | $ | 2,355 | $ | — | $ | — | $ | 55,796 | |||||||||
Accounts and notes receivable, net | — | 344,614 | 28 | — | 344,642 | ||||||||||||||
Merchandise inventories | — | 435,673 | — | — | 435,673 | ||||||||||||||
Intercompany advances, net | 80,448 | (80,262 | ) | (186 | ) | — | — | ||||||||||||
Other current assets | 83 | 28,282 | — | — | 28,365 | ||||||||||||||
Total current assets | 133,972 | 730,662 | (158 | ) | — | 864,476 | |||||||||||||
Property and equipment, net | — | 27,153 | — | — | 27,153 | ||||||||||||||
Goodwill, net | — | 200,467 | — | — | 200,467 | ||||||||||||||
Intercompany investments | 383,416 | 7,773 | 1 | (391,190 | ) | — | |||||||||||||
Other assets, net | 10,339 | 29,398 | — | — | 39,737 | ||||||||||||||
Total assets | $ | 527,727 | $ | 995,453 | $ | (157 | ) | $ | (391,190 | ) | $ | 1,131,833 | |||||||
Liabilities and shareholders’ equity | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Accounts payable | $ | — | $ | 336,326 | $ | — | $ | — | $ | 336,326 | |||||||||
Accrued payroll and related liabilities | — | 13,962 | — | — | 13,962 | ||||||||||||||
Other accrued liabilities | 6,651 | 73,579 | 13 | — | 80,243 | ||||||||||||||
Total current liabilities | 6,651 | 423,867 | 13 | — | 430,531 | ||||||||||||||
Long-term debt | 207,123 | 353 | — | — | 207,476 | ||||||||||||||
Intercompany long-term debt | — | 138,890 | — | (138,890 | ) | — | |||||||||||||
Other liabilities | — | 33,570 | — | — | 33,570 | ||||||||||||||
Total liabilities | 213,774 | 596,680 | 13 | (138,890 | ) | 671,577 | |||||||||||||
Shareholders’ equity | |||||||||||||||||||
Common stock | 79,038 | — | 1,500 | (1,500 | ) | 79,038 | |||||||||||||
Paid-in capital | 126,625 | 249,797 | 1,003 | (250,800 | ) | 126,625 | |||||||||||||
Retained earnings (deficit) | 108,290 | 158,029 | (2,673 | ) | — | 263,646 | |||||||||||||
Accumulated other comprehensive loss | — | (9,053 | ) | — | — | (9,053 | ) | ||||||||||||
Total shareholders’ equity | 313,953 | 398,773 | (170 | ) | (252,300 | ) | 460,256 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 527,727 | $ | 995,453 | $ | (157 | ) | $ | (391,190 | ) | $ | 1,131,833 | |||||||
Condensed Consolidating Financial Information
(in thousands)
September 30, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Balance Sheets | |||||||||||||||||||
Assets | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 99,980 | $ | 2,361 | $ | 1 | $ | — | $ | 102,342 | |||||||||
Accounts and notes receivable, net | — | 327,433 | — | — | 327,433 | ||||||||||||||
Merchandise inventories | — | 428,551 | — | — | 428,551 | ||||||||||||||
Intercompany advances, net | 32,825 | (32,681 | ) | (144 | ) | — | — | ||||||||||||
Other current assets | — | 28,617 | — | — | 28,617 | ||||||||||||||
Total current assets | 132,805 | 754,281 | (143 | ) | — | 886,943 | |||||||||||||
Property and equipment, net | — | 22,196 | — | — | 22,196 | ||||||||||||||
Goodwill | — | 198,960 | — | — | 198,960 | ||||||||||||||
Intercompany investments | 383,415 | 7,773 | — | (391,188 | ) | — | |||||||||||||
Other assets, net | 11,480 | 31,163 | — | — | 42,643 | ||||||||||||||
Total assets | $ | 527,700 | $ | 1,014,373 | $ | (143 | ) | $ | (391,188 | ) | $ | 1,150,742 | |||||||
Liabilities and shareholders’ equity | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Accounts payable | $ | — | $ | 377,044 | $ | — | $ | — | $ | 377,044 | |||||||||
Accrued payroll and related liabilities | — | 13,460 | — | — | 13,460 | ||||||||||||||
Other accrued liabilities | 3,397 | 67,673 | — | — | 71,070 | ||||||||||||||
Total current liabilities | 3,397 | 458,177 | — | — | 461,574 | ||||||||||||||
Long-term debt | 208,140 | 167 | — | — | 208,307 | ||||||||||||||
Intercompany long-term debt | — | 138,890 | — | (138,890 | ) | — | |||||||||||||
Other liabilities | — | 31,704 | — | — | 31,704 | ||||||||||||||
Total liabilities | 211,537 | 628,938 | — | (138,890 | ) | 701,585 | |||||||||||||
Shareholders’ equity | |||||||||||||||||||
Common stock | 78,832 | — | 1,500 | (1,500 | ) | 78,832 | |||||||||||||
Paid-in capital | 124,600 | 249,797 | 1,001 | (250,798 | ) | 124,600 | |||||||||||||
Retained earnings (deficit) | 112,731 | 142,552 | (2,644 | ) | — | 252,639 | |||||||||||||
Accumulated other comprehensive loss | — | (6,914 | ) | — | — | (6,914 | ) | ||||||||||||
Total shareholders’ equity | 316,163 | 385,435 | (143 | ) | (252,298 | ) | 449,157 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 527,700 | $ | 1,014,373 | $ | (143 | ) | $ | (391,188 | ) | $ | 1,150,742 | |||||||
For the three months ended March 31, 2005 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
Operating activities | ||||||||||||||||||||
Net income | $ | 35 | $ | 15,884 | $ | — | $ | — | $ | 15,919 | ||||||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities: | ||||||||||||||||||||
Depreciation and amortization | — | 3,447 | — | — | 3,447 | |||||||||||||||
Provision for LIFO reserve | — | 5,100 | — | — | 5,100 | |||||||||||||||
Provision for losses on accounts and notes receivable | — | 743 | — | — | 743 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts and notes receivable | — | 7,406 | 28 | — | 7,434 | |||||||||||||||
Merchandise inventories | — | 27,540 | — | — | 27,540 | |||||||||||||||
Accounts payable | — | 58,534 | — | — | 58,534 | |||||||||||||||
Net change in other current assets and liabilities | (2,948 | ) | 6,233 | (13 | ) | — | 3,272 | |||||||||||||
Other, net | 1,040 | (2 | ) | — | — | 1,038 | ||||||||||||||
Cash provided by (used for) operating activities | (1,873 | ) | 124,885 | 15 | — | 123,027 | ||||||||||||||
Investing activities | ||||||||||||||||||||
Additions to property and equipment | — | (5,338 | ) | — | — | (5,338 | ) | |||||||||||||
Additions to computer software | — | (825 | ) | — | — | (825 | ) | |||||||||||||
Increase in intercompany investments | (57,939 | ) | (57,940 | ) | — | 115,879 | — | |||||||||||||
Net cash paid for acquisition of business | — | (57,920 | ) | — | — | (57,920 | ) | |||||||||||||
Other, net | — | 1 | — | — | 1 | |||||||||||||||
Cash used for investing activities | (57,939 | ) | (122,022 | ) | — | 115,879 | (64,082 | ) | ||||||||||||
Financing activities | ||||||||||||||||||||
Change in intercompany advances | 80,599 | (80,584 | ) | (15 | ) | — | — | |||||||||||||
Increase in intercompany investments | — | 115,879 | — | (115,879 | ) | — | ||||||||||||||
Cash dividends paid | (5,157 | ) | — | — | — | (5,157 | ) | |||||||||||||
Proceeds from exercise of stock options | 942 | — | — | — | 942 | |||||||||||||||
Decrease in drafts payable | — | (36,246 | ) | — | — | (36,246 | ) | |||||||||||||
Other, net | — | (46 | ) | — | — | (46 | ) | |||||||||||||
Cash provided by (used for) financing activities | 76,384 | (997 | ) | (15 | ) | (115,879 | ) | (40,507 | ) | |||||||||||
Net increase in cash and cash equivalents | 16,572 | 1,866 | — | — | 18,438 | |||||||||||||||
Cash and cash equivalents at beginning of period | 53,441 | 2,355 | — | — | 55,796 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 70,013 | $ | 4,221 | $ | — | $ | — | $ | 74,234 | ||||||||||
Condensed Consolidating Financial Information
(in thousands)
December 31, 2003 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Balance Sheets | |||||||||||||||||||
Assets | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 14,156 | $ | 2,178 | $ | 1 | $ | — | $ | 16,335 | |||||||||
Accounts and notes receivable, net | — | 5,985 | 347,446 | — | 353,431 | ||||||||||||||
Merchandise inventories | — | 384,266 | — | — | 384,266 | ||||||||||||||
Intercompany advances, net | 126,182 | 186,302 | (312,484 | ) | — | — | |||||||||||||
Other current assets | 18 | 27,325 | — | — | 27,343 | ||||||||||||||
Total current assets | 140,356 | 606,056 | 34,963 | — | 781,375 | ||||||||||||||
Property and equipment, net | — | 21,088 | — | — | 21,088 | ||||||||||||||
Goodwill | — | 198,063 | — | — | 198,063 | ||||||||||||||
Intercompany investments | 383,415 | 22,773 | — | (406,188 | ) | — | |||||||||||||
Other assets, net | 13,624 | 31,598 | — | — | 45,222 | ||||||||||||||
Total assets | $ | 537,395 | $ | 879,578 | $ | 34,963 | $ | (406,188 | ) | $ | 1,045,748 | ||||||||
Liabilities and shareholders’ equity | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Accounts payable | $ | — | $ | 314,723 | $ | — | $ | — | $ | 314,723 | |||||||||
Accrued payroll and related liabilities | — | 13,279 | — | — | 13,279 | ||||||||||||||
Other accrued liabilities | 6,030 | 61,538 | 62 | — | 67,630 | ||||||||||||||
Total current liabilities | 6,030 | 389,540 | 62 | — | 395,632 | ||||||||||||||
Long-term debt | 209,364 | 135 | — | — | 209,499 | ||||||||||||||
Intercompany long-term debt | — | 138,890 | — | (138,890 | ) | — | |||||||||||||
Other liabilities | — | 30,262 | — | — | 30,262 | ||||||||||||||
Total liabilities | 215,394 | 558,827 | 62 | (138,890 | ) | 635,393 | |||||||||||||
Shareholders’ equity | |||||||||||||||||||
Common stock | 77,958 | — | 1,500 | (1,500 | ) | 77,958 | |||||||||||||
Paid-in capital | 118,843 | 249,797 | 16,001 | (265,798 | ) | 118,843 | |||||||||||||
Retained earnings | 125,200 | 77,868 | 17,400 | — | 220,468 | ||||||||||||||
Accumulated other comprehensive loss | — | (6,914 | ) | — | — | (6,914 | ) | ||||||||||||
Total shareholders’ equity | 322,001 | 320,751 | 34,901 | (267,298 | ) | 410,355 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 537,395 | $ | 879,578 | $ | 34,963 | $ | (406,188 | ) | $ | 1,045,748 | ||||||||
Condensed Consolidating Financial Information
(in thousands)
For the nine months ended September 30, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
For the three months ended March 31, 2004 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidated | ||||||||||||||||||||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||||||||||
Net income | $ | 507 | $ | 64,684 | $ | 298 | $ | (20,342 | ) | $ | 45,147 | $ | 456 | $ | 13,946 | $ | 223 | $ | 14,625 | |||||||||||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||||||||||||||||||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities: | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | — | 11,197 | — | — | 11,197 | — | 3,706 | — | 3,706 | |||||||||||||||||||||||||||
Provision for LIFO reserve | — | 3,150 | — | — | 3,150 | — | 2,225 | — | 2,225 | |||||||||||||||||||||||||||
Provision for losses on accounts and notes receivable | — | 1,063 | 113 | — | 1,176 | — | 260 | 113 | 373 | |||||||||||||||||||||||||||
Noncash intercompany dividend income | — | (20,342 | ) | — | 20,342 | — | ||||||||||||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||||||||||||||
Accounts and notes receivable | — | 10,786 | 14,058 | — | 24,844 | — | 2,467 | 15,563 | 18,030 | |||||||||||||||||||||||||||
Merchandise inventories | — | (47,435 | ) | — | — | (47,435 | ) | — | (13,012 | ) | — | (13,012 | ) | |||||||||||||||||||||||
Accounts payable | — | 82,294 | — | — | 82,294 | — | 25,409 | — | 25,409 | |||||||||||||||||||||||||||
Net change in other current assets and liabilities | (2,615 | ) | 4,971 | (62 | ) | — | 2,294 | (2,897 | ) | 2,388 | (7 | ) | (516 | ) | ||||||||||||||||||||||
Other, net | 3,136 | 2,676 | — | — | 5,812 | 1,447 | 615 | — | 2,062 | |||||||||||||||||||||||||||
Cash provided by operating activities | 1,028 | 113,044 | 14,407 | — | 128,479 | |||||||||||||||||||||||||||||||
Cash provided by (used for) operating activities | (994 | ) | 38,004 | 15,892 | 52,902 | |||||||||||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||||||||||
Additions to property and equipment | — | (8,105 | ) | — | — | (8,105 | ) | — | (1,937 | ) | — | (1,937 | ) | |||||||||||||||||||||||
Additions to computer software | — | (3,713 | ) | — | — | (3,713 | ) | — | (1,321 | ) | — | (1,321 | ) | |||||||||||||||||||||||
Net cash paid for acquisition of business | — | (2,512 | ) | — | — | (2,512 | ) | — | (2,500 | ) | — | (2,500 | ) | |||||||||||||||||||||||
Proceeds from sale of land | — | 1,820 | — | — | 1,820 | |||||||||||||||||||||||||||||||
Other, net | — | 215 | — | — | 215 | — | 4 | — | 4 | |||||||||||||||||||||||||||
Cash used for investing activities | — | (12,295 | ) | — | — | (12,295 | ) | — | (5,754 | ) | — | (5,754 | ) | |||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||||||||||
Change in intercompany advances | 93,768 | (79,361 | ) | (14,407 | ) | — | — | 33,161 | (17,269 | ) | (15,892 | ) | — | |||||||||||||||||||||||
Cash dividends paid | (12,976 | ) | — | — | — | (12,976 | ) | (4,319 | ) | — | — | (4,319 | ) | |||||||||||||||||||||||
Proceeds from exercise of stock options | 4,004 | — | — | — | 4,004 | 2,244 | — | — | 2,244 | |||||||||||||||||||||||||||
Decrease in drafts payable | — | (20,000 | ) | — | — | (20,000 | ) | — | (15,000 | ) | — | (15,000 | ) | |||||||||||||||||||||||
Other, net | — | (1,205 | ) | — | — | (1,205 | ) | — | (15 | ) | — | (15 | ) | |||||||||||||||||||||||
Cash provided by (used for) financing activities | 84,796 | (100,566 | ) | (14,407 | ) | — | (30,177 | ) | 31,086 | (32,284 | ) | (15,892 | ) | (17,090 | ) | |||||||||||||||||||||
Net increase in cash and cash equivalents | 85,824 | 183 | — | — | 86,007 | |||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 30,092 | (34 | ) | — | 30,058 | |||||||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 14,156 | 2,178 | 1 | — | 16,335 | 14,156 | 2,178 | 1 | 16,335 | |||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 99,980 | $ | 2,361 | $ | 1 | $ | — | $ | 102,342 | $ | 44,248 | $ | 2,144 | $ | 1 | $ | 46,393 | ||||||||||||||||||
Condensed Consolidating Financial Information
(in thousands)
For the nine months ended September 30, 2003 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
Operating activities | ||||||||||||||||||||
Net income | $ | 4,151 | $ | 34,711 | $ | 452 | $ | — | $ | 39,314 | ||||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||||||
Depreciation and amortization | — | 11,801 | — | — | 11,801 | |||||||||||||||
Provision for LIFO reserve | — | 3,280 | — | — | 3,280 | |||||||||||||||
Provision for losses on accounts and notes receivable | — | 958 | 980 | — | 1,938 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts and notes receivable | — | (537 | ) | 30,352 | — | 29,815 | ||||||||||||||
Merchandise inventories | — | (38,801 | ) | — | — | (38,801 | ) | |||||||||||||
Accounts payable | — | 84,681 | — | — | 84,681 | |||||||||||||||
Net change in other current assets and liabilities | (3,367 | ) | (4,128 | ) | (616 | ) | — | (8,111 | ) | |||||||||||
Other, net | 2,920 | 1,537 | — | — | 4,457 | |||||||||||||||
Cash provided by operating activities | 3,704 | 93,502 | 31,168 | — | 128,374 | |||||||||||||||
Investing activities | ||||||||||||||||||||
Additions to property and equipment | — | (4,273 | ) | — | — | (4,273 | ) | |||||||||||||
Additions to computer software | — | (8,008 | ) | — | — | (8,008 | ) | |||||||||||||
Decrease in intercompany investment | 4,083 | — | — | (4,083 | ) | — | ||||||||||||||
Proceeds from investment in intercompany debt | — | — | 4,083 | (4,083 | ) | — | ||||||||||||||
Other, net | — | 274 | — | — | 274 | |||||||||||||||
Cash provided by (used for) investing activities | 4,083 | (12,007 | ) | 4,083 | (8,166 | ) | (12,007 | ) | ||||||||||||
Financing activities | ||||||||||||||||||||
Repurchase of mandatorily redeemable preferred securities | (20,439 | ) | — | — | — | (20,439 | ) | |||||||||||||
Repurchase of common stock | (10,884 | ) | — | — | — | (10,884 | ) | |||||||||||||
Net payments on revolving credit facility | (27,900 | ) | — | — | — | (27,900 | ) | |||||||||||||
Change in intercompany advances | 86,435 | (55,267 | ) | (31,168 | ) | — | — | |||||||||||||
Payments on intercompany debt | (4,083 | ) | — | — | 4,083 | — | ||||||||||||||
Decrease in intercompany investment | — | — | (4,083 | ) | 4,083 | — | ||||||||||||||
Cash dividends paid | (9,220 | ) | — | — | — | (9,220 | ) | |||||||||||||
Proceeds from exercise of stock options | 4,303 | — | — | — | 4,303 | |||||||||||||||
Decrease in drafts payable | — | (26,150 | ) | — | — | (26,150 | ) | |||||||||||||
Cash provided by (used for) financing activities | 18,212 | (81,417 | ) | (35,251 | ) | 8,166 | (90,290 | ) | ||||||||||||
Net increase in cash and cash equivalents | 25,999 | 78 | — | — | 26,077 | |||||||||||||||
Cash and cash equivalents at beginning of period | 1,244 | 2,116 | 1 | — | 3,361 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 27,243 | $ | 2,194 | $ | 1 | $ | — | $ | 29,438 | ||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis describes material changes in the financial condition of Owens & Minor, Inc. and its wholly-owned subsidiaries (O&M or the company) since December 31, 2003.2004. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto and management’s discussion and analysis of financial condition and results of operations included in the company’s 20032004 Annual Report on Form 10-K for the year ended December 31, 2003.
Reclassifications
As a result of the growth of the OMSolutionsSM business and the increasing effect of customer finance charge income on interest expense in recent periods, the company made certain changes to the presentation of its income statement effective January 1, 2004, to provide more useful information to investors. These reclassifications have no effect on total revenue or net income as previously reported. The most significant reclassifications are as follows:
Financial information for all prior periods included in this report has been reclassified to conform to the current presentation.2004.
Results of Operations
ThirdFirst quarter and first nine months of 20042005 compared with 2003first quarter of 2004
OverviewOverview.. For In the thirdfirst quarter andof 2005, the company earned net income of $15.9 million, or $0.40 per diluted common share, compared with $14.6 million, or $0.37 per diluted common share, in the first nine monthsquarter of 2004. Operating earnings were $29.6 million in the first quarter of 2005, compared to $27.4 million in the first quarter of 2004, net income increased by 18% and 15% from the comparable periodsan increase of 2003.8%. The increase in net income was driven by increased operating earnings lower financing costsresulted from an 8% increase in revenue, while the company maintained a consistent operating margin of 2.5% of revenue. Net income per diluted common share increased 8% as a result of the repurchase and conversion of mandatorily redeemable preferred securitiesincrease in 2003 and improved collections of accounts receivable, as well as a lower effective tax rate. Operating earnings increased by 8% from the third quarter of 2003 to the third quarter of 2004, while for the first nine months of the year, operating earnings, increased by 4% over the prior year period. Operating earnings increased as a result of revenue growth as well ascombined with slightly lower employee benefit costs, partially offset by lower gross margins and increased spending on strategic initiatives.financing costs.
RevenueAcquisition.. ForOn January 31, 2005, the thirdcompany acquired Access Diabetic Supply, LLC (Access), a Florida-based direct-to-consumer distributor of diabetic supplies and products for certain other chronic disease categories, for total consideration of approximately $57.9 million in cash. Access, which primarily markets blood glucose monitoring devices, test strips and other ancillary products used by diabetics for self-testing, operates as a separate business within Owens & Minor. The direct-to-consumer distribution business experiences significantly higher gross margins and selling, general and administrative (SG&A) expenses as a percent of revenue than the company’s core medical/surgical supply distribution business.
Revenue. Revenue increased 8% to $1.19 billion in the first quarter andof 2005 from $1.11 billion in the first nine monthsquarter of 2004, revenue increased 7% over the comparable prior year periods. This revenue2004. The increase primarily resulted from new core distribution business, including HealthTrust Purchasing Group, and increasedhigher sales volume to existing customers. Access revenues accounted for approximately one-tenth of the increase.
Operating earnings. Operating earnings increased 8% to $29.6 million in the first quarter of 2005 from $27.4 million in 2004. As a percentagepercent of revenue, operating earnings wereremained consistent with the prior year periods, at 2.4% for the third quarters of 2004 and 2003, and 2.5%.
Gross margin for the first nine monthsquarter of 2004 and 2003. The following table presents the components of operating earnings as a percent2005 was 10.5% of revenue, forup from 10.3% in the thirdfirst quarter andof 2004. The increase from the first nine monthsquarter of 2004 and 2003:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
Gross margin | 10.1 | % | 10.3 | % | 10.2 | % | 10.4 | % | ||||
SG&A expense | 7.4 | % | 7.6 | % | 7.5 | % | 7.6 | % | ||||
Depreciation and amortization | 0.3 | % | 0.4 | % | 0.3 | % | 0.4 | % | ||||
Other operating income and expense, net | (0.1 | )% | (0.1 | )% | (0.1 | )% | (0.1 | )% | ||||
Operating earnings | 2.4 | % | 2.4 | % | 2.5 | % | 2.5 | % | ||||
Percentages may not foot due to rounding
The decrease in gross margin from 2003 to 2004 resulted primarily from reducedthe addition of Access, whose gross margins are higher than the company’s core distribution business. Reduced alternate sourcing of products and ongoing competitive pricing pressure.decreased gross margin by approximately 0.1% of revenue.
Competitive pricing pressure hasThe core distribution business values inventory under the last-in, first-out (LIFO) method. Had inventory been a significant factor in recent years,valued under the first-in, first-out (FIFO) method, gross margin would have been higher by 0.4% and management expects this trend to continue. In addition, as suppliers continue to seek more restrictive agreements with distributors, the company has access to fewer special inventory buying opportunities than0.2% of revenue in the past. The company is working to counteract the effectsfirst quarters of these trends by continuing to offer customers a wide range of value-added services, such as OMSolutionsSM, PANDAC®2005 and other programs, as well as expanding the MediChoice® private label product line. The company also continues to work with suppliers on programs to enhance gross margin.2004.
SG&A expenses were 7.4%7.9% of revenue for the third quarter and 7.5% for the first nine months of 2004, down from 7.6% in the comparable periods of 2003. The company benefited from decreases in employee benefit costs, particularly healthcare coverage, as the company experienced an unusual number of large claims under its self-insured plan in the first nine monthsquarter of 2003. In addition, depreciation and amortization decreased2005, up from 2003 to 2004 by $0.2 million for the third quarter and $0.6 million for7.6% of revenue in the first nine monthsquarter of 2004. The increase resulted primarily from the acquisition of Access, as the company has migrated some of its information technology (IT) applications from its own hardware to equipment provided under the IT outsourcing agreement that the company entered into in 2002.
The company continued to invest in its strategic initiatives, such as OMSolutionsSM and Owens & Minor University, at a higher rate thanSG&A expenses in the prior year. The company expects to continue to invest in its strategic initiatives while also focusing on operational standardization in order to further improve productivity. Additionally, OMSolutionsSM expenses exceeded revenue for the third quarter and first nine monthscore distribution business remained consistent as a percent of 2004, and management no longer expects it to become accretive by the end of the year. However, the company remains focused on growing the OMSolutionsSMbusiness both internally and through acquisitions, and in October 2004, acquired the assets of HealthCare Logistics Services, a small, California-based, healthcare consulting firm. The company expects this acquisition to add strength to its OMSolutionsSMconsulting and outsourcing efforts across the nation.revenue.
Financing costs. Financing costs, which include interest expense and discount on accounts receivable securitization, and distributions on mandatorily redeemable preferred securities, totaled $3.1 million and $9.6decreased to $3.3 million for the thirdfirst quarter andof 2005 from $3.4 million in the first nine monthsquarter of 2004, compared with $4.3 million and $14.6 million foras the same periods of 2003. The decreasecompany no longer incurs fees related to the receivables financing facility that it terminated in financing costs from 2003 resulted primarily from reductions in outstanding financing, most significantly the repurchase of $20.8 million and conversion of $104.4 million of mandatorily redeemable preferred securities in 2003. Financing costs were also favorably affected by interest income from increased cash and cash equivalents resulting principally from improved collections of accounts receivable and timing of payments for inventory purchases.May 2004.
The company expects to continue to manage its financing costs by managing working capital levels. Future financing costs will be affected primarily by changes in short-term interest rates, as well as working capital and capital expenditure requirements.
Income taxes. The provision for income taxes was $9.3 million and $27.9$10.3 million in the thirdfirst quarter and first nine months of 20042005 compared with $8.3 million and $25.3$9.4 million in the same periodsperiod of 2003. The2004, representing an effective tax rate was 38.0% and 38.2%of 39.3% for the thirdfirst quarter and first nine months of 2004,2005, compared to 38.9%with 38.0% for the full year of 2003.2004. The tax provision for the third quarter and first nine months oflower rate in 2004 includes an adjustment ofresulted from favorable adjustments to the company’s reserve for tax liabilities for years subject to audit as the company was better able to estimate its ultimate liability for those years.audit.
Financial Condition, Liquidity and Capital Resources
Liquidity. The company’s liquidity remained strong in the first nine monthsquarter of 2004,2005, as its cash and cash equivalents increased $86.0$18.4 million to $102.3$74.2 million at September 30,the end of the quarter, and long-term debt remained consistent at $208.3of $205.7 million, down $1.2decreased $2.0 million from $207.7 million at December 31, 2003.2004. In the first ninethree months of 2004,2005, the company generated $128.5$123.0 million of cash flow from operations, compared with $128.4$52.9 million in the first nine monthsquarter of 2003.2004. Cash flows in both periodsquarters were positively affected by timing of payments for inventory purchases and improved collections of accounts receivable, and timing of payments forwhile first quarter 2005 cash flows were also enhanced by inventory purchases.reductions. Accounts receivable days sales outstanding at September 30, 2004March 31, 2005 were 25.824.4 days, improved from 27.826.5 days at December 31, 20032004 and 27.526.1 days at September 30, 2003.March 31, 2004. Inventory turnover decreased slightlyincreased to 9.610.3 in the thirdfirst quarter of 20042005 from 9.710.2 in the thirdfirst quarter of 2003.2004.
Effective May 4, 2004,In January 2005, the company amended its revolving credit facility, extending its expiration to May 2009. The credit limitpurchased Access Diabetic Supply for total consideration of the amended facility increased from $150.0approximately $57.9 million to $250.0 million, and the interest rate is based on, at the company’s discretion, LIBOR, the Federal Funds Rate or the Prime Rate, plus an adjustment based on the company’s leverage ratio. Under the new terms of the facility, the company is charged a commitment fee of between 0.15% and 0.35% on the unused portion of the facility. The terms of the agreement limit the amount of indebtedness that the company may incur, require the company to maintain certain levels of net worth, leverage ratio and fixed charge coverage ratio, and restrict the ability of the company to materially alter the character of the business through consolidation, merger, or purchase or sale of assets. As a result of the increased borrowing capacity under the amended revolving credit facility, the company terminated its off balance sheet accounts receivable financing facility.using existing cash.
The company expects that its available financing will be sufficient to fund its working capital needs and long-term strategic growth, although this cannot be assured. At September 30, 2004,March 31, 2005, the company had $243.5$240.7 million of unusedavailable credit under its revolving credit facility.
Capital Expenditures. Capital expenditures were $11.8$6.2 million in the first nine monthsquarter of 20042005, compared with $12.3to $3.3 million in the same periodfirst quarter of 2003.2004. The mix of expenditures changed from 2003increase was primarily due to 2004, with increased spending on design andthe construction of a new corporate headquarters and equipment and improvements related to the relocation of two of the company’s distribution centers, offset by reduced capital spending on information systems.headquarters. The company expects capital expenditures for the remainder of 20042005 to include continuedadditional spending on the construction of the corporate headquarters building. Capital expendituresas well as increased spending on information technology development.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS 151,Inventory Costs, which addresses how a business enterprise should account for information systems areabnormal amounts of idle facility expense, freight, handling costs and spoilage incurred in the production and acquisition of inventory. The provisions of SFAS 151 require that these costs be recognized as current period charges, rather than as inventory cost. The company will be required to adopt the provisions of this standard beginning on January 1, 2006. Management does not expect application of this standard to have a material effect on the company’s financial condition or results of operations.
In December 2004, the FASB issued SFAS 153,Exchanges of Nonmonetary Assets, which addresses the measurement of exchanges of nonmonetary assets. The provisions of SFAS 153 require that all exchanges of nonmonetary assets that have commercial substance be recorded at fair value. The company will be required to adopt the provisions of this standard beginning on January 1, 2006. Management does not expect application of this standard to have a material effect on the company’s financial condition or results of operations.
In December 2004, the FASB issued SFAS 123R,Share-Based Payment, a revision of SFAS 123,Accounting for Stock-Based Compensation.SFAS 123R also supersedes Accounting Principles Board Opinion No. (APB) 25,Accounting for Stock Issued to Employees,and amends SFAS 95,Statement of Cash Flows.SFAS 123R requires that all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values, while SFAS 123 as originally issued provided the option of recognizing share-based payments based on their fair values or based on their intrinsic values with pro forma disclosure of the effect of recognizing the payments based on their fair values.
As a result of Final Rule Release No. 33-8568 of the United States Securities and Exchange Commission, the company will be required to adopt the provisions of this standard beginning on January 1, 2006, instead of July 1, 2005, as previously disclosed. SFAS 123R permits public companies to adopt its requirements using one of two methods:
As permitted by SFAS 123, the company currently uses the intrinsic value method as defined by APB 25 to account for share-based payments. As a result, the adoption of SFAS 123R is expected to continuehave a material effect on the company’s results of operations, although it will not affect the company’s overall financial position. As the amount of expense to runbe recognized in future periods will depend on the levels of future grants, the effect of adoption of SFAS 123R cannot be predicted with certainty. However, had the company adopted SFAS 123R in prior periods, the effect of adoption would have approximated the effect of using the fair value method, as defined in SFAS 123, to account for share-based payment as disclosed in Note 4 to the company’s consolidated financial statements under the caption “Stock-Based Compensation.” SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as financing cash flows, rather than as operating cash flows as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The company cannot estimate what these amounts will be in the future, as they depend on a number of factors including the timing of employee exercises of stock options and the value of the company’s stock at a lower rate thanthe date of those exercises. However, had the company adopted SFAS 123R in 2003.prior periods, the amount of cash flows
recognized for such excess tax deductions would have been $0.6 million and $0.9 million in the first quarters of 2005 and 2004.
Risks
The company is subject to risks associated with changes in the healthcare industry, including competition and continued efforts to control costs, which place pressure on operating earnings, changes in the way medical and surgical services are delivered, and changes in manufacturer preferences between the sale of product directly to hospital customers and the use of wholesale distribution. The loss of one of the company’s larger customers could have a significant effect on its business.
Forward-looking Statements
Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although O&M believes its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to:
| • | the ability to convert customers to CostTrackSM |
As a result of theseregulations, including healthcare laws and other factors, no assurance can be given as to the company’s future results. The company is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The company believes there has been no material change in its exposure to market risk from that discussed in Item 7A in the company’s Annual Report on Form 10-K for the year ended December 31, 2003.2004.
| Item 4. | Controls and Procedures |
The company carried out an evaluation, with the participation of the company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company’s disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. In September 2004, as the result of human error, the company made a late Form 8-K filing under Item 5.04 relating to a notice sent to Section 16 insiders informing them of a prohibition on trading in company securities during an upcoming 401(k) blackout period. This special blackout period overlapped with the company’s standard trading blackout period between earnings releases, of which the Section 16 officers had already been notified and were in compliance. Based upon the company’sthat evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the company required to be included in the company’s periodic SEC filings. There has been no change in the company’s internal controls over financial reporting during the quarter ended September 30, 2004,March 31, 2005, that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
Part II. Other Information
| Item 1. | Legal Proceedings |
Certain legal proceedings pending against the company are described in the company’s Annual Report on Form 10-K for the year ended December 31, 2003.2004. Through September 30, 2004,March 31, 2005, there have been no material developments in any legal proceedings reported in such Annual Report.
| Item 5. | Other Information |
Entry into Material Definitive Agreements
The company entered into a letter agreement dated March 1, 2005 (Extension Letter) extending through June 30, 2006 the term of the Authorized Distributor Agreement between Novation, LLC and the company effective July 1, 2001 (AD Agreement) and modifying certain other terms which are not material. The company distributes medical/surgical supplies to Novation members pursuant to the AD Agreement. The form of Extension Letter is filed as Exhibit 10.1 hereto.
In addition, each of Access Diabetic Supply, LLC (Access) and Owens & Minor Healthcare Supply, Inc., a wholly-owned subsidiary of the company that owns all the membership interests in Access, executed a Joinder Agreement dated March 17, 2005 with Bank of America, N.A. pursuant to which each such subsidiary became a “Guarantor” under the company’s Amended and Restated Credit Agreement dated as of May 4, 2004 as required by Section 7.11 of such credit agreement.
| Item 6. | Exhibits. |
| (a) | Exhibits |
| 4.1 | Third Supplemental Indenture dated as of May 2, 2005 among Owens & Minor, Inc. | |
| 10.1 | Form of Letter Agreement dated March 1, 2005 between the company and | |
| 10.2 | Joinder Agreement dated as of March 17, 2005 between Owens & Minor Healthcare Supply, Inc. | |
| 10.3 | Joinder Agreement dated as of March 17, 2005 between Access Diabetic Supply, LLC and Bank of America, N.A., as administrative agent | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Owens & Minor, Inc. | ||||
(Registrant) | ||||
Date | /s/ G. GILMER MINOR, III | |||
G. Gilmer Minor, III | ||||
Chairman and Chief Executive Officer | ||||
Date | /s/ JEFFREY KACZKA | |||
Jeffrey Kaczka | ||||
Senior Vice President | ||||
Chief Financial Officer | ||||
Date | /s/ OLWEN B. CAPE | |||
Olwen B. Cape | ||||
Vice President & Controller | ||||
Chief Accounting Officer | ||||
Exhibits Filed with SEC
Exhibit #
| 4.1 | Third Supplemental Indenture dated as of May 2, 2005 among Owens & Minor, Inc., Access Diabetic Supply, LLC, Owens & Minor Healthcare Supply, Inc. and SunTrust Bank, as trustee | |
| 10.1 | ||
| 10.2 | Joinder Agreement dated as of March 17, 2005 between Owens & Minor Healthcare Supply, Inc. | |
| 10.3 | Joinder Agreement dated as of March 17, 2005 between Access Diabetic Supply, LLC and Bank of America, N.A., as administrative agent | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of | |
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