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, 2010March 31, 2011
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from toto
Commission file number 1-9810
Owens & Minor, Inc.
(Exact name of Registrant as specified in its charter)
Virginia | 54-1701843 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
9120 Lockwood Boulevard, Mechanicsville, Virginia | 23116 | |
(Address of principal executive offices) | (Zip Code) | |
Post Office Box 27626, Richmond, Virginia | 23261-7626 | |
(Mailing address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (804) 723-7000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “larger accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of OctoberApril 22, 2010,2011, was 63,336,40763,745,227 shares.
Owens & Minor, Inc. and Subsidiaries
Index
Page | ||||||||
Part I. Financial Information | ||||||||
Item 1. | ||||||||
3 | ||||||||
Consolidated Balance Sheets – | 4 | |||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item |
| |||||||
Item 6. | Exhibits | 22 |
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) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenue | $ | 2,063,879 | $ | 2,034,792 | $ | 6,053,442 | $ | 5,997,200 | ||||||||
Cost of revenue | 1,866,157 | 1,830,450 | 5,473,050 | 5,411,526 | ||||||||||||
Gross margin | 197,722 | 204,342 | 580,392 | 585,674 | ||||||||||||
Selling, general and administrative expenses | 135,337 | 142,162 | 404,119 | 425,531 | ||||||||||||
Depreciation and amortization | 7,464 | 6,721 | 21,360 | 18,583 | ||||||||||||
Other operating income, net | (392 | ) | (1,233 | ) | (1,713 | ) | (3,958 | ) | ||||||||
Operating earnings | 55,313 | 56,692 | 156,626 | 145,518 | ||||||||||||
Interest expense, net | 3,758 | 3,202 | 10,562 | 9,834 | ||||||||||||
Income from continuing operations before income taxes | 51,555 | 53,490 | 146,064 | 135,684 | ||||||||||||
Income tax provision | 20,050 | 18,803 | 57,273 | 50,864 | ||||||||||||
Income from continuing operations | 31,505 | 34,687 | 88,791 | 84,820 | ||||||||||||
Loss from discontinued operations, net of tax | — | — | — | (12,509 | ) | |||||||||||
Net income | $ | 31,505 | $ | 34,687 | $ | 88,791 | $ | 72,311 | ||||||||
Income (loss) per common share – basic: | ||||||||||||||||
Continuing operations | $ | 0.50 | $ | 0.56 | $ | 1.41 | $ | 1.36 | ||||||||
Discontinued operations | — | — | — | (0.20 | ) | |||||||||||
Net income per share – basic | $ | 0.50 | $ | 0.56 | $ | 1.41 | $ | 1.16 | ||||||||
Income (loss) per common share – diluted: | ||||||||||||||||
Continuing operations | $ | 0.50 | $ | 0.55 | $ | 1.40 | $ | 1.35 | ||||||||
Discontinued operations | — | — | — | (0.20 | ) | |||||||||||
Net income per share – diluted | $ | 0.50 | $ | 0.55 | $ | 1.40 | $ | 1.15 | ||||||||
Cash dividends per common share | $ | 0.177 | $ | 0.153 | $ | 0.531 | $ | 0.459 | ||||||||
Three Months Ended March 31, | ||||||||
(in thousands, except per share data) | 2011 | 2010 | ||||||
Net revenue | $ | 2,123,815 | $ | 1,969,670 | ||||
Cost of goods sold | 1,913,040 | 1,772,669 | ||||||
Gross margin | 210,775 | 197,001 | ||||||
Selling, general and administrative expenses | 151,631 | 141,072 | ||||||
Pension expense | — | 641 | ||||||
Depreciation and amortization | 8,767 | 6,789 | ||||||
Other operating income, net | (620 | ) | (652 | ) | ||||
Operating earnings | 50,997 | 49,151 | ||||||
Interest expense, net | 3,717 | 3,299 | ||||||
Income before income taxes | 47,280 | 45,852 | ||||||
Income tax provision | 18,540 | 18,035 | ||||||
Net income | $ | 28,740 | $ | 27,817 | ||||
Net income per common share – basic | $ | 0.45 | $ | 0.44 | ||||
Net income per common share – diluted | $ | 0.45 | $ | 0.44 | ||||
Cash dividends per common share | $ | 0.200 | $ | 0.177 |
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(in thousands, except per share data) | September 30, 2010 | December 31, 2009 | March 31, 2011 | December 31, 2010 | ||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 145,070 | $ | 96,136 | $ | 185,850 | $ | 159,213 | ||||||||
Accounts and notes receivable, net of allowances of $16,943 and $16,420 | 501,270 | 498,080 | ||||||||||||||
Accounts and notes receivable, net of allowances of $15,552 and $15,436 | 520,688 | 471,661 | ||||||||||||||
Merchandise inventories | 733,296 | 689,889 | 729,546 | 720,116 | ||||||||||||
Other current assets | 49,412 | 57,962 | 57,150 | 52,799 | ||||||||||||
Total current assets | 1,429,048 | 1,342,067 | 1,493,234 | 1,403,789 | ||||||||||||
Property and equipment, net of accumulated depreciation of $85,483 and $76,574 | 93,714 | 84,965 | ||||||||||||||
Property and equipment, net of accumulated depreciation of $94,073 and $89,248 | 100,672 | 101,545 | ||||||||||||||
Goodwill, net | 247,271 | 247,271 | 247,271 | 247,271 | ||||||||||||
Intangible assets, net | 25,585 | 27,809 | 24,411 | 24,825 | ||||||||||||
Other assets, net | 45,721 | 44,976 | 45,592 | 44,609 | ||||||||||||
Total assets | $ | 1,841,339 | $ | 1,747,088 | $ | 1,911,180 | $ | 1,822,039 | ||||||||
Liabilities and shareholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts and drafts payable | $ | 586,285 | $ | 546,989 | $ | 604,477 | $ | 531,735 | ||||||||
Accrued payroll and related liabilities | 14,240 | 34,885 | 11,192 | 20,588 | ||||||||||||
Deferred income taxes | 38,373 | 25,784 | 37,224 | 39,082 | ||||||||||||
Other accrued liabilities | 101,405 | 90,519 | 107,943 | 103,076 | ||||||||||||
Current liabilities of discontinued operations | 461 | 1,939 | ||||||||||||||
Total current liabilities | 740,764 | 700,116 | 760,836 | 694,481 | ||||||||||||
Long-term debt, excluding current portion | 208,576 | 208,418 | 209,007 | 209,096 | ||||||||||||
Deferred income taxes | 9,140 | 8,947 | 12,182 | 12,107 | ||||||||||||
Other liabilities | 45,772 | 60,428 | 48,469 | 48,837 | ||||||||||||
Total liabilities | 1,004,252 | 977,909 | 1,030,494 | 964,521 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
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 – 63,459 shares and 62,870 shares | 126,918 | 83,827 | ||||||||||||||
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 – 63,713 shares and 63,433 shares | 127,426 | 126,867 | ||||||||||||||
Paid-in capital | 162,806 | 193,905 | 172,028 | 165,447 | ||||||||||||
Retained earnings | 559,701 | 504,480 | 586,274 | 570,320 | ||||||||||||
Accumulated other comprehensive loss | (12,338 | ) | (13,033 | ) | (5,042 | ) | (5,116 | ) | ||||||||
Total shareholders’ equity | 837,087 | 769,179 | 880,686 | 857,518 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 1,841,339 | $ | 1,747,088 | $ | 1,911,180 | $ | 1,822,039 | ||||||||
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
(in thousands) | 2010 | 2009 | 2011 | 2010 | ||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 88,791 | $ | 72,311 | $ | 28,740 | $ | 27,817 | ||||||||
Adjustments to reconcile net income to cash provided by operating activities of continuing operations: | ||||||||||||||||
Loss from discontinued operations, net of tax | — | 12,509 | ||||||||||||||
Provision for LIFO reserve | 11,265 | 8,270 | ||||||||||||||
Depreciation and amortization | 21,360 | 18,583 | 8,767 | 6,789 | ||||||||||||
Provision for LIFO reserve | 8,433 | 4,940 | ||||||||||||||
Share-based compensation expense | 5,452 | 5,860 | 3,021 | 2,965 | ||||||||||||
Provision for losses on accounts and notes receivable | 1,673 | 3,387 | 359 | 930 | ||||||||||||
Pension expense | — | 641 | ||||||||||||||
Pension contributions | (543 | ) | (5,000 | ) | ||||||||||||
Deferred income tax benefit | (1,830 | ) | (1,323 | ) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts and notes receivable | (4,863 | ) | 8,427 | (49,386 | ) | 18,446 | ||||||||||
Merchandise inventories | (51,840 | ) | (5,330 | ) | (20,695 | ) | 11,623 | |||||||||
Accounts payable | 147,596 | 48,485 | 79,642 | 67,474 | ||||||||||||
Net change in other assets and liabilities | (5,685 | ) | (6,934 | ) | (8,096 | ) | 828 | |||||||||
Other, net | 3,574 | (778 | ) | 175 | 10 | |||||||||||
Cash provided by operating activities of continuing operations | 214,491 | 161,460 | 51,419 | 139,470 | ||||||||||||
Investing activities: | ||||||||||||||||
Additions to property and equipment | (19,884 | ) | (14,123 | ) | (4,128 | ) | (5,848 | ) | ||||||||
Additions to computer software | (7,194 | ) | (9,311 | ) | ||||||||||||
Acquisitions of intangible assets | (55 | ) | — | |||||||||||||
Cash received related to acquisition of business | — | 6,994 | ||||||||||||||
Additions to computer software and intangible assets | (3,010 | ) | (2,042 | ) | ||||||||||||
Proceeds from sale of property and equipment | 2,422 | 2,398 | 41 | 33 | ||||||||||||
Cash used for investing activities of continuing operations | (24,711 | ) | (14,042 | ) | (7,097 | ) | (7,857 | ) | ||||||||
Financing activities: | ||||||||||||||||
Payments on revolving credit facility | — | (301,964 | ) | |||||||||||||
Borrowings on revolving credit facility | — | 151,386 | ||||||||||||||
Cash dividends paid | (12,786 | ) | (11,138 | ) | ||||||||||||
Decrease in drafts payable | (108,300 | ) | (12,582 | ) | (6,900 | ) | (72,300 | ) | ||||||||
Cash dividends paid | (33,520 | ) | (28,755 | ) | ||||||||||||
Proceeds from exercise of stock options | 5,736 | 5,228 | 3,594 | 2,981 | ||||||||||||
Excess tax benefits related to share-based compensation | 1,815 | 2,306 | 874 | 928 | ||||||||||||
Other, net | (5,099 | ) | (1,604 | ) | (2,366 | ) | (1,403 | ) | ||||||||
Cash used for financing activities of continuing operations | (139,368 | ) | (185,985 | ) | (17,584 | ) | (80,932 | ) | ||||||||
Discontinued operations: | ||||||||||||||||
Operating cash flows | (1,478 | ) | 10,612 | (101 | ) | (460 | ) | |||||||||
Investing cash flows | — | 63,000 | ||||||||||||||
Net cash (used for) provided by discontinued operations | (1,478 | ) | 73,612 | |||||||||||||
Net cash used for discontinued operations | (101 | ) | (460 | ) | ||||||||||||
Net increase in cash and cash equivalents | 48,934 | 35,045 | 26,637 | 50,221 | ||||||||||||
Cash and cash equivalents at beginning of period | 96,136 | 7,886 | 159,213 | 96,136 | ||||||||||||
Cash and cash equivalents at end of period | $ | 145,070 | $ | 42,931 | $ | 185,850 | $ | 146,357 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Income taxes paid, net | $ | 41,102 | $ | 42,993 | $ | 5,439 | $ | 1,153 | ||||||||
Interest paid | $ | 6,618 | $ | 6,694 | $ | 564 | $ | 86 |
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements Ofof Changes In Shareholders’ 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 Shareholders’ Equity | ||||||||||||||||||
Balance December 31, 2008 | 62,162 | $ | 82,881 | $ | 180,074 | $ | 438,192 | $ | (12,096 | ) | $ | 689,051 | ||||||||||||
Net income | 72,311 | 72,311 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Retirement benefit plan adjustments, net of $295 tax expense | 460 | 460 | ||||||||||||||||||||||
Cash flow hedge activity, net of $24 tax benefit | (38 | ) | (38 | ) | ||||||||||||||||||||
Comprehensive income | 72,733 | |||||||||||||||||||||||
Cash dividends declared ($0.459) per share) | (28,768 | ) | (28,768 | ) | ||||||||||||||||||||
Share-based compensation expense, exercises and other | 678 | 905 | 11,581 | 12,486 | ||||||||||||||||||||
Balance September 30, 2009 | 62,840 | $ | 83,786 | $ | 191,655 | $ | 481,735 | $ | (11,674 | ) | $ | 745,502 | ||||||||||||
Balance December 31, 2009 | 62,870 | $ | 83,827 | $ | 193,905 | $ | 504,480 | $ | (13,033 | ) | $ | 769,179 | ||||||||||||
Net income | 88,791 | 88,791 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Retirement benefit plan adjustments, net of $468 tax expense | 732 | 732 | ||||||||||||||||||||||
Cash flow hedge activity, net of $24 tax benefit | (37 | ) | (37 | ) | ||||||||||||||||||||
Comprehensive income | 89,486 | |||||||||||||||||||||||
Stock split (three-for-two) | 42,126 | (42,126 | ) | — | ||||||||||||||||||||
Cash dividends declared ($0.531 per share) | (33,570 | ) | (33,570 | ) | ||||||||||||||||||||
Share-based compensation expense, exercises and other | 589 | 965 | 11,027 | 11,992 | ||||||||||||||||||||
Balance September 30, 2010 | 63,459 | $ | 126,918 | $ | 162,806 | $ | 559,701 | $ | (12,338 | ) | $ | 837,087 | ||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||
Common Shares Outstanding | Common Stock ($2 par value) | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||
Balance December 31, 2009 | 62,870 | $ | 83,827 | $ | 193,905 | $ | 504,480 | $ | (13,033 | ) | $ | 769,179 | ||||||||||||
Net income | 27,817 | 27,817 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Retirement and pension benefit plan adjustments, net of $162 tax expense | 254 | 254 | ||||||||||||||||||||||
Cash flow hedge activity, net of $8 tax benefit | (12 | ) | (12 | ) | ||||||||||||||||||||
Comprehensive income | 28,059 | |||||||||||||||||||||||
Cash dividends ($0.177 per share) | (11,138 | ) | (11,138 | ) | ||||||||||||||||||||
Stock split (three-for-two) | 42,126 | (42,126 | ) | — | ||||||||||||||||||||
Share-based compensation expense, excercises and other | 319 | 425 | 5,977 | 6,402 | ||||||||||||||||||||
Balance March 31, 2010 | 63,189 | $ | 126,378 | $ | 157,756 | $ | 521,159 | $ | (12,791 | ) | $ | 792,502 | ||||||||||||
Balance December 31, 2010 | 63,433 | $ | 126,867 | $ | 165,447 | $ | 570,320 | $ | (5,116 | ) | $ | 857,518 | ||||||||||||
Net income | 28,740 | 28,740 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Retirement and pension benefit plan adjustments, net of $55 tax expense | 86 | 86 | ||||||||||||||||||||||
Cash flow hedge activity, net of $8 tax benefit | (12 | ) | (12 | ) | ||||||||||||||||||||
Comprehensive income | 28,814 | |||||||||||||||||||||||
Cash dividends ($0.200 per share) | (12,786 | ) | (12,786 | ) | ||||||||||||||||||||
Share-based compensation expense, excercises and other | 280 | 559 | 6,581 | 7,140 | ||||||||||||||||||||
Balance March 31, 2011 | 63,713 | $ | 127,426 | $ | 172,028 | $ | 586,274 | $ | (5,042 | ) | $ | 880,686 | ||||||||||||
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, unless otherwise indicated)
1. | Basis of Presentation and Use of Estimates |
Basis of Presentation
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 (we, us or our) as of September 30, 2010,March 31, 2011, and December 31, 2009,2010, and the consolidated results of operations, for the three and nine months ended September 30, 2010 and 2009, and the consolidated cash flows and changes in shareholders’ equity for the ninethree months ended September 30,March 31, 2011 and 2010, and 2009, in conformity with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.full-year.
On March 31, 2010, we effected a three-for-two stock split of our outstanding shares of common stock in the form of a stock dividend of one share of common stock for every two shares outstanding to stockholders of record on March 15, 2010.2010 (Stock Split). All share and per-share data (except par value) have been retroactively adjusted to reflect this stock splitStock Split for all periods presented.
In January 2009, we exited ourthe direct-to-consumer diabetes supply (DTC) business. Accordingly, the DTC business is presented as discontinued operations for all periods presented, and unless otherwise noted, all amounts presented in the accompanying consolidated financial statements, including note disclosures, contain only information related to our continuing operations.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.related disclosures. Actual results may differ from thosethese estimates.
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 fair value of long-term debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available to us for loans with similar terms, credit ratings and average remaining maturities (Level 2). See Note 5 for the fair value of long-term debt.
Property held for sale is reported at the lower of carrying value or estimated fair value less selling costs with fair value determined based on recent sales prices for comparable properties in similar locations (Level 2). Property held for sale of $8.9$7.4 million at September 30, 2010,March 31, 2011, and $11.5 million at December 31, 2009,2010, is included in other assets, net, in the consolidated balance sheets. We are actively marketing the property for sale;sale within one year; however, the ultimate timing is dependent on local market conditions.
3. | Intangible Assets |
Intangible assets at September 30, 2010,March 31, 2011, and December 31, 2009,2010, are as follows:
Customer Relationships | Other Intangibles | Total | Customer Relationships | Other Intangibles | Total | |||||||||||||||||||
At September 30, 2010: | ||||||||||||||||||||||||
At March 31, 2011: | ||||||||||||||||||||||||
Gross intangible assets | $ | 31,300 | $ | 4,670 | $ | 35,970 | $ | 31,621 | $ | 4,720 | $ | 36,341 | ||||||||||||
Accumulated amortization | (6,739 | ) | (3,646 | ) | (10,385 | ) | (7,798 | ) | (4,132 | ) | (11,930 | ) | ||||||||||||
Net intangible assets | $ | 24,561 | $ | 1,024 | $ | 25,585 | $ | 23,823 | $ | 588 | $ | 24,411 | ||||||||||||
At December 31, 2009: | ||||||||||||||||||||||||
At December 31, 2010: | ||||||||||||||||||||||||
Gross intangible assets | $ | 31,300 | $ | 4,631 | $ | 35,931 | $ | 31,300 | $ | 4,670 | $ | 35,970 | ||||||||||||
Accumulated amortization | (5,187 | ) | (2,935 | ) | (8,122 | ) | (7,257 | ) | (3,888 | ) | (11,145 | ) | ||||||||||||
Net intangible assets | $ | 26,113 | $ | 1,696 | $ | 27,809 | $ | 24,043 | $ | 782 | $ | 24,825 | ||||||||||||
Amortization expense for intangible assets was $0.8 million and $0.9$0.8 million for the three months ended September 30,March 31, 2011 and 2010, and 2009, and $2.3 million and $2.2 million for the nine months ended September 30, 2010 and 2009.respectively.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense for the next five years is as follows: remainder of 2010 – $0.8 million; 2011 – $2.8$2.3 million; 2012 – $2.1$2.2 million; 2013 – $2.1 million,million; 2014 – $2.1 million; 2015 – $2.1 million and 20152016 – $2.1 million.
4. | Retirement |
We have a noncontributory, unfunded retirement plan for certain officers and other key employees (the Retirement Plan). The components of net periodic pensionbenefit cost of our retirement plansthe Retirement Plan, which are included in selling, general and administrative expenses, for the three and nine months ended September 30,March 31, 2011 and 2010, and 2009, are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Retirement Plan | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Three months ended March 31, | 2011 | 2010 | ||||||||||||||||||||||
Service cost | $ | 330 | $ | 301 | $ | 989 | $ | 905 | $ | 330 | $ | 333 | ||||||||||||
Interest cost | 869 | 871 | 2,607 | 2,612 | 427 | 434 | ||||||||||||||||||
Expected return on plan assets | (59 | ) | (459 | ) | (176 | ) | (1,376 | ) | ||||||||||||||||
Amortization of prior service cost | 70 | 39 | 210 | 117 | 70 | 71 | ||||||||||||||||||
Recognized net actuarial loss | 330 | 214 | 990 | 639 | 71 | 80 | ||||||||||||||||||
Net periodic pension cost | $ | 1,540 | $ | 966 | $ | 4,620 | $ | 2,897 | ||||||||||||||||
Net periodic benefit cost | $ | 898 | $ | 918 | ||||||||||||||||||||
Prior to 2011, we had a noncontributory defined benefit pension plan (the Pension Plan) under which benefits had been frozen since 1996. In the fourth quarter of 2010, we terminated the Pension Plan and completed the distribution of substantially all of the plan assets. During the first nine monthsquarter of 2010, we contributed $8.3$5.0 million to this Pension Plan. The components of pension expense of the defined benefit pension plan in conjunction with a plan of termination approved by our Board of Directors in December 2009. Additional contributions may be required in latePension Plan for the three months ended March 31, 2010, or early 2011 to complete final termination. We estimate that additional contributions will not exceed $1 million.are as follows:
Terminated Pension Plan | ||||
Three months ended March 31, | 2010 | |||
Interest cost | $ | 444 | ||
Expected return on plan assets | (68 | ) | ||
Recognized net actuarial loss | 265 | |||
Pension expense | $ | 641 | ||
5. | Debt |
We have $200 million of senior notes outstanding, which mature in April 2016 and bear interest at 6.35%, payable semi-annually (Senior Notes). We may redeem the Senior Notes, in whole or in part, at a redemption price of the greater of 100% of the principal amount of the Senior Notes or the present value of remaining scheduled payments of principal and interest discounted at the applicable Treasury Rate plus 0.25%. The estimated fair value of the Senior Notes was $204.0$204.8 million and $196.3$203.3 million, and the related carrying amount was $205.0$204.6 million and $205.7$204.8 million at September 30, 2010,March 31, 2011, and December 31, 2009.2010.
On June 7, 2010, we entered intoWe have a Credit Agreement$350 million revolving credit facility with Bank of America, N.A., Wells Fargo Bank, N.AN.A. and a syndication of banks (the “Credit Agreement”). This agreement replaced an existing $306 million revolving credit facility (which was to expire in May 2011) with a $350 million revolving credit facility which expires on June 7, 2013.2013 (the Revolving Credit Facility). Under the newthis facility, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $150 million. The interest rate on the new facility, which is subject to adjustment quarterly, is based on, at our discretion, the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on our leverage ratio (Credit Spread), as defined by the Credit Agreement.. We are charged a commitment fee of between 37.5 and 62.5 basis points on the unused portion of the facility. The Credit Spread for LIBOR-based borrowings ranges from 225 basis points at a leverage ratio of less than 0.5 to 325 basis points at a leverage ratio of greater than or equal to 2.50. The terms of the agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage (debt to EBITDA ratio of no greater than 3.5) and interest coverage (EBITDA to interest ratio of no less than 3.0), including on a pro forma basis in the event of an acquisition. At September 30, 2010,March 31, 2011, we had $10.5 million ofno borrowings and letters of credit and no borrowingsof $5.0 million outstanding under the Revolving Credit Facility, leaving $339.5$345.0 million available for borrowing.
6. | Income Taxes |
The provision for income taxes was $20.1 million and $57.3$18.5 million for the third quarter and first ninethree months of 2010,ended March 31, 2011, compared to $18.8 million and $50.9$18.0 million for the comparable periods in 2009.same period of 2010. The effective tax rate was 38.9% and 39.2% for the third quarter and first ninethree months of 2010,ended March 31, 2011, compared to 35.2% and 37.5%39.3% for the same periodsperiod of 2009. The lower effective tax rates in the 2009 periods are primarily the results of recognizing tax benefits totaling approximately $1.7 million due to the conclusion of audits by the Internal Revenue Service (IRS) of the company’s 2007 and 2006 income tax returns in the third quarter of 2009.2010.
7. | Net Income |
The following summarizes the calculation of net income from continuing operations per common share for the three and nine months ended September 30, 2010March 31, 2011 and 2009:2010.
(in thousands, except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: | ||||||||||||||||
Income from continuing operations | $ | 31,505 | $ | 34,687 | $ | 88,791 | $ | 84,820 | ||||||||
Less: income allocated to unvested restricted shares | (350 | ) | (372 | ) | (989 | ) | (917 | ) | ||||||||
Income from continuing operations attributable to common shareholders – basic | 31,155 | 34,315 | 87,802 | 83,903 | ||||||||||||
Add: undistributed income attributable to unvested restricted shares – basic | 195 | 236 | 492 | 523 | ||||||||||||
Less: undistributed income reallocated to unvested restricted shares – diluted | (194 | ) | (234 | ) | (490 | ) | (520 | ) | ||||||||
Income from continuing operations attributable to common shareholders – diluted | $ | 31,156 | $ | 34,317 | $ | 87,804 | $ | 83,906 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding – basic | 62,395 | 61,807 | 62,278 | 61,636 | ||||||||||||
Dilutive shares – stock options | 217 | 394 | 260 | 369 | ||||||||||||
Weighted average shares outstanding – diluted | 62,612 | 62,201 | 62,538 | 62,005 | ||||||||||||
Income from continuing operations per share attributable to common shareholders: | ||||||||||||||||
Basic | $ | 0.50 | $ | 0.56 | $ | 1.41 | $ | 1.36 | ||||||||
Diluted | $ | 0.50 | $ | 0.55 | $ | 1.40 | $ | 1.35 |
(in thousands, except per share data) | ||||||||
Three months ended March 31, | 2011 | 2010 | ||||||
Numerator: | ||||||||
Net income | $ | 28,740 | $ | 27,817 | ||||
Less: income allocated to unvested restricted shares | (379 | ) | (303 | ) | ||||
Net income attributable to common shareholders—basic | 28,361 | 27,514 | ||||||
Add: undistributed income attributable to unvested restricted shares—basic | 141 | 151 | ||||||
Less: undistributed income reallocated to unvested restricted shares—diluted | (141 | ) | (151 | ) | ||||
Net income attributable to common shareholders—diluted | $ | 28,361 | $ | 27,514 | ||||
Denominator: | ||||||||
Weighted average shares outstanding—basic | 62,641 | 62,089 | ||||||
Dilutive shares—stock options | 220 | 304 | ||||||
Weighted average shares outstanding—diluted | 62,861 | 62,393 | ||||||
Net income per share attributable to common shareholders: | ||||||||
Basic | $ | 0.45 | $ | 0.44 | ||||
Diluted | $ | 0.45 | $ | 0.44 |
8. | Shareholders’ Equity |
The number of shares of common stock issuable upon exercise of outstanding stock options or achievement of certain performance criteria vesting of other stock awards, and the number of shares reserved for issuance under our share-based compensation plan and shareholder rights agreement were proportionately increased for the three-for-two stock split,Stock Split, described in Note 1, in accordance with terms of the respective plans. This stock splitThe Stock Split was recorded by a transfer of $42.1 million from paid-in capital to common stock, representing a $2 par value for each additional share issued. The number of authorized common shares remained at 200 million, and the number of authorized preferred shares, none of which have been issued, remained at 10 million.
In February 2011, the Board of Directors authorized a share repurchase program of up to $50 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2014. The program is intended to offset shares issued in conjunction with our stock incentive plan and may be suspended or discontinued at any time. Through March 31, 2011, no shares have been repurchased under this program.
9. | Commitments and Contingencies |
We have contractual obligations that are required to be paid to customers in the event that certain contractual performance targets are not achieved as of specified dates, generally within 36 months from inception of the contract. These contingent obligations total $6.5totaled $5.2 million as of September 30, 2010.March 31, 2011. If none of the performance targets are met as of the specified dates, and customers have met their contractual commitments, payments will be due as follows: Remainder of 2010 – $0.2 million; 2011 – $2.4$0.8 million; 2012 – $1.0 million$0.6 million; and 2013 – $2.9$3.8 million. None of these contingent obligations were accrued at September 30, 2010,March 31, 2011, as we do not consider any of them probable. We deferred the recognition of revenuesfees that are contingent upon the company’s future performance under the terms of these contracts. As of September 30, 2010, $1.4March 31, 2011, $1.2 million of deferred revenue related to outstanding contractual performance targets is included in other accrued liabilities.
We also have contracts with performance targets that, if met, will result in additional fees. We recognize revenues for these contracts when the fees have been earned and are no longer subject to contingent obligations. These contracts have terms ranging from 12 to 36 months.
The state of California is conducting an administrative review of certain ongoing local sales tax incentives that may be available to us.us beginning with the third quarter of 2007. As a result of this review, we may receive tax incentive payments of up to $1.05 million per quarter for all or some of the period beginning with the third quarter of 2007 and through final resolution of this matter.periods. The exact amount, if any, is dependent upon a number of factors, including the timing of negotiation and execution of certain customer agreements, the variability in sales and companyour operations in California. We believe this matter may be resolved in 2011.
Prior to exiting the DTC business in January 2009, we received reimbursements from Medicare, Medicaid, and private healthcare insurers for certain customer billings. We are subject to audits of these reimbursements for up to seven years from the date of the service.
10. | Discontinued Operations |
In January 2009, we sold assets of the DTC business to Liberty Healthcare Group, Inc., a subsidiary of Medco Health Solutions, Inc. for $63.0 million in cash and recognized a gain on sale of $3.2 million. The following table provides summary financial information for the DTC businessThere were no revenues or income or loss from discontinued operations for the three and nine months ended September 30, 2010March 31, 2011 and 2009:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||
Income (loss) from discontinued operations before income taxes | $ | — | $ | 264 | $ | — | $ | (19,757 | ) | |||||||
Income tax benefit (expense) | — | (264 | ) | — | 7,248 | |||||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | (12,509 | ) | |||||||
We incurred charges associated with exiting the DTC business during2010. For the three and nine months ended September 30, 2009. These charges were related to the valuationMarch 31, 2011 and 2010, we incurred cash outflows of accounts receivable, as we entered into an agreement with a third party during the first quarter of 2009 to pursue the collection of remaining accounts receivable; losses on the disposal of other remaining assets; costs$0.1 million and $0.5 million, primarily associated with leased facilities; and payroll costs, including severance.facilities of the discontinued DTC business.
11. | 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 Senior Notes; and the non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.
For the three months ended September 30, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Income | ||||||||||||||||||||
Revenue | $ | — | $ | 2,063,696 | $ | 183 | $ | — | $ | 2,063,879 | ||||||||||
Cost of revenue | — | 1,866,135 | 22 | — | 1,866,157 | |||||||||||||||
Gross margin | — | 197,561 | 161 | — | 197,722 | |||||||||||||||
Selling, general and administrative expenses | 118 | 134,827 | 392 | — | 135,337 | |||||||||||||||
Depreciation and amortization | — | 7,463 | 1 | — | 7,464 | |||||||||||||||
Other operating income, net | — | (392 | ) | — | — | (392 | ) | |||||||||||||
Operating earnings (loss) | (118 | ) | 55,663 | (232 | ) | — | 55,313 | |||||||||||||
Interest expense, net | 2,195 | 1,545 | 18 | — | 3,758 | |||||||||||||||
Income (loss) from continuing operations before income taxes | (2,313 | ) | 54,118 | (250 | ) | — | 51,555 | |||||||||||||
Income tax provision (benefit) | (900 | ) | 21,048 | (98 | ) | — | 20,050 | |||||||||||||
Equity in earnings of subsidiaries | 32,918 | — | — | (32,918 | ) | — | ||||||||||||||
Income (loss) from continuing operations | 31,505 | 33,070 | (152 | ) | (32,918 | ) | 31,505 | |||||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 31,505 | $ | 33,070 | $ | (152 | ) | $ | (32,918 | ) | $ | 31,505 | ||||||||
For the three months ended March 31, 2011 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Income | ||||||||||||||||||||
Net revenue | $ | — | $ | 2,123,689 | $ | 126 | $ | — | $ | 2,123,815 | ||||||||||
Cost of goods sold | — | 1,913,024 | 16 | — | 1,913,040 | |||||||||||||||
Gross margin | — | 210,665 | 110 | — | 210,775 | |||||||||||||||
Selling, general and administrative expenses | 439 | 150,900 | 292 | — | 151,631 | |||||||||||||||
Depreciation and amortization | — | 8,767 | — | — | 8,767 | |||||||||||||||
Other operating expense (income), net | 147 | (760 | ) | (7 | ) | — | (620 | ) | ||||||||||||
Operating (loss) earnings | (586 | ) | 51,758 | (175 | ) | — | 50,997 | |||||||||||||
Interest expense, net | 2,825 | 876 | 16 | — | 3,717 | |||||||||||||||
(Loss) income before income taxes | (3,411 | ) | 50,882 | (191 | ) | — | 47,280 | |||||||||||||
Income tax (benefit) provision | (1,338 | ) | 19,953 | (75 | ) | — | 18,540 | |||||||||||||
Equity in earnings of subsidiaries | 30,813 | — | — | (30,813 | ) | — | ||||||||||||||
Net income (loss) | $ | 28,740 | $ | 30,929 | $ | (116 | ) | $ | (30,813 | ) | $ | 28,740 | ||||||||
For the three months ended September 30, 2009 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Income | ||||||||||||||||||||
Revenue | $ | — | $ | 2,034,626 | $ | 166 | $ | — | $ | 2,034,792 | ||||||||||
Cost of revenue | — | 1,830,418 | 32 | — | 1,830,450 | |||||||||||||||
Gross margin | — | 204,208 | 134 | — | 204,342 | |||||||||||||||
Selling, general and administrative expenses | 174 | 141,673 | 315 | — | 142,162 | |||||||||||||||
Depreciation and amortization | — | 6,720 | 1 | — | 6,721 | |||||||||||||||
Other operating income, net | — | (1,228 | ) | (5 | ) | — | (1,233 | ) | ||||||||||||
Operating earnings (loss) | (174 | ) | 57,043 | (177 | ) | — | 56,692 | |||||||||||||
Interest (income) expense, net | (1,449 | ) | 4,629 | 22 | — | 3,202 | ||||||||||||||
Income (loss) from continuing operations before income taxes | 1,275 | 52,414 | (199 | ) | — | 53,490 | ||||||||||||||
Income tax provision (benefit) | 336 | 18,538 | (71 | ) | — | 18,803 | ||||||||||||||
Equity in earnings of subsidiaries | 33,748 | — | — | (33,748 | ) | — | ||||||||||||||
Income (loss) from continuing operations | 34,687 | 33,876 | (128 | ) | (33,748 | ) | 34,687 | |||||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 34,687 | $ | 33,876 | $ | (128 | ) | $ | (33,748 | ) | $ | 34,687 | ||||||||
For the nine months ended September 30, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
Statements of Income | ||||||||||||||||||||||||||||||||||||||||
Revenue | $ | — | $ | 6,052,442 | $ | 1,000 | $ | — | $ | 6,053,442 | ||||||||||||||||||||||||||||||
Cost of revenue | — | 5,472,983 | 67 | — | 5,473,050 | |||||||||||||||||||||||||||||||||||
Net revenue | $ | — | $ | 1,969,021 | $ | 649 | $ | — | $ | 1,969,670 | ||||||||||||||||||||||||||||||
Cost of goods sold | — | 1,772,647 | 22 | — | 1,772,669 | |||||||||||||||||||||||||||||||||||
Gross margin | — | 579,459 | 933 | — | 580,392 | — | 196,374 | 627 | — | 197,001 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 314 | 402,431 | 1,374 | — | 404,119 | 311 | 140,137 | 624 | — | 141,072 | ||||||||||||||||||||||||||||||
Pension expense | — | 641 | — | — | 641 | |||||||||||||||||||||||||||||||||||
Depreciation and amortization | — | 21,357 | 3 | — | 21,360 | — | 6,788 | 1 | — | 6,789 | ||||||||||||||||||||||||||||||
Other operating income, net | — | (1,713 | ) | — | — | (1,713 | ) | — | (652 | ) | — | — | (652 | ) | ||||||||||||||||||||||||||
Operating earnings (loss) | (314 | ) | 157,384 | (444 | ) | — | 156,626 | |||||||||||||||||||||||||||||||||
Operating (loss) earnings | (311 | ) | 49,460 | 2 | — | 49,151 | ||||||||||||||||||||||||||||||||||
Interest expense, net | 6,254 | 4,255 | 53 | — | 10,562 | 1,646 | 1,636 | 17 | — | 3,299 | ||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | (6,568 | ) | 153,129 | (497 | ) | — | 146,064 | |||||||||||||||||||||||||||||||||
Income tax provision (benefit) | (2,575 | ) | 60,043 | (195 | ) | — | 57,273 | |||||||||||||||||||||||||||||||||
(Loss) income before income taxes | (1,957 | ) | 47,824 | (15 | ) | — | 45,852 | |||||||||||||||||||||||||||||||||
Income tax (benefit) provision | (770 | ) | 18,810 | (5 | ) | — | 18,035 | |||||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 92,784 | — | — | (92,784 | ) | — | 29,004 | — | — | (29,004 | ) | — | ||||||||||||||||||||||||||||
Income (loss) from continuing operations | 88,791 | 93,086 | (302 | ) | (92,784 | ) | 88,791 | |||||||||||||||||||||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 88,791 | $ | 93,086 | $ | (302 | ) | $ | (92,784 | ) | $ | 88,791 | $ | 27,817 | $ | 29,014 | $ | (10 | ) | $ | (29,004 | ) | $ | 27,817 | ||||||||||||||||
For the nine months ended September 30, 2009 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Income | ||||||||||||||||||||
Revenue | $ | — | $ | 5,996,619 | $ | 581 | $ | — | $ | 5,997,200 | ||||||||||
Cost of revenue | — | 5,411,496 | 30 | — | 5,411,526 | |||||||||||||||
Gross margin | — | 585,123 | 551 | — | 585,674 | |||||||||||||||
Selling, general and administrative expenses | 941 | 423,894 | 696 | — | 425,531 | |||||||||||||||
Depreciation and amortization | — | 18,552 | 31 | — | 18,583 | |||||||||||||||
Other operating (income) expense, net | — | (4,078 | ) | 120 | — | (3,958 | ) | |||||||||||||
Operating earnings (loss) | (941 | ) | 146,755 | (296 | ) | — | 145,518 | |||||||||||||
Interest (income) expense, net | (9,914 | ) | 19,658 | 90 | — | 9,834 | ||||||||||||||
Income (loss) from continuing operations before income taxes | 8,973 | 127,097 | (386 | ) | — | 135,684 | ||||||||||||||
Income tax provision (benefit) | 3,376 | 47,633 | (145 | ) | — | 50,864 | ||||||||||||||
Equity in earnings of subsidiaries | 66,714 | — | — | (66,714 | ) | — | ||||||||||||||
Income (loss) from continuing operations | 72,311 | 79,464 | (241 | ) | (66,714 | ) | 84,820 | |||||||||||||
Loss from discontinued operations, net of tax | — | — | (12,509 | ) | — | (12,509 | ) | |||||||||||||
Net income (loss) | $ | 72,311 | $ | 79,464 | $ | (12,750 | ) | $ | (66,714 | ) | $ | 72,311 | ||||||||
March 31, 2011 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Balance Sheets | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 178,527 | $ | 7,307 | $ | 16 | $ | — | $ | 185,850 | ||||||||||
Accounts and notes receivable, net | — | 520,688 | — | — | 520,688 | |||||||||||||||
Merchandise inventories | — | 729,546 | — | — | 729,546 | |||||||||||||||
Other current assets | 104 | 56,804 | 242 | — | 57,150 | |||||||||||||||
Total current assets | 178,631 | 1,314,345 | 258 | — | 1,493,234 | |||||||||||||||
Property and equipment, net | — | 100,672 | — | — | 100,672 | |||||||||||||||
Goodwill, net | — | 247,271 | — | — | 247,271 | |||||||||||||||
Intangible assets, net | — | 24,411 | — | — | 24,411 | |||||||||||||||
Due from O&M and subsidiaries | — | 110,434 | 41,294 | (151,728 | ) | — | ||||||||||||||
Advances to and investments in consolidated subsidiaries | 1,067,111 | — | — | (1,067,111 | ) | — | ||||||||||||||
Other assets, net | 916 | 44,676 | — | — | 45,592 | |||||||||||||||
Total assets | $ | 1,246,658 | $ | 1,841,809 | $ | 41,552 | $ | (1,218,839 | ) | $ | 1,911,180 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts and drafts payable | $ | — | $ | 604,473 | $ | 4 | $ | — | $ | 604,477 | ||||||||||
Accrued payroll and related liabilities | — | 11,182 | 10 | — | 11,192 | |||||||||||||||
Deferred income taxes | — | 37,224 | — | — | 37,224 | |||||||||||||||
Other accrued liabilities | 9,683 | 97,787 | 296 | — | 107,766 | |||||||||||||||
Current liabilities of discontinued operations | — | — | 177 | — | 177 | |||||||||||||||
Total current liabilities | 9,683 | 750,666 | 487 | — | 760,836 | |||||||||||||||
Long-term debt, excluding current portion | 204,561 | 4,446 | — | — | 209,007 | |||||||||||||||
Due to O&M and subsidiaries | 151,728 | — | — | (151,728 | ) | — | ||||||||||||||
Intercompany debt | — | 138,890 | — | (138,890 | ) | — | ||||||||||||||
Deferred income taxes | — | 12,182 | — | — | 12,182 | |||||||||||||||
Other liabilities | — | 48,469 | — | — | 48,469 | |||||||||||||||
Total liabilities | 365,972 | 954,653 | 487 | (290,618 | ) | 1,030,494 | ||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Common stock | 127,426 | — | 1,500 | (1,500 | ) | 127,426 | ||||||||||||||
Paid-in capital | 172,028 | 242,024 | 62,814 | (304,838 | ) | 172,028 | ||||||||||||||
Retained earnings (deficit) | 586,274 | 650,425 | (23,249 | ) | (627,176 | ) | 586,274 | |||||||||||||
Accumulated other comprehensive loss | (5,042 | ) | (5,293 | ) | — | 5,293 | (5,042 | ) | ||||||||||||
Total shareholders’ equity | 880,686 | 887,156 | 41,065 | (928,221 | ) | 880,686 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,246,658 | $ | 1,841,809 | $ | 41,552 | $ | (1,218,839 | ) | $ | 1,911,180 | |||||||||
December 31, 2010 Balance Sheets Assets Current assets Cash and cash equivalents Accounts and notes receivable, net Merchandise inventories Other current assets Total current assets Property and equipment, net Goodwill, net Intangible assets, net Due from O&M and subsidiaries Advances to and investments in consolidated subsidiaries Other assets, net Total assets Liabilities and shareholders’ equity Current liabilities Accounts and drafts payable Accrued payroll and related liabilities Deferred income taxes Other accrued liabilities Current liabilities of discontinued operations Total current liabilities Long-term debt, excluding current portion Due to O&M and subsidiaries Intercompany debt Deferred income taxes Other liabilities Total liabilities Shareholders’ equity Common stock Paid-in capital Retained earnings (deficit) Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity Owens & Minor,
Inc. Guarantor
Subsidiaries Non-guarantor
Subsidiaries Eliminations Consolidated $ 156,897 $ 2,316 $ — $ — $ 159,213 313 471,348 — — 471,661 — 720,116 — — 720,116 118 52,438 243 — 52,799 157,328 1,246,218 243 — 1,403,789 — 101,542 3 — 101,545 — 247,271 — — 247,271 — 24,825 — — 24,825 — 84,966 41,523 (126,489 ) — 1,036,211 — — (1,036,211 ) — 1,450 43,159 — — 44,609 $ 1,194,989 $ 1,747,981 $ 41,769 $ (1,162,700 ) $ 1,822,039 $ — $ 531,732 $ 3 $ — $ 531,735 — 20,570 18 — 20,588 — 39,082 — — 39,082 6,197 96,311 289 — 102,797 — — 279 — 279 6,197 687,695 589 — 694,481 204,785 4,311 — — 209,096 126,489 — — (126,489 ) — — 138,890 — (138,890 ) — — 12,107 — — 12,107 — 48,837 — — 48,837 337,471 891,840 589 (265,379 ) 964,521 126,867 — 1,500 (1,500 ) 126,867 165,447 242,024 62,814 (304,838 ) 165,447 570,320 619,496 (23,134 ) (596,362 ) 570,320 (5,116 ) (5,379 ) — 5,379 (5,116 ) 857,518 856,141 41,180 (897,321 ) 857,518 $ 1,194,989 $ 1,747,981 $ 41,769 $ (1,162,700 ) $ 1,822,039
Three months ended March 31, 2011 Statements of Cash Flows Operating activities: Net income (loss) Adjustments to reconcile net income to cash provided by (used for) operating activities: Equity in earnings of subsidiaries Provision for LIFO reserve Depreciation and amortization Share-based compensation expense Provision for losses on accounts and notes receivable Pension contributions Deferred income tax benefit Changes in operating assets and liabilities: Accounts and notes receivable Merchandise inventories Accounts payable Net change in other assets and liabilities Other, net Cash provided by (used for) operating activities Investing activities: Additions to property and equipment Additions to computer software and intangible assets Proceeds from the sale of property and equipment Cash used for investing activities Financing activities: Change in intercompany advances Cash dividends paid Decrease in drafts payable Proceeds from exercise of stock options Excess tax benefits related to share-based compensation Other, net Cash provided by (used for) financing activities Discontinued operations: Operating cash flows Net cash used for discontinued operations Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of periodCondensed Consolidating Financial Information Owens & Minor,
Inc. Guarantor
Subsidiaries Non-guarantor
Subisidiaries Eliminations Consolidated $ 28,740 $ 30,929 $ (116 ) $ (30,813 ) $ 28,740 (30,813 ) — — 30,813 — — 11,265 — — 11,265 — 8,767 — — 8,767 — 3,021 — — 3,021 — 359 — — 359 — (543 ) — — (543 ) — (1,830 ) — — (1,830 ) 313 (49,699 ) — — (49,386 ) — (20,695 ) — — (20,695 ) — 79,641 1 — 79,642 3,595 (11,690 ) (1 ) — (8,096 ) 197 (22 ) — — 175 2,032 49,503 (116 ) — 51,419 — (4,128 ) — — (4,128 ) — (3,010 ) — — (3,010 ) — 41 — — 41 — (7,097 ) — — (7,097 ) 27,916 (28,149 ) 233 — — (12,786 ) — — — (12,786 ) — (6,900 ) — — (6,900 ) 3,594 — — — 3,594 874 — — — 874 — (2,366 ) — — (2,366 ) 19,598 (37,415 ) 233 — (17,584 ) — — (101 ) — (101 ) — — (101 ) — (101 ) 21,630 4,991 16 — 26,637 156,897 2,316 — — 159,213 $ 178,527 $ 7,307 $ 16 $ — $ 185,850
September 30, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Balance Sheets | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 133,204 | $ | 11,866 | $ | — | $ | — | $ | 145,070 | ||||||||||
Accounts and notes receivable, net | — | 501,270 | — | — | 501,270 | |||||||||||||||
Merchandise inventories | — | 733,296 | — | — | 733,296 | |||||||||||||||
Other current assets | 234 | 49,178 | — | — | 49,412 | |||||||||||||||
Total current assets | 133,438 | 1,295,610 | — | — | 1,429,048 | |||||||||||||||
Property and equipment, net | — | 93,710 | 4 | — | 93,714 | |||||||||||||||
Goodwill, net | — | 247,271 | — | — | 247,271 | |||||||||||||||
Intangible assets, net | — | 25,585 | — | — | 25,585 | |||||||||||||||
Due from O&M and subsidiaries | — | 60,527 | 41,949 | (102,476 | ) | — | ||||||||||||||
Advances to and investments in consolidated subsidiaries | 1,018,885 | — | — | (1,018,885 | ) | — | ||||||||||||||
Other assets, net | 1,497 | 44,224 | — | — | 45,721 | |||||||||||||||
Total assets | $ | 1,153,820 | $ | 1,766,927 | $ | 41,953 | $ | (1,121,361 | ) | $ | 1,841,339 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts and drafts payable | $ | — | $ | 586,282 | $ | 3 | $ | — | $ | 586,285 | ||||||||||
Accrued payroll and related liabilities | — | 14,230 | 10 | — | 14,240 | |||||||||||||||
Other accrued liabilities and deferred income taxes | 9,248 | 130,062 | 468 | — | 139,778 | |||||||||||||||
Current liabilities of discontinued operations | — | — | 461 | — | 461 | |||||||||||||||
Total current liabilities | 9,248 | 730,574 | 942 | — | 740,764 | |||||||||||||||
Long-term debt, excluding current portion | 205,009 | 3,567 | — | — | 208,576 | |||||||||||||||
Intercompany debt | — | 138,890 | — | (138,890 | ) | — | ||||||||||||||
Due to O&M and subsidiaries | 102,476 | — | — | (102,476 | ) | — | ||||||||||||||
Other liabilities and deferred income taxes | — | 54,912 | — | — | 54,912 | |||||||||||||||
Total liabilities | 316,733 | 927,943 | 942 | (241,366 | ) | 1,004,252 | ||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Common stock | 126,918 | — | 1,500 | (1,500 | ) | 126,918 | ||||||||||||||
Paid-in capital | 162,806 | 242,024 | 62,814 | (304,838 | ) | 162,806 | ||||||||||||||
Retained earnings (deficit) | 559,701 | 609,574 | (23,303 | ) | (586,271 | ) | 559,701 | |||||||||||||
Accumulated other comprehensive loss | (12,338 | ) | (12,614 | ) | — | 12,614 | (12,338 | ) | ||||||||||||
Total shareholders’ equity | 837,087 | 838,984 | 41,011 | (879,995 | ) | 837,087 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,153,820 | $ | 1,766,927 | $ | 41,953 | $ | (1,121,361 | ) | $ | 1,841,339 | |||||||||
Three months ended March 31, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subisidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 27,817 | $ | 29,014 | $ | (10 | ) | $ | (29,004 | ) | $ | 27,817 | ||||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries | (29,004 | ) | — | — | 29,004 | — | ||||||||||||||
Provision for LIFO reserve | — | 8,270 | — | — | 8,270 | |||||||||||||||
Depreciation and amortization | — | 6,788 | 1 | — | 6,789 | |||||||||||||||
Share-based compensation expense | — | 2,965 | — | — | 2,965 | |||||||||||||||
Provision for losses on accounts and notes receivable | — | 930 | — | — | 930 | |||||||||||||||
Pension expense | — | 641 | — | — | 641 | |||||||||||||||
Pension contributions | — | (5,000 | ) | — | — | (5,000 | ) | |||||||||||||
Deferred income tax benefit | — | (1,323 | ) | — | — | (1,323 | ) | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts and notes receivable | — | 18,446 | — | — | 18,446 | |||||||||||||||
Merchandise inventories | — | 11,623 | — | — | 11,623 | |||||||||||||||
Accounts payable | — | 67,474 | — | — | 67,474 | |||||||||||||||
Net change in other assets and liabilities | 3,366 | (2,145 | ) | (393 | ) | — | 828 | |||||||||||||
Other, net | (20 | ) | 30 | — | — | 10 | ||||||||||||||
Cash provided by (used for) operating activities | 2,159 | 137,713 | (402 | ) | — | 139,470 | ||||||||||||||
Investing activities: | ||||||||||||||||||||
Additions to property and equipment | — | (5,848 | ) | — | — | (5,848 | ) | |||||||||||||
Additions to computer software and intangible assets | — | (2,042 | ) | — | — | (2,042 | ) | |||||||||||||
Proceeds from the sale of property and equipment | — | 33 | — | — | 33 | |||||||||||||||
Cash used for investing activities | — | (7,857 | ) | — | — | (7,857 | ) | |||||||||||||
Financing activities: | ||||||||||||||||||||
Change in intercompany advances | 57,384 | (58,246 | ) | 862 | — | — | ||||||||||||||
Cash dividends paid | (11,138 | ) | — | — | — | (11,138 | ) | |||||||||||||
Decrease in drafts payable | — | (72,300 | ) | — | — | (72,300 | ) | |||||||||||||
Proceeds from exercise of stock options | 2,981 | — | — | — | 2,981 | |||||||||||||||
Excess tax benefits related to share-based compensation | 928 | — | — | — | 928 | |||||||||||||||
Other, net | — | (1,403 | ) | — | — | (1,403 | ) | |||||||||||||
Cash provided by (used for) financing activities | 50,155 | (131,949 | ) | 862 | — | (80,932 | ) | |||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating cash flows | — | — | (460 | ) | — | (460 | ) | |||||||||||||
Net cash used for discontinued operations | — | — | (460 | ) | — | (460 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 52,314 | (2,093 | ) | — | — | 50,221 | ||||||||||||||
Cash and cash equivalents at beginning of period | 92,088 | 3,765 | 283 | — | 96,136 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 144,402 | $ | 1,672 | $ | 283 | $ | — | $ | 146,357 | ||||||||||
Condensed Consolidating Financial Information
December 31, 2009 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Balance Sheets | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 92,088 | $ | 3,765 | $ | 283 | $ | — | $ | 96,136 | ||||||||||
Accounts and notes receivable, net | — | 498,080 | — | — | 498,080 | |||||||||||||||
Merchandise inventories | — | 689,889 | — | — | 689,889 | |||||||||||||||
Other current assets | 136 | 57,824 | 2 | — | 57,962 | |||||||||||||||
Total current assets | 92,224 | 1,249,558 | 285 | — | 1,342,067 | |||||||||||||||
Property and equipment, net | — | 84,960 | 5 | — | 84,965 | |||||||||||||||
Goodwill, net | — | 247,271 | — | — | 247,271 | |||||||||||||||
Intangible assets, net | — | 27,809 | — | — | 27,809 | |||||||||||||||
Due from O&M and subsidiaries | — | — | 43,380 | (43,380 | ) | — | ||||||||||||||
Advances to and investments in consolidated subsidiaries | 925,370 | — | — | (925,370 | ) | — | ||||||||||||||
Other assets, net | 1,633 | 43,341 | 2 | — | 44,976 | |||||||||||||||
Total assets | $ | 1,019,227 | $ | 1,652,939 | $ | 43,672 | $ | (968,750 | ) | $ | 1,747,088 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts and drafts payable | $ | — | $ | 546,984 | $ | 5 | $ | — | $ | 546,989 | ||||||||||
Accrued payroll and related liabilities | — | 34,870 | 15 | — | 34,885 | |||||||||||||||
Other accrued liabilities and deferred income taxes | 5,684 | 110,217 | 402 | — | 116,303 | |||||||||||||||
Current liabilities of discontinued operations | — | — | 1,939 | — | 1,939 | |||||||||||||||
Total current liabilities | 5,684 | 692,071 | 2,361 | — | 700,116 | |||||||||||||||
Long-term debt, excluding current portion | 205,682 | 2,736 | — | — | 208,418 | |||||||||||||||
Intercompany debt | — | 138,890 | — | (138,890 | ) | — | ||||||||||||||
Due to O&M and subsidiaries | 38,682 | 4,698 | — | (43,380 | ) | — | ||||||||||||||
Other liabilities and deferred income taxes | — | 69,375 | — | — | 69,375 | |||||||||||||||
Total liabilities | 250,048 | 907,770 | 2,361 | (182,270 | ) | 977,909 | ||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Common stock | 83,827 | — | 1,500 | (1,500 | ) | 83,827 | ||||||||||||||
Paid-in capital | 193,905 | 242,024 | 62,814 | (304,838 | ) | 193,905 | ||||||||||||||
Retained earnings (deficit) | 504,480 | 516,491 | (23,003 | ) | (493,488 | ) | 504,480 | |||||||||||||
Accumulated other comprehensive loss | (13,033 | ) | (13,346 | ) | — | 13,346 | (13,033 | ) | ||||||||||||
Total shareholders’ equity | 769,179 | 745,169 | 41,311 | (786,480 | ) | 769,179 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,019,227 | $ | 1,652,939 | $ | 43,672 | $ | (968,750 | ) | $ | 1,747,088 | |||||||||
Condensed Consolidating Financial Information
For the nine months ended September 30, 2010 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 88,791 | $ | 93,086 | $ | (302 | ) | $ | (92,784 | ) | $ | 88,791 | ||||||||
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities of continuing operations: | ||||||||||||||||||||
Depreciation and amortization | — | 21,357 | 3 | — | 21,360 | |||||||||||||||
Provision for LIFO reserve | — | 8,433 | — | — | 8,433 | |||||||||||||||
Share-based compensation expense | — | 5,452 | — | — | 5,452 | |||||||||||||||
Provision for losses on accounts and notes receivable | — | 1,673 | — | — | 1,673 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts and notes receivable | — | (4,863 | ) | — | — | (4,863 | ) | |||||||||||||
Merchandise inventories | — | (51,840 | ) | — | — | (51,840 | ) | |||||||||||||
Accounts payable | — | 147,598 | (2 | ) | — | 147,596 | ||||||||||||||
Net change in other assets and liabilities | 2,880 | (8,628 | ) | 63 | — | (5,685 | ) | |||||||||||||
Other, net | (1,073 | ) | 4,646 | 1 | — | 3,574 | ||||||||||||||
Cash provided by (used for) operating activities | 90,598 | 216,914 | (237 | ) | (92,784 | ) | 214,491 | |||||||||||||
Investing activities: | ||||||||||||||||||||
Additions to property and equipment | — | (19,882 | ) | (2 | ) | — | (19,884 | ) | ||||||||||||
Additions to computer software | — | (7,194 | ) | — | — | (7,194 | ) | |||||||||||||
Acquisition of intangible assets | — | (55 | ) | — | — | (55 | ) | |||||||||||||
Proceeds from sale of property and equipment | — | 2,422 | — | — | 2,422 | |||||||||||||||
Cash used for investing activities | — | (24,709 | ) | (2 | ) | — | (24,711 | ) | ||||||||||||
Financing activities: | ||||||||||||||||||||
Change in intercompany advances | (23,513 | ) | (70,705 | ) | 1,434 | 92,784 | — | |||||||||||||
Decrease in drafts payable | — | (108,300 | ) | — | — | (108,300 | ) | |||||||||||||
Cash dividends paid | (33,520 | ) | — | — | — | (33,520 | ) | |||||||||||||
Proceeds from exercise of stock options | 5,736 | — | — | — | 5,736 | |||||||||||||||
Excess tax benefits related to share-based compensation | 1,815 | — | — | — | 1,815 | |||||||||||||||
Other, net | — | (5,099 | ) | — | — | (5,099 | ) | |||||||||||||
Cash provided by (used for) financing activities | (49,482 | ) | (184,104 | ) | 1,434 | 92,784 | (139,368 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating cash flows | — | — | (1,478 | ) | — | (1,478 | ) | |||||||||||||
Net cash used for discontinued operations | — | — | (1,478 | ) | — | (1,478 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 41,116 | 8,101 | (283 | ) | — | 48,934 | ||||||||||||||
Cash and cash equivalents at beginning of period | 92,088 | 3,765 | 283 | — | 96,136 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 133,204 | $ | 11,866 | $ | — | $ | — | $ | 145,070 | ||||||||||
Condensed Consolidating Financial Information
For the nine months ended September 30, 2009 | Owens & Minor, Inc. | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 72,311 | $ | 79,464 | $ | (12,750 | ) | $ | (66,714 | ) | $ | 72,311 | ||||||||
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities of continuing operations: | ||||||||||||||||||||
Loss from discontinued operations, net of tax | — | — | 12,509 | — | 12,509 | |||||||||||||||
Provision for LIFO reserve | — | 4,940 | — | — | 4,940 | |||||||||||||||
Depreciation and amortization | — | 18,552 | 31 | — | 18,583 | |||||||||||||||
Share-based compensation expense | — | 5,860 | — | — | 5,860 | |||||||||||||||
Provision for losses on accounts and notes receivable | — | 3,335 | 52 | — | 3,387 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts and notes receivable | — | 8,463 | (36 | ) | — | 8,427 | ||||||||||||||
Merchandise inventories | — | (5,340 | ) | 10 | — | (5,330 | ) | |||||||||||||
Accounts payable | — | 48,536 | (51 | ) | — | 48,485 | ||||||||||||||
Net change in other assets and liabilities | 3,506 | (10,443 | ) | 3 | — | (6,934 | ) | |||||||||||||
Other, net | (998 | ) | 220 | — | — | (778 | ) | |||||||||||||
Cash provided by (used for) operating activities | 74,819 | 153,587 | (232 | ) | (66,714 | ) | 161,460 | |||||||||||||
Investing activities: | ||||||||||||||||||||
Additions to property and equipment | — | (14,116 | ) | (7 | ) | — | (14,123 | ) | ||||||||||||
Additions to computer software | — | (9,429 | ) | 118 | — | (9,311 | ) | |||||||||||||
Proceeds from sale of property and equipment | — | 2,398 | — | — | 2,398 | |||||||||||||||
Cash received related to acquisition of business | — | 6,994 | — | — | 6,994 | |||||||||||||||
Cash (used for) provided by investing activities | — | (14,153 | ) | 111 | — | (14,042 | ) | |||||||||||||
Financing activities: | ||||||||||||||||||||
Change in intercompany advances | (21,739 | ) | 29,225 | (74,200 | ) | 66,714 | — | |||||||||||||
Payments on revolving credit facility | — | (301,964 | ) | — | — | (301,964 | ) | |||||||||||||
Borrowings on revolving credit facility | — | 151,386 | — | — | 151,386 | |||||||||||||||
Decrease in drafts payable | — | (12,582 | ) | — | — | (12,582 | ) | |||||||||||||
Cash dividends paid | (28,755 | ) | — | — | — | (28,755 | ) | |||||||||||||
Proceeds from exercise of stock options | 5,228 | — | — | — | 5,228 | |||||||||||||||
Excess tax benefits related to share-based compensation | 2,306 | — | — | — | 2,306 | |||||||||||||||
Other, net | — | (1,604 | ) | — | — | (1,604 | ) | |||||||||||||
Cash used for financing activities | (42,960 | ) | (135,539 | ) | (74,200 | ) | 66,714 | (185,985 | ) | |||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating cash flows | — | — | 10,612 | — | 10,612 | |||||||||||||||
Investing cash flows | — | — | 63,000 | — | 63,000 | |||||||||||||||
Net cash provided by discontinued operations | — | — | 73,612 | — | 73,612 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 31,859 | 3,895 | (709 | ) | — | 35,045 | ||||||||||||||
Cash and cash equivalents at beginning of period | 5,888 | 947 | 1,051 | — | 7,886 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 37,747 | $ | 4,842 | $ | 342 | $ | — | $ | 42,931 | ||||||||||
12. | Recent Accounting Pronouncements |
There has been no change in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2009,2010, except as discussed below.
We adopted a Financial Accounting Standards Board Accounting Standards Update (ASU) relating to multiple-deliverable arrangements prospectively for all contracts entered into or amended after January 1, 2011. This ASU requires an entity to allocate contract consideration using the relative selling price method and eliminates the use of the residual method. It also establishes a hierarchy of evidence to determine the stand-alone selling price of a deliverable based on the vendor-specific objective evidence (VSOE), third-party evidence, and the best estimate of selling price.
Our multiple-element arrangements can include a combination of distribution and other supply-chain management services. We evaluate each deliverable within a multiple-element arrangement at inception to determine the separate units of accounting. The adoption of this ASU did not have an impact on our units of accounting as we have historically been able to obtain evidence of fair value for our products and services under the previous accounting standard.
Consideration is allocated to separate units of accounting based on the relative selling price method using VSOE, as most services included in our multiple-element arrangements are sold on a stand-alone basis. If VSOE is unavailable, we utilize third-party evidence or our best estimate of selling price. Revenue is recognized for each separate unit of accounting in accordance with applicable revenue recognition criteria. Generally, products are delivered and services are performed on a continuous basis throughout the life of the arrangement. The adoption of this ASU did not have a material impact on the timing of revenue recognition for the current period and is not expected to have a material impact on future periods.
In the first quarter of 2010,2011, we adopted a Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)an ASU relating to disclosures about fairhow the carrying value measurements.of a reporting unit should be calculated when performing the first step of the goodwill impairment test. This ASU clarified existing guidanceupdate modified the first step of the goodwill impairment test for disclosures about inputs and valuation techniques used in estimating fair value measurements, requires additional disclosures for significant transfers in and out of Levels 1 and 2, and requiresthose reporting units with a reconciliation of Level 3 activity to be presented on a gross basis.zero or negative carrying value. The adoption of this update had no impact on our financial position and results of operations or disclosures.disclosures for the quarter ended March 31, 2011.
In the first quarter of 2010,2011, we adopted an ASU that provided additional guidance relating to the evaluation and disclosure of subsequent events.supplementary pro forma information for business combinations. This update clarifies that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The adoption of this guidanceupdate had no impact on our financial position or results of operations.
In July 2010, FASB issued an ASU requiring increased disclosures related to financing receivables. We will adopt this guidance when it becomes effective in the fourth quarter of 2010. We do not expect that the adoption of this guidance will have an impact on our financial statements.
In October 2009, FASB issued an ASU for multiple deliverable revenue arrangements. The update requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The update eliminates the residual method of revenue allocation and requires revenues to be allocated using the relative selling price method. We will adopt this update prospectively for revenue arrangements entered into or materially modified beginning January 1, 2011. We are evaluating the impact of adoption of this update on our financial position and results of operations.operations or disclosures for the quarter ended March 31, 2011.
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 (we, us, or our) since December 31, 2009.2010. 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 our Annual Report on Form 10-K for the year ended December 31, 2009.2010.
Results of Operations
ThirdFirst quarter and first nine months of 20102011 compared with 2009first quarter of 2010
Overview. Operating earnings were $55.3$51.0 million forin the thirdfirst quarter of 2010, a decrease2011, an increase of 2.4%3.8% from $56.7$49.2 million forin the thirdfirst quarter of 2009. For2010. In the first nine monthsquarter of 2010, operating earnings were $156.62011, we earned net income of $28.7 million, an increase of 7.6%3.3% from $145.5 million for the first nine months of 2009. Net income decreased to $31.5 million for the third quarter of 2010, compared with $34.7 million for the third quarter of 2009, and increased to $88.8 million for the first nine months of 2010, compared with $72.3$27.8 million in the same periodfirst quarter of 2009. Income from continuing operations2010. Net income per diluted common share was $0.50 for the third quarter of 2010, a decrease from $0.55 for the same period of 2009. Income from continuing operations per diluted common share was $1.40$0.45 for the first nine monthsquarter of 2010,2011, an increase from $1.35$0.44 in the samecomparable period of 2009.
Stock Split.On March 31, 2010, we effected a three-for-two stock split of our outstanding shares of common stock in the form of a stock dividend of one share of common stock for every two shares outstanding to stockholders of record on March 15, 2010. All share and per-share data (except par value) have been retroactively adjusted to reflect this stock split for all periods presented.
Divestiture.In January 2009, we exited our direct-to-consumer diabetes supply (DTC) business. Accordingly, the DTC business is presented as discontinued operations in our consolidated financial statements.
Financial Highlightshighlights.. The following table presents highlights from our consolidated statements of income on a percentage of revenue basis:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Three months ended March 31, | 2011 | 2010 | ||||||||||||||||||||||
Gross margin | 9.58 | % | 10.04 | % | 9.59 | % | 9.77 | % | 9.92 | % | 10.00 | % | ||||||||||||
Selling, general and administrative expense | 6.56 | % | 6.99 | % | 6.68 | % | 7.10 | % | ||||||||||||||||
Selling, general and administrative expenses | 7.14 | % | 7.16 | % | ||||||||||||||||||||
Operating earnings | 2.68 | % | 2.79 | % | 2.59 | % | 2.43 | % | 2.40 | % | 2.50 | % | ||||||||||||
Income from continuing operations | 1.53 | % | 1.70 | % | 1.47 | % | 1.41 | % | ||||||||||||||||
Net income | 1.35 | % | 1.41 | % |
Revenue.Net revenue. RevenueNet revenue increased 7.8% to $2.06$2.12 billion for the thirdfirst quarter of 20102011 from $2.03$1.97 billion for the thirdfirst quarter of 2009.2010. The increase in net revenue resulted primarily from greater sales of products and services to existing customers of $46$134.1 million, (a growth raterepresenting 6.8%, or almost 90% of 2.5%) andour sales growth. In addition, sales to new customers of $65contributed $102.9 million totaling $111 million, whichto the increase in net revenues, and were partially offset by a decrease in sales to lost customers of $82$84.4 million.
Revenue increased to $6.05 billion for the first nine months of 2010 from $6.00 billion for the comparable period in 2009. The increase in revenue for this period was due to greater sales of products and services to existing customers of $149 million (a growth rate of 2.8%) and to new customers of $167 million, totaling $316 million, which were partially offset by a decrease in sales to lost customers of $260 million.
We believe that revenue growth for the third quarter and first nine months of 2010 was adversely impacted by unfavorable economic conditions and the related effect on hospital utilization trends.
Gross margin. Gross margin as a percentage of revenue decreased 46 basis points for the third quarter of 2010 compareddollars increased 7.0% to the third quarter of 2009. Gross margin dollars decreased 3.2% to $197.7$210.8 million for the thirdfirst quarter of 2010 from $204.32011 compared to $197.0 million for the thirdfirst quarter of 2009. Gross margin in the third quarter of 2009 benefitted from the positive impact of supplier price changes, which resulted in an $11.5 million credit in our provision for last-in, first-out (LIFO) inventory valuation, as well as the recognition of previously deferred revenue of $1.6 million resulting from the achievement of performance targets related to customer contracts.2010. The resulting decreases in gross margin dollars in the third quarter of 2010 were partially offset by an increase in gross margin dollars from greater saleswas primarily due to customers and from supplier incentives.
Grossan increase in revenues. The decrease of 8 basis points in gross margin as a percentage of revenue decreased 18is comprised of a $3.0 million greater last-in, first-out (LIFO) provision (11 basis points for the first nine months of 2010 compared to the same period in 2009. Gross margin dollars decreased $5.3 million to $580.4 million for the first nine months of 2010 from $585.7 million for the same period of 2009. The decrease was primarily due to a higher LIFO provision of $3.5 million, resulting from greater supplier price increases,points) and a reductiondecrease in gross margin dollars from our acute-care distribution customers (lowersupplier incentives as a percentage marginof revenue (8 basis points). These decreases were partially offset by the impact of higher revenue)a net increase in fee-for-service revenues (6 basis points). The decrease was partially offset by revenue from our third-party logistics businessincrease in the first nine months of 2010.LIFO provision was due to greater inventory purchase price inflation than experienced last year.
We value inventory under the LIFO method. Had inventory been valued under the first-in, first-out (FIFO) method, gross margin as a percentage of revenue would have been 1453 basis points greater forin the first ninethree months of 20102011 and 842 basis points greater forin the first ninethree months of 2009.2010.
Selling, general and administrative (SG&A) expenses. SG&A expenses decreased 4.8%increased 7.5% to $135.3$151.6 million for the thirdfirst quarter of 2010,2011, as compared with $142.2$141.1 million forin the third quartercomparable period of 2009.2010. SG&A expenses decreased $3.1increased $6.7 million for labor costs, includingprimarily for salaries, incentive compensation expense, $3.0 million for information technology outsourcing and consulting primarily related to technology infrastructure enhancements, and $0.9 million in Burrows acquisition transition-related expenses. These decreases inbenefits. SG&A expenses were partially offsetadversely impacted by an increaseincreased delivery costs of $1.1 million for costs incurred relating to providing third-party logistics services.
$1.7 million. In addition, SG&A expenses decreased 5.0%increased by $1.8 million to $404.1 million for the first nine months of 2010, compared with $425.5 million for the first nine months of last year. SG&A expenses decreased $9.6 million for labor costs, including incentive compensation expense, $6.9 million for information technology outsourcing and consulting related to technology infrastructure enhancements, $2.0 million for delivery costs and $1.7 million resulting from a lower provision for losses on accounts and notes receivable. Additionally, SG&A expenses in the first nine months of 2009 included $4.2 million in Burrows acquisition transition-related expenses. These decreases in SG&A expenses were partially offset by increases of $3.7 million for costs incurredsupport new business related to our third-party logistics business. The decrease in incentive compensation expense for the third quarter and first nine months of 2010 compared with last year reflects estimated lower achievement of annual performance targets.services.
Depreciation and amortization.amortization expense.Depreciation and amortization expense increased $0.7 million for the thirdfirst quarter and $2.8of 2011 increased 29% to $8.8 million from $6.8 million for the first nine monthsquarter of 2010 compared with the same periods of 2009. These increases were2010. The increase is primarily due to amortization of computer software related to technology infrastructure enhancements, technologyleasehold improvements for both relocated or expanded distribution centers and our two third-party logistics business, and distribution center voice-pick technology,facilities, as well as amortization of leasehold improvements for our third-party logistics businessvoice-pick systems and relocated distribution centers.computer software.
Other operating income, net.Other operating income, net, was $0.4 million and $1.2$0.6 million for the thirdfirst quarter of 20102011 and 2009,$0.7 million for the first quarter of 2010, including finance charge income of $0.6$0.9 million and $1.3 million. Other operating income, net was $1.7$0.5 million, and $4.0 million for the first nine months of 2010 and 2009, including finance charge income of $1.6 million and $3.8 million.respectively.
Operating earnings.Operating earnings decreased infor the thirdfirst quarter of 2010 by 2.4%2011 increased 3.8% to $55.3$51.0 million compared with $56.7from $49.2 million in 2009, and increased infor the first nine monthsquarter of 2010 by 7.6% to $156.6 million compared with $145.5 million in 2009.2010. The decrease in operating earnings in the third quarter wasincrease resulted primarily due to a decrease in gross margin,from greater distribution and fee-for-service revenues, partially offset by a decreaseadditional SG&A expenses to service the growth in SG&A expenses. Thebusiness, an increase in operating earnings in the first nine months was primarily driven by lower SG&A expenses partially offset by lower gross marginLIFO provision and higher depreciation and amortization.increased delivery costs.
Interest expense, net.Interest expense, net of interest earned on cash balances, was $3.8 million for the third quarter of 2010 and $10.6$3.7 million for the first nine monthsquarter of 2010, increased from $3.2 million2011 and $9.8 million for the comparable periods in 2009. Our effective interest rate was 6.7% on average borrowings of $209.6 million for the first nine months of 2010, compared to 6.0% on average borrowings of $220.0$3.3 million for the same period in 2009.
Income taxes. The provision for income taxesof 2010. For the first quarter of 2011, our effective interest rate was $20.17.2% on average borrowings of $210.7 million, and $57.3 million for the third quarter and first nine months of 2010, compared to $18.8 million and $50.9 million for the comparable periods in 2009. The effective tax rate was 38.9% and 39.2% for the third quarter and first nine months6.4% on average borrowings of 2010 compared to 35.2% and 37.5% for the same periods of 2009. The lower effective tax rates in the 2009 periods are primarily the results of recognizing tax benefits totaling approximately $1.7 million from the conclusion of audits by the Internal Revenue Service (IRS) of our 2007 and 2006 income tax returns in the third quarter of 2009.
Income from continuing operations. Income from continuing operations decreased to $31.5 million for the third quarter of 2010 from $34.7 million for the comparable period of 2009, primarily due to a decrease in operating earnings and an increase in income tax expense. Income from continuing operations increased to $88.8$209.7 million for the first nine months of 2010 from $84.8 million for the comparable period of 2009. This increase is primarily attributable to an increase in operating earnings, partially offset by an increase in income tax expense.
Loss from discontinued operations, net of tax.There was no income or loss from discontinued operations for the third quarters of 2010 and 2009 or for the first nine monthsquarter of 2010. Loss from discontinued operations, net of tax, for the first nine months of 2009 was $12.5 million, due to pre-tax charges associated with exiting the DTC business related to valuation of accounts receivable; losses on the disposal of remaining assets; costs associated with leased facilities; and payroll costs, including severance.
Financial Condition, Liquidity and Capital Resources
The following table presents highlights from our consolidated statements of cash flows:
(Dollars in millions)
For the nine months ended September 30, | 2010 | 2009 | ||||||
Net cash provided by (used for) – continuing operations: | ||||||||
Operating activities | $ | 214.5 | $ | 161.5 | ||||
Investing activities | $ | (24.7 | ) | $ | (14.0 | ) | ||
Financing activities | $ | (139.4 | ) | $ | (186.0 | ) | ||
Net cash (used for) provided by discontinued operations | $ | (1.5 | ) | $ | 73.6 |
Financial condition.Accounts and notes receivable, net of allowances, increased 0.6% to $501.3 million at September 30,In June 2010, from $498.1 million at December 31, 2009 due to increased sales. Accounts receivable days outstanding (DSO), based on three months’ sales, were 21.3 days at September 30, 2010, and 21.4 days at December 31, 2009.
Merchandise inventories increased to $733.3 million at September 30, 2010, from $689.9 million at December 31, 2009. The increase was primarily due to changes in volume, including inventory buildup for new customers and normal fluctuations between periods. Average inventory turnover was 10.2 for the third quarter of 2010, 10.6 for the fourth quarter of 2009, and 10.5 for the third quarter of 2009, based on three months’ sales.
Liquidity and capital expenditures.In the first nine months of 2010, cash and cash equivalents increased by $48.9 million to $145.1 million at September 30, 2010. We generated cash from continuing operating activities of $214.5 million, compared to $161.5 million in the first nine months of 2009. Cash from continuing operating activities in the first nine months of 2010 and 2009 was positively affected by operating earnings and increases in accounts payable, partially offset by higher inventories. During the first nine months of 2010, we contributed $8.3 million to our defined benefit pension plan in conjunction with a plan of termination approved by the Board of Directors in December 2009. Additional contributions may be required in late 2010 or early 2011 to complete final termination. We estimate that additional contributions will not exceed $1 million.
Cash used for investing activities increased to $24.7 million in the first nine months of 2010 from $14.0 million in the same period of 2009. Capital expenditures were $27.1 million in the first nine months of 2010, compared to $23.4 million in the same period of 2009, primarily related to our strategic and operational efficiency initiatives, such as investments in leasehold improvements for our third party logistics business and relocated or expanded distribution centers and investments in voice-pick and customer-facing technology. Cash used for investing activities for the first nine months of 2009 included the receipt of a $7.0 million purchase price adjustment related to the Burrows acquisition.
Cash used for financing activities in the first nine months of 2010 was $139.4 million, compared to $186.0 million used in the comparable period of 2009. During the first nine months of 2010, cash from continuing operations was used to reduce drafts payable by $108.3 million, to pay dividends of $33.5 million and to pay financing costs of $2.8 million. In the first nine months of 2009, cash from continuing operations and discontinued operations, along with $63.0 million of proceeds from the sale of the DTC business, was used to reduce our net borrowings under the revolving credit facility by $150.6 million. Dividends of $28.8 million were paid during the first nine months of 2009.
Cash used by operating activities of discontinued operations was $1.5 million for the first nine months of 2010, primarily related to lease payments, compared with $10.6 million cash received in the first nine months of 2009, which primarily related to the collection of accounts receivable, partially offset by the payment of costs associated with exiting the DTC business.
Capital Resources.Our sources of liquidity include cash and cash equivalents and a revolving credit facility. On June 7, 2010, we entered into a Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A and a syndication of banks (the “Credit Agreement”). This agreement replaced an existing $306 million revolving credit facility (which was to expire in May 2011) with a $350 million revolving credit facility which expires in June 2013. The increased effective interest rate for the first quarter of 2011 is due to greater commitment fees on the new facility and increased amortization of deferred financing costs.
In April 2011, we entered into interest rate swaps to effectively convert $175 million of our 6.35% fixed-rate debt into variable-rate debt through April 15, 2016, based on six-month LIBOR plus a spread of approximately 393 basis points. As a result, our effective annual interest rate on $175 million of debt will decline approximately 200 basis points for the first six-month pricing period of April 15 to October 15, 2011.
Income taxes. The provision for income taxes was $18.5 million, representing a 39.2% effective tax rate for the first quarter of 2011, compared to $18.0 million, representing a 39.3% effective tax rate for the same period of 2010.
Net income. Net income increased to $28.7 million for the first quarter of 2011 compared to $27.8 million for the first quarter of 2010. The increase is primarily due to an increase in operating earnings.
Financial Condition, Liquidity and Capital Resources
Financial condition.Accounts receivable, net of allowances, increased $49.0 million, or 10.4%, to $520.7 million at March 31, 2011, from $471.7 million at December 31, 2010. Accounts receivable days outstanding (DSO) were 21.1 days at March 31, 2011, and 19.6 days at December 31, 2010, based on three months’ sales and has ranged from 19.6 to 21.3 days over the prior four quarters.
Merchandise inventories increased to $729.5 million at March 31, 2011, from $720.1 million at December 31, 2010. Average inventory turnover was 10.7 in the first quarter of 2011, based on three months’ sales, and has ranged from 10.2 to 10.6 over the prior four quarters. The higher inventory turnover for the first quarter of 2011 was primarily a result of increased sales to new customers.
Liquidity and capital expenditures.The following table summarizes our consolidated statement of cash flows for the three months ended March 31, 2011 and 2010:
(in thousands) | ||||||||
Three months ended March 31, | 2011 | 2010 | ||||||
Net cash provided by (used for) continuing operations: | ||||||||
Operating activities | $ | 51.4 | $ | 139.5 | ||||
Investing activities | $ | (7.1 | ) | $ | (7.9 | ) | ||
Financing activities | $ | (17.6 | ) | $ | (80.9 | ) | ||
Net cash used for discontinued operations | $ | (0.1 | ) | $ | (0.5 | ) |
In the first quarter of 2011, cash and cash equivalents increased by $26.6 million to $185.9 million at March 31, 2011. We generated cash from operating activities of $51.4 million, compared to $139.5 million in the first quarter of 2010. Cash from operating activities in the first quarter of 2011 and 2010 was positively affected by operating earnings and an increase in accounts payable. Cash from operating activities in 2011 was negatively affected by increases in accounts and notes receivable and merchandise inventories. Cash from continuing operating activities in 2010 was positively affected by decreases in accounts and notes receivable and inventories. During the first quarter of 2010, we contributed $5.0 million to our defined benefit pension plan, which was terminated in 2010.
Capital expenditures were $7.1 million in the first quarter of 2011, compared to $7.9 million in the same period of 2010. Capital expenditures in the first quarter of 2011 primarily related to our strategic and operational efficiency initiatives. These expenditures included warehouse equipment and technology for both our distribution centers and third-party logistics facilities, as well as investments in certain customer-facing technologies. Capital expenditures for the first quarter of 2010 primarily related to investments in leasehold improvements for our third-party logistics service and a relocated distribution center and investments in voice-pick technology.
Cash used for financing activities in the first quarter of 2011 was $17.6 million, compared to $80.9 million used in the first quarter of 2010. During the first quarter of 2011 and 2010, cash from continuing operations was used to pay dividends and reduce drafts payable.
Cash used by the operating activities of discontinued operations is primarily related to the lease payments for vacated facilities of the direct-to-consumer diabetes supply business, which we exited in 2009.
Capital resources.Our sources of liquidity include cash and cash equivalents and a revolving credit facility. We have a $350 million Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A. and a syndication of banks which expires on June 7, 2013.2013 (the Revolving Credit Facility). The interest rate on the new facility,Revolving Credit Facility, which is subject to adjustment quarterly, is based on, at our discretion, the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on our leverage ratio (Credit Spread), as defined by the Credit Agreement.. We are charged a commitment fee of between 37.5 and 62.5 basis points on the unused portion of the facility. The terms of the agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage. We may utilize the Revolving Credit Facility for long-term strategic growth, capital expenditures, working capital and general corporate purposes. If we are unable to access the Revolving Credit Facility, it could impact our ability to fund these needs. During the first quarter of 2011, we had $10.5no borrowings or repayments under the Revolving Credit Facility. We had $5.0 million of letters of credit and no borrowings outstanding at September 30, 2010,March 31, 2011, leaving $339.5$345.0 million available for borrowing at that date. Based on our leverage ratio at March 31, 2011, the interest rate under the facility will remain unchanged at LIBOR plus 250 basis points at the next adjustment date.
We have $200 million of senior notes outstanding, which mature in 2016 and bear interest at 6.35%, payable semi-annually on April 15th and October 15th. We may redeem the senior notes in whole or in part, at a redemption price equal to the greater of 100% of the principal amount of the senior notes or the present value of the remaining scheduled payments of principal and interest discounted at the applicable Treasury Rate plus 0.25%. Our revolving credit facilityRevolving Credit Facility and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at September 30, 2010.March 31, 2011.
WeIn the first quarter of 2011, we paid cash dividends on our outstanding common stock at the rate of $0.20 per share, which represents a 13% increase over the rate of $0.177 per share and $0.531 per share forpaid in the thirdfirst quarter and first nine months of 2010 and $0.153 per share and $0.459 per share for the same periods in 2009.2010. We anticipate continuing to pay quarterly cash dividends in the future. However, the payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements and other factors.
In February 2011, the Board of Directors authorized a share repurchase program of up to $50 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2014. Through March 31, 2011, no shares have been repurchased under this program.
We believe available financing sources, includingexisting cash balances, cash generated from continuing operationsoperating activities and borrowings under the revolving credit facility,Revolving Credit Facility will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, share repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 12 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010.on March 31, 2011.
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 we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of our 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:
general economic and business conditions;
our ability to implement strategic initiatives;
the availability of and modifications to existing supplier funding programs and our ability to meet the terms to qualify for certain of these programs;
our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product;
dependence on sales to certain customers;
the ability of customers to meet financial commitments due to us;
our ability to retain existing customers and the success of marketing and other programs in attracting new customers;
changes in government regulations, including healthcare laws and regulations;
changes in manufacturer preferences between direct sales and wholesale distribution;
competition;
changing trends in customer profiles and ordering patterns;
our ability to meet customer demand for additional value-added services;
our ability to meet performance targets specified by customer contracts under contractual commitments;
access to special inventory buying opportunities;
the ability of business partners and financial institutions to perform their contractual responsibilities;
our ability to manage operating expenses;
the effect of price volatility in the commodities markets, including fuel price fluctuations, on our operating costs and supplier product prices;
our ability to continue to obtain financing at reasonable rates and to manage financing costs and interest rate risk;
the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets;
our ability to timely or adequately respond to technological advances in the medical supply industry;
the risk that information systems are interrupted or damaged by unforeseen events or fail for any extended period of time;
our ability to successfully identify, manage or integrate acquisitions;
the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims; and
the outcome of outstanding tax contingencies.contingencies and legislative and tax proposals.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We provide credit in the normal course of business to our customers and are exposed to losses resulting from nonpayment or delinquent payment by customers. We perform initial and ongoing credit evaluations of our customers and maintain reserves for estimated credit losses. We measure our performance in collecting customer accounts receivable in terms of days sales outstanding (DSO). At September 30, 2010, accounts and notesAccounts receivable net of allowances,at March 31, 2011, were approximately $501$521 million, and DSO at March 31, 2011, was 21.321.1 days, based on three months’ sales. A hypothetical increase in DSO of one day would result in a decrease in our cash balances, an increase in borrowings against our revolving credit facility, or a combination thereof, of approximately $22$24 million.
We are exposed to market risk from changes in interest rates related to our revolving credit facility. We had no outstanding borrowings and $10.5$5.0 million in letters of credit under the revolving credit facility at September 30, 2010.March 31, 2011. A hypothetical increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $0.1 million per year for every $10 million of outstanding borrowings under the revolving credit facility.
Item 4. | Controls and Procedures |
The companyWe carried out an evaluation, with the participation of the company’s management, including its Chief Executive Officerour principal executive officer and Chief Financial Officer,principal financial officer, of the effectiveness of the company’sour disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that the company’sour disclosure controls and procedures were effective at September 30, 2010.as of March 31, 2011. There has been no change in the company’sour internal control over financial reporting during the quarter ended September 30, 2010,March 31, 2011, that has materially affected, or is reasonably likely to materially affect, itsour internal control over financial reporting.
Item 1. | Legal Proceedings |
Certain legal proceedings pending against us are described in our Annual Report on Form 10-K for the year ended December 31, 2009.2010. Through September 30, 2010,March 31, 2011, there have been no material developments in any legal proceedings reported in such Annual Report.
Item 1A. | Risk Factors |
Certain risk factors that we believe could affect our business and prospects are described in our Annual Report on Form 10-K for the year ended December 31, 2009. The risk factor entitled “Changes in the Healthcare Environment” set forth under Item 1A to Part I of our Form 10-K for the year ended December2010. Through March 31, 2009 has been revised and restated as follows:
Changes in the Healthcare Environment
O&M, our customers and our suppliers are subject to extensive federal and state regulations relating to healthcare as well as the policies and practices of the private healthcare insurance industry. In recent years,2011, there have been a numberno material changes in the risk factors described in such Annual Report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
On February 24, 2011 (Issuance Date), we issued 50,000 shares of governmentour common stock (Securities), valued at $1,521,500 based on the closing price of our common stock on the Issuance Date of $30.43 per share, as partial consideration for the purchase from an unaffiliated company of certain software and private initiativestechnology assets. The Securities are restricted as to reduce healthcare costs and government spending. These changes have included an increasedtransfer for periods ranging from one to three years. Issuance of the Securities was made in reliance on managed care; consolidation of competitors, suppliers and customers; and the development of larger, more sophisticated purchasing groups. All of these changes place additional financial pressure on healthcare providers, who in turn seek to reduce the costs and pricing of products and servicesexemption from registration provided by us. We expectSection 4(2) of the healthcare industrySecurities Act of 1933, as amended (Securities Act), as the offer and sale did not involve a public offering, the purchaser was provided access to continueinformation about our company in evaluating the transaction, and we have taken appropriate measures to change significantly and these potential changes, which may includeprevent resales of the Securities that are not registered or exempt from registration under the Securities Act, including placing a reduction in government support of healthcare services, adverse changes in legislation or regulations, and reductions in healthcare reimbursement practices, couldlegend on the Securities stating that they have a material adverse effect on our results of operations.
In March 2010, Congress passed and President Obama signed into lawnot been registered under the Patient Protection and Affordable CareSecurities Act and related Reconciliation Bill, which includessetting forth the restrictions on transferability, issuing stop transfer restrictions to our transfer agent with respect to the Securities and obtaining a variety of healthcare reform provisions and requirementswritten agreement from the purchaser that the Securities will become effective at varying timesonly be sold pursuant to an exemption from 2010 to 2018. This healthcare reform legislation includes, among other things, provisions for expanded Medicaid eligibility and access to healthcare insurance as well as increased taxes and fees on certain corporations and medical products. The uncertainties surroundingregistration under the components of this legislation and the impact of its implementation on the healthcare industry may have an adverse effect on both customer purchasing and payment behavior and supplier product prices and terms of sale, which could adversely affect our results of operations.Securities Act.
Item 6. | Exhibits |
(a) | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. | |
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. | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* | XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
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) | ||||
| 2011 | /s/ Craig R. Smith | ||
Craig R. Smith | ||||
President & Chief Executive Officer | ||||
| 2011 | /s/ James L. Bierman | ||
James L. Bierman | ||||
Senior Vice President & Chief Financial Officer | ||||
| 2011 | /s/ D. Andrew Edwards | ||
D. Andrew Edwards | ||||
Vice President, Controller & Chief Accounting Officer |
Exhibits Filed with SEC
Exhibit # | ||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
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. | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* | XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
24