Table of Contents

     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________ 
FORM 10-Q
________________________________________________ 
 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2015
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-9810

Owens & Minor, Inc.
(Exact name of Registrant as specified in its charter)

Virginia54-1701843
(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 filerxAccelerated filer¨
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of July 24,October 23, 2015, was 63,018,05862,885,282 shares.
     



Table of Contents

Owens & Minor, Inc. and Subsidiaries
Index
 
Page
   
 
 
 
 
 
 
 

2


Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
(in thousands, except per share data)2015 2014 2015 20142015 2014 2015 2014
Net revenue$2,422,167
 $2,305,858
 $4,813,363
 $4,562,239
$2,471,669
 $2,386,126
 $7,285,032
 $6,948,365
Cost of goods sold2,123,830
 2,023,586
 4,217,425
 3,998,771
2,165,315
 2,093,643
 6,382,740
 6,092,413
Gross margin298,337
 282,272
 595,938

563,468
306,354
 292,483
 902,292

855,952
Selling, general and administrative expenses231,498
 225,838
 465,323
 451,448
231,847
 231,377
 697,170
 682,825
Acquisition-related and exit and realignment charges5,707
 7,593
 15,623
 10,855
6,134
 13,957
 21,757
 24,813
Depreciation and amortization15,460
 13,892
 31,329
 27,756
15,112
 13,841
 46,441
 41,597
Other operating income, net(2,188) (2,152) (5,172) (9,978)(311) (2,069) (5,484) (12,046)
Operating earnings47,860
 37,101
 88,835
 83,387
53,572
 35,377
 142,408
 118,763
Interest expense, net6,680
 3,342
 13,560
 6,589
6,744
 4,304
 20,305
 10,893
Loss on early retirement of debt
 14,890
 
 14,890
Income before income taxes41,180
 33,759
 75,275
 76,798
46,828
 16,183
 122,103
 92,980
Income tax provision16,954
 13,883
 32,109
 31,436
18,652
 9,028
 50,761
 40,464
Net income$24,226
 $19,876
 $43,166
 $45,362
$28,176
 $7,155
 $71,342
 $52,516
Net income per common share:              
Basic$0.39
 $0.32
 $0.69
 $0.72
$0.45
 $0.11
 $1.14
 $0.84
Diluted$0.39
 $0.32
 $0.69
 $0.72
$0.45
 $0.11
 $1.14
 $0.84
Cash dividends per common share$0.2525
 $0.25
 $0.505
 $0.50
$0.2525
 $0.25
 $0.7575
 $0.75


See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
Three Months Ended    June 30, Six Months Ended    June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
(in thousands)2015 2014 2015 20142015 2014 2015 2014
Net income$24,226
 $19,876
 $43,166
 $45,362
$28,176
 $7,155
 $71,342
 $52,516
Other comprehensive income (loss), net of tax:              
Currency translation adjustments (net of income tax of $0 in 2015 and 2014)6,606
 (570) (21,335) (103)2,054
 (16,796) (19,281) (16,899)
Change in unrecognized net periodic pension costs (net of income tax of $141 and $285 in 2015 and $90 and $186 in 2014)260
 112
 518
 219
Other (net of income tax of $0 in 2015 and $8 and $16 in 2014)(8) 15
 30
 6
Change in unrecognized net periodic pension costs (net of income tax of $117 and $402 in 2015 and $57 and $245 in 2014)284
 132
 802
 351
Other (net of income tax of $0 in 2015 and $56 and $72 in 2014)(105) (133) (75) (127)
Total other comprehensive income (loss), net of tax6,858
 (443) (20,787) 122
2,233
 (16,797) (18,554) (16,675)
Comprehensive income$31,084
 $19,433
 $22,379
 $45,484
Comprehensive income (loss)$30,409
 $(9,642) $52,788
 $35,841


See accompanying notes to consolidated financial statements.
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Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 
June 30, December 31,September 30, December 31,
(in thousands, except per share data)2015 20142015 2014
Assets      
Current assets      
Cash and cash equivalents$200,969
 $56,772
$125,245
 $56,772
Accounts and notes receivable, net of allowances of $13,220 and $13,306580,739
 626,192
Accounts and notes receivable, net of allowances of $12,719 and $13,306640,653
 626,192
Merchandise inventories903,501
 872,457
896,722
 872,457
Other current assets275,481
 315,285
265,758
 315,285
Total current assets1,960,690
 1,870,706
1,928,378
 1,870,706
Property and equipment, net of accumulated depreciation of $173,278 and $163,377219,372
 232,979
Goodwill, net421,760
 423,276
Property and equipment, net of accumulated depreciation of $186,580 and $163,377214,561
 232,979
Goodwill420,772
 423,276
Intangible assets, net100,904
 108,593
98,084
 108,593
Other assets, net92,180
 99,852
89,865
 99,852
Total assets$2,794,906
 $2,735,406
$2,751,660
 $2,735,406
Liabilities and equity      
Current liabilities      
Accounts payable$753,495
 $608,846
$690,134
 $608,846
Accrued payroll and related liabilities34,797
 31,507
38,834
 31,507
Deferred income taxes41,378
 37,979
41,763
 37,979
Other accrued liabilities288,432
 326,223
296,898
 326,223
Total current liabilities1,118,102
 1,004,555
1,067,629
 1,004,555
Long-term debt, excluding current portion574,623
 608,551
574,033
 608,551
Deferred income taxes62,282
 63,901
61,037
 63,901
Other liabilities62,772
 67,561
62,860
 67,561
Total liabilities1,817,779
 1,744,568
1,765,559
 1,744,568
Commitments and contingencies
 

 
Equity      
Owens & Minor, Inc. shareholders’ equity:      
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 63,018 shares and 63,070 shares126,036
 126,140
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 62,932 shares and 63,070 shares125,863
 126,140
Paid-in capital205,727
 202,934
208,216
 202,934
Retained earnings690,152
 685,765
694,577
 685,765
Accumulated other comprehensive income(44,788) (24,001)
Accumulated other comprehensive income (loss)(42,555) (24,001)
Total equity977,127
 990,838
986,101
 990,838
Total liabilities and equity$2,794,906
 $2,735,406
$2,751,660
 $2,735,406


See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Six Months Ended June 30,Nine Months Ended 
 September 30,
(in thousands)2015 20142015 2014
Operating activities:      
Net income$43,166
 $45,362
$71,342
 $52,516
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization36,138
 27,756
51,871
 41,597
Loss on early retirement of debt
 14,890
Share-based compensation expense5,048
 4,190
7,611
 6,136
Provision for losses on accounts and notes receivable41
 334
(182) (356)
Deferred income tax (benefit) expense2,992
 (5,151)3,643
 (7,387)
Changes in operating assets and liabilities:      
Accounts and notes receivable41,622
 28,477
(13,758) (21,456)
Merchandise inventories(31,866) (48,575)(25,339) (63,883)
Accounts payable145,682
 54,922
83,434
 54,634
Net change in other assets and liabilities2,771
 (32,765)25,890
 3,131
Other, net1,196
 (1,078)1,526
 1,322
Cash provided by operating activities246,790
 73,472
206,038
 81,144
Investing activities:      
Additions to property and equipment(12,009) (25,657)(15,321) (36,169)
Additions to computer software and intangible assets(10,816) (13,166)(16,876) (17,988)
Proceeds from sale of investment
 1,937

 1,937
Proceeds from sale of property and equipment837
 45
119
 151
Cash used for investing activities(21,988) (36,841)(32,078) (52,069)
Financing activities:      
Change in bank overdraft1,530
 
Long-term debt borrowings
 547,693
Repayment of revolving credit facility(33,700) 
(33,700) 
Cash dividends paid(31,867) (31,564)(47,780) (47,335)
Repurchases of common stock(7,440) (9,448)(15,821) (9,934)
Excess tax benefits related to share-based compensation457
 444
521
 514
Proceeds from exercise of stock options
 1,180

 1,180
Purchase of noncontrolling interest
 (1,500)
 (1,500)
Debt issuance costs
 (4,178)
Other, net(5,112) (4,441)(6,296) (5,671)
Cash used for financing activities(76,132) (45,329)
Cash provided by (used for) financing activities(103,076) 480,769
Effect of exchange rate changes on cash and cash equivalents(4,473) (1,180)(2,411) (1,602)
Net increase (decrease) in cash and cash equivalents144,197
 (9,878)
Net increase in cash and cash equivalents68,473
 508,242
Cash and cash equivalents at beginning of period56,772
 101,905
56,772
 101,905
Cash and cash equivalents at end of period$200,969
 $92,027
$125,245
 $610,147
Supplemental disclosure of cash flow information:      
Income taxes paid, net$27,542
 $56,837
$38,709
 $65,140
Interest paid$13,260
 $7,402
$20,195
 $8,417


See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)
 
Owens & Minor, Inc. Shareholders’ Equity    Owens & Minor, Inc. Shareholders’ Equity    
(in thousands, except per share data)
Common
Shares
Outstanding
 
Common 
Stock
($ 2 par value )
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Noncontrolling
Interest
 
Total
Equity
Common
Shares
Outstanding
 
Common 
Stock
($ 2 par value )
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Noncontrolling
Interest
 
Total
Equity
Balance December 31, 201363,096
 $126,193
 $196,605
 $691,547
 $9,568
 $1,130
 $1,025,043
63,096
 $126,193
 $196,605
 $691,547
 $9,568
 $1,130
 $1,025,043
Net income      45,362
     45,362
      52,516
     52,516
Other comprehensive income        122
   122
Dividends declared ($0.50 per share)      (31,473)     (31,473)
Other comprehensive loss        (16,675)   (16,675)
Dividends declared ($0.75 per share)      (47,201)     (47,201)
Shares repurchased and retired(277) (555)   (8,893)     (9,448)(291) (583)   (9,351)     (9,934)
Share-based compensation expense, exercises and other247
 495
 3,109
       3,604
275
 549
 5,051
       5,600
Purchase of noncontrolling interest    (695)     (1,130) (1,825)    (695)     (1,130) (1,825)
Balance June 30, 201463,066
 $126,133
 $199,019
 $696,543
 $9,690
 $
 $1,031,385
Balance September 30, 201463,080
 $126,159
 $200,961
 $687,511
 $(7,107) $
 $1,007,524
                          
Balance December 31, 201463,070
 $126,140
 $202,934
 $685,765
 $(24,001) $
 $990,838
63,070
 $126,140
 $202,934
 $685,765
 $(24,001) $
 $990,838
Net income      43,166
     43,166
      71,342
     71,342
Other comprehensive income        (20,787)   (20,787)
Dividends declared ($0.505 per share)      (31,779)     (31,779)
Other comprehensive loss        (18,554)   (18,554)
Dividends declared ($0.7575 per share)      (47,648)     (47,648)
Shares repurchased and retired(220) (440)   (7,000)     (7,440)(469) (938)   (14,882)     (15,820)
Share-based compensation expense, exercises and other168
 336
 2,793
       3,129
331
 661
 5,282
       5,943
Balance June 30, 201563,018
 $126,036
 $205,727
 $690,152
 $(44,788) $
 $977,127
Balance September 30, 201562,932
 $125,863
 $208,216
 $694,577
 $(42,555) $
 $986,101


See accompanying notes to consolidated financial statements.
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Table of Contents

Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, unless otherwise indicated)
Note 1—Basis of Presentation and Use of Estimates
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
ReclassificationsReclassification
Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Note 2—Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, financing receivables, accounts payable and financing payables included in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings and average remaining maturities (Level 2). We determine the fair value of our derivatives based on quoted market prices. See Note 8 for the fair value of long-term debt and Note 9 for the fair value of derivatives.
Note 3—Acquisitions
On October 1, 2014, we completed the acquisition of Medical Action Industries Inc. (Medical Action), a leading producer of surgical kits and procedure trays, which enabled an expansion of our capabilities in the assembly of kits, packs and trays for the healthcare market.
On November 1, 2014, we acquired ArcRoyal, a privately held surgical kitting company based in Ireland (ArcRoyal). The transaction expanded our capabilities in the assembly of kits, packs and trays in the European healthcare market.
The combined consideration for these two acquisitions was $261.6 million, net of cash acquired, and including debt assumed of $13.4 million (capitalized lease obligations).

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon our preliminary estimate of their fair values at the date of acquisition, with certain exceptions permitted under GAAP. The combined purchase price exceeded the preliminary estimated fair value of the net tangible and identifiable intangible assets by $151.3$150.6 million, which was allocated to goodwill. The following table presents, in the aggregate, the preliminary estimated fair value of the assets acquired and liabilities assumed recognized as of the acquisition date. Adjustments relate to revised estimates pending completion of our valuation. The allocation of purchase price to assets and liabilities acquired is not yet complete as we are working to finalize the valuation of specific fixed assets and liabilities.

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Preliminary Fair
Value Estimated as of
Acquisition Date
 Differences Between Prior and Current Period Preliminary Fair Value Estimate Preliminary Fair
Value Currently Estimated as of
Acquisition Date
Preliminary Fair
Value Estimated as of
Acquisition Date
 Measurement Period Adjustments Recorded in 2015 Fair
Value as of
Acquisition Date
Assets acquired:          
Current assets$90,608
 $147
 $90,755
$90,608
 $(229) $90,379
Property and equipment34,048
 (1,234) 32,814
34,048
 (2,502) 31,546
Goodwill150,492
 773
 151,265
150,492
 121
 150,613
Intangible assets77,623
 
 77,623
77,623
 
 77,623
Total assets352,771
 (314) 352,457
352,771
 (2,610) 350,161
Liabilities assumed:    
     
Current liabilities64,736
 (314) 64,422
64,736
 (1,187) 63,549
Noncurrent liabilities26,426
 
 26,426
26,426
 (1,423) 25,003
Total liabilities91,162
 (314) 90,848
91,162
 (2,610) 88,552
Fair value of net assets acquired, net of cash$261,609
 $
 $261,609
$261,609
 $
 $261,609
We are amortizing the fair value of acquired intangible assets, primarily customer relationships, over their remaining weighted average useful lives of 14 years.
Goodwill of $151.3$150.6 million consists largely of expected opportunities to expand our kitting capabilities. We assigned goodwill of $21.9$20.9 million to our International segment and $129.4$129.7 million to our Domestic segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
Pro forma results of operations for these acquisitions have not been presented because the effects on revenue and net income were not material to our historic consolidated financial statements.
Acquisition-related expenses in 2015 consisted primarily of transition costs incurred to integrate the acquired operations (including certain severance and contractual payments to former management). We recognized pre-tax acquisition-related expenses of $1.8$1.3 million in the secondthird quarter and $4.4$5.5 million year-to-date in 2015 related to these activities.
Acquisition-related expenses of $3.5$4.6 million and $4.1$8.7 million in the three and sixnine months ended JuneSeptember 30, 2014 consisted of costs to perform due diligence and analysis related to the Medical Action and ArcRoyal acquisitions, as well as certain costs in Movianto to resolve issues and claims with the former owner.owner and the transition of certain information technology functions.
Note 4—Financing Receivables and Payables
At JuneSeptember 30, 2015 and December 31, 2014, we had financing receivables of $157.5$156.1 million and $196.2 million and related payables of $136.5$101.9 million and $168.8 million outstanding under our order-to-cash program and product financing arrangements, which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.
Note 5—Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill through JuneSeptember 30, 2015:
Domestic
Segment
 
International
Segment
 Total
Domestic
Segment
 
International
Segment
 Consolidated
Carrying amount of goodwill, December 31, 2014$377,089
 $46,187
 $423,276
$377,089
 $46,187
 $423,276
Currency translation adjustments
 (2,289) (2,289)
 (2,625) (2,625)
Acquisitions (see Note 3)773
 
 773
1,109
 (988) 121
Carrying amount of goodwill, June 30, 2015$377,862
 $43,898
 $421,760
Carrying amount of goodwill, September 30, 2015$378,198
 $42,574
 $420,772

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Intangible assets at JuneSeptember 30, 2015, and December 31, 2014, were as follows:
June 30, 2015 December 31, 2014September 30, 2015 December 31, 2014
Customer
Relationships
 
Other
Intangibles
 Customer
Relationships
 Other
Intangibles
Customer
Relationships
 
Other
Intangibles
 Customer
Relationships
 Other
Intangibles
              
Gross intangible assets$123,222
 $2,695
 $125,448
 $3,405
$123,013
 $2,574
 $125,448
 $3,405
Accumulated amortization(24,905) (108) (19,773) (487)(27,513) 10
 (19,773) (487)
Net intangible assets$98,317
 $2,587
 $105,675
 $2,918
$95,500
 $2,584
 $105,675
 $2,918
At JuneSeptember 30, 2015, $63.2$61.6 million in net intangible assets were held in the Domestic segment and $37.7$36.5 million were held in the International segment. Amortization expense for intangible assets was $2.4 million and $1.1 million for the three months ended JuneSeptember 30, 2015 and 2014 and $4.9$7.2 million and $2.2$3.4 million for the sixnine months ended JuneSeptember 30, 2015 and 2014.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $5.0$2.6 million for the remainder of 2015, $10.2$10.1 million for 2016, $10.0 million for 2017, $9.4 million for 2018, $9.3$9.2 million for 2019 and $9.3$9.2 million for 2020.
Note 6—Exit and Realignment Costs
We periodically incur exit and realignment and other charges associated with optimizing our operations which includesinclude the closure and consolidation of certain distribution and logistics centers, administrative offices and warehouses in the United States and Europe. These charges also include other costs associated with our strategic organizational realignment which include management changes, certain professional fees, and costs to streamline administrative functions and processes.
Exit and realignment charges by segment for the three and six monthsnine month periods ended JuneSeptember 30, 2015 and 2014 were as follows:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2015 2014 2015 20142015 2014 2015 2014
Domestic segment$(124) $2,303
 $2,515
 $3,596
$1,582
 $4,654
 $4,096
 $8,250
International segment4,045
 1,801
 8,717
 3,131
3,217
 4,738
 12,135
 7,869
Total exit and realignment charges$3,921
 $4,104
 $11,232
 $6,727
Consolidated exit and realignment charges$4,799
 $9,392
 $16,231
 $16,119


10



The following table summarizes the activity related to exit and realignment cost accruals through JuneSeptember 30, 2015 and 2014:
Lease
Obligations
 
Severance and
Other
 Total
Lease
Obligations
 Severance Total
Accrued exit and realignment costs, December 31, 2014$3,575
 $2,887
 $6,462
$3,575
 $2,887
 $6,462
Provision for exit and realignment activities256
 142
 398
256
 142
 398
Cash payments, net of sublease income(385) (873) (1,258)(385) (873) (1,258)
Accrued exit and realignment costs, March 31, 20153,446
 2,156
 5,602
3,446
 2,156
 5,602
Provision for exit and realignment activities572
 392
 964
572
 392
 964
Cash payments, net of sublease income(349) (1,171) (1,520)(349) (1,171) (1,520)
Accrued exit and realignment costs, June 30, 2015$3,669
 $1,377
 $5,046
3,669
 1,377
 5,046
Provision for exit and realignment activities
 1,033
 1,033
Cash payments, net of sublease income(446) (285) (731)
Accrued exit and realignment costs, September 30, 2015$3,223
 $2,125
 $5,348
          
Accrued exit and realignment costs, December 31, 2013$2,434
 $475
 $2,909
$2,434
 $475
 $2,909
Provision for exit and realignment activities532
 807
 1,339
532
 807
 1,339
Cash payments, net of sublease income(411) (327) (738)(411) (327) (738)
Accrued exit and realignment costs, March 31, 20142,555
 955
 3,510
2,555
 955
 3,510
Provision for exit and realignment activities6
 2,236
 2,242
6
 2,236
 2,242
Cash payments, net of sublease income(383) (1,095) (1,478)(383) (1,095) (1,478)
Accrued exit and realignment costs, June 30, 2014$2,178
 $2,096
 $4,274
2,178
 2,096
 4,274
Provision for exit and realignment activities912
 2,215
 3,127
Cash payments, net of sublease income(867) (460) (1,327)
Accrued exit and realignment costs, September 30, 2014$2,223
 $3,851
 $6,074
In addition to the exit and realignment accruals in the preceding table, we also incurred $2.9$3.8 million and $13.8 million of costs that were expensed as incurred for the three and nine months ended JuneSeptember 30, 2015, including $1.2$0.3 million and $4.5 million in accelerated amortization ofon an

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information system that has been replaced, $0.8$0.4 million and $3.0 million in property relatedother facility costs $0.7and asset write-downs, $1.0 million and $2.5 million in labor costs, $0.5 million and $0.5 million in professional fees, $1.2 million and $2.2 million in information systems costs and $0.2$0.4 million and $1.1 million in other costs.
In addition to the first quarter of 2015,exit and realignment accruals in the preceding table, we also incurred $6.9$6.3 million and $9.4 million of costs that were expensed as incurred for the three and nine months ended September 30, 2014, including $3.0$3.1 million and $4.3 million in accelerated amortization of an information system that has been replaced, $1.8 million inother facility costs $1.3and asset write-downs, $0.6 million and $1.4 million in labor costs, $0.3$1.2 million and $1.3 million in professional fees, $0.7 million and $0.9 million in information systems costs and $0.5 million in other costs.
For the three months ended June 30, 2014, we recognized $1.9 million in costs that were expensed as incurred, including $0.9 million in property related costs, $0.7 million in labor costs, and $0.2$1.5 million in information technology costs. Additional expense in the first quarter of 2014 of $1.3 million were comprised of $0.5 million in relocation costs, $0.5 million in property related costs, and $0.3 million in labor and other costs.
We expect additional exit and realignment charges of approximately $1.7$3.5 million over the remainder of 2015 for activities initiated in the Domestic and International segments through JuneSeptember 30, 2015.
Note 7—Retirement PlansPlan
We have a noncontributory, unfunded retirement plan for certain officers and other key employees in the United States. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective employees.
The components of net periodic benefit cost, which are included in selling, general and administrative expenses, for the three and sixnine months ended JuneSeptember 30, 2015 and 2014, were as follows:

11



Three Months Ended June 30, Six Months Ended June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2015 2014 2015 20142015 2014 2015 2014
Service cost$32
 $40
 $65
 $75
$32
 $60
 $97
 $136
Interest cost464
 482
 929
 965
464
 482
 1,393
 1,446
Recognized net actuarial loss401
 202
 802
 406
401
 204
 1,203
 612
Net periodic benefit cost$897
 $724
 $1,796
 $1,446
$897
 $746
 $2,693
 $2,194
Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.5$0.4 million and $0.5 million for the three months ended JuneSeptember 30, 2015 and 2014 and $1.0$1.4 million and $1.0$1.4 million for the sixnine months ended JuneSeptember 30, 2015 and 2014.
Note 8—Debt
We have $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”), with interest payable semi-annually. The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal with an effective yield of 4.422%. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points. As of JuneSeptember 30, 2015 and December 31, 2014, the estimated fair value of the 2021 Notes was $280.7$279.4 million and $275.1 million and the estimated fair value of the 2024 Notes was $279.7$276.2 million and $283.9 million, respectively.
We have a Credit Agreement with a $450 million borrowing capacity which extends through September 2019. Under the Amended Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million. The interest rate on the Amended Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Amended Credit Agreement. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Amended Credit Agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition. Based on our leverage ratio at JuneSeptember 30, 2015, the interest rate under the credit facility is LIBOR plus 1.375%.
At JuneSeptember 30, 2015, we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Amended Credit Agreement, leaving $445 million available for borrowing. We also have a $1.2 million and $1.5 million letter of credit outstanding as of JuneSeptember 30, 2015 and December 31, 2014, respectively, which supports our facilities leased in Europe.
The Amended Credit Agreement and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at JuneSeptember 30, 2015.

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Note 9—Derivatives
When deemed appropriate, we use derivatives, primarily forward contracts, as a risk management tool to mitigate the potential impact of foreign currency exchange risk. The total notional values of our foreign currency derivatives was $5.7$3.9 million at JuneSeptember 30, 2015 and $10.0 million as of December 31, 2014. We do not currently have any derivatives designated as hedging instruments and all gains and losses resulting from changes in the fair value of derivative instruments are immediately recognized into earnings. At JuneSeptember 30, 2015 and December 31, 2014 the fair value of our foreign currency contracts included in other assets on the consolidated balance sheet was $0.9 million and $0.7 million. The impact from changes in the fair value of these foreign currency derivatives included in other operating expense was $0.5$0.3 million and other operating income was $0.3$0.1 million for the three and sixnine months ended JuneSeptember 30, 2015. We did not hold foreign currency contracts in the first sixnine months of 2014. We consider the risk of counterparty default to be minimal.
Note 10—Income Taxes
The effective tax rate was 41.2%39.8% and 42.7%41.6% for the three and sixnine months ended JuneSeptember 30, 2015, compared to 41.1%55.8% and 40.9%43.5% in the same periods of 2014. The change in rate is mainly due to the impact of foreign taxes and the effect of certain acquisition-related costs which are not deductible for tax purposes. The liability for unrecognized tax benefits was $6.0$6.2 million at JuneSeptember 30, 2015, and $6.7 million at December 31, 2014. Included in the liability at JuneSeptember 30, 2015 were $3.6$3.8 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. In the current quarter, the Company concluded the examinations of our 2012 and 2013 federal income tax returns.  The impact of these examinations on our financial statements was not material.

12



Note 11—Net Income per Common Share
The following summarizes the calculation of net income per common share attributable to common shareholders for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.
Three Months Ended    June 30, Six Months Ended    June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
(in thousands, except per share data)2015 2014 2015 20142015 2014 2015 2014
Numerator:              
Net income$24,226
 $19,876
 $43,166
 $45,362
$28,176
 $7,155
 $71,342
 $52,516
Less: income allocated to unvested restricted shares(195) (159) (359) (345)(262) (150) (620) (453)
Net income attributable to common shareholders - basic24,031
 19,717
 42,807
 45,017
27,914
 7,005
 70,722
 52,063
Add: undistributed income attributable to unvested restricted shares - basic42
 19
 63
 68
67
 
 129
 26
Less: undistributed income attributable to unvested restricted shares - diluted(42) (19) (63) (68)(67) 
 (129) (26)
Net income attributable to common shareholders - diluted$24,031
 $19,717
 $42,807
 $45,017
$27,914
 $7,005
 $70,722
 $52,063
Denominator:              
Weighted average shares outstanding - basic62,226
 62,311
 62,281
 62,271
61,998
 62,175
 62,204
 62,238
Dilutive shares - stock options
 5
 1
 9

 4
 1
 7
Weighted average shares outstanding - diluted62,226
 62,316
 62,282
 62,280
61,998
 62,179
 62,205
 62,245
Net income per share attributable to common shareholders:              
Basic$0.39
 $0.32
 $0.69
 $0.72
$0.45
 $0.11
 $1.14
 $0.84
Diluted$0.39
 $0.32
 $0.69
 $0.72
$0.45
 $0.11
 $1.14
 $0.84
Note 12—Shareholders’ Equity
Our Board of Directors has authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2017. The program is intended, in part, to offset shares issued in conjunction with our stock incentive plans and return capital to shareholders. The program may be suspended or discontinued at any time. During the sixnine months ended JuneSeptember 30, 2015, we repurchased in open-market transactions and retired approximately 0.20.5 million shares of our common stock for an aggregate of $7.4$15.8 million, or an average price per share of $33.82.$33.72. As of JuneSeptember 30, 2015, we have approximately $82.6$74.2 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

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Note 13—Accumulated Other Comprehensive Income
The following table shows the changes in accumulated other comprehensive income (loss) by component for the three and sixnine months ended JuneSeptember 30, 2015 and 2014: 
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 Other Total
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 Other Total
Accumulated other comprehensive income (loss), March 31, 2015$(10,065) $(41,588) $7
 $(51,646)
Accumulated other comprehensive income (loss), June 30, 2015$(9,805) $(34,982) $(1) $(44,788)
Other comprehensive income (loss) before reclassifications
 6,606
 
 6,606

 2,054
 
 2,054
Income tax
 
 
 

 
 
 
Other comprehensive income (loss) before reclassifications, net of tax
 6,606
 
 6,606

 2,054
 
 2,054
Amounts reclassified from accumulated other comprehensive income (loss)401
 
 (8) 393
401
 
 (105) 296
Income tax(141) 
 
 (141)(117) 
 
 (117)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax260


 (8) 252
284
 
 (105) 179
Other comprehensive income (loss)260
 6,606
 (8) 6,858
284
 2,054
 (105) 2,233
Accumulated other comprehensive income (loss), June 30, 2015$(9,805) $(34,982) $(1) $(44,788)
Accumulated other comprehensive income (loss), September 30, 2015$(9,521) $(32,928) $(106) $(42,555)
              
Accumulated other comprehensive income (loss), March 31, 2014$(6,372) $16,359
 $146
 $10,133
Accumulated other comprehensive income (loss), June 30, 2014$(6,260) $15,789
 $161
 $9,690
Other comprehensive income (loss) before reclassifications
 (570) 29
 (541)
 (16,796) (44) (16,840)
Income tax
 
 
 

 
 
 
Other comprehensive income (loss) before reclassifications, net of tax
 (570) 29
 (541)
 (16,796) (44) (16,840)
Amounts reclassified from accumulated other comprehensive income (loss)202
 
 (22) 180
189
 
 (145) 44
Income tax(90) 
 8
 (82)(57) 
 56
 (1)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax112
 
 (14) 98
132
 
 (89) 43
Other comprehensive income (loss)112
 (570) 15
 (443)132
 (16,796) (133) (16,797)
Accumulated other comprehensive income (loss), June 30, 2014$(6,260) $15,789
 $161
 $9,690
       
Accumulated other comprehensive income (loss), September 30, 2014$(6,128) $(1,007) $28
 $(7,107)
 


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Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 Other Total
Defined Benefit
Pension
Plans
 
Currency
Translation
Adjustments
 Other Total
Accumulated other comprehensive income (loss), December 31, 2014$(10,323) $(13,647) $(31) $(24,001)$(10,323) $(13,647) $(31) $(24,001)
Other comprehensive income (loss) before reclassifications
 (21,335) 
 (21,335)
 (19,281) 
 (19,281)
Income tax
 
 
 

 
 
 
Other comprehensive income (loss) before reclassifications, net of tax
 (21,335) 
 (21,335)
 (19,281) 
 (19,281)
Amounts reclassified from accumulated other comprehensive income (loss)803
 
 30
 833
1,204
 
 (75) 1,129
Income tax(285) 
 
 (285)(402) 
 
 (402)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax518
 
 30
 548
802
 
 (75) 727
Other comprehensive income (loss)518
 (21,335) 30
 (20,787)802
 (19,281) (75) (18,554)
Accumulated other comprehensive income (loss), June 30, 2015$(9,805) $(34,982) $(1) $(44,788)
Accumulated other comprehensive income (loss), September 30, 2015$(9,521) $(32,928) $(106) $(42,555)
              
Accumulated other comprehensive income (loss), December 31, 2013$(6,479) $15,892
 $155
 $9,568
$(6,479) $15,892
 $155
 $9,568
Other comprehensive income (loss) before reclassifications
 (103) 31
 (72)
 (16,899) (14) (16,913)
Income tax
 
 
 

 
 
 
Other comprehensive income (loss) before reclassifications, net of tax
 (103) 31
 (72)
 (16,899) (14) (16,913)
Amounts reclassified from accumulated other comprehensive income (loss)405
 
 (41) 364
596
 
 (185) 411
Income tax(186) 
 16
 (170)(245) 
 72
 (173)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax219
 
 (25) 194
351
 
 (113) 238
Other comprehensive income (loss)219
 (103) 6
 122
351
 (16,899) (127) (16,675)
Accumulated other comprehensive income (loss), June 30, 2014$(6,260) $15,789
 $161
 $9,690
Accumulated other comprehensive income (loss), September 30, 2014$(6,128) $(1,007) $28
 $(7,107)
We include amounts reclassified out of accumulated other comprehensive income related to defined benefit pension plans as a component of net periodic pension cost recorded in selling, general & administrative expenses. For the three and sixnine months ended JuneSeptember 30, 2015, we reclassified $0.4 million and $0.8$1.2 million of actuarial net losses. For the three and sixnine months ended JuneSeptember 30, 2014, we reclassified $0.2 million and $0.4$0.6 million of actuarial net losses.
Note 14—Commitments and Contingencies
Prior to exiting the direct-to-consumer 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.
In the first quarter of 2015, we settled our dispute and terminated the service contract with a customer in the United Kingdom. As part of the settlement, we entered into a transition agreement for the transfer of services back to this customer and paid approximately $3.9 million that was fully accrued at December 31, 2014. Substantially all outstanding accounts receivable as of December 31, 2014 related to this contract have been received.

15



Note 15—Segment Information
We evaluate the performance of our segments based on theirthe operating earnings of the segments, excluding acquisition-related and exit and realignment charges, certain purchase price fair value adjustments, and other substantive items that, either as a result of their nature or size, would not be expected to occur as part of the our normal business operations on a regular basis.charges.


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Table of Contents

The following tables present financial information by segment:
Three Months Ended   June 30, Six Months Ended   June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2015 2014 2015 20142015 2014 2015 2014
Net revenue:              
Domestic$2,317,661
 $2,187,535
 $4,603,296
 $4,336,451
$2,368,008
 $2,262,081
 $6,971,304
 $6,598,531
International104,506
 118,323
 210,067
 225,788
103,661
 124,045
 313,728
 349,834
Consolidated net revenue$2,422,167
 $2,305,858
 $4,813,363
 $4,562,239
$2,471,669
 $2,386,126

$7,285,032

$6,948,365
              
Operating earnings (loss):              
Domestic$52,390
 $48,317
 $102,901
 $101,053
$58,002
 $50,797
 $160,904
 $151,849
International1,177
 (3,623) 1,557
 (6,811)1,704
 (1,463) 3,261
 (8,273)
Acquisition-related and exit and realignment charges (1)
(5,707) (7,593) (15,623) (10,855)(6,134) (13,957) (21,757) (24,813)
Consolidated operating earnings$47,860
 $37,101
 $88,835
 $83,387
$53,572

$35,377

$142,408

$118,763
              
Depreciation and amortization:              
Domestic$10,504
 $8,812
 $21,242
 $17,787
$10,197
 $8,986
 $31,439
 $26,772
International5,277
 5,080
 10,708
 9,969
5,250
 4,855
 15,958
 14,825
Consolidated depreciation and amortization$15,781
 $13,892
 $31,950
 $27,756
$15,447
 $13,841

$47,397

$41,597
              
Capital expenditures:              
Domestic$3,384
 $18,858
 $12,035
 $29,033
$2,137
 $11,077
 $14,172
 $40,110
International7,875
 5,737
 10,790
 9,790
7,235
 4,257
 18,025
 14,047
Consolidated capital expenditures$11,259
 $24,595
 $22,825
 $38,823
$9,372

$15,334

$32,197

$54,157
 
June 30, 2015 December 31, 2014September 30, 2015 December 31, 2014
Total assets:      
Domestic$2,130,996
 $2,139,972
$2,135,572
 $2,139,972
International462,941
 538,662
490,843
 538,662
Segment assets2,593,937
 2,678,634
2,626,415
 2,678,634
Cash and cash equivalents200,969
 56,772
125,245
 56,772
Consolidated total assets$2,794,906
 $2,735,406
$2,751,660
 $2,735,406

(1) The three and sixnine months ended JuneSeptember 30, 2015 include $1.2$0.3 million and $4.2$4.5 million , respectively in accelerated amortization related to an information system that is beingwas replaced.


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Note 16—Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information for: Owens & Minor, Inc. (O&M); the guarantors of Owens & Minor, Inc.’s 2021 Notes and 2024 Notes, on a combined basis; and the non-guarantor subsidiaries of the 2021 Notes and 2024 Notes, on a combined basis. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several, and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.
Three Months Ended June 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $2,279,725
 $178,844
 $(36,402) $2,422,167
Cost of goods sold
 2,064,515
 95,570
 (36,255) 2,123,830
Gross margin
 215,210
 83,274
 (147) 298,337
Selling, general and administrative expenses626
 160,348
 70,524
 
 231,498
Acquisition-related and exit and realignment charges
 256
 5,451
 
 5,707
Depreciation and amortization
 8,910
 6,550
 
 15,460
Other operating income, net
 (1,354) (834) 
 (2,188)
Operating earnings (loss)(626) 47,050
 1,583
 (147) 47,860
Interest expense (income), net6,938
 (233) (25) 
 6,680
Income (loss) before income taxes(7,564) 47,283
 1,608
 (147) 41,180
Income tax (benefit) provision
 16,973
 (19) 
 16,954
Equity in earnings of subsidiaries31,790
 
 
 (31,790) 
Net income (loss)24,226
 30,310
 1,627
 (31,937) 24,226
Other comprehensive income (loss)6,858
 (21,839) 28,696
 (6,857) 6,858
Comprehensive income (loss)$31,084
 $8,471
 $30,323
 $(38,794) $31,084

16
Three Months Ended September 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $2,321,301
 $194,659
 $(44,291) $2,471,669
Cost of goods sold
 2,106,623
 102,923
 (44,231) 2,165,315
Gross margin
 214,678
 91,736
 (60) 306,354
Selling, general and administrative expenses27
 162,697
 69,123
 
 231,847
Acquisition-related and exit and realignment charges
 1,980
 4,154
 
 6,134
Depreciation and amortization
 8,639
 6,473
 
 15,112
Other operating income, net
 (28) (283) 
 (311)
Operating earnings (loss)(27) 41,390
 12,269
 (60) 53,572
Interest expense (income), net7,257
 (1,235) 722
 
 6,744
Income (loss) before income taxes(7,284) 42,625
 11,547
 (60) 46,828
Income tax (benefit) provision
 10,927
 7,725
 
 18,652
Equity in earnings of subsidiaries35,460
 
 
 (35,460) 
Net income (loss)28,176
 31,698
 3,822
 (35,520) 28,176
Other comprehensive income (loss)2,233
 179
 2,054
 (2,233) 2,233
Comprehensive income (loss)$30,409
 $31,877
 $5,876
 $(37,753) $30,409


Table of Contents

Three Months Ended June 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $2,187,130
 $137,683
 $(18,955) $2,305,858
Cost of goods sold
 1,978,815
 63,299
 (18,528) 2,023,586
Gross margin
 208,315
 74,384
 (427) 282,272
Selling, general and administrative expenses61
 152,122
 73,655
 
 225,838
Acquisition-related and exit and realignment charges
 3,886
 3,707
 
 7,593
Depreciation and amortization2
 8,790
 5,100
 
 13,892
Other operating income, net
 (814) (1,338) 
 (2,152)
Operating earnings (loss)(63) 44,331
 (6,740) (427) 37,101
Interest expense (income), net2,924
 791
 (373) 
 3,342
Income (loss) before income taxes(2,987) 43,540
 (6,367) (427) 33,759
Income tax (benefit) provision(1,200) 17,808
 (2,725) 
 13,883
Equity in earnings of subsidiaries21,663
 
 
 (21,663) 
Net income (loss)19,876
 25,732
 (3,642) (22,090) 19,876
Other comprehensive income (loss)(443) 111
 (570) 459
 (443)
Comprehensive income (loss)$19,433
 $25,843
 $(4,212) $(21,631) $19,433
Six Months Ended June 30, 2015Owens &
Minor, Inc.
 Guarantor
Subsidiaries
 Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $4,529,430
 $360,204
 $(76,271) $4,813,363
Cost of goods sold
 4,098,327
 195,608
 (76,510) 4,217,425
Gross margin
 431,103
 164,596
 239
 595,938
Selling, general and administrative expenses665
 320,925
 143,733
 
 465,323
Acquisition-related and exit and realignment charges
 3,833
 11,790
 
 15,623
Depreciation and amortization
 18,014
 13,315
 
 31,329
Other operating income, net
 (2,331) (2,841) 
 (5,172)
Operating earnings (loss)(665) 90,662
 (1,401) 239
 88,835
Interest expense (income), net12,885
 581
 94
 
 13,560
Income (loss) before income taxes(13,550) 90,081
 (1,495) 239
 75,275
Income tax (benefit) provision(773) 31,759
 1,123
 
 32,109
Equity in earnings of subsidiaries55,943
 
 
 (55,943) 
Net income (loss)43,166
 58,322
 (2,618) (55,704) 43,166
Other comprehensive income (loss)(20,787) (21,335) 548
 20,787
 (20,787)
Comprehensive income (loss)$22,379
 $36,987
 $(2,070) $(34,917) $22,379

17


Table of Contents

Six Months Ended June 30, 2014Owens &
Minor, Inc.
 Guarantor
Subsidiaries
 Non-guarantor
Subsidiaries
 Eliminations Consolidated
Three Months Ended September 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income                  
Net revenue$
 $4,335,495
 $257,558
 $(30,814) $4,562,239
$
 $2,261,448
 $141,086
 $(16,408) $2,386,126
Cost of goods sold
 3,918,280
 110,897
 (30,406) 3,998,771

 2,047,328
 62,850
 (16,535) 2,093,643
Gross margin
 417,215
 146,661
 (408) 563,468

 214,120
 78,236
 127
 292,483
Selling, general and administrative expenses14
 306,372
 145,062
 
 451,448
25
 155,950
 75,402
 
 231,377
Acquisition-related and exit and realignment charges
 5,180
 5,675
 
 10,855

 7,893
 6,064
 
 13,957
Depreciation and amortization1
 17,741
 10,014
 
 27,756

 8,966
 4,875
 
 13,841
Other operating income, net
 (7,877) (2,101) 
 (9,978)
 (1,167) (1,235) 333
 (2,069)
Operating earnings (loss)(15) 95,799
 (11,989) (408) 83,387
(25) 42,478
 (6,870) (206) 35,377
Interest expense (income), net5,399
 2,034
 (844) 
 6,589
3,925
 1,002
 (623) 
 4,304
Loss on early retirement of debt14,890
 
 
 
 14,890
Income (loss) before income taxes(5,414) 93,765
 (11,145) (408) 76,798
(18,840) 41,476
 (6,247) (206) 16,183
Income tax (benefit) provision(2,155) 37,994
 (4,403) 
 31,436
(7,144) 16,463
 (291) 
 9,028
Equity in earnings of subsidiaries48,621
 
 
 (48,621) 
18,851
 
 
 (18,851) 
Net income (loss)45,362
 55,771
 (6,742) (49,029) 45,362
7,155
 25,013
 (5,956) (19,057) 7,155
Other comprehensive income (loss)122
 218
 (103) (115) 122
(16,797) 131
 (16,795) 16,664
 (16,797)
Comprehensive income (loss)$45,484
 $55,989
 $(6,845) $(49,144) $45,484
$(9,642) $25,144
 $(22,751) $(2,393) $(9,642)
Nine Months Ended September 30, 2015Owens &
Minor, Inc.
 Guarantor
Subsidiaries
 Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $6,850,731
 $554,862
 $(120,561) $7,285,032
Cost of goods sold
 6,204,950
 298,530
 (120,740) 6,382,740
Gross margin
 645,781
 256,332
 179
 902,292
Selling, general and administrative expenses696
 483,616
 212,858
 
 697,170
Acquisition-related and exit and realignment charges
 5,813
 15,944
 
 21,757
Depreciation and amortization
 26,653
 19,788
 
 46,441
Other operating income, net
 (2,360) (3,124) 
 (5,484)
Operating earnings (loss)(696) 132,059
 10,866
 179
 142,408
Interest expense (income), net20,142
 (654) 817
 
 20,305
Income (loss) before income taxes(20,838) 132,713
 10,049
 179
 122,103
Income tax (benefit) provision(773) 42,683
 8,851
 
 50,761
Equity in earnings of subsidiaries91,407
 
 
 (91,407) 
Net income (loss)71,342
 90,030
 1,198
 (91,228) 71,342
Other comprehensive income (loss)(18,554) 726
 (19,280) 18,554
 (18,554)
Comprehensive income (loss)$52,788
 $90,756
 $(18,082) $(72,674) $52,788


18


Table of Contents

June 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations Consolidated
Balance Sheets         
Assets         
Current assets         
Cash and cash equivalents$105,427
 $46,639
 $48,903
 $
 $200,969
Accounts and notes receivable, net
 485,256
 105,346
 (9,863) 580,739
Merchandise inventories
 852,396
 55,272
 (4,167) 903,501
Other current assets299
 94,214
 179,717
 1,251
 275,481
Total current assets105,726
 1,478,505
 389,238
 (12,779) 1,960,690
Property and equipment, net
 108,373
 110,999
 
 219,372
Goodwill, net
 247,271
 174,489
 
 421,760
Intangible assets, net
 14,768
 86,136
 
 100,904
Due from O&M and subsidiaries
 513,448
 
 (513,448) 
Advances to and investment in consolidated subsidiaries1,897,461
 
 
 (1,897,461) 
Other assets, net4,347
 62,413
 25,420
 
 92,180
Total assets$2,007,534
 $2,424,778
 $786,282
 $(2,423,688) $2,794,906
Liabilities and equity         
Current liabilities         
Accounts payable$
 $713,907
 $48,470
 $(8,882) $753,495
Accrued payroll and related liabilities
 23,485
 11,312
 
 34,797
Deferred income taxes
 43,160
 (1,782) 
 41,378
Other accrued liabilities7,004
 99,024
 182,404
 
 288,432
Total current liabilities7,004
 879,576
 240,404
 (8,882) 1,118,102
Long-term debt, excluding current portion547,905
 5,395
 21,323
 
 574,623
Due to O&M and subsidiaries475,498
 
 77,464
 (552,962) 
Intercompany debt
 138,890
 
 (138,890) 
Deferred income taxes
 32,974
 29,308
 
 62,282
Other liabilities
 55,155
 7,617
 
 62,772
Total liabilities1,030,407
 1,111,990
 376,116
 (700,734) 1,817,779
Equity         
Common stock126,036
 
 
 
 126,036
Paid-in capital205,727
 241,877
 514,314
 (756,191) 205,727
Retained earnings (deficit)690,152
 1,080,701
 (69,099) (1,011,602) 690,152
Accumulated other comprehensive income (loss)(44,788) (9,790) (35,049) 44,839
 (44,788)
Total equity977,127
 1,312,788
 410,166
 (1,722,954) 977,127
Total liabilities and equity$2,007,534
 $2,424,778
 $786,282
 $(2,423,688) $2,794,906
Nine Months Ended September 30, 2014Owens &
Minor, Inc.
 Guarantor
Subsidiaries
 Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Income         
Net revenue$
 $6,596,941
 $398,646
 $(47,222) $6,948,365
Cost of goods sold
 5,965,607
 173,747
 (46,941) 6,092,413
Gross margin
 631,334
 224,899
 (281) 855,952
Selling, general and administrative expenses36
 462,325
 220,464
 
 682,825
Acquisition-related and exit and realignment charges
 13,074
 11,739
 
 24,813
Depreciation and amortization2
 26,703
 14,892
 
 41,597
Other operating income, net
 (9,043) (3,336) 333
 (12,046)
Operating earnings (loss)(38) 138,275
 (18,860) (614) 118,763
Interest expense (income), net9,328
 3,502
 (1,937) 
 10,893
Loss on early retirement of debt14,890
 
 
 
 14,890
Income (loss) before income taxes(24,256) 134,773
 (16,923) (614) 92,980
Income tax (benefit) provision(9,299) 53,989
 (4,226) 
 40,464
Equity in earnings of subsidiaries67,473
 
 
 (67,473) 
Net income (loss)52,516
 80,784
 (12,697) (68,087) 52,516
Other comprehensive income (loss)(16,675) 350
 (16,898) 16,548
 (16,675)
Comprehensive income (loss)$35,841
 $81,134
 $(29,595) $(51,539) $35,841


19



September 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations Consolidated
Balance Sheets         
Assets         
Current assets         
Cash and cash equivalents$82,189
 $18,768
 $24,288
 $
 $125,245
Accounts and notes receivable, net
 506,406
 142,912
 (8,665) 640,653
Merchandise inventories
 839,533
 61,416
 (4,227) 896,722
Other current assets202
 89,582
 174,706
 1,268
 265,758
Total current assets82,391
 1,454,289
 403,322
 (11,624) 1,928,378
Property and equipment, net
 104,905
 109,656
 
 214,561
Goodwill
 247,271
 173,501
 
 420,772
Intangible assets, net
 14,249
 83,835
 
 98,084
Due from O&M and subsidiaries
 509,462
 
 (509,462) 
Advances to and investment in consolidated subsidiaries1,965,108
 
 
 (1,965,108) 
Other assets, net4,226
 59,846
 25,793
 
 89,865
Total assets$2,051,725
 $2,390,022
 $796,107
 $(2,486,194) $2,751,660
Liabilities and equity         
Current liabilities         
Accounts payable$
 $644,126
 $53,607
 $(7,599) $690,134
Accrued payroll and related liabilities
 26,541
 12,293
 
 38,834
Deferred income taxes
 44,135
 (2,372) 
 41,763
Other accrued liabilities7,203
 98,719
 190,976
 
 296,898
Total current liabilities7,203
 813,521
 254,504
 (7,599) 1,067,629
Long-term debt, excluding current portion547,975
 5,007
 21,051
 
 574,033
Due to O&M and subsidiaries510,446
 
 69,535
 (579,981) 
Intercompany debt
 138,890
 
 (138,890) 
Deferred income taxes
 32,580
 28,457
 
 61,037
Other liabilities
 55,353
 7,507
 
 62,860
Total liabilities1,065,624
 1,045,351
 381,054
 (726,470) 1,765,559
Equity         
Common stock125,863
 
 
 
 125,863
Paid-in capital208,216
 241,877
 513,300
 (755,177) 208,216
Retained earnings (deficit)694,577
 1,112,404
 (65,278) (1,047,126) 694,577
Accumulated other comprehensive income (loss)(42,555) (9,610) (32,969) 42,579
 (42,555)
Total equity986,101
 1,344,671
 415,053
 (1,759,724) 986,101
Total liabilities and equity$2,051,725
 $2,390,022
 $796,107
 $(2,486,194) $2,751,660


20


Table of Contents

December 31, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Balance Sheets         
Assets         
Current assets         
Cash and cash equivalents$22,013
 $3,912
 $30,847
 $
 $56,772
Accounts and notes receivable, net
 519,951
 144,463
 (38,222) 626,192
Merchandise inventories
 816,915
 60,061
 (4,519) 872,457
Other current assets(24,748) 90,733
 224,220
 25,080
 315,285
Total current assets(2,735) 1,431,511
 459,591
 (17,661) 1,870,706
Property and equipment, net
 110,076
 122,903
 
 232,979
Goodwill, net
 247,271
 176,005
 
 423,276
Intangible assets, net
 15,805
 92,788
 
 108,593
Due from O&M and subsidiaries
 357,304
 
 (357,304) 
Advances to and investments in consolidated subsidiaries1,893,767
 
 
 (1,893,767) 
Other assets, net4,637
 66,836
 28,379
 
 99,852
Total assets$1,895,669
 $2,228,803
 $879,666
 $(2,268,732) $2,735,406
Liabilities and equity         
Current liabilities         
Accounts payable$
 $567,285
 $54,898
 $(13,337) $608,846
Accrued payroll and related liabilities
 16,434
 15,073
 
 31,507
Deferred income taxes
 39,667
 (1,688) 
 37,979
Other current liabilities6,441
 83,698
 236,084
 
 326,223
Total current liabilities6,441
 707,084
 304,367
 (13,337) 1,004,555
Long-term debt, excluding current portion547,763
 39,915
 20,873
 
 608,551
Due to O&M and subsidiaries350,627
 
 77,788
 (428,415) 
Intercompany debt
 138,890
 
 (138,890) 
Deferred income taxes
 33,162
 30,739
 
 63,901
Other liabilities
 55,794
 11,767
 
 67,561
Total liabilities904,831
 974,845
 445,534
 (580,642) 1,744,568
Equity        
Common stock126,140
 
 
 
 126,140
Paid-in capital202,934
 241,877
 514,314
 (756,191) 202,934
Retained earnings (deficit)685,765
 1,022,379
 (66,479) (955,900) 685,765
Accumulated other comprehensive income (loss)(24,001) (10,298) (13,703) 24,001
 (24,001)
Total equity990,838
 1,253,958
 434,132
 (1,688,090) 990,838
Total liabilities and equity$1,895,669
 $2,228,803
 $879,666
 $(2,268,732) $2,735,406




 


20


Table of Contents

Six Months Ended June 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Cash Flows         
Operating activities:         
Net income (loss)$43,166
 $58,322
 $(2,618) $(55,704) $43,166
Adjustments to reconcile net income to cash provided by (used for) operating activities:        
Equity in earnings of subsidiaries(55,943) 
 
 55,943
 
Depreciation and amortization
 17,741
 18,397
 
 36,138
Share-based compensation expense
 5,048
 
 
 5,048
Provision for losses on accounts and notes receivable
 (36) 77
 
 41
Deferred income tax expense (benefit)
 2,376
 616
 
 2,992
Changes in operating assets and liabilities:        
Accounts and notes receivable
 35,566
 (180) 6,236
 41,622
Merchandise inventories
 (35,481) 1,193
 2,422
 (31,866)
Accounts payable
 146,622
 5,798
 (6,738) 145,682
Net change in other assets and liabilities(148) 14,338
 (9,260) (2,159) 2,771
Other, net429
 726
 41
 
 1,196
Cash provided by (used for) operating activities(12,496) 245,222
 14,064
 
 246,790
Investing activities:        

Additions to property and equipment
 (9,292) (2,717) 
 (12,009)
Additions to computer software and intangible assets
 (2,068) (8,748) 
 (10,816)
Proceeds from the sale of property and equipment
 60
 777
 
 837
Cash used for investing activities
 (11,300) (10,688) 
 (21,988)
Financing activities:        
Change in intercompany advances135,627
 (155,951) 20,324
 
 
Repayment of revolving credit facility
 (33,700) 
 
 (33,700)
Change in bank overdraft
 
 1,530
 
 1,530
Cash dividends paid(31,867) 
 
 
 (31,867)
Repurchases of common stock(7,440) 
 
 
 (7,440)
Excess tax benefits related to share-based compensation457
 
 
 
 457
Other, net(867) (1,544) (2,701) 
 (5,112)
Cash provided by (used for) financing activities95,910
 (191,195) 19,153
 
 (76,132)
Effect of exchange rate changes on cash and cash equivalents

 
 (4,473) 
 (4,473)
Net increase (decrease) in cash and cash equivalents83,414
 42,727
 18,056
 
 144,197
Cash and cash equivalents at beginning of period22,013
 3,912
 30,847
 
 56,772
Cash and cash equivalents at end of period$105,427
 $46,639
 $48,903
 $
 $200,969

21


Table of Contents

Six months ended June 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Nine Months Ended September 30, 2015
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Cash Flows                  
Operating activities:                  
Net income (loss)$45,362
 $55,771
 $(6,742) $(49,029) $45,362
$71,342
 $90,030
 $1,198
 $(91,228) $71,342
Adjustments to reconcile net income to cash provided by (used for) operating activities:        
         
Equity in earnings of subsidiaries(48,621) 
 
 48,621
 
(91,407) 
 
 91,407
 
Depreciation and amortization1
 17,741
 10,014
 
 27,756

 26,653
 25,218
 
 51,871
Share-based compensation expense
 4,190
 
 
 4,190

 7,611
 
 
 7,611
Provision for losses on accounts and notes receivable
 146
 188
 
 334

 (36) (146) 
 (182)
Deferred income tax expense (benefit)
 (4,117) (1,034) 
 (5,151)
 2,957
 686
 
 3,643
Changes in operating assets and liabilities:        
         
Accounts and notes receivable
 28,286
 428
 (237) 28,477

 14,416
 (33,212) 5,038
 (13,758)
Merchandise inventories
 (38,733) (10,248) 406
 (48,575)
 (22,618) (5,203) 2,482
 (25,339)
Accounts payable
 54,860
 (177) 239
 54,922

 76,841
 12,046
 (5,453) 83,434
Net change in other assets and liabilities(952) (15,272) (16,541) 
 (32,765)847
 26,282
 1,007
 (2,246) 25,890
Other, net(776) (280) (22) 
 (1,078)641
 740
 145
 
 1,526
Cash provided by (used for) operating activities(4,986) 102,592

(24,134)


73,472
(18,577) 222,876
 1,739
 
 206,038
Investing activities:        

         
Proceeds from the sale of investment

 1,937
 

 

 1,937
Additions to property and equipment
 (16,777) (8,880) 
 (25,657)
 (10,728) (4,593) 
 (15,321)
Additions to computer software and intangible assets
 (12,256) (910) 
 (13,166)
 (1,670) (15,206) 
 (16,876)
Proceeds from the sale of property and equipment
 35
 10
 
 45

 82
 37
 
 119
Cash used for investing activities
 (27,061) (9,780) 
 (36,841)
 (12,316) (19,762) 
 (32,078)
Financing activities:
 
 
 
 
         
Repayment of revolving credit facility
 (33,700) 
 
 (33,700)
Change in intercompany advances28,847
 (62,995) 34,148
 
 
143,872
 (160,123) 16,251
 
 
Cash dividends paid(31,564) 
 
 
 (31,564)(47,780) 
 
 
 (47,780)
Repurchases of common stock(9,448) 
 
 
 (9,448)(15,821) 
 
 
 (15,821)
Excess tax benefits related to share-based compensation444
 
 
 
 444
521
 
 
 
 521
Proceeds from exercise of stock options1,180
 
 
 
 1,180
Purchase of noncontrolling interest
 
 (1,500) 
 (1,500)
Other, net(2,072) (1,450) (919) 
 (4,441)(2,039) (1,881) (2,376) 
 (6,296)
Cash provided by (used for) financing activities(12,613) (64,445)
31,729



(45,329)78,753
 (195,704) 13,875
 
 (103,076)
Effect of exchange rate changes on cash and cash equivalents

 
 (1,180) 
 (1,180)
 
 (2,411) 
 (2,411)
Net increase (decrease) in cash and cash equivalents(17,599)
11,086

(3,365)


(9,878)60,176
 14,856
 (6,559) 
 68,473
Cash and cash equivalents at beginning of period74,391
 2,012
 25,502
 
 101,905
22,013
 3,912
 30,847
 
 56,772
Cash and cash equivalents at end of period$56,792
 $13,098
 $22,137
 $
 $92,027
$82,189
 $18,768
 $24,288
 $
 $125,245



22



Table of Contents
Nine Months Ended September 30, 2014
Owens &
Minor, Inc.
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 Eliminations Consolidated
Statements of Cash Flows         
Operating activities:         
Net income (loss)$52,516
 $80,784
 $(12,697) $(68,087) $52,516
Adjustments to reconcile net income to cash provided by (used for) operating activities:        
Equity in earnings of subsidiaries(67,473) 
 
 67,473
 
Depreciation and amortization2
 26,703
 14,892
 
 41,597
Loss on early retirement of debt14,890
 
 
 
 14,890
Share-based compensation expense
 6,136
 
 
 6,136
Provision for losses on accounts and notes receivable
 146
 (502) 
 (356)
Deferred income tax expense (benefit)
 (3,470) (3,917) 
 (7,387)
Changes in operating assets and liabilities:        
Accounts and notes receivable
 (280) (21,628) 452
 (21,456)
Merchandise inventories
 (53,410) (10,752) 279
 (63,883)
Accounts payable6
 53,409
 174
 1,045
 54,634
Net change in other assets and liabilities2,562
 (1,907) 3,638
 (1,162) 3,131
Other, net(1,162) (98) 2,582
 
 1,322
Cash provided by (used for) operating activities1,341
 108,013
 (28,210) 
 81,144
Investing activities:        

Additions to property and equipment
 (24,662) (11,507) 
 (36,169)
Additions to computer software and intangible assets
 (15,448) (2,540) 
 (17,988)
Proceeds from the sale of investment
 1,937
 
 
 1,937
Proceeds from the sale of property and equipment
 137
 14
 
 151
Cash used for investing activities
 (38,036) (14,033) 
 (52,069)
Financing activities:        
Long-term borrowings547,693
 
 
 
 547,693
Change in intercompany advances2,024
 (36,874) 34,850
 
 
Cash dividends paid(47,335) 
 
 
 (47,335)
Repurchases of common stock(9,934) 
 
 
 (9,934)
Excess tax benefits related to share-based compensation514
 
 
 
 514
Proceeds from exercise of stock options1,180
 
 
 
 1,180
Purchase of noncontrolling interest
 
 (1,500) 
 (1,500)
Debt issuance costs(4,178) 
 
 
 (4,178)
Other, net(2,137) (2,191) (1,343) 
 (5,671)
Cash provided by (used for) financing activities487,827
 (39,065) 32,007
 
 480,769
Effect of exchange rate changes on cash and cash equivalents

 
 (1,602) 
 (1,602)
Net increase (decrease) in cash and cash equivalents489,168
 30,912
 (11,838) 
 508,242
Cash and cash equivalents at beginning of period74,391
 2,012
 25,502
 
 101,905
Cash and cash equivalents at end of period$563,559
 $32,924
 $13,664
 $
 $610,147

23




Note 17—Recent Accounting Pronouncements
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under this ASU, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company elected to early adopt this ASU in the third quarter of 2015. We have not retrospectively accounted for the measurement-period adjustments as described in Note 3.
There hashave been no changeother changes in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2014. There are no new accounting pronouncements that we anticipate will have a material impact on our financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, 2014. 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, 2014.
Overview
Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading national distributor of name-brand medical and surgical supplies and a healthcare logistics company. We report our business under two segments: Domestic and International. The Domestic segment includes all functions relating to our role as a medical supply logistics company providing distribution, packagingkitting and logistics services to healthcare providers and manufacturers in the United States. The International segment consists of our European third-party logistics and packagingkitting businesses. Segment financial information is provided in Note 15 of Notes to Consolidated Financial Statements included in this quarterly report.
Financial highlights. The following table provides a reconciliation of reported operating earnings, net income and net income per diluted common share to non-GAAP measures used by management.

24



Three Months Ended June 30, Six Months Ended   June 30,Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
(Dollars in thousands except per share data)2015 2014 2015 20142015 2014 2015 2014
Operating earnings, as reported (GAAP)$47,860
 $37,101
 $88,835
 $83,387
$53,572
 $35,377
 $142,408
 $118,763
Acquisition-related and exit and realignment charges5,707
 7,593
 15,623
 10,855
6,134
 13,957
 21,757
 24,813
Operating earnings, adjusted (non-GAAP) (Adjusted Operating Earnings)$53,567
 $44,694
 $104,458
 $94,242
$59,706
 $49,334
 $164,165
 $143,576
Adjusted Operating Earnings as a percent of revenue (non-GAAP)2.21% 1.94% 2.17% 2.07%2.42% 2.07% 2.25% 2.07%
Net income, as reported (GAAP)$24,226
 $19,876
 $43,166
 $45,362
$28,176
 $7,155
 $71,342
 $52,516
Acquisition-related and exit and realignment charges, net of tax4,869
 5,095
 13,461
 7,317
5,379
 10,297
 18,841
 17,614
Loss on early retirement of debt, net of tax
 9,092
 
 9,092
Net income, adjusted (non-GAAP) (Adjusted Net Income)$29,095
 $24,971
 $56,627
 $52,679
$33,555
 $26,544
 $90,183
 $79,222
Net income per diluted common share, as reported (GAAP)$0.39
 $0.32
 $0.69
 $0.72
$0.45
 $0.11
 $1.14
 $0.84
Acquisition-related and exit and realignment charges, per diluted common share0.07
 0.08
 0.21
 0.12
Acquisition-related and exit and realignment charges and loss on early retirement of debt, per diluted common share0.09
 0.31
 0.30
 0.42
Net income per diluted common share, adjusted (non-GAAP)(Adjusted EPS)$0.46
 $0.40
 $0.90
 $0.84
$0.54
 $0.42
 $1.44
 $1.26
Adjusted EPS (non-GAAP) was $0.46$0.54 and $0.90$1.44 for the threethird quarter and sixfirst nine months ended June 30,of 2015, $0.06 higher thancompared to $0.42 and $1.26 for the prior year for both periods.same periods in 2014. Domestic segment operating earnings increased by $4.1$7.2 million to $52.4$58.0 million in the secondthird quarter and increased $1.8$9.1 million to $102.9$160.9 million for the year-to-date period when compared to prior year. The six month period of 2014 included the recovery of $5.3 million related to the settlement of a direct purchaser anti-trust class action lawsuit. The International segment improved $4.8$3.2 million in the three month period ended JuneSeptember 30, 2015 to operating income of $1.2$1.7 million and improved $8.4$11.5 million on a year-to-date basis to operating income of $1.6$3.3 million.
Use of Non-GAAP Measures
This management’s discussion and analysis contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). In general, the measures exclude items and charges that (i) management does not believe reflect our core business and relate more to strategic, multi-year corporate activities; or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Management uses these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.

23


Table of Contents

Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our competitors. However, the non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.
Acquisition-related charges were $1.8$1.3 million and $4.4$5.5 million for the three and sixnine months ended JuneSeptember 30, 2015 compared to $3.5$4.6 million and $4.1$8.7 million for the same periods of 2014. Current year charges consist primarily of costs to continue the integration of Medical Action and ArcRoyal which were acquired in the fourth quarter of 2014 including certain severance and contractual payments to former management and costs to transition information technology and other administrative functions. Prior year charges consisted primarily of transaction costs incurred to perform due diligence and analysis related to these acquisitions, as well as costs in Movianto to resolve certain contingencies with the former owner.
Exit and realignment charges of $3.9$4.8 million and $11.2$16.2 million for the three and sixnine months ended JuneSeptember 30, 2015 were associated with optimizing our operations and included the consolidation of distribution and logistics centers and closure of offsite warehouses in the United States and Europe, as well as other costs associated with our strategic organizational realignment which include certain professional fees and costs to streamline administrative functions and processes in Europe. Similar charges in 2014 totaled $4.1$9.3 million and $6.7$16.1 million in the comparable periods.
In September 2014, we issued an irrevocable election to redeem our 2016 Senior Notes. As a result, we accrued a $14.9 million loss (pretax) on early retirement of debt which includes the redemption premium on the notes of $17.4 million offset by the unamortized gain on previously settled interest rate swaps. The repayment occurred on October 16, 2014.

25



These charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes. Unless otherwise stated, our analysis hereinafter excludes acquisition-related and exit and realignment charges. More information about these charges is provided in Notes 3 and 6 of Notes to Consolidated Financial Statements included in this quarterly report.
Results of Operations
Net revenue.
 Three Months Ended June 30, Change
(Dollars in thousands)2015 2014 $ %
Domestic$2,317,661
 $2,187,535
 $130,126
 5.9 %
International104,506
 118,323
 (13,817) (11.7)%
Net revenue$2,422,167
 $2,305,858
 $116,309
 5.0 %
Six Months Ended June 30, ChangeThree Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Domestic$4,603,296
 $4,336,451
 $266,845
 6.2 %$2,368,008
 $2,262,081
 $105,927
 4.7 %
International210,067
 225,788
 (15,721) (7.0)%103,661
 124,045
 (20,384) (16.4)%
Net revenue$4,813,363
 $4,562,239
 $251,124
 5.5 %$2,471,669
 $2,386,126
 $85,543
 3.6 %
 Nine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %
Domestic$6,971,304
 $6,598,531
 $372,773
 5.6 %
International313,728
 349,834
 (36,106) (10.3)%
Net revenue$7,285,032
 $6,948,365
 $336,667
 4.8 %
Consolidated net revenue improved in the three and six month periodsnine months ended JuneSeptember 30, 2015 as a result of strong growth in our Domestic segment. Excluding the impact of the 2014 fourth quarter acquisition, Domestic net revenue increased by 4.2%2.6% for the quarter and 4.5%3.8% year-to-date. The continued trend of growth in our existing large healthcare provider customer accounts and new business exceeded declines from smaller customers and lost business when compared to prior year. Domestic segment growth rates are impacted by ongoing market trends including healthcare utilization rates. The decrease in the International segment net revenue was driven by unfavorable foreign currency translation impacts of $15.7$12.4 million and $30.5$42.4 million for the three and sixnine months ended JuneSeptember 30, 2015. On a constant currency basis, excluding the impacteffect of the 2014 packaging acquisition of ArcRoyal, and the late 2014 transition of a customer from a buy/sell to a fee-for-service arrangement, netInternational segment revenues indeclined approximately 7% for the International segmentquarter and were essentially flat for the quarter and year-to-date periodsperiod, compared to prior year. The decline in the quarter resulted largely from the previously announced exit from a U.K. customer contract. Fee-for-service business generally represents approximately two-thirds of net revenue in the International segment.

24


Table of Contents

Cost of goods sold.
Three Months Ended June 30, ChangeThree Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Cost of goods sold$2,123,830
 $2,023,586
 $100,244
 5.0%$2,165,315
 $2,093,643
 $71,672
 3.4%
Six Months Ended June 30, ChangeNine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Cost of goods sold$4,217,425
 $3,998,771
 $218,654
 5.5%$6,382,740
 $6,092,413
 $290,327
 4.8%
Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor, bear risk of general and physical inventory loss and carry all credit risk associated with sales. These are sometimes referred to as distribution or buy/sell contracts. Beginning in the fourth quarter of 2014, cost of goods sold also includes direct and certain indirect labor, material and overhead costs associated with our packagingkitting operations. There is no cost of goods sold associated with our fee-for-service business. As a result of the increase in sales activity through our distribution and packagingkitting businesses, cost of goods sold increased from the prior year by $100.2$71.7 million and $218.7$290.3 million for the three and sixnine month periods ended JuneSeptember 30, 2015, respectively.

26



Gross margin.
Three Months Ended June 30, ChangeThree Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Gross margin$298,337
 $282,272
 $16,065
 5.7%$306,354
 $292,483
 $13,871
 4.7%
As a % of net revenue12.32% 12.24%    12.39% 12.26%    
Six Months Ended June 30, ChangeNine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Gross margin$595,938
 $563,468
 $32,470
 5.8%$902,292
 $855,952
 $46,340
 5.4%
As a % of net revenue12.38% 12.35%    12.39% 12.32%    
The increases in gross margin for the quarterthree and year-to-date periods ofnine months ended September 30, 2015 compared to the prior year were largely attributable to revenue growth in the Domestic segment as described above, as well as higher benefits from certain supplier product price changes for both the quarter and year-to-date periods, compared to prior year. International gross margin was unfavorably impacted by $9.9 million in the second quarter of 2015. Theand $34.0 million on a year-to-date basis from foreign currency translation. Excluding this impact, the International segment also experienced an increase in gross margin from prior yearfor the nine month period resulting from the packaging2014 acquisition and growth in fee-for-service business, though these benefits were offset by $12.6 million inand was essentially flat for the quarter and $23.8 million year-to-date in unfavorable impacts from foreign currency translation.compared to prior year.
Operating expenses.
 Three Months Ended June 30, Change
(Dollars in thousands)2015 2014 $ %
SG&A expenses$231,498
 $225,838
 $5,660
 2.5%
As a % of net revenue9.56% 9.79% 
 
Depreciation and amortization$15,460
 $13,892
 $1,568
 11.3%
Other operating income, net$(2,188) $(2,152) $(36) 1.7%
 Six Months Ended June 30, Change
(Dollars in thousands)2015 2014 $ %
SG&A expenses$465,323
 $451,448
 $13,875
 3.1 %
As a % of net revenue9.67% 9.90%    
Depreciation and amortization$31,329
 $27,756
 $3,573
 12.9 %
Other operating income, net$(5,172) $(9,978) $4,806
 (48.2)%

 Three Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %
SG&A expenses$231,847
 $231,377
 $470
 0.2 %
As a % of net revenue9.38% 9.70% 
 
Depreciation and amortization$15,112
 $13,841
 $1,271
 9.2 %
Other operating income, net$(311) $(2,069) $1,758
 (85.0)%
25

 Nine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %
SG&A expenses$697,170
 $682,825
 $14,345
 2.1 %
As a % of net revenue9.57% 9.83%    
Depreciation and amortization$46,441
 $41,597
 $4,844
 11.6 %
Other operating income, net$(5,484) $(12,046) $6,562
 (54.5)%

Table of Contents

Selling, general and administrative (SG&A) expenses include labor and warehousing costs associated with our distribution and logistics services and all costs associated with our fee-for-service arrangements. Shipping and handling costs are included in SG&A expenses and include costs to store, to move, and to prepare products for shipment, as well as costs to deliver products to customers. The costs to convert new customers to our information systems are generally incurred prior to the recognition of revenues from the new customers.
The increases in SG&A expenses compared to the prior year periods were largely attributable to increased expenses associated with incremental sales activity in the Domestic segment as well as increases from the 2014 acquisitions in both segments, partially offset by favorable foreign currency translation impacts of $11.4$9.2 million for the quarter and $22.1$31.3 million year-to-date. The Domestic segment also incurred $0.4$1.7 million and $0.8$2.6 million for the three and sixnine month periods ended JuneSeptember 30, 2015 in costs associated with the recruitment and transition of our previously announced CEO search which includes professional fees, consulting, meeting and travel expenses and other costs associated with the leadership succession plan.new chief executive officer.
Depreciation and amortization expense increased infor both periods of 2015 compareddue to the prior year as a result of property, equipmentincreases in computer software amortization for assets placed in service and intangible assets acquired with business combinations in the fourth quarter of 2014.amortization from purchase price accounting adjustments. In connection with our packaging businesses,kitting operations, approximately $0.3 million and $0.6$0.9 million in depreciation for the three and sixnine months ended June 20,September 30, 2015 is also included in cost of goods sold. Additional amortization of $1.2$0.3 million and $4.2$4.5 million related to the accelerated amortization of an information system which has been replaced in the International segment is included in acquisition-related and exit and realignment charges for the current quarter and year-to-date periods.

27



The decrease in other operating income, net for the sixquarter was largely a result of a decline in finance charge income and an increase in loss contingency expense for certain on-going legal matters. For the nine months ended JuneSeptember 30, 2015, the decline compared to 2014 was attributed primarily to the benefit in the prior year of $5.3 million from the settlement of a direct purchaser anti-trust class action lawsuit which did not re-occur in the current year.2015.
Interest expense, net
Three Months Ended June 30, ChangeThree Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Interest expense, net$6,680
 $3,342
 $3,338
 99.9%$6,744
 $4,304
 $2,440
 56.7%
Effective interest rate4.81% 6.12%    4.62% 5.57%    
Six Months Ended June 30, ChangeNine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Interest expense, net$13,560
 $6,589
 $6,971
 105.8%$20,305
 $10,893
 $9,412
 86.4%
Effective interest rate4.74% 6.10%    4.72% 6.00%    
The increases in interest expense in the three and sixnine months ended JuneSeptember 30, 2015 compared to the same periods of 2014 were the result of the new Senior Notes issued on September 16, 2014.

Income taxes.
Three Months Ended June 30, ChangeThree Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Income tax provision$16,954
 $13,883
 $3,071
 22.1%$18,652
 $9,028
 $9,624
 106.6%
Effective tax rate41.2% 41.1%    39.8% 55.8%    
Six Months Ended June 30, ChangeNine Months Ended September 30, Change
(Dollars in thousands)2015 2014 $ %2015 2014 $ %
Income tax provision$32,109
 $31,436
 $673
 2.1%$50,761
 $40,464
 $10,297
 25.4%
Effective tax rate42.7% 40.9%    41.6% 43.5%    
The change in the provision for income taxes compared to 2014, including income taxes on acquisition-related and exit and realignment charges, is a result of the amount of pretax income earned in different tax jurisdictions and the deductibility of certain acquisition-related charges for income tax purposes.

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Table of Contents

Financial Condition, Liquidity and Capital Resources
Financial condition. We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory turnover. We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility, or a combination thereof of approximately $25$27 million.
The majority of our cash and cash equivalents are held in cash depository accounts with major banks in the United States and Europe or invested in high-quality, short-term liquid investments. Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collection of accounts receivable, and payment to suppliers.
June 30, 2015 December 31, 2014 ChangeSeptember 30, 2015 December 31, 2014 Change
(Dollars in thousands) $ % $ %
Cash and cash equivalents$200,969
 $56,772
 $144,197
 254.0 %$125,245
 $56,772
 $68,473
 120.6%
Accounts and notes receivable, net of allowances$580,739
 $626,192
 $(45,453) (7.3)%$640,653
 $626,192
 $14,461
 2.3%
Consolidated DSO (1)
20.4
 22.1
 
 
23.0
 22.1
 
 
Merchandise inventories$903,501
 $872,457
 $31,044
 3.6 %$896,722
 $872,457
 $24,265
 2.8%
Consolidated inventory turnover (2)
9.6
 10.1
 
 
9.5
 10.1
 
 
Accounts payable$753,495
 $608,846
 $144,649
 23.8 %$690,134
 $608,846
 $81,288
 13.4%
(1) Based on period end accounts receivable and net revenue for the quarter
(2) Based on average annual inventory and annualized cost of goods sold based on the quarter ended JuneSeptember 30, 2015 and December 31, 2014
Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the sixnine months ended JuneSeptember 30, 2015 and 2014:
(Dollars in thousands)2015 20142015 2014
Net cash provided by (used for):      
Operating activities$246,790
 $73,472
$206,038
 $81,144
Investing activities(21,988) (36,841)(32,078) (52,069)
Financing activities(76,132) (45,329)(103,076) 480,769
Effect of exchange rate changes(4,473) (1,180)(2,411) (1,602)
Increase (decrease) in cash and cash equivalents$144,197
 $(9,878)
Increase in cash and cash equivalents$68,473
 $508,242
Cash provided by operating activities was $246.8$206.0 million in the first sixnine months of 2015, compared to $73.5$81.1 million in the same period of 2014. The increase in cash from operating activities for the first sixnine months of 2015 compared to the same period in 2014 was primarily due to timing of payments to vendors and improvements in net working capital.
Cash used for investing activities was $22.0$32.1 million in the first sixnine months of 2015, compared to $36.8$52.1 million in the same period of 2014. Investing activities in 2015 and 2014 relatedrelate to capital expenditures for our strategic and operational efficiency initiatives, particularly initiatives relating to information technology enhancements and optimizing our distribution network.
Cash used for financing activities in the first sixnine months of 2015 was $76.1$103 million, compared to $45.3cash provided of $481 million used in the same period of 2014. During the first sixnine months of 2015,2014, we paid dividendsreceived $548 million in proceeds from the issuance of $31.9debt which drove the difference on a year over year basis. Other financing activities include dividend payments of of $47.8 million in 2015 (compared to $31.6$47.3 million in 2014), repurchasedthe repurchase of common stock under a share repurchase program for $7.4$15.8 million in 2015 (compared to $9.4$9.9 million in 2014) and repaidthe repayment of $33.7 million in borrowings on our Amended Credit Agreement. Financing activitiesAgreement in 2014 also included proceeds of $1.2 million from the exercise of stock options and the cash purchase of the noncontrolling interest in a subsidiary for $1.5 million.2015.
Capital resources.Our sources of liquidity include cash and cash equivalents and a revolving credit facility. On September 17, 2014, we amended our existing Credit Agreement with Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., Bank of America, N.A. and a syndicate of financial institutions (the Amended Credit Agreement) increasing our borrowing capacity from $350 million to $450 million and extending the term through 2019. Under the Amended Credit Agreement, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $200 million. The interest rate on the Amended Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Amended Credit Agreement. We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility. The terms of the Amended Credit Agreement limit the amount of indebtedness that we

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of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition. We may utilize the revolving credit facility for long-term strategic growth, capital expenditures, working capital and general corporate purposes. If we were unable to access the revolving credit facility, it could impact our ability to fund these needs. Based on our leverage ratio at JuneSeptember 30, 2015, the interest rate under the credit facility is LIBOR plus 1.375%.
At JuneSeptember 30, 2015, , we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Amended Credit Agreement, leaving $445 million available for borrowing. We also have a $1.2 million and $1.5 million letter of credit outstanding as of JuneSeptember 30, 2015 and December 31, 2014, which supports our facilities leased in Europe.
On September 16, 2014, we issued $275 million of 3.875% senior notes due 2021 (the “2021 Notes”) and $275 million of 4.375% senior notes due 2024 (the “2024 Notes”). The 2021 Notes were sold at 99.5% of the principal amount with an effective yield of 3.951%. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. Interest on the 2021 Notes and 2024 Notes is payable semiannually in arrears, commencing on March 15, 2015 and December 15, 2014, respectively. We have the option to redeem the 2021 Notes and 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the Treasury Rate plus 30 basis points.
In the secondthird quarter of 2015, we paid cash dividends on our outstanding common stock at the rate of $0.2525 per share, which represents a 1.0%1% increase over the rate of $0.25 per share paid in the secondthird quarter of 2014. 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 2014, the Board of Directors authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2017. The timing of purchases and the number of shares of common stock to be repurchased will be determined by management based upon market conditions and other factors. The program is intended in part, to offset shares issued in conjunction with our stock incentive plan and return capital to shareholders. The program may be suspended or discontinued at any time. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. During the first sixnine months of 2015, we repurchased approximately 0.20.5 million shares for $7.4$15.8 million under this program. At June 30, 2015, theThe remaining amount authorized for repurchaserepurchases under this program was $82.6 million.is $74.2 million at September 30, 2015.
We earn a portion of our operating earnings in foreign jurisdictions outside the U.S., which we consider to be indefinitely reinvested. Accordingly, no U.S. federal and state income taxes and withholding taxes have been provided on these earnings. Our cash, cash-equivalents, short-term investments, and marketable securities held by our foreign subsidiaries totaled $39.7$20.2 million and $31.5 million as of JuneSeptember 30, 2015 and December 31, 2014. We do not intend, nor do we foresee a need, to repatriate these funds or other assets held outside the U.S. In the future, should we require more capital to fund discretionary activities in the U.S. than is generated by our domestic operations and is available through our borrowings, we could elect to repatriate cash or other assets from foreign jurisdictions that have previously been considered to be indefinitely reinvested.
We believe available financing sources, including cash generated by operating activities and borrowings under the Amended Credit Agreement,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 17 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on JuneSeptember 30, 2015.
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 our 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:
competitive pressures in the marketplace, including intense pricing pressure;

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our ability to retain existing and attract new customers in a market characterized by significant customer consolidation and intense cost-containment initiatives;

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our dependence on sales to certain customers or the loss or material reduction in purchases by key customers;
our dependence on distribution of product of certain suppliers;
our ability to successfully identify, manage or integrate acquisitions;
our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, changes in regulatory conditions, deteriorating economic conditions, adverse tax consequences, and other risks of operating in international markets;
uncertainties related to and our ability to adapt to changes in government regulations, including healthcare laws and regulations (including the Affordable Care Act);
risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate;
uncertainties related to general economic, regulatory and business conditions;
our ability to successfully implement our 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;
the ability of customers and suppliers to meet financial commitments due to us;
changes in manufacturer preferences between direct sales and wholesale distribution;
changing trends in customer profiles and ordering patterns and our ability to meet customer demand for additional value-added services;
our ability to manage operating expenses and improve operational efficiencies in response to changing customer profiles;
our ability to meet performance targets specified by customer contracts under contractual commitments;
availability of and our ability to access special inventory buying opportunities;
the ability of business partners and financial institutions to perform their contractual responsibilities;
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 information systems are interrupted or damaged or fail for any extended period of time, that new information systems are not successfully implemented or integrated, or that there is a data security breach in our information systems;
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 costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims;
adverse changes in U.S. and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals; and
other factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014.
We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates related to our revolving credit facility. We had no outstanding borrowings and approximately $5 million in letters of credit under the revolving credit facility at JuneSeptember 30, 2015. 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.
Due to the nature and pricing of our Domestic segment distribution services, we are exposed to potential volatility in fuel prices. Our strategies for helping to mitigate our exposure to changing domestic fuel prices hashave included entering into leases for trucks with improved fuel efficiency and entering into fixed–price agreements for diesel fuel. We benchmark our domestic diesel fuel purchase prices against the U.S. Weekly Retail On-Highway Diesel Prices (benchmark) as quoted by the U.S. Energy Information Administration. The benchmark averaged $2.88$2.80 per gallon in the first sixnine months of 2015, a decrease from $3.94of $1.11 per gallon infrom the first sixnine months of 2014. Based on our fuel consumption in the first sixnine months of 2015, we estimate that every 10 cents per gallon increase in the benchmark would reduce our Domestic segment operating earnings by approximately $0.3 million on an annualized basis.
In the normal course of business, we are exposed to foreign currency translation and transaction risks. Our business transactions outside of the United States are primarily denominated in the Euro and British Pound. We may use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations. However, we believe that our foreign currency transaction risks are low since our revenues and expenses are typically denominated in the same currency.
Item 4. Controls and Procedures
We carried out an evaluation, with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our 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 principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of JuneSeptember 30, 2015. There has been no change in our internal control over financial reporting during the quarter ended JuneSeptember 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year following such acquisition. In the fourth quarter of 2014, we acquired Medical Action and ArcRoyal. These acquisitions represented $323$335.9 million of total assets and $95.2$152.6 million of net revenues as of and for the sixnine months ended JuneSeptember 30, 2015. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting of these acquisitions.
Part II. Other Information
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, 2014. Through JuneSeptember 30, 2015, there have been no material developments in any legal proceedings reported in such Annual Report.

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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, 2014. Through JuneSeptember 30, 2015, there have been no material changes in the risk factors described in such Annual Report.

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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
In February 2014, our Board of Directors authorized a share repurchase program of up to $100 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2017. The program is intended in part, to offset shares issued in conjunction with our stock incentive plan and return capital to shareholders. The program may be suspended or discontinued at any time. Purchases under the share repurchase program are made either pursuant to 10b5-1 plans entered into by the company from time to time and/or during the company’s scheduled quarterly trading windows for officers and directors. For the three months ended JuneSeptember 30, 2015, we repurchased in open-market transactions and retired 220 thousand0.2 million shares of our common stock for an aggregate of $7.4$8.4 million, or an average price per share of $33.82.$33.63. The following table summarizes share repurchase activity by month during the three months ended JuneSeptember 30, 2015.
PeriodTotal number
of shares purchased
 Average price paid per share Total number of
shares purchased
as part of a
publicly announced program
 Maximum dollar
value of shares
that may yet
be purchased under the program
April 201510,000
 $34.12
 10,000
 $89,658,675
May 2015100,000
 $33.74
 100,000
 $86,282,178
June 2015110,000
 $33.82
 110,000
 $82,560,246
Total220,000
   220,000
  
PeriodTotal number
of shares purchased
 Average price paid per share Total number of
shares purchased
as part of a
publicly announced program
 Maximum dollar
value of shares
that may yet
be purchased under the program
July 201575,371
 $33.97
 75,371
 $80,000,037
August 201568,850
 $33.25
 68,850
 $77,710,474
September 2015105,000
 $33.63
 105,000
 $74,179,356
Total249,221
   249,221
  

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   Owens & Minor, Inc.
   (Registrant)
    
Date:JulyOctober 28, 2015 /s/ P. Cody Phipps
   P. Cody Phipps
   President & Chief Executive Officer
    
Date:JulyOctober 28, 2015 /s/ Richard A. Meier
   Richard A. Meier
   Executive Vice President & Chief Financial Officer

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Item 6. Exhibits
 
(a)Exhibits
10.1
Agreement dated February 14, 2015 Regarding Retirement of James L. Bierman

10.2Employment Term Sheet effective May 20, 2015 for P. Cody Phipps
10.3Restricted Stock Grant Agreement dated July 1, 2015 between the Company and P. Cody Phipps
10.4Owens & Minor, Inc. Officer Severance Policy
10.5Amended Form of Annual Executive Incentive Program
10.6Form of Director Restricted Stock Grant Agreement under Owens & Minor, Inc. 2015 Stock Incentive Plan
10.7Form of Officer Restricted Stock Grant Agreement under Owens & Minor, Inc. 2015 Stock Incentive Plan
10.8Form of Performance Share Award Agreement under Owens & Minor, Inc. 2015 Stock Incentive Plan
   
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

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