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Owens & Minor 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2011

OR

 

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

For the transition period from              to             

Commission file number 1-9810

 

 

Owens & Minor, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Virginia   54-1701843

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9120 Lockwood Boulevard, Mechanicsville, Virginia   23116
(Address of principal executive offices)   (Zip Code)
Post Office Box 27626, Richmond, Virginia   23261-7626
(Mailing address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (804) 723-7000

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “larger accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

The number of shares of Owens & Minor, Inc.’s common stock outstanding as of April 22, 2011, was 63,745,227 shares.

 

 

 


Table of Contents

Owens & Minor, Inc. and Subsidiaries

Index

 

              Page  
Part I. Financial Information   
  Item 1.    Financial Statements   
     Consolidated Statements of Income – Three Months Ended March 31, 2011 and 2010      3   
     Consolidated Balance Sheets – March 31, 2011 and December 31, 2010      4   
     Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010      5   
     Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2011 and 2010      6   
     Notes to Consolidated Financial Statements      7   
  Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      17   
  Item 3.    Quantitative and Qualitative Disclosures About Market Risk      20   
  Item 4.    Controls and Procedures      20   
Part II. Other Information   
  Item 1.    Legal Proceedings      21   
  Item 1A.    Risk Factors      21   
  Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      21   
  Item 6.    Exhibits      22   

 

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Table of Contents

Part I. Financial Information

 

Item 1. Financial Statements

Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Income

(unaudited)

 

     Three Months Ended March 31,  
(in thousands, except per share data)    2011     2010  

Net revenue

   $ 2,123,815      $ 1,969,670   

Cost of goods sold

     1,913,040        1,772,669   
                

Gross margin

     210,775        197,001   

Selling, general and administrative expenses

     151,631        141,072   

Pension expense

     —          641   

Depreciation and amortization

     8,767        6,789   

Other operating income, net

     (620     (652
                

Operating earnings

     50,997        49,151   

Interest expense, net

     3,717        3,299   
                

Income before income taxes

     47,280        45,852   

Income tax provision

     18,540        18,035   
                

Net income

   $ 28,740      $ 27,817   
                

Net income per common share – basic

   $ 0.45      $ 0.44   

Net income per common share – diluted

   $ 0.45      $ 0.44   

Cash dividends per common share

   $ 0.200      $ 0.177   

See accompanying notes to consolidated financial statements.

 

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Owens & Minor, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

 

(in thousands, except per share data)    March 31, 2011     December 31, 2010  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 185,850      $ 159,213   

Accounts and notes receivable, net of allowances of $15,552 and $15,436

     520,688        471,661   

Merchandise inventories

     729,546        720,116   

Other current assets

     57,150        52,799   
                

Total current assets

     1,493,234        1,403,789   

Property and equipment, net of accumulated depreciation of $94,073 and $89,248

     100,672        101,545   

Goodwill, net

     247,271        247,271   

Intangible assets, net

     24,411        24,825   

Other assets, net

     45,592        44,609   
                

Total assets

   $ 1,911,180      $ 1,822,039   
                

Liabilities and shareholders’ equity

    

Current liabilities

    

Accounts and drafts payable

   $ 604,477      $ 531,735   

Accrued payroll and related liabilities

     11,192        20,588   

Deferred income taxes

     37,224        39,082   

Other accrued liabilities

     107,943        103,076   
                

Total current liabilities

     760,836        694,481   

Long-term debt, excluding current portion

     209,007        209,096   

Deferred income taxes

     12,182        12,107   

Other liabilities

     48,469        48,837   
                

Total liabilities

     1,030,494        964,521   
                

Commitments and contingencies

    

Shareholders’ equity

    

Preferred stock, par value $100 per share; authorized –10,000 shares; Series A Participating Cumulative Preferred Stock; none issued

     —          —     

Common stock, par value $2 per share; authorized –200,000 shares; issued and outstanding – 63,713 shares and 63,433 shares

     127,426        126,867   

Paid-in capital

     172,028        165,447   

Retained earnings

     586,274        570,320   

Accumulated other comprehensive loss

     (5,042     (5,116
                

Total shareholders’ equity

     880,686        857,518   
                

Total liabilities and shareholders’ equity

   $ 1,911,180      $ 1,822,039   
                

See accompanying notes to consolidated financial statements.

 

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

     Three Months Ended
March  31,
 
(in thousands)    2011     2010  

Operating activities:

    

Net income

   $ 28,740      $ 27,817   

Adjustments to reconcile net income to cash provided by operating activities of continuing operations:

    

Provision for LIFO reserve

     11,265        8,270   

Depreciation and amortization

     8,767        6,789   

Share-based compensation expense

     3,021        2,965   

Provision for losses on accounts and notes receivable

     359        930   

Pension expense

     —          641   

Pension contributions

     (543     (5,000

Deferred income tax benefit

     (1,830     (1,323

Changes in operating assets and liabilities:

    

Accounts and notes receivable

     (49,386     18,446   

Merchandise inventories

     (20,695     11,623   

Accounts payable

     79,642        67,474   

Net change in other assets and liabilities

     (8,096     828   

Other, net

     175        10   
                

Cash provided by operating activities of continuing operations

     51,419        139,470   
                

Investing activities:

    

Additions to property and equipment

     (4,128     (5,848

Additions to computer software and intangible assets

     (3,010     (2,042

Proceeds from sale of property and equipment

     41        33   
                

Cash used for investing activities of continuing operations

     (7,097     (7,857
                

Financing activities:

    

Cash dividends paid

     (12,786     (11,138

Decrease in drafts payable

     (6,900     (72,300

Proceeds from exercise of stock options

     3,594        2,981   

Excess tax benefits related to share-based compensation

     874        928   

Other, net

     (2,366     (1,403
                

Cash used for financing activities of continuing operations

     (17,584     (80,932
                

Discontinued operations:

    

Operating cash flows

     (101     (460
                

Net cash used for discontinued operations

     (101     (460
                

Net increase in cash and cash equivalents

     26,637        50,221   

Cash and cash equivalents at beginning of period

     159,213        96,136   
                

Cash and cash equivalents at end of period

   $ 185,850      $ 146,357   
                

Supplemental disclosure of cash flow information:

    

Income taxes paid, net

   $ 5,439      $ 1,153   

Interest paid

   $ 564      $ 86   

See accompanying notes to consolidated financial statements.

 

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Changes In Shareholders’ Equity

(unaudited)

 

(in thousands, except per share data)                                       
     Common
Shares
Outstanding
     Common
Stock

($2 par  value)
     Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Shareholders’
Equity
 

Balance December 31, 2009

     62,870       $ 83,827       $ 193,905      $ 504,480      $ (13,033   $ 769,179   

Net income

             27,817          27,817   

Other comprehensive income (loss):

              

Retirement and pension benefit plan adjustments, net of $162 tax expense

               254        254   

Cash flow hedge activity, net of $8 tax benefit

               (12     (12
                    

Comprehensive income

                 28,059   
                    

Cash dividends ($0.177 per share)

             (11,138       (11,138

Stock split (three-for-two)

        42,126         (42,126         —     

Share-based compensation expense, excercises and other

     319         425         5,977            6,402   
                                                  

Balance March 31, 2010

     63,189       $ 126,378       $ 157,756      $ 521,159      $ (12,791   $ 792,502   
                                                  

Balance December 31, 2010

     63,433       $ 126,867       $ 165,447      $ 570,320      $ (5,116   $ 857,518   

Net income

             28,740          28,740   

Other comprehensive income (loss):

              

Retirement and pension benefit plan adjustments, net of $55 tax expense

               86        86   

Cash flow hedge activity, net of $8 tax benefit

               (12     (12
                    

Comprehensive income

                 28,814   
                    

Cash dividends ($0.200 per share)

             (12,786       (12,786

Share-based compensation expense, excercises and other

     280         559         6,581            7,140   
                                                  

Balance March 31, 2011

     63,713       $ 127,426       $ 172,028      $ 586,274      $ (5,042   $ 880,686   
                                                  

See accompanying notes to consolidated financial statements.

 

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Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, unless otherwise indicated)

 

1. Basis of Presentation and Use of Estimates

Basis of Presentation

The accompanying unaudited consolidated financial statements contain all adjustments (which are comprised only of normal recurring accruals and the use of estimates) necessary to present fairly the consolidated financial position of Owens & Minor, Inc. and its wholly-owned subsidiaries (we, us or our) as of March 31, 2011, and December 31, 2010, and the consolidated results of operations, cash flows and changes in shareholders’ equity for the three months ended March 31, 2011 and 2010, in conformity with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full-year.

On March 31, 2010, we effected a three-for-two stock split of our outstanding shares of common stock in the form of a stock dividend of one share of common stock for every two shares outstanding to stockholders of record on March 15, 2010 (Stock Split). All share and per-share data (except par value) have been retroactively adjusted to reflect this Stock Split for all periods presented.

In January 2009, we exited the direct-to-consumer diabetes supply (DTC) business. Accordingly, the DTC business is presented as discontinued operations for all periods presented, and unless otherwise noted, all amounts presented in the accompanying consolidated financial statements, including note disclosures, contain only information related to our continuing operations.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.

 

2. Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings and average remaining maturities (Level 2). See Note 5 for the fair value of long-term debt.

Property held for sale is reported at estimated fair value less selling costs with fair value determined based on recent sales prices for comparable properties in similar locations (Level 2). Property held for sale of $7.4 million at March 31, 2011, and December 31, 2010, is included in other assets, net, in the consolidated balance sheets. We are actively marketing the property for sale within one year; however, the ultimate timing is dependent on local market conditions.

 

3. Intangible Assets

Intangible assets at March 31, 2011, and December 31, 2010, are as follows:

 

     Customer
Relationships
    Other
Intangibles
    Total  

At March 31, 2011:

      

Gross intangible assets

   $ 31,621      $ 4,720      $ 36,341   

Accumulated amortization

     (7,798     (4,132     (11,930
                        

Net intangible assets

   $ 23,823      $ 588      $ 24,411   
                        

At December 31, 2010:

      

Gross intangible assets

   $ 31,300      $ 4,670      $ 35,970   

Accumulated amortization

     (7,257     (3,888     (11,145
                        

Net intangible assets

   $ 24,043      $ 782      $ 24,825   
                        

 

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Amortization expense for intangible assets was $0.8 million and $0.8 million for the three months ended March 31, 2011 and 2010, respectively.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense for the next five years is as follows: remainder of 2011 – $2.3 million; 2012 – $2.2 million; 2013 – $2.1 million; 2014 – $2.1 million; 2015 – $2.1 million and 2016 – $2.1 million.

 

4. Retirement Plan and Terminated Pension Plan

We have a noncontributory, unfunded retirement plan for certain officers and other key employees (the Retirement Plan). The components of net periodic benefit cost of the Retirement Plan, which are included in selling, general and administrative expenses, for the three months ended March 31, 2011 and 2010, are as follows:

 

     Retirement Plan  

Three months ended March 31,

   2011      2010  

Service cost

   $ 330       $ 333   

Interest cost

     427         434   

Amortization of prior service cost

     70         71   

Recognized net actuarial loss

     71         80   
                 

Net periodic benefit cost

   $ 898       $ 918   
                 

Prior to 2011, we had a noncontributory defined benefit pension plan (the Pension Plan) under which benefits had been frozen since 1996. In the fourth quarter of 2010, we terminated the Pension Plan and completed the distribution of substantially all of the plan assets. During the first quarter of 2010, we contributed $5.0 million to this Pension Plan. The components of pension expense of the Pension Plan for the three months ended March 31, 2010, are as follows:

 

     Terminated
Pension Plan
 

Three months ended March 31,

   2010  

Interest cost

   $ 444   

Expected return on plan assets

     (68

Recognized net actuarial loss

     265   
        

Pension expense

   $ 641   
        

 

5. Debt

We have $200 million of senior notes outstanding, which mature in April 2016 and bear interest at 6.35%, payable semi-annually (Senior Notes). We may redeem the Senior Notes, in whole or in part, at a redemption price of the greater of 100% of the principal amount of the Senior Notes or the present value of remaining scheduled payments of principal and interest discounted at the applicable Treasury Rate plus 0.25%. The estimated fair value of the Senior Notes was $204.8 million and $203.3 million, and the related carrying amount was $204.6 million and $204.8 million at March 31, 2011, and December 31, 2010.

We have a $350 million revolving credit facility with Bank of America, N.A., Wells Fargo Bank, N.A. and a syndication of banks which expires on June 7, 2013 (the Revolving Credit Facility). Under this facility, we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $150 million. The interest rate on the facility, which is subject to adjustment quarterly, is based on, at our discretion, the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on our leverage ratio (Credit Spread). We are charged a commitment fee of between 37.5 and 62.5 basis points on the unused portion of the facility. The Credit Spread for LIBOR-based borrowings ranges from 225 basis points at a leverage ratio of less than 0.5 to 325 basis points at a leverage ratio of greater than or equal to 2.50. The terms of the agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage (debt to EBITDA ratio of no greater than 3.5) and interest coverage (EBITDA to interest ratio of no less than 3.0), including on a pro forma basis in the event of an acquisition. At March 31, 2011, we had no borrowings and letters of credit of $5.0 million outstanding under the Revolving Credit Facility, leaving $345.0 million available for borrowing.

 

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6. Income Taxes

The provision for income taxes was $18.5 million for the three months ended March 31, 2011, compared to $18.0 million for the same period of 2010. The effective tax rate was 39.2% for the three months ended March 31, 2011, compared to 39.3% for the same period of 2010.

 

7. Net Income per Common Share

The following summarizes the calculation of net income per common share for the three months ended March 31, 2011 and 2010.

 

(in thousands, except per share data)             

Three months ended March 31,

   2011     2010  

Numerator:

    

Net income

   $ 28,740      $ 27,817   

Less: income allocated to unvested restricted shares

     (379     (303
                

Net income attributable to common shareholders—basic

     28,361        27,514   

Add: undistributed income attributable to unvested restricted shares—basic

     141        151   

Less: undistributed income reallocated to unvested restricted shares—diluted

     (141     (151
                

Net income attributable to common shareholders—diluted

   $ 28,361      $ 27,514   
                

Denominator:

    

Weighted average shares outstanding—basic

     62,641        62,089   

Dilutive shares—stock options

     220        304   
                

Weighted average shares outstanding—diluted

     62,861        62,393   
                

Net income per share attributable to common shareholders:

    

Basic

   $ 0.45      $ 0.44   

Diluted

   $ 0.45      $ 0.44   

 

8. Shareholders’ Equity

The number of shares of common stock issuable upon exercise of outstanding stock options or achievement of certain performance criteria and the number of shares reserved for issuance under our share-based compensation plan and shareholder rights agreement were proportionately increased for the Stock Split, described in Note 1, in accordance with terms of the respective plans. The Stock Split was recorded by a transfer of $42.1 million from paid-in capital to common stock, representing a $2 par value for each additional share issued. The number of authorized common shares remained at 200 million, and the number of authorized preferred shares, none of which have been issued, remained at 10 million.

In February 2011, the Board of Directors authorized a share repurchase program of up to $50 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2014. The program is intended to offset shares issued in conjunction with our stock incentive plan and may be suspended or discontinued at any time. Through March 31, 2011, no shares have been repurchased under this program.

 

9. Commitments and Contingencies

We have contractual obligations that are required to be paid to customers in the event that certain contractual performance targets are not achieved as of specified dates, generally within 36 months from inception of the contract. These contingent obligations totaled $5.2 million as of March 31, 2011. If none of the performance targets are met as of the specified dates, and customers have met their contractual commitments, payments will be due as follows: Remainder of 2011 – $0.8 million; 2012 – $0.6 million; and 2013 – $3.8 million. None of these contingent obligations were accrued at March 31, 2011, as we do not consider any of them probable. We deferred the recognition of fees that are contingent upon the company’s future performance under the terms of these contracts. As of March 31, 2011, $1.2 million of deferred revenue related to outstanding contractual performance targets is included in other accrued liabilities.

The state of California is conducting an administrative review of certain ongoing local sales tax incentives that may be available to us beginning with the third quarter of 2007. As a result of this review, we may receive tax incentive payments for all or some of the periods. The exact amount, if any, is dependent upon a number of factors, including the timing of negotiation and execution of certain customer agreements, the variability in sales and our operations in California.

 

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Prior to exiting the DTC business in January 2009, we received reimbursements from Medicare, Medicaid, and private healthcare insurers for certain customer billings. We are subject to audits of these reimbursements for up to seven years from the date of the service.

 

10. Discontinued Operations

There were no revenues or income or loss from discontinued operations for the three months ended March 31, 2011 and 2010. For the three months ended March 31, 2011 and 2010, we incurred cash outflows of $0.1 million and $0.5 million, primarily associated with leased facilities of the discontinued DTC business.

 

11. Condensed Consolidating Financial Information

The following tables present condensed consolidating financial information for: Owens & Minor, Inc., on a combined basis; the guarantors of Owens & Minor, Inc.’s Senior Notes; and the non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees and we believe the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations and cash flows of the guarantor subsidiaries.

 

For the three months ended March 31, 2011

   Owens &
Minor, Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Statements of Income

          

Net revenue

   $ —        $ 2,123,689      $ 126      $ —        $ 2,123,815   

Cost of goods sold

     —          1,913,024        16        —          1,913,040   
                                        

Gross margin

     —          210,665        110        —          210,775   

Selling, general and administrative expenses

     439        150,900        292        —          151,631   

Depreciation and amortization

     —          8,767        —          —          8,767   

Other operating expense (income), net

     147        (760     (7     —          (620
                                        

Operating (loss) earnings

     (586     51,758        (175     —          50,997   

Interest expense, net

     2,825        876        16        —          3,717   
                                        

(Loss) income before income taxes

     (3,411     50,882        (191     —          47,280   

Income tax (benefit) provision

     (1,338     19,953        (75     —          18,540   

Equity in earnings of subsidiaries

     30,813        —          —          (30,813     —     
                                        

Net income (loss)

   $ 28,740      $ 30,929      $ (116   $ (30,813   $ 28,740   
                                        

 

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For the three months ended March 31, 2010

   Owens &
Minor, Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Statements of Income

          

Net revenue

   $ —        $ 1,969,021      $ 649      $ —        $ 1,969,670   

Cost of goods sold

     —          1,772,647        22        —          1,772,669   
                                        

Gross margin

     —          196,374        627        —          197,001   

Selling, general and administrative expenses

     311        140,137        624        —          141,072   

Pension expense

     —          641        —          —          641   

Depreciation and amortization

     —          6,788        1        —          6,789   

Other operating income, net

     —          (652     —          —          (652
                                        

Operating (loss) earnings

     (311     49,460        2        —          49,151   

Interest expense, net

     1,646        1,636        17        —          3,299   
                                        

(Loss) income before income taxes

     (1,957     47,824        (15     —          45,852   

Income tax (benefit) provision

     (770     18,810        (5     —          18,035   

Equity in earnings of subsidiaries

     29,004        —          —          (29,004     —     
                                        

Net income (loss)

   $ 27,817      $ 29,014      $ (10   $ (29,004   $ 27,817   
                                        

 

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Table of Contents

March 31, 2011

   Owens & Minor,
Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Balance Sheets

          

Assets

          

Current assets

          

Cash and cash equivalents

   $ 178,527      $ 7,307      $ 16      $ —        $ 185,850   

Accounts and notes receivable, net

     —          520,688        —          —          520,688   

Merchandise inventories

     —          729,546        —          —          729,546   

Other current assets

     104        56,804        242        —          57,150   
                                        

Total current assets

     178,631        1,314,345        258        —          1,493,234   

Property and equipment, net

     —          100,672        —          —          100,672   

Goodwill, net

     —          247,271        —          —          247,271   

Intangible assets, net

     —          24,411        —          —          24,411   

Due from O&M and subsidiaries

     —          110,434        41,294        (151,728     —     

Advances to and investments in consolidated subsidiaries

     1,067,111        —          —          (1,067,111     —     

Other assets, net

     916        44,676        —          —          45,592   
                                        

Total assets

   $ 1,246,658      $ 1,841,809      $ 41,552      $ (1,218,839   $ 1,911,180   
                                        

Liabilities and shareholders’ equity

          

Current liabilities

          

Accounts and drafts payable

   $ —        $ 604,473      $ 4      $ —        $ 604,477   

Accrued payroll and related liabilities

     —          11,182        10        —          11,192   

Deferred income taxes

     —          37,224        —          —          37,224   

Other accrued liabilities

     9,683        97,787        296        —          107,766   

Current liabilities of discontinued operations

     —          —          177        —          177   
                                        

Total current liabilities

     9,683        750,666        487        —          760,836   

Long-term debt, excluding current portion

     204,561        4,446        —          —          209,007   

Due to O&M and subsidiaries

     151,728        —          —          (151,728     —     

Intercompany debt

     —          138,890        —          (138,890     —     

Deferred income taxes

     —          12,182        —          —          12,182   

Other liabilities

     —          48,469        —          —          48,469   
                                        

Total liabilities

     365,972        954,653        487        (290,618     1,030,494   
                                        

Shareholders’ equity

          

Common stock

     127,426        —          1,500        (1,500     127,426   

Paid-in capital

     172,028        242,024        62,814        (304,838     172,028   

Retained earnings (deficit)

     586,274        650,425        (23,249     (627,176     586,274   

Accumulated other comprehensive loss

     (5,042     (5,293     —          5,293        (5,042
                                        

Total shareholders’ equity

     880,686        887,156        41,065        (928,221     880,686   
                                        

Total liabilities and shareholders’ equity

   $ 1,246,658      $ 1,841,809      $ 41,552      $ (1,218,839   $ 1,911,180   
                                        

 

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Table of Contents

December 31, 2010

   Owens & Minor,
Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Balance Sheets

          

Assets

          

Current assets

          

Cash and cash equivalents

   $ 156,897      $ 2,316      $ —        $ —        $ 159,213   

Accounts and notes receivable, net

     313        471,348        —          —          471,661   

Merchandise inventories

     —          720,116        —          —          720,116   

Other current assets

     118        52,438        243        —          52,799   
                                        

Total current assets

     157,328        1,246,218        243        —          1,403,789   

Property and equipment, net

     —          101,542        3        —          101,545   

Goodwill, net

     —          247,271        —          —          247,271   

Intangible assets, net

     —          24,825        —          —          24,825   

Due from O&M and subsidiaries

     —          84,966        41,523        (126,489     —     

Advances to and investments in consolidated subsidiaries

     1,036,211        —          —          (1,036,211     —     

Other assets, net

     1,450        43,159        —          —          44,609   
                                        

Total assets

   $ 1,194,989      $ 1,747,981      $ 41,769      $ (1,162,700   $ 1,822,039   
                                        

Liabilities and shareholders’ equity

          

Current liabilities

          

Accounts and drafts payable

   $ —        $ 531,732      $ 3      $ —        $ 531,735   

Accrued payroll and related liabilities

     —          20,570        18        —          20,588   

Deferred income taxes

     —          39,082        —          —          39,082   

Other accrued liabilities

     6,197        96,311        289        —          102,797   

Current liabilities of discontinued operations

     —          —          279        —          279   
                                        

Total current liabilities

     6,197        687,695        589        —          694,481   

Long-term debt, excluding current portion

     204,785        4,311        —          —          209,096   

Due to O&M and subsidiaries

     126,489        —          —          (126,489     —     

Intercompany debt

     —          138,890        —          (138,890     —     

Deferred income taxes

     —          12,107        —          —          12,107   

Other liabilities

     —          48,837        —          —          48,837   
                                        

Total liabilities

     337,471        891,840        589        (265,379     964,521   
                                        

Shareholders’ equity

          

Common stock

     126,867        —          1,500        (1,500     126,867   

Paid-in capital

     165,447        242,024        62,814        (304,838     165,447   

Retained earnings (deficit)

     570,320        619,496        (23,134     (596,362     570,320   

Accumulated other comprehensive loss

     (5,116     (5,379     —          5,379        (5,116
                                        

Total shareholders’ equity

     857,518        856,141        41,180        (897,321     857,518   
                                        

Total liabilities and shareholders’ equity

   $ 1,194,989      $ 1,747,981      $ 41,769      $ (1,162,700   $ 1,822,039   
                                        

 

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Table of Contents

Three months ended March 31, 2011

   Owens & Minor,
Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subisidiaries
    Eliminations     Consolidated  

Statements of Cash Flows

          

Operating activities:

          

Net income (loss)

   $ 28,740      $ 30,929      $ (116   $ (30,813   $ 28,740   

Adjustments to reconcile net income to cash provided by (used for) operating activities:

          

Equity in earnings of subsidiaries

     (30,813     —          —          30,813        —     

Provision for LIFO reserve

     —          11,265        —          —          11,265   

Depreciation and amortization

     —          8,767        —          —          8,767   

Share-based compensation expense

     —          3,021        —          —          3,021   

Provision for losses on accounts and notes receivable

     —          359        —          —          359   

Pension contributions

     —          (543     —          —          (543

Deferred income tax benefit

     —          (1,830     —          —          (1,830

Changes in operating assets and liabilities:

          

Accounts and notes receivable

     313        (49,699     —          —          (49,386

Merchandise inventories

     —          (20,695     —          —          (20,695

Accounts payable

     —          79,641        1        —          79,642   

Net change in other assets and liabilities

     3,595        (11,690     (1     —          (8,096

Other, net

     197        (22     —          —          175   
                                        

Cash provided by (used for) operating activities

     2,032        49,503        (116     —          51,419   
                                        

Investing activities:

          

Additions to property and equipment

     —          (4,128     —          —          (4,128

Additions to computer software and intangible assets

     —          (3,010     —          —          (3,010

Proceeds from the sale of property and equipment

     —          41        —          —          41   
                                        

Cash used for investing activities

     —          (7,097     —          —          (7,097
                                        

Financing activities:

          

Change in intercompany advances

     27,916        (28,149     233        —          —     

Cash dividends paid

     (12,786     —          —          —          (12,786

Decrease in drafts payable

     —          (6,900     —          —          (6,900

Proceeds from exercise of stock options

     3,594        —          —          —          3,594   

Excess tax benefits related to share-based compensation

     874        —          —          —          874   

Other, net

     —          (2,366     —          —          (2,366
                                        

Cash provided by (used for) financing activities

     19,598        (37,415     233        —          (17,584
                                        

Discontinued operations:

          

Operating cash flows

     —          —          (101     —          (101
                                        

Net cash used for discontinued operations

     —          —          (101     —          (101
                                        

Net increase in cash and cash equivalents

     21,630        4,991        16        —          26,637   

Cash and cash equivalents at beginning of period

     156,897        2,316        —          —          159,213   
                                        

Cash and cash equivalents at end of period

   $ 178,527      $ 7,307      $ 16      $ —        $ 185,850   
                                        

 

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Table of Contents

Three months ended March 31, 2010

   Owens & Minor,
Inc.
    Guarantor
Subsidiaries
    Non-guarantor
Subisidiaries
    Eliminations     Consolidated  

Statements of Cash Flows

          

Operating activities:

          

Net income (loss)

   $ 27,817      $ 29,014      $ (10   $ (29,004   $ 27,817   

Adjustments to reconcile net income to cash provided by (used for) operating activities:

          

Equity in earnings of subsidiaries

     (29,004     —          —          29,004        —     

Provision for LIFO reserve

     —          8,270        —          —          8,270   

Depreciation and amortization

     —          6,788        1        —          6,789   

Share-based compensation expense

     —          2,965        —          —          2,965   

Provision for losses on accounts and notes receivable

     —          930        —          —          930   

Pension expense

     —          641        —          —          641   

Pension contributions

     —          (5,000     —          —          (5,000

Deferred income tax benefit

     —          (1,323     —          —          (1,323

Changes in operating assets and liabilities:

          

Accounts and notes receivable

     —          18,446        —          —          18,446   

Merchandise inventories

     —          11,623        —          —          11,623   

Accounts payable

     —          67,474        —          —          67,474   

Net change in other assets and liabilities

     3,366        (2,145     (393     —          828   

Other, net

     (20     30        —          —          10   
                                        

Cash provided by (used for) operating activities

     2,159        137,713        (402     —          139,470   
                                        

Investing activities:

          

Additions to property and equipment

     —          (5,848     —          —          (5,848

Additions to computer software and intangible assets

     —          (2,042     —          —          (2,042

Proceeds from the sale of property and equipment

     —          33        —          —          33   
                                        

Cash used for investing activities

     —          (7,857     —          —          (7,857
                                        

Financing activities:

          

Change in intercompany advances

     57,384        (58,246     862        —          —     

Cash dividends paid

     (11,138     —          —          —          (11,138

Decrease in drafts payable

     —          (72,300     —          —          (72,300

Proceeds from exercise of stock options

     2,981        —          —          —          2,981   

Excess tax benefits related to share-based compensation

     928        —          —          —          928   

Other, net

     —          (1,403     —          —          (1,403
                                        

Cash provided by (used for) financing activities

     50,155        (131,949     862        —          (80,932
                                        

Discontinued operations:

          

Operating cash flows

     —          —          (460     —          (460
                                        

Net cash used for discontinued operations

     —          —          (460     —          (460
                                        

Net increase (decrease) in cash and cash equivalents

     52,314        (2,093     —          —          50,221   

Cash and cash equivalents at beginning of period

     92,088        3,765        283        —          96,136   
                                        

Cash and cash equivalents at end of period

   $ 144,402      $ 1,672      $ 283      $ —        $ 146,357   
                                        

 

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Table of Contents
12. Recent Accounting Pronouncements

There has been no change in our significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended December 31, 2010, except as discussed below.

We adopted a Financial Accounting Standards Board Accounting Standards Update (ASU) relating to multiple-deliverable arrangements prospectively for all contracts entered into or amended after January 1, 2011. This ASU requires an entity to allocate contract consideration using the relative selling price method and eliminates the use of the residual method. It also establishes a hierarchy of evidence to determine the stand-alone selling price of a deliverable based on the vendor-specific objective evidence (VSOE), third-party evidence, and the best estimate of selling price.

Our multiple-element arrangements can include a combination of distribution and other supply-chain management services. We evaluate each deliverable within a multiple-element arrangement at inception to determine the separate units of accounting. The adoption of this ASU did not have an impact on our units of accounting as we have historically been able to obtain evidence of fair value for our products and services under the previous accounting standard.

Consideration is allocated to separate units of accounting based on the relative selling price method using VSOE, as most services included in our multiple-element arrangements are sold on a stand-alone basis. If VSOE is unavailable, we utilize third-party evidence or our best estimate of selling price. Revenue is recognized for each separate unit of accounting in accordance with applicable revenue recognition criteria. Generally, products are delivered and services are performed on a continuous basis throughout the life of the arrangement. The adoption of this ASU did not have a material impact on the timing of revenue recognition for the current period and is not expected to have a material impact on future periods.

In the first quarter of 2011, we adopted an ASU relating to how the carrying value of a reporting unit should be calculated when performing the first step of the goodwill impairment test. This update modified the first step of the goodwill impairment test for those reporting units with a zero or negative carrying value. The adoption of this update had no impact on our financial position and results of operations or disclosures for the quarter ended March 31, 2011.

In the first quarter of 2011, we adopted an ASU relating to the disclosure of supplementary pro forma information for business combinations. This update clarifies that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The adoption of this update had no impact on our financial position and results of operations or disclosures for the quarter ended March 31, 2011.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis describes material changes in the financial condition of Owens & Minor, Inc. and its wholly-owned subsidiaries (we, us, or our) since December 31, 2010. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

First quarter of 2011 compared with first quarter of 2010

Overview. Operating earnings were $51.0 million in the first quarter of 2011, an increase of 3.8% from $49.2 million in the first quarter of 2010. In the first quarter of 2011, we earned net income of $28.7 million, an increase of 3.3% from $27.8 million in the first quarter of 2010. Net income per diluted common share was $0.45 for the first quarter of 2011, an increase from $0.44 in the comparable period of 2010.

Financial highlights. The following table presents highlights from our consolidated statements of income on a percentage of revenue basis:

 

Three months ended March 31,

   2011     2010  

Gross margin

     9.92     10.00

Selling, general and administrative expenses

     7.14     7.16

Operating earnings

     2.40     2.50

Net income

     1.35     1.41

Net revenue. Net revenue increased 7.8% to $2.12 billion for the first quarter of 2011 from $1.97 billion for the first quarter of 2010. The increase in net revenue resulted primarily from greater sales of products to existing customers of $134.1 million, representing 6.8%, or almost 90% of our sales growth. In addition, sales to new customers contributed $102.9 million to the increase in net revenues, and were partially offset by a decrease in sales to lost customers of $84.4 million.

Gross margin. Gross margin dollars increased 7.0% to $210.8 million for the first quarter of 2011 compared to $197.0 million for the first quarter of 2010. The increase in gross margin dollars was primarily due to an increase in revenues. The decrease of 8 basis points in gross margin as a percentage of revenue is comprised of a $3.0 million greater last-in, first-out (LIFO) provision (11 basis points) and a decrease in supplier incentives as a percentage of revenue (8 basis points). These decreases were partially offset by a net increase in fee-for-service revenues (6 basis points). The increase in the LIFO provision was due to greater inventory purchase price inflation than experienced last year.

We value inventory under the LIFO method. Had inventory been valued under the first-in, first-out (FIFO) method, gross margin as a percentage of revenue would have been 53 basis points greater in the first three months of 2011 and 42 basis points greater in the first three months of 2010.

Selling, general and administrative (SG&A) expenses. SG&A expenses increased 7.5% to $151.6 million for the first quarter of 2011, as compared with $141.1 million in the comparable period of 2010. SG&A expenses increased $6.7 million for labor costs, primarily for salaries, incentive compensation and benefits. SG&A expenses were adversely impacted by increased delivery costs of $1.7 million. In addition, SG&A expenses increased by $1.8 million to support new business related to our third-party logistics services.

Depreciation and amortization expense. Depreciation and amortization expense for the first quarter of 2011 increased 29% to $8.8 million from $6.8 million for the first quarter of 2010. The increase is primarily due to amortization of leasehold improvements for both relocated or expanded distribution centers and our two third-party logistics facilities, as well as amortization of voice-pick systems and computer software.

 

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Other operating income, net. Other operating income, net, was $0.6 million for the first quarter of 2011 and $0.7 million for the first quarter of 2010, including finance charge income of $0.9 million and $0.5 million, respectively.

Operating earnings. Operating earnings for the first quarter of 2011 increased 3.8% to $51.0 million from $49.2 million for the first quarter of 2010. The increase resulted primarily from greater distribution and fee-for-service revenues, partially offset by additional SG&A expenses to service the growth in business, an increase in the LIFO provision and increased delivery costs.

Interest expense, net. Interest expense, net of interest earned on cash balances, was $3.7 million for the first quarter of 2011 and $3.3 million for the same period of 2010. For the first quarter of 2011, our effective interest rate was 7.2% on average borrowings of $210.7 million, compared to 6.4% on average borrowings of $209.7 million for the first quarter of 2010. In June 2010, we replaced an existing $306 million revolving credit facility (which was to expire in May 2011) with a $350 million revolving credit facility which expires in June 2013. The increased effective interest rate for the first quarter of 2011 is due to greater commitment fees on the new facility and increased amortization of deferred financing costs.

In April 2011, we entered into interest rate swaps to effectively convert $175 million of our 6.35% fixed-rate debt into variable-rate debt through April 15, 2016, based on six-month LIBOR plus a spread of approximately 393 basis points. As a result, our effective annual interest rate on $175 million of debt will decline approximately 200 basis points for the first six-month pricing period of April 15 to October 15, 2011.

Income taxes. The provision for income taxes was $18.5 million, representing a 39.2% effective tax rate for the first quarter of 2011, compared to $18.0 million, representing a 39.3% effective tax rate for the same period of 2010.

Net income. Net income increased to $28.7 million for the first quarter of 2011 compared to $27.8 million for the first quarter of 2010. The increase is primarily due to an increase in operating earnings.

Financial Condition, Liquidity and Capital Resources

Financial condition. Accounts receivable, net of allowances, increased $49.0 million, or 10.4%, to $520.7 million at March 31, 2011, from $471.7 million at December 31, 2010. Accounts receivable days outstanding (DSO) were 21.1 days at March 31, 2011, and 19.6 days at December 31, 2010, based on three months’ sales and has ranged from 19.6 to 21.3 days over the prior four quarters.

Merchandise inventories increased to $729.5 million at March 31, 2011, from $720.1 million at December 31, 2010. Average inventory turnover was 10.7 in the first quarter of 2011, based on three months’ sales, and has ranged from 10.2 to 10.6 over the prior four quarters. The higher inventory turnover for the first quarter of 2011 was primarily a result of increased sales to new customers.

Liquidity and capital expenditures. The following table summarizes our consolidated statement of cash flows for the three months ended March 31, 2011 and 2010:

 

(in thousands)             

Three months ended March 31,

   2011     2010  

Net cash provided by (used for) continuing operations:

    

Operating activities

   $ 51.4      $ 139.5   

Investing activities

   $ (7.1   $ (7.9

Financing activities

   $ (17.6   $ (80.9

Net cash used for discontinued operations

   $ (0.1   $ (0.5

In the first quarter of 2011, cash and cash equivalents increased by $26.6 million to $185.9 million at March 31, 2011. We generated cash from operating activities of $51.4 million, compared to $139.5 million in the first quarter of 2010. Cash from operating activities in the first quarter of 2011 and 2010 was positively affected by operating earnings and an increase in accounts payable. Cash from operating activities in 2011 was negatively affected by increases in accounts and notes receivable and merchandise inventories. Cash from continuing operating activities in 2010 was positively affected by decreases in accounts and notes receivable and inventories. During the first quarter of 2010, we contributed $5.0 million to our defined benefit pension plan, which was terminated in 2010.

Capital expenditures were $7.1 million in the first quarter of 2011, compared to $7.9 million in the same period of 2010. Capital expenditures in the first quarter of 2011 primarily related to our strategic and operational efficiency initiatives. These expenditures included warehouse equipment and technology for both our distribution centers and third-party logistics facilities, as well as investments in certain customer-facing technologies. Capital expenditures for the first quarter of 2010 primarily related to investments in leasehold improvements for our third-party logistics service and a relocated distribution center and investments in voice-pick technology.

 

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Cash used for financing activities in the first quarter of 2011 was $17.6 million, compared to $80.9 million used in the first quarter of 2010. During the first quarter of 2011 and 2010, cash from continuing operations was used to pay dividends and reduce drafts payable.

Cash used by the operating activities of discontinued operations is primarily related to the lease payments for vacated facilities of the direct-to-consumer diabetes supply business, which we exited in 2009.

Capital resources. Our sources of liquidity include cash and cash equivalents and a revolving credit facility. We have a $350 million Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A. and a syndication of banks which expires on June 7, 2013 (the Revolving Credit Facility). The interest rate on the Revolving Credit Facility, which is subject to adjustment quarterly, is based on, at our discretion, the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on our leverage ratio (Credit Spread). We are charged a commitment fee of between 37.5 and 62.5 basis points on the unused portion of the facility. The terms of the agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage. We may utilize the Revolving Credit Facility for long-term strategic growth, capital expenditures, working capital and general corporate purposes. If we are unable to access the Revolving Credit Facility, it could impact our ability to fund these needs. During the first quarter of 2011, we had no borrowings or repayments under the Revolving Credit Facility. We had $5.0 million of letters of credit and no borrowings outstanding at March 31, 2011, leaving $345.0 million available for borrowing at that date. Based on our leverage ratio at March 31, 2011, the interest rate under the facility will remain unchanged at LIBOR plus 250 basis points at the next adjustment date.

We have $200 million of senior notes outstanding, which mature in 2016 and bear interest at 6.35%, payable semi-annually on April 15th and October 15th. Our Revolving Credit Facility and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement. We believe we were in compliance with our debt covenants at March 31, 2011.

In the first quarter of 2011, we paid cash dividends on our outstanding common stock at the rate of $0.20 per share, which represents a 13% increase over the rate of $0.177 per share paid in the first quarter of 2010. We anticipate continuing to pay quarterly cash dividends in the future. However, the payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements and other factors.

In February 2011, the Board of Directors authorized a share repurchase program of up to $50 million of our outstanding common stock to be executed at the discretion of management over a three-year period, expiring in February 2014. Through March 31, 2011, no shares have been repurchased under this program.

We believe existing cash balances, cash generated from operating activities and borrowings under the Revolving Credit Facility will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, share repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 12 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 2011.

Forward-looking Statements

Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of our business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to:

 

   

general economic and business conditions;

 

   

our ability to implement strategic initiatives;

 

   

the availability of and modifications to existing supplier funding programs and our ability to meet the terms to qualify for certain of these programs;

 

   

our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product;

 

   

dependence on sales to certain customers;

 

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the ability of customers to meet financial commitments due to us;

 

   

our ability to retain existing customers and the success of marketing and other programs in attracting new customers;

 

   

changes in government regulations, including healthcare laws and regulations;

 

   

changes in manufacturer preferences between direct sales and wholesale distribution;

 

   

competition;

 

   

changing trends in customer profiles and ordering patterns;

 

   

our ability to meet customer demand for additional value-added services;

 

   

our ability to meet performance targets specified by customer contracts under contractual commitments;

 

   

access to special inventory buying opportunities;

 

   

the ability of business partners and financial institutions to perform their contractual responsibilities;

 

   

our ability to manage operating expenses;

 

   

the effect of price volatility in the commodities markets, including fuel price fluctuations, on our operating costs and supplier product prices;

 

   

our ability to continue to obtain financing at reasonable rates and to manage financing costs and interest rate risk;

 

   

the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets;

 

   

our ability to timely or adequately respond to technological advances in the medical supply industry;

 

   

the risk that information systems are interrupted or damaged by unforeseen events or fail for any extended period of time;

 

   

our ability to successfully identify, manage or integrate acquisitions;

 

   

the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims; and

 

   

the outcome of outstanding tax contingencies and legislative and tax proposals.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We provide credit in the normal course of business to our customers and are exposed to losses resulting from nonpayment or delinquent payment by customers. We perform initial and ongoing credit evaluations of our customers and maintain reserves for estimated credit losses. We measure our performance in collecting customer accounts receivable in terms of days sales outstanding (DSO). Accounts receivable at March 31, 2011, were approximately $521 million, and DSO at March 31, 2011, was 21.1 days, based on three months’ sales. A hypothetical increase in DSO of one day would result in a decrease in our cash balances, an increase in borrowings against our revolving credit facility, or a combination thereof, of approximately $24 million.

We are exposed to market risk from changes in interest rates related to our revolving credit facility. We had no outstanding borrowings and $5.0 million in letters of credit under the revolving credit facility at March 31, 2011. A hypothetical increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $0.1 million per year for every $10 million of outstanding borrowings under the revolving credit facility.

 

Item 4. Controls and Procedures

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 March 31, 2011. There has been no change in our internal control over financial reporting during the quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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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, 2010. Through March 31, 2011, there have been no material developments in any legal proceedings reported in such Annual Report.

 

Item 1A. Risk Factors

Certain risk factors that we believe could affect our business and prospects are described in our Annual Report on Form 10-K for the year ended December 31, 2010. Through March 31, 2011, there have been no material changes in the risk factors described in such Annual Report.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On February 24, 2011 (Issuance Date), we issued 50,000 shares of our common stock (Securities), valued at $1,521,500 based on the closing price of our common stock on the Issuance Date of $30.43 per share, as partial consideration for the purchase from an unaffiliated company of certain software and technology assets. The Securities are restricted as to transfer for periods ranging from one to three years. Issuance of the Securities was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (Securities Act), as the offer and sale did not involve a public offering, the purchaser was provided access to information about our company in evaluating the transaction, and we have taken appropriate measures to prevent resales of the Securities that are not registered or exempt from registration under the Securities Act, including placing a legend on the Securities stating that they have not been registered under the Securities Act and setting forth the restrictions on transferability, issuing stop transfer restrictions to our transfer agent with respect to the Securities and obtaining a written agreement from the purchaser that the Securities will only be sold pursuant to an exemption from registration under the Securities Act.

 

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Item 6. Exhibits

 

(a) Exhibits

 

  31.1

  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

  31.2

  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

  32.1

  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2

  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

  XBRL Instance Document

101.SCH*

  XBRL Taxonomy Extension Schema Document

101.CAL*

  XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

  XBRL Taxonomy Definition Linkbase Document

101.LAB*

  XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

  XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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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: April 29, 2011  

/s/ Craig R. Smith

  Craig R. Smith
  President & Chief Executive Officer
Date: April 29, 2011  

/s/ James L. Bierman

  James L. Bierman
  Senior Vice President & Chief Financial Officer
Date: April 29, 2011  

/s/ D. Andrew Edwards

  D. Andrew Edwards
  Vice President, Controller & Chief Accounting Officer

 

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Exhibits Filed with SEC

 

Exhibit #

    

  31.1

   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2

   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1

   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2

   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

   XBRL Instance Document

101.SCH*

   XBRL Taxonomy Extension Schema Document

101.CAL*

   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

   XBRL Taxonomy Definition Linkbase Document

101.LAB*

   XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

   XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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