2013 Annual Report & Form 10-K
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With a logistics network that spans the United
States and Europe, Owens & Minor, Inc.
(NYSE-OMI) is focused on Connecting the
World of Medical Products to the Point of CareTM. While
the global healthcare market is growing rapidly in size
and complexity, Owens & Minor is well-positioned today
to participate in the markets that account for three-
fourths of the global expenditure for healthcare products
and services.
Building on a substantial 132-year legacy in healthcare,
we are investing in development of the infrastructure,
network and value-added services that will enable us to
serve as a full logistics partner for healthcare. As a trusted
partner to healthcare providers and manufacturers alike,
we aim to provide integrated, flexible logistics solutions
that improve patient care, reduce inventory and simplify
logistics for our customers, all while unlocking hidden
value across the supply chain.
A FORTUNE 500 company, Owens & Minor, Inc. is
traded on the New York Stock Exchange under the symbol
OMI. Our values, which form the fundamentals of our
culture, are simple: we believe in doing business with
integrity, supporting our teammates, providing superior
customer service and supporting our communities.
Throughout our history, we have also believed in creating
long-term value for our shareholders, and we are proud
of our ten-year cumulative total return of 214%. For
more information about Owens & Minor, please visit our
website at www.owens-minor.com.
“We are investing
in development of
the infrastructure,
network and value-
added services that will
enable us to serve as
a full logistics partner
for healthcare.”
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
Year ended December 31,
2013(1)
2012(2)
2011(3)
’13/’12
’12/’11
Percent Change
Revenue
Net income
$9,071.5
$8,868.3
$8,627.9
2.3%
2.8%
110.9
109.0
115.2
1.7%
(5.4)%
Net income per common share - diluted
Cash dividends per common share
Book value per common share at year-end (4)
Stock price per common share at year-end
1.76
0.96
16.23
36.56
1.72
0.88
15.38
28.51
1.81
0.80
14.47
9.1%
5.5%
27.79
28.2%
2.3%
(5.0)%
Total assets
Total debt
$2,324.0
$2,214.4
$1,946.8
4.9%
13.7%
216.2
217.6
214.6
(0.6)%
Owens & Minor, Inc. shareholders’ equity
1,023.9
972.5
918.1
5.3%
10.0%
6.3%
2.6%
1.4%
5.9%
(1) We incurred charges of $12.4 million ($8.9 million after tax, or $0.14 per common share) associated with acquisition-related and exit and realignment activities in 2013.
See Notes 3 and 9 of Notes to the Consolidated Financial Statement
(2) We incurred charges of $10.2 million ($8.2 million after tax, or $0.13 per common share) associated with acquisition-related and exit and realignment activities in 2012.
See Notes 3 and 9 of Notes to the Consolidated Financial Statements.
(3) We incurred charges of $13.2 million ($8.0 million after tax, or $0.13 per common share) associated with acquisition-related and exit and realignment activities in 2011.
See Note 9 of Notes to the Consolidated Financial Statements.
(4) Represents Owens & Minor, Inc. shareholders’ equity divided by year-end common shares outstanding.
Revenue
Net Income
$8.87
$9.07
$8.63
$115.2
$109.0
$110.9
Net Income Per
Diluted Share
$1.81
$1.72
$1.76
Dividends
$0.96
$0.88
$0.80
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2011 2012 2013
2011 2012 2013
2011 2012 2013
2011 2012 2013
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2013 Annual Report & Form 10-K
1000
800
600
400
200
0
TO OUR
SHAREHOLDERS,
TEAmmATES,
AND FRIENDS:
“Together, our Domestic and
International platforms are
positioned to serve the two
regions of the world where
three-quarters of the global
healthcare expenditure occurs –
the United States and Europe.”
For a company that will mark its 132nd year
in operation in 2014, we can point to many
achievements since we opened our doors in 1882.
However, I believe that one of our most important
achievements is our enduring ability to focus on the
future, no matter what conditions we face in the healthcare
market and in the economy. Over the generations, we have
been able to chart a steady course by staying focused on
delivering long-term value and making investments that
will serve us well over the long run.
With 2013 behind us, we accomplished most of the
operational and financial goals
we established for the year,
and certain of these milestones
illustrate our ability to move
our company
forward. We
celebrated our first full year of
operations in Europe with our
Movianto team. Shareholders’
equity exceeded the $1 billion
mark for the first time in 2013,
and we made a record amount
of shareholder distributions
last year. Annual revenues
exceeded $9 billion for the
first time, and we reached
our targeted revenue growth
range on a consolidated basis,
thanks to the hard work of
our sales teams in the U.S.
and Europe. We achieved this
revenue target despite certain
challenging macro economic
lower
conditions,
rates of healthcare utilization,
new healthcare legislation, and negligible price inflation
on medical products.
including:
Despite
these conditions, our Domestic
teams
achieved positive revenue growth in the second half of
the year. And, with new leadership in place at Movianto
and the hard work of our European teammates, our
International segment steadily improved throughout
the year. I am pleased to report that the Movianto team
achieved two consecutive profitable quarters in the
second half of 2013 and improved operating earnings
over the course of the year.
2013 Annual Report & Form 10-K
2
Last year, we reached another milestone by completing
the last of the contract renewals with the major group
purchasing organizations (GPOs). Putting this 18-month
process in our rear-view mirror enables us to fully concentrate on building our
relationships with the individual GPO members – the provider hospitals and health
systems who are our customers.
During the year, we also refocused our management teams so that we have the ex-
pertise and resources dedicated to serve not only our healthcare provider customers,
but our manufacturer customers, as well. Our relationships with healthcare manufac-
turers are important building blocks for our future. Domestically, we provide valu-
able services to our manufacturers such as warehousing, distribution, sales, invoic-
ing, collections, and channel access to more than 40% of the acute-care distribution
market. Internationally, where our primary customers are healthcare manufacturers,
we provide a range of outsourced logistics services. With our legacy expertise and re-
lationships in healthcare and our established platforms on two continents, we believe
we are uniquely positioned to execute our vision of Connecting the World of Medical
Products to the Point of CareTM.
Finally, we continued our tradition of creating value for our investors with total
shareholder distributions of nearly $80 million in dividends and share repurchases in
2013. With an attractive dividend yield and new share repurchase program, we have the
strategy and the means to enhance our long-term value for our shareholders.
While there were many challenges in the healthcare market over the last four
years, we remained focused on our future. We have invested more than $330 million
in growth investments, including the acquisition of Movianto, an established, leading
European healthcare logistics business. The investments we made over this period
share a common focus – expanding our addressable market in healthcare and building
our infrastructure to support evolving customer needs. For example, in response to a
growing demand from manufacturers for logistics services, we invested in developing
our healthcare logistics business. We also established a sourcing arm in Asia, which is
supporting our three-pronged sourcing strategy – growing our private label, working
with branded manufacturers and working with diversity suppliers. In addition, over
this same time period, we distributed approximately $260 million to our shareholders.
We firmly believe that these achievements over the last four years have put us in a much
stronger position than ever before to embrace emerging opportunities in healthcare.
Turning to our financial results for 2013, consolidated revenues grew 2.3% to $9.07
billion, including revenues of $384 million from the International segment. Offsetting
this increase in International revenues was a slight decline in Domestic revenue
results, primarily resulting from the continuing headwinds we cited consistently
throughout the year.
Adjusted consolidated operating earnings, excluding $12.4 million in pre-tax
acquisition-related and exit and realignment charges, were $211 million, or 2.32% of
revenues, which is an improvement of $4 million compared to the year before. The
International segment narrowed its operating losses throughout the year by $4 million
and reported an operating loss of $1.4 million for the year. The Movianto team did a
great job in improving their performance under the guidance of the new leadership
team. For the year, adjusted consolidated net income was $120 million, or $1.90 per
diluted share, an improvement of five cents, when compared to the year before.
In looking back, we see that 2013 was another solid year of investment in our
strategy to expand our reach into the global healthcare markets and modernize
our platforms so that we may continue to adapt to changes in our markets and
embrace emerging opportunities. With every strategic decision we make, we
know we must also deliver long-term value to our shareholders. Part of this value
74%
of the global healthcare
spend occurs in
North America and Europe
O&M’s domestic facilities
are within four hours of
90%
of the nation’s
hospital beds
17%
of the U.S. GDP is spent
on healthcare
3
2013 Annual Report & Form 10-K
creation comes from our capital allocation strategy. We are in the final year of a
three-year, $50 million investment in upgrading and modernizing our information
technology systems. This phased investment strategy is enabling us to improve our
key systems and prepare for handling new types of business and services.
Another important element of our capital allocation strategy is paying dividends to
our shareholders. In all, this will be the 85th straight year that Owens & Minor has paid
a dividend. The ten-year cumulative total return for Owens & Minor of 214% exceeds
that of the S&P 500 over the same period. Already this year, our board has approved a
4% increase in our first quarter 2014 dividend and established a new, three-year, $100
million share repurchase program. This share repurchase plan gives us an additional
means of returning value to shareholders.
Also, as you can see from this year’s annual report, we are adapting our approach
to the market in response to developments in the healthcare market and an evolution
in our customer mix. Because we provide much more than traditional healthcare
distribution services today, we are positioning Owens & Minor in the market as the
go-to logistics provider for healthcare manufacturers and providers. Our new tag line
sums it all up: HEALTHCARE LOGISTICS. EVOLVED TM.
Together, our Domestic and International platforms are positioned to serve
customers within the two regions of the world where three-quarters of the global
healthcare expenditure occurs – North America and Europe. By expanding the range
of services we provide and our customer base, we believe we are better equipped today
than ever before to tap a larger portion of the global healthcare spend. This is an exciting
prospect for all of us at Owens & Minor.
With every passing year comes change. This year, I would like to welcome two new
directors to the Owens & Minor family: Stuart M. Essig, the former chief executive
officer and current board chairman of Integra LifeSciences Holdings Corporation;
and David S. Simmons, chairman & chief executive officer of Pharmaceutical Product
Development, LLC. We are very pleased to welcome both gentlemen to our board.
Stuart and David bring a new dimension to the table with expertise in global commerce
and the medical device and pharmaceutical sides of healthcare.
As we welcome two new board members, we also say farewell to the long-standing
chairman of our audit committee. I would like to acknowledge the generous service of
Richard Fogg, who joined our board in 2003 and who has been our audit committee
chairman since 2006. Dick Fogg has been a steady leader and expert resource for the
company throughout his time on our board. We deeply appreciate the work he has
done for Owens & Minor and the guidance he has provided. I want to personally thank
Dick for his many contributions to Owens & Minor and for his friendship. I know I
speak for all of us, when I wish him well as he retires from our board after our Annual
Shareholders’ Meeting in May.
I would also like to thank Jim Bierman for stepping into the role of president of
Owens & Minor last year. Jim took on this significant new responsibility with great
enthusiasm and has done an admirable job of preparing our company and our
teammates for the opportunities ahead. In addition, Randy Meier joined Owens &
Minor as our new chief financial officer, and his considerable experience in operating
global healthcare products businesses is strengthening our efforts.
Every day, we serve thousands of healthcare provider and manufacturer customers
in the United States and in Europe. We work hard to expand our business, improve
our earnings power and deliver value to shareholders. Our success depends directly on
O&M made $80 million
in shareholder
distributions in 2013
Strategic investments
have more than
doubled
O&M’s addressable market
Shareholders’ equity exceeds
$1,000,000,000
2013 Annual Report & Form 10-K
4
our 6,700 teammates stationed in the United States, Europe and
Asia. Their hard work is the foundation of our success today, but
their teamwork, expertise and energy will make an even greater
impact as we prepare for our future. I commend them for their
enthusiastic commitment to Owens & Minor. Our teammates
are also generous volunteers, giving their time, energy and
talent to serving the needs of our communities. Each year, our
teammates participate in a wide range of community events,
raising money and donating time to various community service
organizations such as food-banks, veterans’ organizations, and
schools in need. Our teammates place great value on making a
positive impact in our communities.
In closing, I would like to thank our shareholders, provider
and manufacturer customers, and business partners for their
ongoing support of Owens & Minor. And, I especially want to
thank our teammates in the U.S., Europe and Asia, who serve
our company with such dedication every day. I am convinced
that every great success is the result of teamwork, and that is
what we celebrate every day at Owens & Minor.
Best wishes for a great year to come,
Craig R. Smith
Chairman & Chief Executive Officer
“I am convinced that every great
success is the result of teamwork,
and that is what we celebrate every
day at Owens & Minor.”
O&M U.S.
• Medical Devices
• Buy-Sell
• Provider Customers
• Order Aggregation
• Utilized Delivery
O&M Asia
• Sourcing
• Product Quality
• Regulatory
Compliance
• Manufacturer
Qualification
• Price, Logistics
O&M
Europe
• RX / Biotech
• Fee-for-Service
• Manufacturer
Customers
• Cold Chain /
Controlled
Substances
5
2013 Annual Report & Form 10-K
CONNECTING THE WORLD OF mEDICAL
PRODUCTS TO THE POINT OF CARE ™
Serving the logistics needs of a healthcare market
that is growing in size, scope and complexity
every day demands a new approach with
comprehensive, innovative services. Building on our
132-year legacy in healthcare, we are using our market
leading positions in the United States and Europe to
provide a fresh approach to healthcare logistics. With
platforms on two continents, expertise in logistics and
distribution, product sourcing capabilities, and deep
relationships in healthcare, we aim to be the trusted
partner that is Connecting the World of Medical
Products to the Point of CareTM.
Using a partnership approach, we serve healthcare
providers and healthcare products manufacturers
alike, by offering solutions to logistics challenges. For
our healthcare provider customers, which range from
large-scale, integrated healthcare networks to single
hospitals, we provide a full range of logistics services,
including consolidated procurement and contract
management, inventory management and customized
deliveries. We also provide assistance in product
selection in support of healthcare providers’ patient
care and financial goals. For healthcare manufacturers,
we offer a wide range of logistics services across
Europe and the United States, from straightforward
third-party logistics and product sourcing services,
2013 Annual Report & Form 10-K
6
“Building on our 132-year
legacy in healthcare, we
are using our market
leading positions in the
United States and Europe to
provide a fresh approach
to healthcare logistics.”
to more complex processes such as cold-chain
management and regulatory oversight.
As our logistics services evolve, we see new
opportunities in an addressable market that
has more than doubled in size. In order to tap
this expanded market opportunity, we have
conducted a series of strategic investments
in recent years that have enabled us to
update our information technology systems,
add capabilities in Europe and refresh our
domestic network. Our new logo says it all:
HEALTHCARE LOGISTICS. EVOLVEDTM.
7
2013 Annual Report & Form 10-K
THIS PAGE DOES NOT PRINT.
HOLDING PAGE FOR THE FRONT OF THE 10-K
BOARD OF DIRECTORS
Craig R. Smith (62) 1, 4
Chairman & CEO,
Owens & Minor, Inc.
James E. Rogers (68) 1, 3
Lead Director,
Owens & Minor, Inc.
Chairman, BackOffice Associates
Retired President, SCI Investors Inc.
Stuart M. Essig (52) 3, 4
Chairman of the Board,
Integra LifeSciences Holdings Corporation
Retired CEO,
Integra LifeSciences Holdings Corporation
Richard E. Fogg (73) 1, 2*, 4
Retired Partner,
PricewaterhouseCoopers LLP
John W. Gerdelman (61) 2, 4*
Managing Partner,
River2
Lemuel E. Lewis (67) 2, 5
President, LocalWeather.com
Retired EVP & CFO,
Landmark Communications
Martha H. Marsh (65) 2, 4
Retired President & CEO,
Stanford Hospital and Clinics
Eddie N. Moore, Jr. (66) 2, 5
Interim President & CEO,
Norfolk State University
Former President,
Saint Paul’s College
President Emeritus,
Virginia State University
David S. Simmons (49) 2, 4
Chairman & CEO,
Pharmaceutical Product Development, LLC
Robert C. Sledd (61) 1, 3*, 4, 5
Former Senior Economic Advisor
to the Governor of Virginia
Former Chairman,
Performance Food Group Co.
Anne Marie Whittemore (67) 1, 3, 5*
Partner, McGuireWoods LLP
Board Committees:
1Executive Committee
2Audit Committee
3Compensation & Benefits Committee
4Strategic Planning Committee
5Governance & Nominating Committee
*Denotes Chairman
CORPORATE OFFICERS
Craig R. Smith (62)
Chairman & Chief Executive Officer
Chairman of the Board since April 2013 and Chief Executive Officer since 2005. Mr. Smith also
served as President from 1999 until August 2013. Mr. Smith has been with the company since 1989.
James L. Bierman (61)
President & Chief Operating Officer
President since August 2013 and Chief Operating Officer since March 2012. Previously,
Mr. Bierman served as Executive Vice President & Chief Operating Officer from March 2012
until August 2013. Mr. Bierman served as Executive Vice President & Chief Financial Officer
from April 2011 to March 2012. Prior to that, Mr. Bierman served as Senior Vice President &
Chief Financial Officer from 2007 to 2011. Mr. Bierman joined the company in 2007.
Richard A. Meier (54)
Executive Vice President & Chief Financial Officer
Executive Vice President & Chief Financial Officer since joining Owens & Minor in March 2013.
Mr. Meier served from 2010 to 2012 as Executive Vice President & Chief Financial Officer of
Teleflex, Inc., a global provider of specialty medical devices. Prior to that, he served as President
& Chief Operating Officer of Advanced Medical Optics, Inc., from 2007 to 2009, and as Chief
Financial Officer and in a variety of other finance and operations roles from 2002 through 2007.
Charles C. Colpo (56)
Senior Vice President, Strategic Relationships
Senior Vice President, Strategic Relationships since August 2013. From March 2012 until August
2013, Mr. Colpo served as Senior Vice President, Operations. Prior to that, Mr. Colpo served
as Executive Vice President & Chief Operating Officer from 2010 to 2012. Mr. Colpo served as
Executive Vice President, Administration from 2008 until 2010 and as Senior Vice President,
Operations, from 1999 until 2008. He has been with the company since 1981.
Erika T. Davis (50)
Senior Vice President, Administration & Operations
Senior Vice President, Administration & Operations since August 2013. Prior to that, Ms. Davis
served as Senior Vice President, Human Resources, from 2001 until August 2013. Ms. Davis has
been with the company since 1993.
Grace R. den Hartog (62)
Senior Vice President, General Counsel & Corporate Secretary
Senior Vice President, General Counsel & Corporate Secretary since joining Owens & Minor in
2003. Previously, Ms. den Hartog served as a partner of McGuireWoods LLP from 1990 to 2003.
D. Todd Healy (51)
Senior Vice President, Provider Services
Senior Vice President, Provider Services since August 2013. Prior to that, Mr. Healy served as
Regional Vice President, North Region from 2004 to August 2013. He has served in general
manager, division vice president and area vice president positions since joining Owens & Minor
in 1994.
Richard W. Mears (53)
Senior Vice President, Chief Information Officer
Senior Vice President, Chief Information Officer since joining Owens & Minor in 2005.
Previously, Mr. Mears was an Executive Director with Perot Systems (now Dell Perot Systems)
from 2003 to 2005.
Brian J. Shotto (50)
Senior Vice President, Manufacturer Services
Senior Vice President, Manufacturer Services since August 2013. Previously, Mr. Shotto served
as Senior Vice President, Specialty Services from October 2011 until August 2013. Mr. Shotto
served as a Principal Consultant for the Blue Fin Group from 2009 until 2011. Prior to that, he
served as Vice President, Distribution Strategy – Healthcare Logistics Strategy Group, UPS, from
2006 to 2009, a company he joined in 2000. Mr. Shotto joined Owens & Minor in 2011.
Mark A. Van Sumeren (56)
Senior Vice President, Strategy & Business Development
Senior Vice President, Strategy & Business Development since 2009 and Senior Vice President,
Business Development, from 2007 to 2009. Prior to that, Mr. Van Sumeren was Senior Vice
President, OMSolutionsSM from 2003 to 2006. Mr. Van Sumeren served as Vice President for Cap
Gemini Ernst & Young from 2000 to 2003. He has been with the company since 2003.
Numbers inside parentheses indicate age.
2013 Annual Report & Form 10-K
8
Owens & Minor, Inc. 2013 Form 10-K
THIS
PAGE INTENTIONALLY LEFT BLANK
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2013
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
(State or other jurisdiction of
incorporation or organization)
9120 Lockwood Boulevard, Mechanicsville, Virginia
(Address of principal executive offices)
54-1701843
(I.R.S. Employer
Identification No.)
23116
(Zip Code)
Registrant’s telephone number, including area code (804) 723-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $2 par value
Preferred Stock Purchase Rights
6.35% Senior Notes due 2016
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Not Listed
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities
Act). Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
1
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or
a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting com
pany
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
No
The aggregate market value of Common Stock held by non-affiliates (based upon the closing sales price) was
approximately $2,142,554,205 as of June 30, 2013.
The number of shares of the Company’s common stock outstanding as of February 18, 2014 was 63,097,861 shares.
Documents Incorporated by Reference
The proxy statement for the annual meeting of shareholders to be held on May 1, 2014, is incorporated by reference for
Item 5 of Part II and Part III.
2
Form 10-K Table of Contents
Item No.
Part I
1
1A.
1B.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
2
Part II
5
6
7
7A.
8
9
9A.
9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III
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Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Part IV
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Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Corporate Officers, located on page 8 of the company’s printed Annual Report, can be found at the end of the electronic filing
of this Form 10-K.
Part I
Item 1. Business
General
Owens & Minor, Inc. and subsidiaries (we, us or our), a Fortune 500 company headquartered in Richmond, Virginia,
is a leading healthcare logistics company that connects the world of medical products to the point of care. We provide vital
supply chain assistance to the providers of healthcare services and the manufacturers of healthcare products, supplies and
devices in the United States and Europe. We serve our customers with a service portfolio that covers procurement, inventory
management, delivery and sourcing for the healthcare market. With fully developed networks in the United States and Europe,
we are equipped to serve a customer base ranging from hospitals, integrated healthcare systems, group purchasing
organizations, and the U.S. federal government, to manufacturers of life-science and medical devices and supplies, including
pharmaceuticals in Europe. The description of our business should be read in conjunction with the consolidated financial
statements and supplementary data included in this Form 10-K.
Founded in 1882, Owens & Minor was incorporated in 1926 in Richmond, Virginia. We focus our operations on
healthcare logistics services and provide our customers with a service portfolio that covers procurement, inventory
management, delivery and sourcing for the healthcare market. Through organic growth and acquisitions over many years, we
significantly expanded and strengthened our company, achieving national scale in the United States healthcare market. On
August 31, 2012, we acquired the Movianto Group (Movianto), an established European healthcare third-party logistics
provider. As a result of the acquisition, we have entered into third-party logistics services for the pharmaceutical,
biotechnology and medical device industries in the European market, leveraging an existing platform that also expands our
ability to serve our United States-based manufacturer customers on an international level.
Our Domestic segment includes all functions in the United States relating to our role as a healthcare services
company providing distribution and logistics services to healthcare providers and manufacturers. The International segment
consists of Movianto, our European third-party logistics service. Financial information by segment and geographic area
beginning with the acquisition of Movianto in 2012 appears in Note 20, “Segment Information,” of the Notes to Consolidated
Financial Statements included in this annual report.
The Domestic Segment
The Healthcare Supply Industry in the United States
Healthcare supply volumes in the United States are dependent on the rates of utilization of medical/surgical
procedures by consumers, which are subject to fluctuation according to the condition of the domestic economy and other
factors. Aside from consumer-driven activity, the healthcare supply industry is also experiencing growing demand for
advanced logistics services from healthcare providers and manufacturers that are focused on achieving more efficient and cost-
effective supply-chain operations.
In the United States, healthcare supply distributors contract with group purchasing organizations (GPOs) that
negotiate distribution contracts on behalf of their healthcare provider members and also contract directly with healthcare
providers and manufacturers for their services.
Healthcare providers are increasingly consolidating into larger, more sophisticated networks that are actively
seeking reductions in the total cost of delivering healthcare products. These healthcare providers face complex financial
challenges, including managing the cost of purchasing, receiving, storing and tracking supplies. Economic trends have also
driven significant consolidation within the healthcare supply industry due to the competitive advantages enjoyed by larger
organizations. Among these advantages are the ability to serve customers in widespread geographic locations, purchase
inventory in large volume, develop technology platforms and decision-support systems and provide expertise to healthcare
providers and manufacturers to help reduce supply chain costs.
3
Our Products and Services
We offer a comprehensive portfolio of products and services to healthcare providers and manufacturers in the
United States. Our portfolio of medical and surgical supplies includes branded products purchased in large volume from
manufacturers and our own proprietary MediChoice® private-label products, which are internally sourced through our sourcing
joint venture in China or through a select group of manufacturers. We store these items at our distribution centers and provide
delivery of these products, along with related services, to healthcare providers around the nation. Most supplies are delivered
using a leased fleet and almost all of our delivery personnel are our teammates, ensuring a consistent level of performance and
customer service. In situations where they are more cost-effective and timely, we use contract carriers and parcel delivery
services. We customize product deliveries, whether the orders are “just-in-time,” “low-unit-of-measure,” pallets, or truckloads.
We also customize delivery schedules according to customers’ needs to increase their efficiency in receiving and storing the
product. We have deployed automation equipment in low-unit-of-measure picking modules in our larger distribution centers to
maximize efficiency, and our distribution center teammates use voice-pick technology to enhance speed and accuracy in certain
warehousing processes.
We also offer additional services to healthcare providers including supplier management, analytics, inventory
management, outsourced resource management, clinical supply management and business process consulting. Our value-add
services help providers improve their process for contracting with vendors, purchasing supplies and streamlining inventory.
These include our operating room-focused inventory management program that helps healthcare providers manage suture and
endo-mechanical inventory, as well as our customizable surgical supply service that includes the assembly and delivery of
surgical supplies in procedure-based totes to coincide with the healthcare providers’ surgical schedule.
The majority of our distribution arrangements compensate us on a cost-plus percentage basis, under which a
negotiated percentage distribution fee is added to the contract cost agreed to by the customer and the supplier. We price our
services for certain other activities under an activity-based pricing model. In these cases, pricing depends upon the range, level
or complexity of service that we provide to customers, and in some cases we do not take title to the product involved although
we maintain certain custodial risks. As a result, this fee-for-service pricing model aligns the fees we charge with the cost of the
services provided, which is a component of selling, general and administrative expenses, rather than with the cost of the
product, which is a component of cost of goods sold.
We offer a variety of programs and services dedicated to providing logistics and marketing solutions to our
manufacturer customers as well. These programs and services are designed to help manufacturers increase market share, drive
sales growth, or achieve operational efficiencies. Manufacturer programs are generally negotiated on an annual basis and
provide for enhanced levels of support that are aligned with the manufacturer’s annual objectives and growth goals. We have
contractual arrangements with manufacturers participating in these programs that provide performance-based incentives to us,
as well as cash discounts for prompt payment. Program incentives can be earned on a monthly, quarterly or annual basis.
All of our services utilize a common infrastructure of distribution centers, equipment, technology, and delivery
methods (internal fleet, common carrier or parcel services). We operate a network of 43 distribution centers located throughout
the continental United States, which are strategically located to efficiently serve our provider and manufacturer customers. A
significant investment in information technology supports the business and efficiently manages growth, including warehouse
management systems, customer service and ordering functions, demand forecasting programs, electronic commerce, data
warehousing, decision support and supply-chain management, as well as significant enhancements to back office systems and
overall technology infrastructure. During 2012, we initiated a three-year, $50 million investment in our information technology
infrastructure in the United States designed to achieve operational and data-management efficiencies, improve customer
service, and reduce increases in future operating expenses.
The International Segment
Our Products and Services
Our International segment, comprised of Movianto, represented 4.2% of our consolidated net revenues during 2013.
Movianto is a European contract logistics service provider to the pharmaceutical, biotechnology and healthcare industry,
offering a broad range of supply chain logistics services to manufacturers. Our warehousing and transportation offerings
include storage, controlled-substance handling, cold-chain, emergency and export delivery, inventory management and pick &
pack services. Our other services include order-to-cash, re-labeling, kitting, packaging, customer service and returns
management.
4
Movianto has a network of 20 logistics centers in 11 European countries, including Belgium, Czech Republic,
Denmark, France, Germany, Netherlands, Portugal, Slovakia, Spain, Switzerland and the United Kingdom. To serve its clients,
Movianto uses a fleet of leased and owned trucks, including cold-chain delivery trucks. The majority of our drivers are
Movianto teammates, although contract carriers and parcel services are used in situations where they are more cost-effective
and timely.
Movianto’s client contracts are generally for three-year terms with rolling automatic one year extension periods. The
tendering or competitive bidding process typically takes 12 to 18 months from the initial client request for proposal until
becoming operational. Movianto offers significant flexibility to tailor contracts to specific client requirements, and it benefits
from the expansion of clients into additional European countries. Pricing may be activity-based, with fees determined by
clients’ particular requirements for warehousing, handling and delivery services, or it may be based on buy-sell wholesaler
arrangements for product and distribution services.
As a part of the Movianto acquisition in 2012, we entered into transition support services agreements with the
former owner of Movianto under which it provides certain information technology and support services for terms ranging from
six to 24 months. These services were substantially completed at the end of 2013.
Our Customers
We currently provide distribution, outsourced resource management and/or consulting services to thousands of
healthcare provider customers. These customers include multi-facility networks of healthcare providers offering a broad
spectrum of healthcare services to a particular market or markets (IHNs) as well as smaller, independent hospitals in the United
States. In addition to contracting with healthcare providers at the IHN level and through GPOs, we also contract with other
types of healthcare providers including surgery centers, physicians’ practices and smaller networks of hospitals that have joined
together to negotiate terms. We have contracts to provide distribution services to the members of a number of national GPOs,
including Novation, LLC (Novation), MedAssets Inc. (MedAssets), Premier, Inc. (Premier) and HealthTrust Purchasing Group
(HPG). In 2012 and 2013, we renewed the distribution agreements with all four GPOs to continue our status as an authorized
distributor for their member healthcare providers and allow us to compete with other authorized distributors for the business of
individual members. Below is a summary of these agreements:
GPO
Year of Renewal
Novation
MedAssets
Premier
HPG
2012
2013
2013
2013
Term
5 years*
3 years
3 years
5 years
Sales to Members as
a % of Consolidated
Net Revenue in 2013
33%
24%
21%
9%
* Agreement also includes two one-year renewals after the initial term
We have our own independent relationships with most of our hospital customers through separate contractual
commitments that may or may not be based upon the terms of our agreement with the GPO. As a result, the termination or
expiration of an agreement with a particular GPO would not necessarily mean that we would lose the members of such GPO as
our customers.
Our supplier and manufacturer customers represent the largest and most influential healthcare manufacturers in the
industry. We have long-term relationships with these important companies in the healthcare supply chain and have long
provided traditional distribution services to them. We currently have relationships with approximately 1,300 of these supplier
and manufacturer customers. In the Domestic segment, sales of products supplied by subsidiaries of Covidien Ltd. accounted
for approximately 13% of our consolidated net revenue for 2013. Sales of products supplied by Johnson & Johnson Health
Care Systems, Inc. were approximately 10% of our consolidated net revenue for 2013.
In Europe, we serve a diverse customer base of approximately 600 manufacturer clients, including pharmaceutical,
biotechnology and medical device manufacturers.
5
Asset Management
In the healthcare supply distribution industry, a significant investment in inventory and accounts receivable is
required to meet the rapid delivery requirements of customers and provide high-quality service. As a result, efficient asset
management is essential to our profitability. We continually work to refine our processes to optimize inventory and collect
accounts receivable.
Inventory
We are focused in our efforts to optimize inventory and continually consolidate products and collaborate with
supply-chain partners on inventory productivity initiatives. When we convert large-scale, multi-state IHN customers to our
distribution network, an additional investment in inventory in advance of expected sales is generally required. We actively
monitor inventory for obsolescence and use inventory turnover and other operational metrics to measure our performance in
managing inventory.
Accounts Receivable
In the normal course of business, we provide credit to our domestic and European customers and use credit
management techniques to evaluate customers’ creditworthiness and facilitate collection. These techniques may include
performing initial and ongoing credit evaluations of customers based primarily on financial information provided by them and
from sources available to the general public. We also use third-party information from sources such as credit reporting
agencies, banks and other credit references. We actively manage our accounts receivable to minimize credit risk, days sales
outstanding (DSO) and accounts receivable carrying costs. Our ability to accurately invoice and ship product to customers
enhances our collection results and drives our positive DSO performance. We also have arrangements with certain customers
under which they make deposits on account, either because they do not meet our standards for creditworthiness or in order to
obtain more favorable pricing.
Competition
The medical/surgical supply distribution and healthcare logistics industries are highly competitive in the United
States and Europe. The U.S. sector includes Owens & Minor, Inc., as well as two major nationwide manufacturers who also
provide distribution services, Cardinal Health, Inc. and privately-held Medline, Inc. In addition, we compete with a number of
regional and local distributors and customer self-distribution models. Major logistics competitors serving healthcare
manufacturers in the United States and in Europe include United Parcel Service, FedEx Corporation, Deutsche Post DHL and
Alloga, as well as local competitors in specific countries.
Regulation
The medical/surgical supply distribution industry in the United States is subject to regulation by federal, state and
local government agencies. Each of our distribution centers is licensed to distribute medical and surgical supplies, as well as
certain pharmaceutical and related products. We must comply with laws and regulations, including those governing operations,
storage, transportation, safety and security standards for each of our distribution centers, of the Food and Drug Administration,
the Drug Enforcement Agency, the Department of Transportation, the Department of Homeland Security, the Occupational
Safety and Health Administration, and state boards of pharmacy, or similar state licensing boards and regulatory agencies. We
are also subject to various federal and state laws intended to protect the privacy of health or other personal information and to
prevent healthcare fraud and abuse. We believe we are in material compliance with all statutes and regulations applicable to
distributors of medical and surgical supply products and pharmaceutical and related products, including the Healthcare
Insurance Portability and Accountability Act of 1996 (HIPAA), Medicare, Medicaid, as well as applicable general employment
and employee health and safety laws and regulations.
Movianto is subject to local, country and European-wide regulations, including those promulgated by the European
Medicines Agency (EMA), a decentralized agency of the European Union responsible for the scientific evaluation of medicines
developed by pharmaceutical companies for use in the European Union. In addition, quality requirements are imposed by
healthcare industry manufacturers which audit Movianto on a regular basis. Each of our logistics centers in Europe is licensed
to distribute medical and surgical supplies, as well as certain pharmaceutical and related products, according to the country-
specific requirements. We believe we are in material compliance with all statutes and regulations, including Good Distribution
Practices sponsored by the European Commission. Movianto is also ISO 9001:2008 certified across the entire enterprise.
6
Employees
At the end of 2013, we employed approximately 4,900 full- and part-time teammates in the Domestic segment and
1,800 in the International segment. Most of our international teammates are covered by collective bargaining agreements.
Ongoing teammate training is critical to performance and we use Owens & Minor University®, an in-house training facility, to
offer classes in leadership, management development, finance, operations, safety and sales. We continue to have positive
relationships with teammates and European works councils.
Available Information
We make our Forms 10-K, Forms 10-Q and Forms 8-K (and all amendments to these reports) available free of
charge through the SEC Filings link in the Investor Relations content section on our website located at www.owens-minor.com
as soon as reasonably practicable after they are filed with or furnished to the SEC. Information included on our website is not
incorporated by reference into this Annual Report on Form 10-K.
You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other
information regarding the company (http://www.sec.gov).
Additionally, we have adopted a written Code of Honor that applies to all of our directors, officers and teammates,
including our principal executive officer and senior financial officers. This Code of Honor (including any amendments to or
waivers of a provision thereof) and our Corporate Governance Guidelines are available on our website at www.owens-
minor.com.
Item 1A. Risk Factors
Set forth below are certain risk factors that we currently believe could materially and adversely affect our business,
financial condition and prospects. These risk factors are in addition to those mentioned in other parts of this report and are not
all of the risks that we face. We could also be affected by risks that we currently are not aware of or that we currently do not
consider material to our business.
Competition
The medical/surgical supply distribution industry in the United States is highly competitive and characterized by intense
pricing pressure. We compete with other national distributors and a number of regional and local distributors, as well as
customer self-distribution models and, to a lesser extent, certain third-party logistics companies. Competitive factors within the
medical/surgical supply distribution industry include market pricing, total delivered product cost, product availability, the
ability to fill and invoice orders accurately, delivery time, range of services provided, efficient product sourcing, inventory
management, information technology, electronic commerce capabilities, and the ability to meet customer-specific requirements.
Our success is dependent on the ability to compete on the above factors, while managing internal costs and expenses. These
competitive pressures could have a material adverse effect on our results of operations.
In addition, in recent years, the healthcare industry in the United States has experienced and continues to experience
significant consolidation in response to cost containment legislation and general market pressures to reduce costs. This
consolidation of our customers and suppliers generally gives them greater bargaining power to reduce the pricing available to
them, which may adversely impact our results of operations.
The healthcare third-party logistics business in both the United States and abroad also is characterized by intense
competition from a number of international, regional and local companies, including large conventional logistics companies
that are moving into the healthcare and pharmaceutical distribution business. This competitive market places continuous pricing
pressure on us from customers and manufacturers that could adversely affect our results of operations and financial condition if
we are unable to continue to increase our revenues and to offset margin reductions caused by pricing pressures through cost
control measures.
Dependence on Significant Healthcare Provider Customers
In 2013, our top ten customers in the United States represented approximately 23% of our consolidated net revenue. In
addition, in 2013, approximately 77% of our consolidated net revenue was from sales to member hospitals under contract with
our largest group purchasing organizations (GPO): Novation, MedAssets and Premier. We could lose a significant customer or
GPO relationship if an existing contract expires without being replaced or is terminated by the customer or GPO prior to its
7
expiration (if permitted by the applicable contract). Although the termination of our relationship with a given GPO would not
necessarily result in the loss of all of the member hospitals as customers, any such termination of a GPO relationship, or a
significant individual customer relationship, could have a material adverse effect on our results of operations.
Dependence on Significant Domestic Suppliers
In the United States, we distribute products from nearly 1,300 suppliers and are dependent on these suppliers for the
continuing supply of products. In 2013, sales of products of our ten largest domestic suppliers accounted for approximately
53% of consolidated net revenue. We rely on suppliers to provide agreeable purchasing and delivery terms and performance
incentives. Our ability to sustain adequate operating earnings has been, and will continue to be, partially dependent upon our
ability to obtain favorable terms and incentives from suppliers, as well as suppliers continuing use of third-party distributors to
sell and deliver their products. A change in terms by a significant supplier, or the decision of such a supplier to distribute its
products directly to healthcare providers rather than through third-party distributors, could have a material adverse effect on our
results of operations.
Integration of Acquisitions
In connection with our growth strategy, we from time to time acquire other businesses that we believe will expand or
complement our existing businesses and operations. In 2012, we completed our first international acquisition through our
purchase of Movianto, which has facilities in 11 European countries and operates throughout the European marketplace. The
integration of acquisitions, particularly international acquisitions, involves a number of significant risks, which may include but
are not limited to, the following:
• Expenses and difficulties in the transition and integration of operations and systems;
• Retention of current customers and the ability to obtain new customers;
• The assimilation and retention of personnel, including management personnel, in the acquired businesses;
• Accounting, tax, regulatory and compliance issues that could arise;
• Difficulties in implementing uniform controls, procedures and policies in our acquired companies, or in remediating
control deficiencies in acquired companies not formerly subject to the Sarbanes-Oxley Act of 2002;
• Unanticipated expenses incurred or charges to earnings based on unknown circumstances or liabilities;
•
• General economic conditions in the markets in which the acquired businesses operate; and
• Difficulties encountered in conducting business in markets where we have limited experience and expertise.
Failure to realize the synergies and other benefits we expect from the acquisition at the pace we anticipate;
If we are unable to successfully complete and integrate our strategic acquisitions in a timely manner, our business,
growth strategies and results of operations could be adversely affected.
International Operations
Our acquisition of Movianto represents our first significant movement into the international marketplace. Additionally,
in 2011, we entered into a joint venture in China to provide product sourcing services. Operations outside the United States
involve issues and risks, including but not limited to the following, any of which could have an adverse effect on our business
and results of operations:
• Lack of familiarity with and expertise in conducting business in foreign markets;
•
• Unexpected changes in foreign regulations or conditions relating to labor, economic or political environment, and
Foreign currency fluctuations and exchange risk;
social norms or requirements;
• Adverse tax consequences and difficulties in repatriating cash generated or held abroad;
• Local economic environments, such as in the European markets served by Movianto, including recession, inflation,
indebtedness, currency volatility and competition; and
• Changes in trade protection laws and other laws affecting trade and investment, including import/export regulations in
both the United States and foreign countries.
International operations are also subject to risks of violation of laws that prohibit improper payments to and bribery of
government officials and other individuals and organizations for the purpose of obtaining or retaining business. These laws
include the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar laws and regulations in foreign
jurisdictions, any violation of which could result in substantial liability and a loss of reputation in the marketplace. Failure to
comply with these laws also could subject us to civil and criminal penalties that could adversely affect our business and results
of operations.
8
Changes in the Healthcare Environment in the United States
We, along with our customers and suppliers, are subject to extensive federal and state regulations relating to healthcare
as well as the policies and practices of the private healthcare insurance industry. In recent years, there have been a number of
government and private initiatives to reduce healthcare costs and government spending. These changes have included an
increased reliance on managed care; reductions in Medicare and Medicaid reimbursement levels; consolidation of competitors,
suppliers and customers; a shift in healthcare provider venues from acute care settings to clinics, physician offices and home
care; and the development of larger, more sophisticated purchasing groups. All of these changes place additional financial
pressure on healthcare provider customers, who in turn seek to reduce the costs and pricing of products and services provided
by us. We expect the healthcare industry to continue to change significantly and these potential changes, which may include a
reduction in government support of healthcare services, adverse changes in legislation or regulations, and further reductions in
healthcare reimbursement practices, could have a material adverse effect on our results of operations.
In March 2010, federal healthcare legislation known as the Affordable Care Act was enacted. This healthcare reform
legislation includes, among other things, provisions for expanded Medicaid eligibility and access to healthcare insurance as
well as increased taxes and fees on certain corporations and medical products. Effective January 1, 2013, the Affordable Care
Act imposed a 2.3% federal excise tax on manufacturers for sales of certain medical devices. In the event these manufacturers
attempt to pass all or a portion of this excise tax through to us, or in the event such tax leads manufacturers to offer less
favorable terms and incentives to distributors, our profitability could be adversely impacted. The provisions of the Affordable
Care Act will not be fully implemented until 2018 and, although there is no way to predict the full impact of the law on the
healthcare industry and our operations, its implementation may have an adverse effect on both customer purchasing and
payment behavior and supplier product prices and terms of sale, all of which could adversely affect our results of operations.
Regulatory Requirements
We must comply with numerous laws and regulations in the United States, Europe, Asia and other countries where we
distribute. We also are required to hold permits and licenses and to comply with the operational and security standards of
various governmental bodies and agencies. Any failure to comply with these laws and regulations or any failure to maintain the
necessary permits, licenses or approvals, or to comply with the required standards, could disrupt our operations and/or
adversely affect our results of operations and financial condition. In addition, we are subject to various federal and state laws
intended to prevent healthcare fraud and abuse. The requirements of these fraud and abuse laws are complicated and subject to
interpretation and may be applied by a regulator, prosecutor or judge in a manner that could negatively impact us financially or
operationally.
General Economic Climate
The financial and economic climate in recent years continues to have a negative impact on most sectors of the
domestic economy and the international markets in which Movianto operates. This uncertain financial and economic climate
has reduced patient demand for healthcare services, reduced product price inflation, intensified pressures on healthcare
providers to reduce both costs and purchases of our products and services and could compromise our customers’ ability to
timely pay for their purchases. Poor economic conditions could lead our suppliers to offer less favorable terms of purchase to
distributors, which would negatively affect our profitability. These and other possible consequences of financial and economic
changes could materially and adversely affect our business and results of operations.
Bankruptcy, Insolvency or other Credit Failure of Customers
We provide credit in the normal course of business to customers. We perform initial and ongoing credit evaluations of
customers and maintain reserves for credit losses. The bankruptcy, insolvency or other credit failure of one or more customers
with substantial balances due to us could have a material adverse effect on our results of operations.
Reliance on Information Systems and Technological Advancement
We rely on information systems to receive, process, analyze and manage data in distributing thousands of inventory
items to customers from numerous distribution and logistics centers. These systems are also relied upon for billings to and
collections from customers, as well as the purchase of and payment for inventory and related transactions from our suppliers. In
addition, the success of our long-term growth strategy is dependent upon the ability to continually monitor and upgrade our
information systems to provide better service to customers. Our business and results of operations may be materially adversely
affected if systems are interrupted or damaged by unforeseen events (including cyber attacks) or fail to operate for an extended
period of time, or if we fail to appropriately enhance our systems to support growth and strategic initiatives.
9
Changes in Tax Laws
We operate throughout the United States and Europe as well as in China. As a result, we are subjected to the tax laws
and regulations of the United States federal, state and local governments and of various foreign jurisdictions. From time to
time, legislative and regulatory initiatives are proposed, including but not limited to proposals to repeal LIFO (last-in, first-out)
treatment of domestic inventory or changes in tax accounting methods for inventory or other tax items, that could adversely
affect our tax positions, tax rate or cash payments for taxes.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our Domestic segment had 43 distribution centers as well as office and warehouse space across the United States as
of December 31, 2013. We lease all of these distribution centers from unaffiliated third parties. We also lease offices in China
and Malaysia as well as small offices for sales and consulting personnel across the United States. In addition, we have a
warehousing arrangement in Honolulu, Hawaii, with an unaffiliated third party, and lease space on a temporary basis from time
to time to meet our inventory storage needs. We own our corporate headquarters building, and adjacent acreage, in
Mechanicsville, Virginia, a suburb of Richmond, Virginia.
Our International segment leases18 and owns two logistics centers across 11 European countries. We also operate
seven transport depots, of which we lease six and own one. We also lease office space in Stuttgart, Germany.
We regularly assess our business needs and make changes to the capacity and location of distribution and logistics
centers. We believe that our facilities are adequate to carry on our business as currently conducted. A number of leases are
scheduled to terminate within the next several years. We believe that, if necessary, we could find facilities to replace these
leased premises without suffering a material adverse effect on our business.
Item 3. Legal Proceedings
We are subject to various legal actions that are ordinary and incidental to our business, including contract disputes,
employment, workers’ compensation, product liability, regulatory and other matters. We establish reserves from time to time
based upon periodic assessment of the potential outcomes of pending matters. In addition, we believe that any potential liability
arising from employment, product liability, workers’ compensation and other personal injury litigation matters would be
adequately covered by our insurance coverage, subject to policy limits, applicable deductibles and insurer solvency. While the
outcome of legal actions cannot be predicted with certainty, we believe, based on current knowledge and the advice of counsel,
that the outcome of these currently pending matters, individually or in the aggregate, will not have a material adverse effect on
our financial condition or results of operations.
Part II
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Owens & Minor, Inc.’s common stock trades on the New York Stock Exchange under the symbol OMI. As of
February 13, 2014, there were approximately 3,484 common shareholders of record. We believe there are an estimated
additional 30,985 beneficial holders of our common stock. See Selected Quarterly Financial Information in Item 15 of this
report for high and low closing sales prices of our common stock and quarterly cash dividends per common share and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of our dividend
payments.
10
5-Year Total Shareholder Return
The following performance graph compares the performance of our common stock to the S&P 500 Index and an
Industry Peer Group (which includes the companies listed below) for the last five years. This graph assumes that the value of
the investment in the common stock and each index was $100 on December 31, 2008, and that all dividends were reinvested.
The Industry Peer Group, weighted by market capitalization, consists of companies engaged in the business of
healthcare product distribution. The Peer Group includes pharmaceutical distribution companies: AmerisourceBergen
Corporation, Cardinal Health, Inc., and McKesson Corporation; and medical product distribution companies: Henry Schein,
Inc., and Patterson Companies, Inc.
Company Name / Index
Owens & Minor, Inc.
S&P 500 Index
Peer Group
Base
Period
12/2008
12/2009
12/2010
12/2011
12/2012
12/2013
Years Ended
$
100.00
$
116.81
$
123.13
$
119.43
$
126.30
$
100.00
100.00
126.46
146.87
145.51
174.80
148.59
190.01
172.37
223.72
166.60
228.19
359.71
Share Repurchase Program. In February 2011, our 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. During the year ended December 31, 2013, we repurchased in open-market
transactions and retired 560 thousand shares at an average price per share of $33.72. As of December 31, 2013, we have no
remaining shares authorized for repurchase.
In February 2014, our Board of Directors renewed our share repurchase program authorizing the purchase of $100
million in common stock through 2017. The timing of repurchases 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 may be suspended or discontinued at any time.
11
The following table summarizes the share repurchase activity by month during the fourth quarter of 2013.
Period
October 2013
November 2013
December 2013
Total
Total 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
$
$
$
41,600
21,200
25,770
88,570
34.58
36.88
37.09
$
$
$
41,600
21,200
25,770
88,570
1,737,703
955,593
—
12
Item 6. Selected Consolidated Financial Data
(in thousands, except ratios and per share data)
Summary of Operations:
Net revenue (9)
Income from continuing operations
Loss from discontinued operations, net of tax(1)
Net income
Per Common Share(6) :
Net income (loss) attributable to Owens &
Minor, Inc. per common share—basic:
Continuing operations
Discontinued operations
Net income per share—basic
Net income (loss) attributable to Owens &
Minor, Inc. per common share—diluted:
Continuing operations
Discontinued operations
Net income per share—diluted
Cash dividends
Stock price at year end
Summary of Financial Position:
Total assets
Cash and cash equivalents
Total debt
Total Owens & Minor, Inc. shareholders’
equity
Selected Ratios:
Gross margin as a percent of revenue
Selling, general, and administrative expenses
as a percent of revenue
Operating earnings as a percent of revenue
Days sales outstanding (DSO) (7)
Average annual inventory turnover (8)
At or for the Year Ended December 31,
2013 (2)
2012 (3)
2011 (4)
2010 (5)
2009
$9,071,532
$ 8,868,324
$ 8,627,912
$ 8,123,608
$ 8,037,624
$ 110,882
$
109,003
$
115,198
$
110,579
$
116,859
—
$ 110,882
—
—
—
$
109,003
$
115,198
$
110,579
$
(12,201)
104,658
$
$
$
$
$
$
1.76
—
1.76
1.76
—
1.76
0.960
36.56
$
$
$
$
$
$
1.72
—
1.72
1.72
—
1.72
0.880
28.51
$
$
$
$
$
$
1.82
—
1.82
1.81
—
1.81
0.800
27.79
$
$
$
$
$
$
1.76
—
1.76
1.75
—
1.75
0.708
29.43
$
$
$
$
$
$
1.87
(0.19)
1.68
1.86
(0.19)
1.67
0.613
28.62
$2,324,042
$ 2,214,398
$ 1,946,815
$ 1,822,039
$ 1,747,088
$ 101,905
$ 216,243
$1,023,913
$
$
$
97,888
217,591
972,526
$
$
$
135,938
214,556
918,087
$
$
$
159,213
210,906
857,518
$
$
$
96,136
210,917
769,179
12.31%
10.43%
9.94%
9.94%
10.13%
9.52%
2.18%
22.1
10.4
7.70%
2.22%
20.8
10.1
7.08%
2.36%
20.7
10.2
6.94%
2.41%
19.6
10.4
7.37%
2.50%
21.4
10.6
(1)
(2)
(3)
(4)
In January 2009, we exited our direct-to-consumer diabetes supply (DTC) business. Accordingly, the DTC
business is presented as discontinued operations for all periods presented.
We incurred charges of $12.4 million ($8.9 million after tax, or $0.14 per common share) associated with
acquisition-related and exit and realignment activities in 2013. See Notes 3 and 9 of Notes to Consolidated
Financial Statements.
We incurred charges of $10.2 million ($8.2 million after tax, or $0.13 per common share) associated with
acquisition-related and exit and realignment activities in 2012. See Notes 3 and 9 of Notes to Consolidated
Financial Statements.
We incurred charges of $13.2 million ($8.0 million after tax, or $0.13 per common share) associated with
acquisition-related and exit and realignment activities in 2011. See Note 9 of Notes to Consolidated Financial
Statements.
13
(5)
(6)
(7)
(8)
(9)
We terminated our frozen defined benefit pension plan in the fourth quarter of 2010 and recognized a settlement
charge of $19.6 million ($11.9 million after tax, or $0.19 per common share).
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. The common stock began trading on a post-split basis on April 1, 2010. All share and per-share
data (except par value) have been adjusted to reflect this split.
Based on net revenue for the fourth quarter of the year.
Based on cost of goods sold for the preceding 12 months.
2012 net revenue has been revised to reflect current year revenue presentation. See Note 1 of Notes to
Consolidated Financial Statements.
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations is intended to assist the reader
in the understanding and assessment of significant changes and trends related to the results of operations of the Company
together with its subsidiaries. The discussion and analysis presented below refers to, and should be read in conjunction with, the
consolidated financial statements and accompanying notes included in Item 8 of Part II of this Annual Report on Form 10-K.
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 services in the United States relating to our role as a medical supply logistics
company serving healthcare providers and manufacturers. The International segment, which is comprised of the Movianto
Group (Movianto) acquired on August 31, 2012, provides third-party logistics for the pharmaceutical, biotechnology and
medical device industries in the European market. Segment financial information is provided in Note 20 of Notes to the
Consolidated Financial Statements included in this annual report.
Financial Highlights.
The following table provides a reconciliation of reported operating earnings, net income and diluted net income per
common share to non-GAAP measures used by management:
(Dollars in thousands, except per share data)
Operating earnings, as reported (GAAP)
Acquisition-related and exit and realignment charges
Operating earnings, adjusted (non-GAAP) (Adjusted Operated Earnings)
Adjusted Operating Earnings as a percent of revenue (non-GAAP)
Net income attributable to Owens & Minor, Inc., as reported (GAAP)
Acquisition-related and exit and realignment charges, net of tax
Net income, adjusted (non-GAAP) (Adjusted Net Income)
Net income attributable to Owens & Minor, Inc. per diluted common share,
as reported (GAAP)
Acquisition-related and exit and realignment charges, per diluted common
share
Net income per diluted common share, adjusted (non-GAAP) (Adjusted
EPS)
For the years ended December 31,
2013
198,083
12,444
210,527
2.32%
110,882
8,856
119,738
1.76
0.14
$
$
$
$
$
2012
196,753
10,164
206,917
2.33%
109,003
8,200
117,203
1.72
0.13
$
$
$
$
$
1.90
$
1.85
$
$
$
$
$
$
$
2011
203,515
13,168
216,683
2.51%
115,198
7,993
123,191
1.81
0.13
1.94
Use of Non-GAAP Measures
Our 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.
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.
15
Acquisition-related charges, pre-tax, of $3.5 million and $10.5 million in 2013 and 2012 are associated with
Movianto and $0.5 million in 2011 is related to the establishment of our joint venture in China. Acquisition-related charges in
2013 primarily consist of costs to transition Movianto's information technology and other operations and administrative
functions from the former owner. Charges in 2012 are primarily transaction costs incurred to perform due diligence and to
analyze, negotiate and consummate the acquisition and costs to perform post-closing activities to establish a tax-efficient
organizational structure. Exit and realignment charges (income), pre-tax, of $8.9 million, $(0.4) million and $12.7 million in
2013, 2012 and 2011 are associated with optimizing our operations and include the consolidation of distribution and logistics
centers and closure of offsite warehouses in the United States and Europe. Net of tax charges have been tax effected in the
preceding table using a blended income tax rate depending on the amount of charges incurred in different tax jurisdictions.
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 9 of Notes to Consolidated Financial Statements included in this
annual report.
Adjusted EPS increased to $1.90 in 2013 from $1.85 in 2012 primarily due to an increase in Adjusted Operating
Earnings of $3.6 million. Domestic segment operating earnings were $211.9 million for 2013, a decrease of $0.4 million when
compared to the prior year. International segment operating losses improved over the prior year by $4.0 million to $1.4 million
for 2013. The Domestic segment operating earnings were affected by higher gross margin, which was fully offset by higher
selling, general and administrative expenses. The International segment operating loss includes a full year of activity which
showed improving results in the second half of 2013.
Results of Operations
2013 compared to 2012
Net revenue.
(Dollars in thousands)
Domestic
International
Net revenue
For the years ended
December 31,
2013
2012
$ 8,688,018
$ 8,731,484
383,514
136,840
$ 9,071,532
$ 8,868,324
$
$
Change
$
(43,466)
246,674
203,208
%
(0.5)%
180.3 %
2.3 %
Net revenue for the current year increased due to a full year of activity in our International segment compared to
four months in the prior year. Domestic segment revenue continued to be impacted by ongoing market trends including lower
rates of healthcare utilization. In addition, our continued rationalization of smaller, less profitable healthcare provider
customers and suppliers and reduced government purchases were not fully offset by growth in existing customers, fee-for-
service and new business. Fee-for-service business represents approximately two-thirds of net revenue in the International
segment.
Gross margin.
(Dollars in thousands)
Gross margin
As a % of net revenue
For the years ended
December 31,
2013
2012
$ 1,117,075
$
924,654
$
12.31%
10.43%
Change
$
192,421
%
20.8%
Gross margin increased primarily due to a full year of Movianto activity in the current year which contributed
$177.4 million to the year over year change. The Domestic segment gross margin benefitted from strategic initiatives including
growth in fee-for-service business during the year and supplier price changes in the first and second quarters of 2013 at a higher
level than in 2012.
16
We value Domestic segment inventory under the LIFO method. Had inventory been valued under the first-in, first-
out (FIFO) method, gross margin as a percentage of net revenue would have been lower by 3 basis points in 2013 and higher by
5 basis points in 2012.
Operating expenses.
(Dollars in thousands)
SG&A expenses
As a % of net revenue
Depreciation and amortization
Other operating income, net
For the years ended
December 31,
2013
863,656
9.52%
50,586
(7,694)
$
$
$
2012
682,595
7.70%
39,604
(4,462)
$
$
$
$
$
$
Change
$
%
181,061
26.5%
10,982
(3,232)
27.7%
72.4%
Selling, general and administrative (SG&A) expenses include labor, warehousing, handling and delivery costs
associated with our distribution and logistics services, as well as labor costs for our supply-chain consulting services and all
costs associated with our fee-for-service business. The costs to convert new customers to our information systems are generally
incurred prior to the recognition of revenues from new customers. The International segment also includes costs for information
technology and other transition services provided by the former owners of Movianto which were substantially completed in
2013.
SG&A expense increased by $165.4 million in the current year due to a full year of activity in Movianto. Domestic
SG&A expense also increased over the prior year due to greater fee-for-service sales activity, increased costs to support
strategic initiatives and higher costs associated with workers' compensation, litigation and healthcare. During the second
quarter of 2013, we reached a settlement in the administrative proceedings before the California Board of Equalization related
to certain municipal sales tax incentives. As a result, SG&A expenses were reduced in 2013 by a net amount of $4.3 million,
which was fully offset by the increased costs noted above. In the future, the company expects to receive an ongoing tax
incentive that will vary with eligible revenues generated by sales to California-based customers. More information about this
incentive is provided in Note 18 of Notes to Consolidated Financial Statements included in this annual report.
Depreciation and amortization expense increase in the current year was primarily related to warehouse equipment
and information technology hardware and software acquired with Movianto. In addition, depreciation and amortization
increased $0.8 million in the Domestic segment due to software enhancements for operational efficiency improvements.
Other operating income includes finance charge income of $6.0 million and $4.9 million in 2013 and 2012. The
increase over the prior year was due to $1.6 million increase in income associated with product financing arrangements with
customers in Europe, $0.8 million in foreign exchange gains and a net $0.9 million in Domestic charges incurred in 2012
associated with specific litigation matters and loss contingency expenses which did not recur in the current year.
Interest expense, net.
(Dollars in thousands)
Interest expense, net
Effective interest rate
For the years ended
December 31,
2013
13,098
$
2012
13,397
$
6.05%
6.17%
Change
$
%
$
(299)
(2.2)%
For 2013, the decrease in interest expense was primarily from lower commitment fees in our new revolving credit
facility effective June 2012, partially offset by less interest income earned on cash and cash equivalents.
Income taxes.
(Dollars in thousands)
Income tax provision
Effective tax rate
For the years ended
December 31,
2013
2012
Change
$
%
$
74,103
$
74,353
$
(250)
(0.3)%
40.1%
40.6%
The provision for income taxes, including income taxes on acquisition-related and exit and realignment charges,
decreased from the prior year due to the impact of non-deductible acquisition-related costs in 2012 incurred as a result of the
Movianto acquisition as well as results of benefits recognized in the current year upon the conclusion of examinations of our
2009 and 2010 Federal and certain state income tax returns. These benefits were partially offset by the impact of foreign taxes.
17
2012 compared to 2011
Net revenue.
(Dollars in thousands)
Domestic
International
Net revenue
For the years ended
December 31,
2012
2011
$ 8,731,484
$ 8,627,912
136,840
—
$ 8,868,324
$ 8,627,912
$
$
Change
$
103,572
136,840
240,412
%
1.2%
N/A
2.8%
Domestic segment revenue increased as a result of growth from existing customers. Factors affecting the Domestic
segment growth rate included lower comparative utilization of healthcare services, reduced product price inflation and a lower
level of government purchasing, as well as ongoing rationalization of certain of the company’s suppliers. The International
segment revenue for 2012 includes activity since our acquisition on August 31, 2012.
Gross margin.
(Dollars in thousands)
Gross margin
As a % of net revenue
For the years ended
December 31,
2012
2011
$
924,654
$
857,537
$
10.43%
9.94%
Change
$
67,117
%
7.8%
The increases in gross margin dollars and gross margin percentage are primarily due to contributions by Movianto
for the four months since acquisition. These gains were partially offset by declines in the Domestic segment due to customer
mix, including lower margin on new contracts with large integrated health networks and competitive pressures.
We value Domestic segment inventory under the LIFO method. Had inventory been valued under the first-in, first-
out (FIFO) method, gross margin as a percentage of net revenue would have been higher by 5 basis points in 2012 and 16 basis
points in 2011.
Operating expenses.
(Dollars in thousands)
SG&A expenses
As a % of net revenue
Depreciation and amortization
Other operating income, net
For the years ended
December 31,
Change
2012
$
682,595
7.70%
$
$
39,604
(4,462)
$
$
$
2011
610,657
7.08%
34,135
(3,938)
$
$
$
$
71,938
5,469
(524)
%
11.8 %
16.0 %
13.3 %
SG&A expenses include labor, warehousing, handling and delivery costs associated with our distribution and third-
party logistics services, as well as labor costs for our supply-chain consulting services. The costs to convert new customers to
our information systems are generally incurred prior to the recognition of revenues.
SG&A expenses increased as a result of the acquisition of Movianto. The increase was partially offset by decreases
in the Domestic segment primarily due to lower expenses in our fee-for-service operations, including lower costs for our third-
party logistics business that converted a large new customer during 2011. International segment SG&A expenses include costs
for information technology and other transition services provided by the former owners of Movianto, as well as information
technology outsourcing and consulting for support and maintenance of its information systems.
Depreciation and amortization, primarily related to warehouse equipment and information technology hardware and
software, increased in 2012 as a result of the acquisition of Movianto. Domestic segment depreciation and amortization
increased $2.4 million for operational software improvements and for warehouse equipment and leasehold improvements
related to warehouse automation and the relocation of a distribution center. This increase was partially offset by lower
amortization resulting from the expiration of noncompete agreements.
18
Other operating income, net included finance charge income of $4.9 million and $2.9 million for 2012 and 2011.
Finance charge income for 2012 includes income from customer inventory financing arrangements in Europe. Other operating
income, net, in 2012 includes legal expenses and loss contingencies expense of approximately $2.0 million associated with
California-specific litigation and compensation and benefits requirements, partially offset by income of $1.1 million from the
settlement of a class action litigation. Other operating income for 2011 benefitted from $2.2 million received from settlement of
an anti-trust class action lawsuit. In addition, other operating income in 2011 included expenses of $1.7 million primarily for
the development of a model for partnering with customers.
Interest expense, net.
(Dollars in thousands)
Interest expense, net
Effective interest rate
For the years ended
December 31,
2012
2011
Change
$
%
$
13,397
$
13,682
$
(285)
(2.1)%
6.17%
6.42%
For 2012, the effective interest rate decreased to 6.17% primarily due to a 30 basis point decrease as a result of replacing
our revolving credit facility in June 2012 with a new revolving credit facility with lower commitment fees (refer to Capital
Resources in Management’s Discussion and Analysis of Financial Condition for a description of the new revolving credit
facility). The decrease in commitment fees was partially offset by a decline in interest income from interest rate swaps, which
were terminated in 2011.
Income taxes.
(Dollars in thousands)
Income tax provision
Effective tax rate
For the years ended
December 31,
2012
2011
Change
$
%
$
74,353
$
74,635
$
(282)
(0.4)%
40.6%
39.3%
Excluding the acquisition-related and exit and realignment costs in 2012, of which approximately $4.6 million were
not tax deductible, the effective tax rate was 39.4% for 2012.
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 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.
(Dollars in millions)
Cash and cash equivalents
Accounts and notes receivable, net of allowances
Consolidated DSO (1)
Merchandise inventories
Consolidated inventory turnover (2)
Accounts payable
For the years ended
December 31,
2013
2012
Change
$
%
$
$
$
$
101.9
572.9
22.1
771.7
10.4
643.9
$
$
$
$
97.9
537.3
20.8
763.8
10.1
603.1
$
$
$
$
4.0
35.6
7.9
40.8
4.1%
6.6%
1.0%
6.8%
(1) Based on year end accounts receivable and net revenue for the fourth quarter
(2) Based on average annual inventory and costs of goods sold for the years ended December 31, 2013 and 2012
19
Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for
the years ended December 31, 2013, 2012 and 2011:
(Dollars in millions)
Net cash provided by (used for) continuing operations:
Operating activities
Investing activities
Financing activities
Discontinued operations
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
2013
2012
2011
$
$
140.6
(57.1)
(82.0)
—
2.5
4.0
$
$
218.5
(190.8)
(68.4)
—
2.7
(38.0)
$
$
68.4
(33.9)
(57.5)
(0.3)
—
(23.3)
Cash provided by operating activities was $140.6 million in 2013, compared to $218.5 million in 2012 and $68.4
million in 2011. Cash from operating activities for 2013 decreased compared to 2012 due to changes in working capital,
including increases in accounts and notes receivable which experienced an increase in DSO of 1.3 days (unfavorable impact on
cash of $33.3 million). Cash from operating activities for 2012 increased over 2011 due to the reduction of Domestic segment
inventories and benefitted from a decrease in Domestic segment DSO of 1.6 days in 2012 (favorable impact of approximately
$38.3 million). Cash from operating activities in 2011 was a result of operating earnings and an increase in accounts payable,
due to increased inventory purchases, offset by a build-up of inventory of approximately $100 million for new business, an
increase in DSO of 1.1 days (unfavorable impact on cash of $26.3 million), and an increase in other current assets related to our
growth in revenues.
Cash used for investing activities was $57.1 million for 2013, compared to $190.8 million for 2012 and $33.9
million for 2011. Capital expenditures in 2013 were $60.1 million primarily related to information technology initiatives and
distribution center and logistics facility moves and modifications. In 2012, we acquired Movianto in exchange for
approximately $155.2 million of cash plus assumed third-party debt (primarily capitalized leases) of $2.1 million. Domestic
segment capital expenditures were $34.5 million in 2012, primarily related to our strategic and operational efficiency initiatives,
particularly initiatives relating to information technology enhancements. Capital expenditures in 2011 primarily included
leasehold improvements and warehouse equipment for our distribution centers and logistics facilities, as well as investments in
operational software improvements and certain customer-facing technologies.
Net cash used in financing activities was $82.0 million in 2013, 68.4 million in 2012, and $57.5 million in 2011. We
paid dividends of $60.7 million, $55.7 million and $50.9 million and repurchased common stock under a share repurchase
program for $18.9 million, $15.0 million and $16.1 million in the years ended December 31, 2013, 2012 and 2011. In addition,
in 2011 we received proceeds of $4.0 million as a result of the termination of interest rate swaps.
Cash used by operating activities of discontinued operations was $0.3 million for 2011, associated with
administrative costs.
Capital resources. Our sources of liquidity include cash and cash equivalents and a revolving credit facility. On
June 5, 2012, we entered into a five-year $350 million Credit Agreement with Wells Fargo Bank, N.A., JPMorgan Chase Bank,
N.A. and a syndicate of financial institutions (the Credit Agreement). This agreement replaced an existing $350 million credit
agreement set to expire on June 7, 2013. Under the Credit Agreement, 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, 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 Credit Agreement. We are
charged a commitment fee of between 17.5 and 42.5 basis points on the unused portion of the facility. The terms of the 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. At December 31, 2013, we had no borrowings and
letters of credit of $5.0 million outstanding on the revolving credit facility, leaving $345.0 million available for borrowing.
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. During 2013, we had no borrowings or repayments under the credit facilities. Based on our leverage ratio at
December 31, 2013, the interest rate under the new credit facility was LIBOR plus 1.375%. We have $200 million of senior
notes outstanding, which mature in 2016 and bear interest at 6.35%, payable semi-annually on April 15 and October 15. The
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 the debt covenants at December 31, 2013.
20
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
$22.2 million and $24.9 million as of December 31, 2013 and 2012. 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. Upon distribution
of these assets, we could be subject to additional U.S. federal and state income taxes and withholding taxes payable to foreign
jurisdictions, where applicable.
The IRS on January 10, 2014 released final regulations relating to the adjustment of inventory costs for certain sales-
based vendor charge-backs and the allowable treatment of these charge-backs in tax LIFO calculations. The Company is
currently analyzing the impact of this regulatory change on our tax LIFO position, which could cause our related deferred tax
liability to become due and payable, impacting future cash flow.
We paid quarterly cash dividends on our outstanding common stock at the rate of $0.24 per share during 2013, $0.22
per share during 2012, and $0.20 per share during 2011. Our annual dividend payout ratio for the three years ended
December 31, 2013, based on Adjusted EPS, was in the range of 41.2% to 50.5%. In February 2014, the Board of Directors
approved a 4.2% increase in the amount of our quarterly dividend to $0.25 per common share. 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.
The program is intended to offset shares issued in conjunction with our stock incentive plan and may be suspended or
discontinued at any time. During 2013, we repurchased approximately 560 thousand shares at $18.9 million under this
program. At December 31, 2013, we had purchased all shares authorized under this program.
In February 2014, our Board of Directors renewed our share repurchase program authorizing the purchase of $100
million in common stock through 2017. The timing of repurchases 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 to
offset shares issued in conjunction with our stock incentive plan and may be suspended or discontinued at any time.
We believe available financing sources, including cash generated by operating activities and borrowings under the
Credit Agreement, 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.
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities,
which we believe could have a material impact on financial condition or liquidity.
Contractual Obligations
The following is a summary of our significant contractual obligations as of December 31, 2013:
(Dollars in millions)
Payments due by period
Contractual obligations
Long-term debt (1)
Purchase obligations (2)
Operating leases (2)
Capital lease obligations (1)
Unrecognized tax benefits, net (3)
Other long-term liabilities (4)
Total contractual obligations (5)
Total
Less than 1
year
$
231.8
$
145.2
296.5
12.8
4.2
80.4
770.9
$
21
$
1-3 years
4-5 years
$
219.1
$
— $
74.6
95.2
5.8
—
30.4
65.1
2.8
—
12.7
40.2
60.1
3.9
—
3.1
120.0
$
5.4
400.1
$
4.6
102.9
$
After 5
years
—
—
76.1
0.3
—
67.3
143.7
(1)
(2)
(3)
(4)
(5)
See Note 10 of Notes to Consolidated Financial Statements. Debt is assumed to be held to maturity with interest
paid at the stated rate in effect at December 31, 2013.
See Note 18 of Notes to Consolidated Financial Statements.
We cannot reasonably estimate the timing of cash settlement for the liability associated with unrecognized tax
benefits.
Other long-term liabilities include estimated minimum required payments for our unfunded retirement plan for
certain officers. See Note 13 of Notes to Consolidated Financial Statements. Certain long-term liabilities,
including deferred tax liabilities and post-retirement benefit obligations, are excluded as we cannot reasonably
estimate the timing of payments for these items.
Excludes certain contingent contractual obligations that are required to be paid in the event that performance
targets specified by customer contracts are not achieved. See Note 18 of Notes to Consolidated Financial
Statements.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of the financial statements requires us to make estimates and
assumptions that affect the reported amounts and related disclosures. We continually evaluate the accounting policies and
estimates used to prepare the financial statements.
Critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions
about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to
changes in the estimate or the use of different assumptions that could reasonably have been used. Our estimates are generally
based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and
circumstances. Because of the uncertainty inherent in such estimates, actual results may differ. We believe our critical
accounting policies and estimates include allowances for losses on accounts and notes receivable, inventory valuation,
accounting for goodwill and long-lived assets, self-insurance liabilities, supplier incentives, and business combinations.
Allowances for losses on accounts and notes receivable. We maintain valuation allowances based upon the
expected collectability of accounts and notes receivable. The allowances include specific amounts for accounts that are likely to
be uncollectible, such as customer bankruptcies and disputed amounts, and general allowances for accounts that may become
uncollectible. These allowances are estimated based on a number of factors, including industry trends, current economic
conditions, creditworthiness of customers, age of the receivables, changes in customer payment patterns, and historical
experience. At December 31, 2013, accounts and notes receivable were $573 million, net of allowances of $15.0 million. An
unexpected bankruptcy or other adverse change in the financial condition of a customer could result in increases in these
allowances, which could have a material effect on the results of operations.
Inventory valuation. Merchandise inventories are valued at the lower of cost or market, with cost determined using
the last-in, first-out (LIFO) method for Domestic segment inventories and the first-in, first-out (FIFO) method for International
segment inventories. An actual valuation of inventory under the LIFO method is made only at the end of the year based on the
inventory levels and costs at that time. LIFO calculations are required for interim reporting purposes and are based on estimates
of the expected mix of products in year-end inventory. In addition, inventory valuation includes estimates of allowances for
obsolescence and variances between actual inventory on-hand and perpetual inventory records that can arise throughout the
year. These estimates are based on factors such as the age of inventory and historical trends. At December 31, 2013, the
carrying value of inventory was $772 million, which is $109 million lower than the value of inventory had it all been accounted
for on a FIFO basis.
Goodwill and long-lived assets. Goodwill represents the excess of consideration paid over the fair value of
identifiable net assets acquired. Long-lived assets, which are a component of identifiable net assets, include intangible assets
with finite useful lives, property and equipment, and computer software costs. Intangible assets with finite useful lives consist
primarily of customer relationships and non-compete agreements acquired through business combinations. Certain assumptions
and estimates are employed in determining the fair value of identifiable net assets acquired.
22
We evaluate goodwill for impairment annually and whenever events occur or changes in circumstance indicate that
the carrying amount of goodwill may not be recoverable. In performing the impairment test, we perform qualitative assessments
based on macroeconomic conditions, structural changes in the industry, estimated financial performance, and other relevant
information. If necessary, we perform a quantitative analysis to estimate the fair value of the reporting unit using valuation
techniques, including comparable multiples of the reporting unit's earnings before interest, taxes, depreciation and amortization
(EBITDA) and discounted cash flows. The EBITDA multiples are based on an analysis of current enterprise valuations and
recent acquisition prices of similar companies, if available. Goodwill totaled $275 million at December 31, 2013.
Long-lived assets, which exclude goodwill, are evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be recoverable. We assess long-lived assets for
potential impairment by comparing the carrying value of an asset, or group of related assets, to its estimated undiscounted
future cash flows. At December 31, 2013, long-lived assets included property and equipment of $192 million, net of
accumulated depreciation; intangible assets of $40.4 million, net of accumulated amortization; and computer software costs of
$74.4 million, net of accumulated amortization.
We did not record any material impairment losses related to goodwill or long-lived assets in 2013. However, the
impairment review of goodwill and long-lived assets requires the extensive use of accounting judgment, estimates and
assumptions. The application of alternative assumptions could produce materially different results.
Self-insurance liabilities. We are self-insured for most employee healthcare, workers’ compensation and automobile
liability costs; however, we maintain insurance for individual losses exceeding certain limits. Liabilities are estimated for
healthcare costs using current and historical claims data. Liabilities for workers’ compensation and automobile liability claims
are estimated using historical claims data and loss development factors. If the underlying facts and circumstances of existing
claims change or historical trends are not indicative of future trends, then we may be required to record additional expense that
could have a material effect on the results of operations. Self-insurance liabilities recorded in our consolidated balance sheet for
employee healthcare, workers’ compensation and automobile liability costs totaled $13.9 million at December 31, 2013.
Supplier incentives. We have contractual arrangements with certain suppliers that provide incentives, including
operational efficiency and performance-based incentives, on a monthly, quarterly or annual basis. These incentives are
recognized as a reduction in cost of goods sold as targets become probable of achievement. Supplier incentives receivable are
recorded for interim and annual reporting purposes and are based on our estimate of the amounts which are expected to be
realized. If we do not achieve required targets under certain programs as estimated, it could have a material adverse effect on
our results of operations.
Business Combinations. We allocate the fair value of purchase consideration to the tangible assets acquired,
liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase
consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair
values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with
respect to intangible assets.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from
customer relationships and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but
which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1 of Notes to the Consolidated Financial Statements.
Item 7A. 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 $5.0 million in letters of credit under the facility at December 31, 2013. 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.
23
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 has 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 $3.92 per gallon in 2013, decreased 1% from $3.97 per
gallon in 2012. Based on our fuel consumption in 2013, we estimate that every 10 cents per gallon increase in the benchmark
would reduce our Domestic segment operating earnings by approximately $0.4 million. In January 2013, we entered into a
fixed-price purchase agreement with one of our diesel fuel suppliers for approximately one-third of our anticipated Domestic
segment fuel usage for 2013 at an equivalent benchmark price of $3.91 per gallon. We have not entered into a similar
agreement for 2014.
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 8. Financial Statements and Supplementary Data
See Item 15. Exhibits and Financial Statement Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 December 31, 2013.
There has been no change in our internal control over financial reporting during our last fiscal quarter (our fourth
quarter in the case of an annual report) ended December 31, 2013, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
24
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f), for Owens & Minor, Inc. (the company). Under the supervision and with
the participation of management, including the company’s principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013, based on
the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Based on our evaluation under the COSO framework, management concluded that the company’s internal control
over financial reporting was effective as of December 31, 2013.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2013, has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included in this
annual report.
/s/ Craig R. Smith
Craig R. Smith
Chairman & Chief Executive Officer
/s/ Richard A. Meier
Richard A. Meier
Executive Vice President & Chief Financial Officer
25
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Owens & Minor, Inc.:
We have audited Owens & Minor, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Owens & Minor, Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Owens & Minor, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2013 and our report dated February 24, 2014, expressed an unqualified
opinion on those consolidated financial statements.
Richmond, Virginia
February 24, 2014
26
Items 10-14.
Part III
Information required by Items 10-14 can be found under Corporate Officers on page 8 of the Annual Report (or at
the end of the electronic filing of this Form 10-K) and the registrant’s 2014 Proxy Statement pursuant to instructions (1) and G
(3) of the General Instructions to Form 10-K.
Because our common stock is listed on the New York Stock Exchange (NYSE), our Chief Executive Officer is
required to make, and he has made, an annual certification to the NYSE stating that he was not aware of any violation by of the
corporate governance listing standards of the NYSE. Our Chief Executive Officer made his annual certification to that effect to
the NYSE as of May 14, 2013. In addition, we have filed, as exhibits to this Annual Report on Form 10-K, the certifications of
our principal executive officer and principal financial officer required under Sections 906 and 302 of the Sarbanes-Oxley Act of
2002 to be filed with the Securities and Exchange Commission regarding the quality of our public disclosure.
27
Item 15. Exhibits and Financial Statement Schedules
a) The following documents are filed as part of this report:
Part IV
Consolidated Statements of Income for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012, and 2011 .
Consolidated Balance Sheets as of December 31, 2013 and 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2013, 2012
and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Quarterly Financial Information (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
29
30
31
32
33
34
61
62
b) Exhibits:
See Index to Exhibits on page 63.
28
OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year ended December 31,
Net revenue
Cost of goods sold
Gross margin
Selling, general, and administrative expenses
Acquisition-related and exit and realignment charges
Depreciation and amortization
Other operating income, net
Operating earnings
Interest expense, net
Income before income taxes
Income tax provision
Net income
$
2013
9,071,532
7,954,457
1,117,075
863,656
12,444
50,586
(7,694)
198,083
13,098
184,985
74,103
$
2012
8,868,324
7,943,670
$
2011
8,627,912
7,770,375
924,654
682,595
10,164
39,604
(4,462)
196,753
13,397
183,356
74,353
857,537
610,657
13,168
34,135
(3,938)
203,515
13,682
189,833
74,635
$
110,882
$
109,003
$
115,198
Net income attributable to Owens & Minor, Inc. per common share:
Basic
Diluted
Cash dividends per common share
$
$
$
1.76
1.76
0.96
$
$
$
1.72
1.72
0.88
$
$
$
1.82
1.81
0.80
See accompanying notes to consolidated financial statements.
29
OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended December 31,
Net income
Other comprehensive income, net of tax:
Currency translation adjustments (net of income tax expense of $111
in 2013 and $210 in 2012)
Change in unrecognized net periodic pension costs (net of income tax
expense of $2,429 in 2013 and income tax benefit of $1,671 in 2012
and $1,488 in 2011)
Other (net of income tax expense of $32 in 2013, 2012 and 2011)
Other comprehensive income (loss)
Comprehensive income
2013
2012
2011
$
110,882
$
109,003
$
115,198
6,143
9,749
—
3,839
(8)
9,974
(2,611)
(50)
7,088
$
120,856
$
116,091
$
(2,328)
(50)
(2,378)
112,820
See accompanying notes to consolidated financial statements.
30
OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
Assets
Current assets
Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Other current assets
Total current assets
Property and equipment, net
Goodwill, net
Intangible assets, net
Other assets, net
Total assets
Liabilities and equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other current liabilities
Total current liabilities
Long-term debt, excluding current portion
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Equity
Owens & Minor, Inc. 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—63,096 shares and 63,271 shares
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Owens & Minor, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
31
2013
2012
$
101,905
$
572,854
771,663
279,510
97,888
537,335
763,756
231,264
1,725,932
1,630,243
191,961
275,439
40,406
90,304
191,841
274,884
42,313
75,117
$
2,324,042
$
2,214,398
$
643,872
$
603,137
23,296
41,613
280,398
989,179
213,815
43,727
52,278
25,468
42,107
254,924
925,636
215,383
36,269
63,454
1,298,999
1,240,742
—
—
126,193
196,605
691,547
9,568
1,023,913
1,130
1,025,043
126,544
187,394
658,994
(406)
972,526
1,130
973,656
$
2,324,042
$
2,214,398
OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
Operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating
activities of continuing operations:
Depreciation and amortization
Share-based compensation expense
Deferred income tax expense
Provision for losses on accounts and notes receivable
Pension contributions
Changes in operating assets and liabilities:
Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other assets and liabilities
Other, net
Cash provided by operating activities of continuing operations
Investing activities:
Acquisition, net of cash acquired
Additions to computer software and intangible assets
Additions to property and equipment
Proceeds from sale of property and equipment
Cash used for investing activities of continuing operations
Financing activities:
Cash dividends paid
Repurchases of common stock
Financing costs paid
Proceeds from exercise of stock options
Excess tax benefits related to share-based compensation
Proceeds from termination of interest rate swaps
Other, net
Cash used for financing activities of continuing operations
Discontinued operations:
Operating cash flows
Net cash used for discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2013
2012
2011
$
110,882
$
109,003
$
115,198
50,586
6,381
3,713
787
—
(38,645)
(7,064)
47,374
(32,337)
(1,123)
140,554
—
(32,010)
(28,119)
3,051
(57,078)
(60,731)
(18,876)
—
5,352
898
—
(8,623)
(81,980)
—
—
2,521
4,017
97,888
39,604
5,697
1,060
1,004
—
27,161
58,734
(18,694)
(4,490)
(573)
218,506
(155,210)
(29,131)
(9,832)
3,298
(190,875)
(55,681)
(15,000)
(1,303)
4,986
1,293
—
(2,710)
(68,415)
—
—
2,734
(38,050)
135,938
34,135
5,674
14,520
2,176
(409)
(37,273)
(86,250)
44,058
(24,654)
1,244
68,419
—
(11,334)
(24,981)
2,430
(33,885)
(50,909)
(16,124)
—
9,179
2,154
4,005
(5,836)
(57,531)
(278)
(278)
—
(23,275)
159,213
$
101,905
$
97,888
$
135,938
See accompanying notes to consolidated financial statements.
32
OWENS & MINOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Owens & Minor, Inc. Shareholders’ 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, 2010
63,433
$ 126,867
$ 165,447
$ 570,320
$
(5,116) $
— $ 857,518
Net income
Other comprehensive loss
Non-cash contribution from
noncontrolling interest
Dividends declared ($0.80 per
share)
Shares repurchased and retired
(524)
(1,048)
Share-based compensation
expense, exercises and other
540
1,081
Balance, December 31, 2011
63,449
126,900
13,605
179,052
Net income
Other comprehensive income
Dividends declared ($0.88 per
share)
Shares repurchased and retired
Share-based compensation
expense, exercises and other
Balance, December 31, 2012
Net income
Other comprehensive income
Dividends declared ($0.96 per
share)
(522)
(1,043)
344
687
8,342
63,271
126,544
187,394
Shares repurchased and retired
(560)
(1,120)
Share-based compensation
expense, exercises and other
Balance, December 31, 2013
385
63,096
769
$ 126,193
9,211
$ 196,605
115,198
(2,378)
115,198
(2,378)
1,130
1,130
(50,813)
(15,076)
619,629
109,003
(55,681)
(13,957)
658,994
110,882
(60,573)
(17,756)
(7,494)
1,130
7,088
(406)
1,130
9,974
(50,813)
(16,124)
14,686
919,217
109,003
7,088
(55,681)
(15,000)
9,029
973,656
110,882
9,974
(60,573)
(18,876)
$ 691,547
$
9,568
$
1,130
9,980
$1,025,043
See accompanying notes to consolidated financial statements.
33
OWENS & MINOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, unless otherwise indicated)
Note 1—Summary of Significant Accounting Policies
Owens & Minor, Inc. and subsidiaries (we, us or our), a Fortune 500 company headquartered in Richmond, Virginia.
We are a leading healthcare services company that connects the world of medical products to the point of care by providing
vital supply chain assistance to the providers of healthcare services and the manufacturers of healthcare products, supplies, and
devices in the United States and Europe. We serve our customers with a service portfolio that covers procurement, inventory
management, delivery and sourcing for the healthcare market. With fully developed networks in the United States and Europe,
we are equipped to serve a customer base ranging from hospitals, integrated healthcare systems, group purchasing
organizations, and the U.S. federal government, to manufacturers of life-science and medical devices and supplies, including
pharmaceuticals in Europe.
Our Domestic segment includes all functions in the United States relating to our role as a healthcare services
company providing distribution and logistics services to healthcare providers and manufacturers. The International segment
consists of Movianto, our European third-party logistics service.
Basis of Presentation. The consolidated financial statements include the accounts of Owens & Minor, Inc. and the
subsidiaries it controls, in conformity with U.S generally accepted accounting principles (GAAP). For the consolidated
subsidiary in which our ownership is less than 100%, the outside stockholder’s interest is presented as a noncontrolling interest.
All significant intercompany accounts and transactions have been eliminated.
Reclassifications and Correction. Certain prior year amounts have been reclassified to conform to current year
presentation. In addition, after completing a review of customer contracts in the International segment, we have determined a
net presentation of revenues for certain contracts is more representative of the customer arrangement. Certain 2012 amounts
have been revised to reflect this net presentation of revenues. Net revenue and cost of goods sold each decreased by $39.8
million, accounts and notes receivable, net decreased by $16.2 million and other current assets increased by $16.2 million. The
change did not affect cash flows, gross margin, operating earnings or net income in 2012.
Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires us to
make assumptions and estimates that affect reported amounts and related disclosures. Estimates are used for, but are not limited
to, the allowances for losses on accounts and notes receivable, inventory valuation allowances, supplier incentives, depreciation
and amortization, goodwill valuation, valuation of intangible assets and other long-lived assets, valuation of property held for
sale, self-insurance liabilities, tax liabilities, defined benefit obligations, share-based compensation and other contingencies.
Actual results may differ from these estimates.
Cash and Cash Equivalents. Cash and cash equivalents includes cash and marketable securities with an original
maturity or maturity at acquisition of three months or less. Cash and cash equivalents are stated at cost. Nearly all of our cash
and cash equivalents are held in cash depository accounts in major banks in the United States and Europe.
Book overdrafts represent the amount of outstanding checks issued in excess of related bank balances and are
included in accounts payable in our consolidated balance sheets, as they are similar to trade payables and are not subject to
finance charges or interest. Changes in book overdrafts are classified as operating activities in our consolidated statements of
cash flows.
Accounts and Notes Receivable, Net. Accounts receivable from customers are recorded at the invoiced amount. We
assess finance charges on overdue accounts receivable that are recognized as other operating income based on their estimated
ultimate collectability. We have arrangements with certain customers under which they make deposits on account. Customer
deposits in excess of outstanding receivable balances are classified as other current liabilities.
We maintain valuation allowances based upon the expected collectability of accounts and notes receivable. Our
allowances include specific amounts for accounts that are likely to be uncollectible, such as customer bankruptcies and
disputed amounts and general allowances for accounts that may become uncollectible. Allowances are estimated based on a
number of factors, including industry trends, current economic conditions, creditworthiness of customers, age of the
receivables, changes in customer payment patterns, and historical experience. Account balances are charged off against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
34
Financing Receivables and Payables. We have an order-to-cash program in our International segment under which
we invoice manufacturers’ customers and remit collected amounts to the manufacturers. We retain credit risk for uncollected
receivables under this program. We continually monitor the expected collectability in this program and maintain valuation
allowances when it is likely that an amount may be or may become uncollectible. Allowances are estimated based on a number
of factors including creditworthiness of customers, age of the receivables and historical experience. We write off uncollected
receivables under this program when collection is no longer being pursued. At December 31, 2013 the allowance for
uncollectible accounts as part of this program was $0.1 million and there was no allowance for uncollectible accounts as part of
this program in 2012. Fees charged for this program are included in net revenue. Product pricing and related product risks are
retained by the manufacturer. Balances receivable and related amounts payable under this program are classified in other
current assets and other current liabilities in the consolidated balance sheet.
Merchandise Inventories. Merchandise inventories are valued at the lower of cost or market, with cost determined
by the last-in, first-out (LIFO) method for Domestic segment inventories. Cost of International segment inventories is
determined using the first-in, first out (FIFO) method.
Property and Equipment. Property and equipment are stated at cost less accumulated depreciation or, if acquired
under capital leases, at the lower of the present value of minimum lease payments or fair market value at the inception of the
lease less accumulated amortization. Depreciation and amortization expense for financial reporting purposes is computed on a
straight-line method over the estimated useful lives of the assets or, for capital leases and leasehold improvements, over the
term of the lease, if shorter. In general, the estimated useful lives for computing depreciation and amortization are four to 15
years for warehouse equipment, five to 40 years for buildings and building improvements, and three to eight years for
computers, furniture and fixtures, and office and other equipment. Straight-line and accelerated methods of depreciation are
used for income tax purposes. Normal maintenance and repairs are expensed as incurred, and renovations and betterments are
capitalized.
Leases. We have entered into non-cancelable agreements to lease most of our office and warehouse facilities with
remaining terms generally ranging from one to ten years. We also lease most of our transportation and material handling
equipment for terms generally ranging from three to ten years. Certain information technology assets embedded in an
outsourcing agreement are accounted for as capital leases. Leases are classified as operating leases or capital leases at their
inception. Rent expense for leases with rent holidays or pre-determined rent increases are recognized on a straight-line basis
over the lease term. Incentives and allowances for leasehold improvements are deferred and recognized as a reduction of rent
expense over the lease term.
Goodwill. We evaluate goodwill for impairment annually, as of April 30, and whenever events occur or changes in
circumstance indicate that the carrying amount of goodwill may not be recoverable. We review goodwill first by performing a
qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value.
If not, we then perform a quantitative assessment by first comparing the carrying amount to the fair value of the reporting unit.
If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed to measure the
goodwill impairment loss as the excess of the carrying value of the reporting unit’s goodwill over the estimated fair value of its
goodwill. We estimate the fair value of the reporting unit using valuation techniques which can include comparable multiples of
the unit’s earnings before interest, taxes, depreciation and amortization (EBITDA) and present value of expected cash flows.
The EBITDA multiples are based on an analysis of current enterprise values and recent acquisition prices of similar companies,
if available.
Intangible Assets. Intangible assets acquired through purchases or business combinations are stated at fair value at
the acquisition date and net of accumulated amortization in the consolidated balance sheets. Intangible assets, consisting
primarily of customer relationships, customer contracts, non-competition agreements, trademarks, and tradenames are
amortized over their estimated useful lives. In determining the useful life of an intangible asset, we consider our historical
experience in renewing or extending similar arrangements. Customer relationships are generally amortized over 10 to 15 years
and other intangible assets are amortized generally for periods between one and 15 years, based on their pattern of economic
benefit or on a straight-line basis.
Computer Software. We develop and purchase software for internal use. Software development costs incurred
during the application development stage are capitalized. Once the software has been installed and tested, and is ready for use,
additional costs incurred in connection with the software are expensed as incurred. Capitalized computer software costs are
amortized over the estimated useful life of the software, usually between three and ten years. Computer software costs are
included in other assets, net, in the consolidated balance sheets. Unamortized software at December 31, 2013 and 2012 was
$74.4 million and $59.7 million. Depreciation and amortization expense includes $14.2 million, $11.0 million and $9.9 million
of software amortization for the years ended December 31, 2013, 2012 and 2011.
35
Long-Lived Assets. Long-lived assets, which include property and equipment, finite-lived intangible assets, and
unamortized software costs, are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of long-lived assets may not be recoverable. We assess long-lived assets for potential impairment by
comparing the carrying value of an asset, or group of related assets, to their estimated undiscounted future cash flows.
Self-Insurance Liabilities. We are self-insured for most employee healthcare, workers’ compensation and
automobile liability costs; however, we maintain insurance for individual losses exceeding certain limits. Liabilities are
estimated for healthcare costs using current and historical claims data. Liabilities for workers’ compensation and automobile
liability claims are estimated using historical claims data and loss development factors. If the underlying facts and
circumstances of existing claims change or historical trends are not indicative of future trends, then we may be required to
record additional expense or reductions to expense. Self-insurance liabilities are included in other accrued liabilities on the
consolidated balance sheets.
Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the price or fee is fixed or determinable, and collectability is reasonably assured.
Under most of our distribution contracts, title passes to the customer when the product is received by the customer.
We record product revenue at the time that shipment is completed. Distribution fee revenue, when calculated as a mark-up of
the product cost, is also recognized at the time that shipment is completed.
Revenue for activity-based fees and other services is recognized as work is performed and as amounts are earned.
Depending on the specific contractual provisions and nature of the deliverable, revenue from services may be recognized on a
straight-line basis over the term of the service, on a proportional performance model, based on level of effort, or when final
deliverables have been provided. Additionally, we generate fees from arrangements that include performance targets related to
cost-saving initiatives for customers that result from our supply-chain management services. Achievement against performance
targets, measured in accordance with contractual terms, may result in additional fees paid to us or, if performance targets are
not achieved, we may be obligated to refund or reduce a portion of our fees to provide credits toward future purchases by the
customer. For these arrangements, all contingent revenue is deferred and recognized as the performance target is achieved and
the applicable contingency is released. When we determine that a loss is probable under a contract, the estimated loss is
accrued.
We allocate revenue for arrangements with multiple deliverables meeting the criteria for a separate unit of
accounting using the relative selling price method and recognize revenue for each deliverable in accordance with applicable
revenue recognition criteria.
In most cases, we record revenue gross, as we are the primary obligor in our sales arrangements, bear the risk of
general and physical inventory loss and carry all credit risk associated with sales. When we act as an agent in a sales
arrangement and do not bear a significant portion of these risks, primarily for our third-party logistics business, we record
revenue net of product cost. Sales taxes collected from customers and remitted to governmental authorities are excluded from
revenues.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses include labor and warehousing costs
associated with our distribution and third-party logistics services, as well as labor costs for our supply-chain consulting
services. Shipping and handling costs are included in SG&A expenses on the consolidated statements of income and include
costs to store, move and prepare products for shipment, as well as costs to deliver products to customers. Shipping and handling
costs billed to customers are included in net revenues. Freight costs incurred for shipments of products from manufacturers to
our distribution centers are included in cost of goods sold.
Supplier Incentives. We have contractual arrangements with certain suppliers that provide incentives, including
cash discounts for prompt payment, operational efficiency and performance-based incentives. These incentives are recognized
as a reduction in cost of goods sold as targets become probable of achievement.
Share-Based Compensation. We account for share-based payments to employees at fair value and recognize the
related expense in selling, general and administrative expenses over the service period for awards expected to vest.
36
Derivative Financial Instruments. We periodically enter into interest rate swaps as part of our interest rate risk
management strategy. The purpose of these swaps is to maintain a mix of fixed to floating rate financing in order to manage
interest rate risk. Generally, the interest rate swaps are designated as fair value hedges of specified portions of long-term debt
using the shortcut method, when both the swaps and the long-term debt meet all of the conditions for the use of this method.
Accordingly, no net gains or losses are typically recorded in the consolidated statements of income related to changes in the fair
value of the underlying debt and interest rate swaps. These swaps are recognized on the balance sheet at their fair value, which
is determined by using observable market inputs (Level 2). There were no outstanding derivative instruments at December 31,
2013 or 2012.
Income Taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income from continuing operations in the period that includes the enactment date. Valuation allowances are
provided if it is more likely than not that a deferred tax asset will not be realized. When we have claimed tax benefits that may
be challenged by a tax authority, an estimate of the effect of these uncertain tax positions is recorded. It is our policy to provide
for uncertain tax positions and the related interest and penalties based upon an assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax authorities. To the extent that the tax outcome of these uncertain tax
positions changes, based on our assessment, such changes in estimate may impact the income tax provision in the period in
which such determination is made.
We earn a portion of our operating earnings in foreign jurisdictions outside the United States, which we consider to
be indefinitely reinvested. Accordingly, no United States 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 $22.2 million and $24.9 million as of December 31, 2013 and 2012. 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. Upon distribution of these assets, we could be subject to additional U.S. federal and state income taxes and
withholding taxes payable to foreign jurisdictions, where applicable.
Fair Value Measurements. Fair value is determined based on assumptions that a market participant would use in
pricing an asset or liability. The assumptions used are in accordance with a three-tier hierarchy, defined by GAAP, that draws a
distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets
(Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and
(iii) unobservable inputs that require the use of present value and other valuation techniques in the determination of fair value
(Level 3).
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. 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). 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 Notes 7, 10 and 11 for the fair value of property held for sale, debt instruments and interest
rate swaps.
Acquisition-Related and Exit and Realignment Costs. We present costs incurred in connection with acquisitions in
acquisition-related and exit and realignment charges in our consolidated statements of income. Acquisition-related charges
consist primarily of transaction costs incurred to perform due diligence and to analyze, negotiate and consummate an
acquisition, costs to perform post-closing activities to establish a tax-efficient organizational structure, and costs to transition
the acquired company’s information technology and other operations and administrative functions from the former owner.
Costs associated with exit and realignment activities are recorded at their fair value when incurred. Liabilities are
established at the cease-use date for remaining operating lease and other contractual obligations, net of estimated sub-lease
income. The net lease termination cost is discounted using a credit-adjusted risk-free rate of interest. We evaluate these
assumptions quarterly and adjust the liability accordingly. The current portion of accrued lease and other contractual
termination costs is included in other accrued liabilities on the consolidated balance sheets, and the non-current portion is
included in other liabilities. Severance benefits are recorded when payment is considered probable and reasonably estimable.
37
Income Per Share. Basic and diluted income per share are calculated pursuant to the two-class method, under
which unvested share-based payment awards containing nonforfeitable rights to dividends are participating securities.
Foreign Currency Translation. Our foreign subsidiaries generally consider their local currency to be their
functional currency. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at period-end exchange
rates and revenues and expenses are translated at average exchange rates during the period. Cumulative currency translation
adjustments are included in accumulated other comprehensive income (loss) in shareholders’ equity. Gains and losses on
intercompany foreign currency transactions that are long-term in nature and which we do not intend to settle in the foreseeable
future are also recognized in other comprehensive income (loss) in shareholders’ equity. Realized gains and losses from foreign
currency transactions are recorded in other operating income, net in the consolidated statements of income and were not
material to our consolidated results of operations in 2013, 2012, and 2011.
Business Combinations. We account for acquired businesses using the acquisition method of accounting, which
requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any
excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Recent Accounting Pronouncements. During 2013, we adopted Accounting Standard Updates (ASU’s) issued by
the Financial Accounting Standards Board (FASB).
We adopted an ASU issued by the Financial Accounting Standards Board (FASB) for clarifying disclosures of
offsetting assets and liabilities. This clarifies the scope and treatment of derivatives that are offset or subject to an enforceable
master netting arrangement. The adoption of this guidance did not have an impact on our financial position or results of
operations.
We adopted an ASU for reporting amounts reclassified out of accumulated other comprehensive income. This
update requires entities to disclose the amounts reclassified out of accumulated other comprehensive income by component.
The adoption of this guidance did not have an impact on our financial position or results of operations.
We have adopted an ASU for reporting cumulative translation adjustment upon derecognition of foreign
subsidiaries, assets or investments. This update requires the release of related cumulative translation adjustment when the
parent ceases to have a controlling financial interest. The adoption of this guidance did not have an impact on our financial
position or results of operations.
Note 2—Significant Risks and Uncertainties
Many of our hospital customers in the U.S. are represented by group purchasing organizations (GPOs) that contract
with us for services on behalf of the GPO members. GPOs representing a significant portion of our business are Novation, LLC
(Novation), MedAssets Inc. (MedAssets) and Premier, Inc. (Premier). Members of these GPOs have incentives to purchase
from their primary selected distributor; however, they operate independently and are free to negotiate directly with distributors
and manufacturers. For 2013, 2012 and 2011, net revenue from hospitals under contract with these GPOs represented the
following percentages of our net revenue annually: Novation—32% to 35%; MedAssets (including Broadlane in 2012 and
2011)—24%; and Premier—20% to 22%.
Net revenue from sales of product supplied by subsidiaries of Covidien Ltd. and Johnson & Johnson Healthcare
Systems, Inc. represented approximately 13% and 10% of our net revenue annually for 2013, 2012 and 2011, respectively.
Note 3—Acquisition
On August 31, 2012, we acquired from Celesio AG (Celesio) all of the voting interests of certain subsidiaries
comprising the majority of Celesio’s healthcare third-party logistics business known as the Movianto Group (the acquired
portion is referred to herein as Movianto) for consideration of approximately $157.3 million (€125 million ), net of cash
acquired and including debt assumed of $2.1 million (primarily capitalized lease obligations). As a result of the acquisition of
Movianto, we have entered into third-party logistics for the pharmaceutical and medical device industries in the European
market with an existing platform that also expands our ability to serve our U.S.-based manufacturer customers globally.
38
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon our estimate
of their fair values at the date of acquisition, with certain exceptions permitted under GAAP. The purchase price exceeded the
estimated fair value of the net tangible and identifiable intangible assets by $25.4 million, which was allocated to goodwill. The
following table presents the estimated fair value of the assets acquired and liabilities assumed recognized as of the acquisition
date.
Assets acquired:
Current assets
Property and equipment
Goodwill
Intangible assets
Other noncurrent assets
Total assets
Liabilities assumed:
Current liabilities
Noncurrent liabilities
Total liabilities
Preliminary Fair
Value Estimated as
of
Acquisition Date(1)
Measurement
Period
Adjustments
Recorded in
2013
$
211,052
$
90,729
25,042
21,543
11,664
360,030
190,485
12,237
202,722
295
(2,385)
387
1,335
512
144
414
(270)
144
Fair value of net assets acquired, net of cash
$
157,308
$
— $
Fair Value as of
Acquisition Date
$
211,347
88,344
25,429
22,878
12,176
360,174
190,899
11,967
202,866
157,308
(1) As previously reported in our 2012 Form 10-K.
We are amortizing the fair value of acquired intangible assets, primarily customer relationships, over their remaining
weighted average useful lives of 9 years.
Goodwill of $25.4 million consists largely of expected opportunities to provide additional services to existing
manufacturer customers and to expand our third-party logistics services globally. All of the goodwill was assigned to our
International segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
The fair value of financial assets and financial liabilities acquired included financing receivables with a fair value of
$106.8 million and financing payables with a fair value of $130.4 million.
Acquisition-related costs consist primarily of transaction costs incurred to perform due diligence and to analyze,
negotiate and consummate the acquisition, costs to perform post-closing activities to establish a tax-efficient organizational
structure, and costs to transition the acquired company's information technology and other operating and administrative
functions from the former owner. We recognized pre-tax acquisition-related expenses of $3.5 million and $10.5 million for the
years ended December 31, 2013 and 2012.
Note 4—Accounts and Notes Receivable, Net
Allowances for losses on accounts and notes receivable of $15.0 million, $14.7 million and $15.6 million have been
applied as reductions of accounts receivable at December 31, 2013, 2012, and 2011. Write-offs of accounts and notes
receivable were $1.1 million, $1.9 million and $2.0 million for 2013, 2012 and 2011.
Note 5—Merchandise Inventories
At December 31, 2013 and 2012, we had inventory of $771.7 million and $763.8 million, of which $749.5 million
and $749.4 million were valued under LIFO. If LIFO inventories had been valued on a current cost or first-in, first-out (FIFO)
basis, they would have been greater by $108.6 million and $110.9 million as of December 31, 2013 and 2012.
39
Note 6—Financing Receivables and Payables
At December 31, 2013 and 2012, we had financing receivables of $198.5 million and $140.7 million and related
payables of $165.3 million and $130.1 million outstanding under our order-to-cash program, which were included in other
current assets and other current liabilities, respectively, in the consolidated balance sheet.
Note 7—Property and Equipment
Property and equipment consists of the following:
December 31,
Warehouse equipment
Computer equipment
Building and improvements
Leasehold improvements
Land and improvements
Furniture and fixtures
Office equipment and other
Accumulated depreciation and amortization
Property and equipment, net
2013
160,379
$
2012
$
148,037
31,784
50,225
49,879
17,489
11,491
36,007
52,881
43,378
16,269
11,132
8,240
329,487
(137,526)
191,961
$
6,010
313,714
(121,873)
191,841
$
Depreciation and amortization expense for property and equipment was $33.1 million, $26.1 million, and $21.2
million for the years ended December 31, 2013, 2012, and 2011.
Property held for sale of $1.1 million at December 31, 2012 is included in other assets, net, in the consolidated
balance sheets. We have no property classified as held for sale at December 31, 2013.
Note 8—Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill through December 31, 2013:
Carrying amount of goodwill, December 31, 2012
Currency translation adjustments
Fair value adjustments (See Note 3)
Carrying amount of goodwill, December 31, 2013
Domestic
Segment
International
Segment
Consolidated
Total
248,498
$
26,386
$
274,884
—
—
248,498
$
168
387
26,941
$
168
387
275,439
$
$
Intangible assets at December 31, 2013 and 2012 were as follows:
Gross intangible assets
Accumulated amortization
Net intangible assets
Weighted average useful life
2013
2012
Customer
Relationships
Other
Intangibles
Customer
Relationships
Other
Intangibles
$
$
51,544
(14,281)
37,263
$
$
3,933
(790)
3,143
$
$
51,603
(11,717)
39,886
$
$
2,848
(421)
2,427
13 years
6 years
13 years
6 years
Gross intangible assets increased $1.3 million in 2013 as a result of finalizing the Movianto purchase price
allocation (see Note 3), partially offset by the write-off of a fully amortized intangible for $0.3 million. Amortization expense
for intangible assets was $3.3 million for 2013, $2.5 million for 2012, and $3.1 million for 2011.
Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is
$4.5 million for 2014, $5.0 million for 2015, $5.1 million for 2016, $5.0 million for 2017 and $4.2 million for 2018.
40
Note 9—Exit and Realignment Costs
We periodically incur exit and realignment and other charges associated with optimizing our operations, which
include the consolidation of distribution centers, the realignment of our distribution network, and the closure of offsite
warehouses.
In 2013, we expensed $8.9 million associated with these activities, of which $8.2 million was in the Domestic
segment and $0.7 million was in the International segment. The charges include $3.1 million in loss accruals associated with
our operating leases and estimated severance. The remaining charges of $5.8 million were comprised of costs that are expensed
as incurred and not reflected in the table below, including $3.7 million in product move costs and the remainder in losses on
property and equipment and other expenses. We expect additional exit and realignment charges of approximately $2.5 million
over 2014 for activities initiated in the Domestic segment through December 31, 2013.
During the fourth quarter of 2012, we expensed total charges in our Domestic segment of $2.2 million associated
with exit and realignment activities. These charges include $1.1 million in employee severance. The remaining charges of $1.1
million are comprised of costs that were expensed as incurred and not reflected in the table below, including $0.8 million
related to impairment losses associated with property and equipment and $0.3 million in other expenses.
During 2011, we expensed total charges of $12.7 million associated with exit activities and our organizational
realignment. These charges included loss accruals for operating leases of $8.4 million and employee severance costs of $3.0
million. The remaining charges of $1.3 million are comprised of costs that were expensed as incurred and not reflected in the
table below, including losses associated with property and equipment and other expenses. In the fourth quarter of 2012, we
recorded income of $2.6 million related to a favorable lease settlement associated with the 2011 activities.
The following table summarizes the activity related to exit and realignment cost accruals through December 31,
2013:
Lease
obligations
Severance and
Other
Total
Accrued exit and realignment charges, January 1, 2011
$
— $
— $
Provision for exit and realignment activities
Cash payments, net of sublease income
Accrued exit and realignment charges, December 31, 2011
Provision for exit and realignment activities
Change in estimate
Interest accretion
Cash payments, net of sublease income
Accrued exit and realignment charges, December 31, 2012
Provision for exit and realignment activities
Cash payments, net of sublease income
Accrued exit and realignment charges, December 31, 2013
$
8,362
(98)
8,264
95
(2,183)
267
(1,345)
5,098
2,932
(5,596)
2,434
3,002
(1,171)
1,831
1,088
—
—
(1,803)
1,116
128
(769)
475
$
$
—
11,364
(1,269)
10,095
1,183
(2,183)
267
(3,148)
6,214
3,060
(6,365)
2,909
Note 10—Debt
Debt consists of the following:
December 31,
6.35% Senior Notes, $ 200 million par value,
maturing April 2016
Capital leases
Total debt
Less current maturities
Long-term debt
2013
2012
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
$
204,028
$
218,750
$
12,215
216,243
(2,428)
213,815
$
12,215
230,965
(2,428)
228,537
$
$
205,754
11,837
217,591
(2,208)
215,383
$
$
219,500
11,837
231,337
(2,208)
229,129
41
At December 31, 2013 and 2012, we had $200 million of 6.35% Senior Notes outstanding, which mature on
April 15, 2016 (Senior Notes). Interest on the Senior Notes is payable semi-annually on April 15 and October 15. 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 observed yield of the senior notes at December 31, 2013 was 2.12%.
On June 5, 2012, we entered into a five-year $350 million Credit Agreement with Wells Fargo Bank, N.A.,
JPMorgan Chase Bank, N.A. and a syndicate of financial institutions (the Credit Agreement) expiring June 5, 2017. This
agreement replaced an existing $350 million credit agreement that expired June 7, 2013. Under the new credit facility, we have
the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $150 million. The
interest rate on the new credit facility, 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 Credit Agreement. We are charged a commitment fee of between 17.5 and 42.5 basis points
on the unused portion of the facility. The terms of the 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. At December 31, 2013 and 2012, we had no borrowings and letters of credit of $5.0 million outstanding on the
revolving credit facility, leaving $345.0 million available for borrowing. We also had a $1.5 million and $1.4 million letter of
credit supporting our European leased facilities outstanding as of December 31, 2013 and 2012 not issued under our Credit
Agreement.
The 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 December 31, 2013.
We assumed debt (primarily capitalized lease obligations) of approximately $2.1 million with the acquisition of
Movianto.
Cash payments for interest during 2013, 2012 and 2011 were $14.7 million, $14.7 million and $14.1 million.
Based on lease commitments outstanding at December 31, 2013, minimum capital lease payments, excluding
interest, are $3.5 million in 2014, $2.9 million in 2015, $2.4 million in 2016, $1.6 million in 2017 and $1.0 million in 2018.
Note 11—Derivative Financial Instruments
In April 2011, we entered into interest rate swap agreements for an aggregate $175 million in notional amounts,
under which we paid counterparties a variable rate based on the six-month LIBOR plus a spread of approximately 393 basis
points, and the counterparties paid us a fixed rate of 6.35%. These agreements effectively converted 87.5% of our Senior Notes
to variable-rate debt. The swaps were designated as fair value hedges of specified portions of the Senior Notes using the
shortcut method, as both the swaps and the Senior Notes met all of the conditions for the use of this method. Accordingly, no
net gains or losses were recorded in the consolidated statements of income related to changes in the fair value of the underlying
debt and interest rate swap agreements.
We terminated these swaps in July 2011 and received proceeds of $4.0 million, plus accrued interest of $0.8 million.
The fair value adjustment of $4.0 million to the carrying value of the related debt, plus the remaining balance of a fair value
adjustment related to interest rate swaps terminated in 2008, are being recognized as an offset to interest expense using the
interest method over the remaining life of the debt. We did not hold any derivative financial instruments during 2012 or 2013.
Note 12—Share-Based Compensation
We maintain a share-based compensation plan (the Plan) that is administered by the Compensation and Benefits
Committee of the Board of Directors. The Plan allows us to award or grant to officers, directors and employees incentive, non-
qualified and deferred compensation stock options, stock appreciation rights (SARs), performance shares, and restricted and
unrestricted stock. We use authorized and unissued common shares for grants of restricted stock or for stock option exercises.
At December 31, 2013, approximately 2.0 million common shares were available for issuance under the Plan.
Restricted stock awarded under the Plan generally vests over one, three or five years. Certain restricted stock grants
contain accelerated vesting provisions, based on the satisfaction of certain performance criteria related to the achievement of
certain financial and operational results. Performance shares awarded under the Plan are issuable as restricted stock upon
meeting performance goals and vest over three years. Stock options awarded under the Plan are generally subject to graded
vesting over three years and expire seven to ten years from the date of grant. The options are granted at a price equal to fair
market value at the date of grant. We did not grant any stock options in 2013, 2012, or 2011.
42
We have a Management Equity Ownership Program that requires each of our officers to own common stock at
specified levels, which gradually increase over five years. Officers and certain other employees who meet specified ownership
goals in a given year are awarded restricted stock or performance shares under the provisions of the program. We recognize the
fair value of stock-based compensation awards, which is based upon the market price of the underlying common stock at the
grant date, on a straight-line basis over the estimated requisite service period, which may be based on a service condition, a
performance condition, or a combination of both. The fair value of performance shares as of the date of grant is estimated
assuming that performance goals will be achieved at target levels. If such goals are not probable of being met, or are probable
of being met at different levels, recognized compensation cost is adjusted to reflect the change in estimated fair value of
restricted stock to be issued at the end of the performance period.
Total share-based compensation expense for December 31, 2013, 2012 and 2011, was $6.4 million, $5.7 million and
$5.7 million, with recognized tax benefits of $2.5 million, $2.2 million and $2.2 million. Unrecognized compensation cost
related to nonvested restricted stock awards, net of estimated forfeitures, was $10.2 million at December 31, 2013. This amount
is expected to be recognized over a weighted-average period of 2.3 years, based on the maximum remaining vesting period
required under the awards, and the amount that would be recognized over a shorter period based on accelerated vesting
provisions, is approximately $0.5 million. Unrecognized compensation cost related to nonvested performance share awards as
of December 31, 2013 was $1.7 million and will be recognized primarily in 2014 if the related performance targets are met.
The following table summarizes the activity and value of nonvested restricted stock and performance share awards
for the years ended December 31, 2013, 2012 and 2011:
2013
2012
2011
Number of
Shares
(000’s)
Weighted
Average
Grant-date
Value
(per share)
Number of
Shares
(000’s)
Weighted
Average
Grant-date
Value
(per share)
Number of
Shares
(000’s)
Weighted
Average
Grant-date
Value
(per share)
Nonvested awards at
beginning of year
Granted
Vested
Forfeited
Nonvested awards at end of
year
$
720
339
(206)
(115)
738
30.14
31.65
30.22
30.51
30.81
826
$
298
(300)
(104)
720
27.97
29.86
23.69
30.35
30.14
1,027
$
318
(369)
(150)
826
27.61
31.45
26.17
28.43
27.97
The total value of restricted stock vesting during the years ended December 31, 2013, 2012 and 2011, was $6.2
million, $7.1 million and $9.7 million. There were no SARs outstanding at December 31, 2013 and 2012.
The following table summarizes the activity and terms of outstanding options at December 31, 2013, and for each of
the years in the three-year period then ended:
Number of
Options (000’s)
Weighted Average
Exercise Price
(per share)
Weighted Average
Remaining
Contractual Life
(years)
Aggregate
Intrinsic Value
(millions)
Options outstanding at December 31, 2010
Exercised
Forfeited
Options outstanding at December 31, 2011
Exercised
Forfeited
Options outstanding at December 31, 2012
Exercised
Forfeited
Options outstanding at December 31, 2013
$
993
(432)
(5)
556
(237)
(7)
312
(244)
(4)
64
21.30
20.74
23.50
21.72
21.04
21.07
22.25
21.97
21.72
23.33
43
0.7
$
0.8
At December 31, 2013, the following stock option groups were outstanding:
Range of Exercise Prices (per share)
$17.01—22.00
$22.01—27.00
Options outstanding at December 31, 2013
Weighted
Average
Exercise
Price
(per share)
Weighted
Average
Remaining
Contractual
Life
(years)
Number of
Options
(000’s)
$
15
49
64
20.49
24.21
23.33
1.8
0.4
0.7
The total intrinsic value of stock options exercised during the years ended December 31, 2013, 2012 and 2011, was
$0.8 million, $1.9 million, and $4.9 million. No options were granted in 2013, 2012 or 2011. All options outstanding at
December 31, 2013, were vested and exercisable.
Note 13—Retirement Plans
Savings and Retirement Plans. We maintain a voluntary 401(k) savings and retirement plan covering substantially
all full-time and certain part-time employees in the United States who have completed one month of service and have attained
age 18. We match a certain percentage of each employee’s contribution. The plan also provides for a minimum contribution by
us to the plan for all eligible employees of 1% of their salary, subject to certain limits, and discretionary profit-sharing
contributions. We may increase or decrease our matching contributions at our discretion, on a prospective basis. We incurred
$10.1 million, $9.8 million, and $9.8 million of expense related to this plan in 2013, 2012 and 2011. We also maintain defined
contribution plans in some of the European countries in which we operate. Expenses related to these plans were not material in
2013 and 2012.
Domestic Retirement Plan. We have a noncontributory, unfunded retirement plan for certain officers and other key
employees in the United States (Domestic Retirement Plan). In February 2012, our Board of Directors amended the Domestic
Retirement Plan to freeze benefit levels and modify vesting provisions under the plan effective as of March 31, 2012.
44
The following table sets forth the Domestic Retirement Plan’s financial status and the amounts recognized in our
consolidated balance sheets:
December 31,
Change in benefit obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Curtailment gain
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets, beginning of year
Employer contribution
Benefits paid
Fair value of plan assets, end of year
Funded status at December 31
Amounts recognized in the consolidated balance sheets
Other current liabilities
Other liabilities
Accumulated other comprehensive loss
Net amount recognized
Accumulated benefit obligation
Weighted average assumptions used to determine benefit obligation
Discount rate
Rate of increase in compensation levels
2013
2012
$
46,759
$
41,170
—
1,608
(4,700)
(1,656)
—
42,011
$
130
1,616
6,125
(1,644)
(638)
46,759
— $
—
1,656
(1,656)
— $
$
(42,011)
(1,831)
$
(40,178)
10,849
(31,160)
42,011
$
$
1,644
(1,644)
—
(46,759)
(1,643)
(45,115)
16,915
(29,843)
46,759
4.50%
N/A
3.50%
N/A
$
$
$
$
$
$
$
Plan benefit obligations of the Domestic Retirement Plan were measured as of December 31, 2013 and 2012 and as
of March 31, 2012. Plan benefit obligations are determined using assumptions developed at the measurement date. The
weighted average discount rate, which is used to calculate the present value of plan liabilities, is an estimate of the interest rate
at which the plan liabilities could be effectively settled at the measurement date. When estimating the discount rate, we review
yields available on high-quality, fixed-income debt instruments and use a yield curve model from which the discount rate is
derived by applying the projected benefit payments under the plan to points on a published yield curve.
45
The components of net periodic benefit cost for the Domestic Retirement Plan, which is included in selling, general,
and administrative expenses in the consolidated statements of income, are as follows:
Year ended December 31,
Service cost
Interest cost
Amortization of prior service cost
Recognized net actuarial loss
Curtailment loss
Net periodic benefit cost
Weighted average assumptions used to determine net periodic benefit
cost
Discount rate
Rate of increase in future compensation levels
2013
2012
2011
$
— $
130
$
1,608
—
1,366
—
1,616
—
971
234
1,302
1,805
293
582
—
$
2,974
$
2,951
$
3,982
3.50%
N/A
4.00%
3.00%
5.20%
3.00%
Amounts recognized for the Domestic Retirement Plan as a component of accumulated other comprehensive loss as
of the end of the year that have not been recognized as a component of the net periodic benefit cost are presented in the
following table. We expect to recognize approximately $0.8 million of the net actuarial loss reported in the following table as of
December 31, 2013, as a component of net periodic benefit cost during 2014.
Year ended December 31,
Net actuarial loss
Prior service cost
Deferred tax benefit
Amounts included in accumulated other comprehensive income (loss), net of tax
2013
2012
$
$
(10,848) $
—
4,231
(6,617) $
(16,915)
—
6,597
(10,318)
As of December 31, 2013, the expected benefit payments required for each of the next five years and the five-year
period thereafter for the Domestic Retirement Plan are as follows:
Year
2014
2015
2016
2017
2018
2019-2023
$
1,872
1,987
2,097
2,193
2,295
13,308
International Retirement Plans. Certain of our foreign subsidiaries have defined benefit pension plans covering
substantially all of their respective employees. As of December 31, 2013 and 2012, the accumulated benefit obligation under
these plans was $2.4 million and $2.2 million. We recorded $0.2 million and $0.1 million in net periodic benefit cost in selling,
general and administrative expenses for the years ended December 31, 2013 and 2012.
Note 14—Income Taxes
The components of income (loss) before income taxes consist of the following:
Year ended December 31,
Income (loss) before income taxes:
U.S.
Foreign
Income before income taxes
2013
2012
2011
$
$
192,239
(7,254)
184,985
$
$
192,978
(9,622)
183,356
$
$
189,833
—
189,833
46
The income tax provision consists of the following:
Year ended December 31,
Current tax provision (benefit):
Federal
State
Foreign
Total current tax provision
Deferred tax provision (benefit):
Federal
State
Foreign
Total deferred tax provision
Total income tax provision
2013
2012
2011
$
58,487
$
62,859
$
10,455
1,448
70,390
5,455
394
(2,136)
3,713
10,537
(103)
73,293
2,529
438
(1,907)
1,060
$
74,103
$
74,353
$
50,780
9,335
—
60,115
12,983
1,537
—
14,520
74,635
A reconciliation of the federal statutory rate to our effective income tax rate is shown below:
Year ended December 31,
Federal statutory rate
Increases in the rate resulting from:
State income taxes, net of federal income tax impact
Foreign income taxes
Other
Effective income tax rate
2013
2012
2011
35.0%
35.0%
35.0%
3.9%
0.4%
0.8%
40.1%
3.9%
0.7%
1.0%
40.6%
3.7%
—%
0.6%
39.3%
47
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
December 31,
Deferred tax assets:
Employee benefit plans
Accrued liabilities not currently deductible
Finance charges
Intangible assets
Property and equipment
Allowance for losses on accounts and notes receivable
Net operating loss carryforwards
Other
Total deferred tax assets
Less: valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Merchandise inventories
Goodwill
Property and equipment
Computer software
Insurance
Intangible assets
Employee benefit plans
Other
Total deferred tax liabilities
Net deferred tax liability
2013
2012
$
28,995
$
13,591
6,316
2,171
1,507
3,922
8,643
2,083
67,228
(5,250)
61,978
69,994
33,455
18,026
11,400
1,070
4,523
103
585
30,138
17,610
7,042
2,749
1,593
3,885
5,540
1,901
70,458
(3,683)
66,775
70,916
31,020
18,110
10,576
1,030
5,266
188
1,309
139,156
(77,178) $
138,415
(71,640)
$
The valuation allowances relate to deferred tax assets in various state and non-U.S. jurisdictions. Based on
management’s judgments using available evidence about historical and expected future taxable earnings, management believes
it is more likely than not that we will realize the benefit of the existing deferred tax assets, net of valuation allowances, at
December 31, 2013. The valuation allowances primarily relate to net operating loss carryforwards in non-U.S. jurisdictions
which have various expiration dates ranging from five years to an unlimited carryforward period. There were no significant
decreases in valuation allowances during 2013.
It is our intention to permanently reinvest the earnings of our non-U.S. subsidiaries in those operations. As of
December 31, 2013, we have not made a provision for U.S. or additional foreign withholding taxes on investments in foreign
subsidiaries that are permanently reinvested, and there are no deferred tax liabilities that have not been provided.
Cash payments for income taxes, including interest, for 2013, 2012, and 2011 were $65.4 million, $78.5 million,
and $61.8 million.
48
At December 31, 2013 and 2012, the liability for unrecognized tax benefits was $4.6 million and $12.3 million. A
reconciliation of the changes in unrecognized tax benefits from the beginning to the end of the reporting period is as follows:
2013
2012
Unrecognized tax benefits at January 1,
Increases for positions taken during current period
Increases for positions taken during prior periods
Decreases for positions taken during prior periods
Lapse of statute of limitations
Settlements with taxing authorities
Unrecognized tax benefits at December 31,
$
12,303
$
758
333
(4,939)
(3,580)
(227)
4,648
$
13,152
574
191
(432)
(1,182)
—
$
12,303
Included in the liability for unrecognized tax benefits at December 31, 2013 and 2012, were $3.4 million and $10.7
million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing
of such deductibility. These tax positions are temporary differences which do not impact the annual effective tax rate under
deferred tax accounting. Any change in the deductibility period of these tax positions would impact the timing of cash
payments to taxing jurisdictions. Unrecognized tax benefits of $1.0 million and $1.7 million at December 31, 2013 and 2012,
would impact our effective tax rate if recognized.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued
interest at December 31, 2013 and 2012 was $0.1 million and $0.6 million. Interest income recognized during 2013 and 2012
was $0.4 million and $0.1 million. Interest expense recognized in 2011 was $0.2 million. There were no penalties accrued at
December 31, 2013 or 2012 or recognized in 2013, 2012 and 2011.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions. Our U.S. federal income
tax returns for the years 2011 and 2012 are subject to examination. In 2013 we concluded examinations of the 2009 and 2010
Federal returns and certain state income tax returns. Our income tax returns for U.S. state and local jurisdictions are generally
open for the years 2010 through 2012; however, certain returns may be subject to examination for differing periods. The seller
is contractually obligated to indemnify us for all income tax liabilities incurred by the Movianto business prior to our
acquisition on August 31, 2012.
Note 15—Net Income per Common Share
The following table summarizes the calculation of net income per share attributable to common shareholders for the
years ended December 31, 2013, 2012, and 2011.
Year ended December 31,
Numerator:
Net income
Less: income allocated to unvested restricted shares
Net income attributable to common shareholders—basic
Add: undistributed income attributable to unvested restricted
shares—basic
Less: undistributed income attributable to unvested restricted
shares—diluted
Net income attributable to common shareholders—diluted
Denominator:
Weighted average shares outstanding—basic
Dilutive shares—stock options
Weighted average shares outstanding—diluted
Net income attributable to common shareholders:
Basic
Diluted
49
2013
2012
2011
$
$
$
$
$
110,882
(738)
110,144
$
109,003
(749)
108,254
115,198
(1,059)
114,139
257
292
480
(257)
110,144
$
(292)
108,254
$
(479)
114,140
62,625
36
62,661
62,765
79
62,844
1.76
1.76
$
$
1.72
1.72
$
$
62,756
168
62,924
1.82
1.81
Note 16—Shareholders’ Equity
We have a shareholder rights agreement under which one Right is attendant to each outstanding share of our
common stock. Each Right entitles the registered holder to purchase from us one fifteen-hundredth of a share of a Series A
Participating Cumulative Preferred Stock (Series A Preferred Stock) at an exercise price of $66.67 (Purchase Price). The Rights
will become exercisable, if not earlier redeemed, only if a person or group acquires more than 15% of the outstanding shares of
our common stock, or if the Board of Directors so determines following the commencement of a public announcement of a
tender or exchange offer, the consummation of which would result in ownership by a person or group of more than 15% of such
outstanding shares. Each holder of a Right, upon the occurrence of certain events, will become entitled to receive, upon
exercise and payment of the Purchase Price, Series A Preferred Stock (or in certain circumstances, cash, property or other
securities of ours or a potential acquirer) having a value equal to twice the amount of the Purchase Price. The agreement is
subject to review every three years by our independent directors. The Rights will expire on April 30, 2014, if not earlier
redeemed.
In February 2011, our 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. During the year ended December 31, 2013, we repurchased in open-market transactions and retired
approximately 0.6 million shares of our common stock for an aggregate of $18.9 million, or an average price per share of
$33.72. As of December 31, 2013, we have no remaining shares available under the repurchase program.
In February 2014, our Board of Directors renewed our share repurchase program authorizing the purchase of $100
million in common stock through 2017. The timing of repurchases and the exact 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 may be suspended or discontinued at any time.
The noncontrolling interest in net income was not material in 2013, 2012 or 2011.
Note 17 — Accumulated Other Comprehensive Income
The following tables show the changes in accumulated other comprehensive income (loss) by component for the
years ended December 31, 2013, 2012 and 2011:
Retirement
Plans
Currency
Translation
Adjustments
Other
Total
$ 163
—
—
$
(406)
11,156
(2,008)
—
(40)
32
(8)
(8)
9,148
1,326
(500)
826
9,974
9,749
6,254
(111)
6,143
—
—
—
6,143
3,005
1,366
(532)
834
3,839
$
(6,479)
$
15,892
$ 155
$
9,568
Accumulated other comprehensive income (loss), December 31,
2012
Other comprehensive income (loss) before reclassifications
Income tax
$
$
(10,318)
4,902
(1,897)
Other comprehensive income before reclassifications, net of tax
Amounts reclassified from accumulated other comprehensive income
(loss)
Income tax
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax
Other comprehensive income (loss)
Accumulated other comprehensive income (loss), December 31,
2013
50
Accumulated other comprehensive income (loss), December 31,
2011
Other comprehensive income (loss) before reclassifications
Income tax
Other comprehensive income (loss) before reclassifications, net of
tax
Amounts reclassified from accumulated other comprehensive income
(loss)
Income tax
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax
Other comprehensive income (loss)
Accumulated other comprehensive income (loss), December 31,
2012
Retirement
Plans
Currency
Translation
Adjustments
Other
Total
$
$
(7,707)
(5,487)
2,141
— $ 213
—
—
9,959
(210)
$ (7,494)
4,472
1,931
(3,346)
9,749
1,205
(470)
735
(2,611)
—
—
—
9,749
—
(82)
32
(50)
(50)
6,403
1,123
(438)
685
7,088
$
(10,318)
$
9,749
$ 163
$
(406)
Retirement Plans
Currency
Translation
Adjustments
Other
Total
Accumulated other comprehensive income (loss), December 31,
2010
$
Other comprehensive income (loss) before reclassifications
Income tax
Other comprehensive income (loss) before reclassifications, net of
tax
Amounts reclassified from accumulated other comprehensive income
(loss)
Income tax
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax
Other comprehensive income (loss)
Accumulated other comprehensive income (loss), December 31,
2011
(5,379)
(4,690)
1,829
(2,861)
874
(341)
533
(2,328)
$
— $
263
—
—
—
—
—
—
—
—
—
(82)
32
(50)
(50)
$ (5,116)
(4,690)
1,829
(2,861)
792
(309)
483
(2,378)
$
(7,707)
$
— $
213
$ (7,494)
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 and administrative expenses. For the
year ended December 31, 2013, we reclassified $1.4 million of actuarial net losses. For the year ended December 31, 2012 and
2011, we reclassified $1.0 million and $0.6 million of actuarial net losses and $0.2 million and $0.3 million of prior service
costs.
Note 18—Commitments and Contingencies
We have a contractual commitment to outsource information technology operations, including the management and
operation of our information technology systems and distributed services processing, as well as application support,
development and enhancement services. This agreement was amended in November 2013 to extend the terms of service
through October 2017, with two optional one year extensions. The commitment is cancelable with 180 days notice and payment
of a termination fee based upon certain costs which would be incurred by the vendor as a direct result of the early termination.
We pay scheduled fees under the agreement, which can vary based on changes in the Consumer Price Index and the
level of support required. Assuming no early termination of the contract, our estimated remaining annual obligations under this
agreement are $37.1 million in 2014, $36.7 million in 2015, $36.6 million in 2016, and $30.4 million in 2017. We paid $45.7
million, $52.5 million, and $48.4 million under this contract in 2013, 2012, and 2011.
We have a contractual commitment to the partner in our joint venture in China to purchase a minimum dollar value
of products in 2016. The maximum penalty which we would incur if we do not fulfill this commitment is $1.0 million.
51
We have entered into non-cancelable agreements to lease most of our office and warehouse facilities with remaining
terms generally ranging from one to 20 years. Certain leases include renewal options, generally for five-year increments. We
also lease most of our transportation and material handling equipment for terms generally ranging from three to ten years. At
December 31, 2013, future minimum annual payments under non-cancelable lease agreements with original terms in excess of
one year, and including payments required under operating leases for facilities we have vacated, are as follows:
2014
2015
2016
2017
2018
Thereafter
Total minimum payments
$
Total
60,056
51,691
43,564
34,604
30,557
76,075
$
296,547
Rent expense for all operating leases for the years ended December 31, 2013, 2012, and 2011, was $76.7 million,
$60.9 million, and $56.3 million.
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 $2.3 million as of December 31, 2013. 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: 2014—$1.1 million;
2015—$0.3 million; and 2016—$0.9 million. None of these contingent obligations were accrued at December 31, 2013, as we
do not consider any of them probable. We deferred the recognition of fees that are contingent upon our future performance
under the terms of these contracts. As of December 31, 2013, $0.9 million of deferred revenue related to outstanding
contractual performance targets was included in other current liabilities.
During the second quarter of 2013, we reached a settlement in the administrative proceedings pending before the
California Board of Equalization related to certain municipal sales tax incentives. Under the terms of the settlement, we expect
to receive approximately $4.3 million for the period January 1, 2009 through June 30, 2013, of which $0.8 million was
recognized prior to 2013 as well as $0.8 million for the period from July 1 to December 31, 2013. In subsequent quarters, the
company will receive an ongoing tax incentive that will vary with eligible revenues generated by sales to California-based
customers.
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 connection with the Movianto acquisition, we entered into transition services agreements with the former owner
under which it provides certain information technology and support services. The original contract terms ranged from six to 24
months and are cancelable without penalty with thirty days notice. As of December 31, 2013 these agreements were
substantially complete.
Various issues and potential claims related to the acquisition and transition of Movianto remain outstanding and
under review and discussion with the former owner. The ultimate outcomes of these issues and potential claims, including their
impact on future financial results, cannot be ascertained or estimated at this time.
Note 19—Legal Proceedings
We are subject to various legal actions that are ordinary and incidental to our business, including contract disputes,
employment, workers’ compensation, product liability, regulatory and other matters. We have insurance coverage for
employment, product liability, workers’ compensation and other personal injury litigation matters, subject to policy limits,
applicable deductibles and insurer solvency. We establish reserves from time to time based upon periodic assessment of the
potential outcomes of pending matters.
Based on current knowledge and the advice of counsel, we believe that the accrual as of December 31, 2013 for
currently pending matters considered probable of loss, which is not material, is sufficient. In addition, we believe that other
currently pending matters are not reasonably likely to result in a material loss, as payment of the amounts claimed is remote,
52
the claims are insignificant, individually and in the aggregate, or the claims are expected to be adequately covered by
insurance.
Note 20—Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information
about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing
performance. As a result of the August 31, 2012 acquisition of Movianto, we now report Movianto as a separate International
business segment. Prior to the acquisition, we had one reportable business segment, which now comprises the Domestic
segment. Accordingly, the Domestic segment now includes all services in the United States relating to our role as a medical
supply logistics company serving healthcare providers and manufacturers.
We evaluate the performance of our segments based on the operating earnings of our segments excluding
acquisition-related and exit and realignment charges.
The following tables present financial information by segment:
Year ended December 31,
Net revenue:
Domestic
International
Consolidated net revenue
Operating earnings (loss):
Domestic
International
Acquisition-related and exit and realignment charges
Consolidated operating earnings
Depreciation and amortization:
Domestic
International
Consolidated depreciation and amortization
Capital expenditures:
Domestic
International
Consolidated capital expenditures
December 31,
Total assets:
Domestic
International
Segment assets
Cash and cash equivalents
Consolidated total assets
2013
2012
2011
$
$
$
$
$
$
$
$
8,688,018
383,514
9,071,532
211,932
(1,405)
(12,444)
198,083
35,808
14,778
50,586
42,802
17,327
60,129
$
$
$
$
$
$
$
$
8,731,484
136,840
8,868,324
212,335
(5,418)
(10,164)
196,753
35,016
4,588
39,604
34,450
4,513
38,963
$
$
$
$
$
$
$
$
8,627,912
—
8,627,912
216,683
—
(13,168)
203,515
34,135
—
34,135
36,315
—
36,315
2013
2012
$
1,747,572
$
1,730,396
474,565
2,222,137
101,905
386,114
2,116,510
97,888
$
2,324,042
$
2,214,398
The following tables present information by geographic area. Net revenues were attributed to geographic areas
based on the locations from which we ship products or provide services. International operations consist of Movianto’s
operations in the United Kingdom, Germany, France, and other European countries.
53
Year ended December 31,
Net revenue:
United States
United Kingdom
France
Germany
Other European countries
Consolidated net revenue
December 31,
Long-lived assets:
United States
Germany
United Kingdom
France
Other European countries
Consolidated long-lived assets
2013
2012
2011
$
8,688,018
$
8,731,484
$
8,627,912
211,296
52,725
42,807
76,686
86,332
14,338
13,670
22,500
—
—
—
—
$
9,071,532
$
8,868,324
$
8,627,912
2013
2012
2011
$
170,010
$
162,333
$
159,939
60,068
42,619
7,090
27,025
54,826
40,609
7,960
28,159
—
—
—
—
$
306,812
$
293,887
$
159,939
Note 21—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 Senior Notes, on a combined basis; and the non-guarantor subsidiaries of the Senior 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.
Condensed Consolidating Financial Information
Year ended December 31, 2013
Statements of Income
Net revenue
Cost of goods sold
Gross margin
Selling, general and administrative expenses
Acquisition-related and exit and realignment
charges
Depreciation and amortization
Other operating (income) expense, net
Operating (loss) earnings
Interest expense (income), net
(Loss) income before income taxes
Income tax (benefit) provision
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
$
— $
—
8,687,131
7,826,768
$
—
2,559
—
14
—
(2,573)
11,103
(13,676)
(5,474)
119,084
110,882
9,974
120,856
54
$
860,363
613,394
8,130
35,712
(4,290)
207,417
2,550
204,867
81,011
—
123,856
3,838
127,694
$
$
435,035
177,541
257,494
247,703
(50,634) $
(49,852)
(782)
—
9,071,532
7,954,457
1,117,075
863,656
4,314
14,860
(3,404)
(5,979)
(555)
(5,424)
(1,434)
—
(3,990)
6,143
2,153
$
—
—
—
(782)
—
(782)
—
(119,084)
(119,866)
(9,981)
(129,847) $
12,444
50,586
(7,694)
198,083
13,098
184,985
74,103
—
110,882
9,974
120,856
Condensed Consolidating Financial Information
Year ended December 31, 2012
Statements of Income
Net revenue
Cost of goods sold
Gross margin
Selling, general and administrative expenses
Acquisition-related and exit and realignment
charges
Depreciation and amortization
Other operating expense (income), net
Operating (loss) earnings
Interest expense, net
Income (loss) before income taxes
Income tax (benefit) provision
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive loss, net of tax
Comprehensive income (loss)
Year ended December 31, 2011
Statements of Income
Net revenue
Cost of goods sold
Gross margin
Selling, general and administrative expenses
Acquisition-related and exit and realignment
charges
Depreciation and amortization
Other operating (income) expense, net
Operating (loss) earnings
Interest expense, net
Income (loss) before income taxes
Income tax (benefit) provision
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive income, net of tax
Comprehensive income (loss)
$
$
$
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
8,731,484
$
165,188
$
—
—
1,573
—
1
—
(1,574)
16,677
(18,251)
(7,121)
120,133
109,003
7,088
116,091
$
7,885,030
846,454
599,046
(366)
34,944
(3,015)
215,845
(3,588)
219,433
85,157
—
134,276
(2,611)
131,665
$
86,307
78,881
81,976
10,530
4,659
(1,447)
(16,837)
308
(17,145)
(3,683)
—
(13,462)
9,749
(3,713) $
(28,348) $
(27,667)
(681)
—
8,868,324
7,943,670
924,654
682,595
—
—
—
(681)
—
(681)
—
(120,133)
(120,814)
(7,138)
(127,952) $
10,164
39,604
(4,462)
196,753
13,397
183,356
74,353
—
109,003
7,088
116,091
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
— $
8,627,786
$
126
$
— $
8,627,912
—
—
1,123
—
—
677
(1,800)
9,749
(11,549)
(4,538)
122,209
115,198
(2,378)
112,820
$
7,770,359
857,427
608,905
13,168
34,135
(4,511)
205,730
3,855
201,875
79,320
—
122,555
(2,328)
120,227
$
16
110
629
—
—
(104)
(415)
78
(493)
(147)
—
(346)
—
(346) $
—
—
—
—
—
—
—
—
—
—
(122,209)
(122,209)
2,328
(119,881) $
7,770,375
857,537
610,657
13,168
34,135
(3,938)
203,515
13,682
189,833
74,635
—
115,198
(2,378)
112,820
55
Condensed Consolidating Financial Information
December 31, 2013
Balance Sheets
Assets
Current assets
Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Other current assets
Total current assets
Property and equipment, net
Goodwill, net
Intangible assets, net
Due from O&M and subsidiaries
Advances to and investments in consolidated
subsidiaries
Other assets, net
Total assets
Liabilities and equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other current liabilities
Total current liabilities
Long-term debt, excluding current portion
Due to O&M and subsidiaries
Intercompany debt
Deferred income taxes
Other liabilities
Total liabilities
Equity
Common stock
Paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive income
(loss)
Total Owens & Minor, Inc. shareholders’
equity
Noncontrolling interest
Total equity
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
74,391
$
2,012
$
25,502
$
— $
—
—
201
496,310
750,999
72,049
74,592
1,321,370
2
—
—
—
1,533,294
408
96,500
247,271
17,881
377,786
—
63,848
79,722
22,128
207,058
334,410
95,459
28,168
22,525
—
—
26,048
(3,178)
(1,464)
202
(4,440)
—
—
—
(377,786)
(1,533,294)
—
101,905
572,854
771,663
279,510
1,725,932
191,961
275,439
40,406
—
—
90,304
$
1,608,296
$
2,124,656
$
506,610
$ (1,915,520) $
2,324,042
$
— $
595,865
$
51,185
$
—
—
6,811
6,811
204,028
373,544
—
—
—
584,383
126,193
196,605
691,547
12,792
41,464
87,795
737,916
7,228
—
138,890
32,173
47,816
964,023
—
242,024
925,184
10,504
149
185,792
247,630
2,559
2,910
—
11,554
4,462
269,115
1,500
259,864
(41,029)
(3,178) $
—
—
—
(3,178)
—
(376,454)
(138,890)
—
—
(518,522)
(1,500)
(501,888)
(884,155)
643,872
23,296
41,613
280,398
989,179
213,815
—
—
43,727
52,278
1,298,999
126,193
196,605
691,547
9,568
(6,575)
16,030
(9,455)
9,568
1,023,913
1,160,633
—
—
1,023,913
1,160,633
236,365
1,130
237,495
506,610
(1,396,998)
—
(1,396,998)
$ (1,915,520) $
1,023,913
1,130
1,025,043
2,324,042
Total liabilities and equity
$
1,608,296
$
2,124,656
$
56
Condensed Consolidating Financial Information
December 31, 2012
Balance Sheets
Assets
Current assets
Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Other current assets
Total current assets
Property and equipment, net
Goodwill, net
Intangible assets, net
Due from O&M and subsidiaries
Advances to and investments in consolidated
subsidiaries
Other assets, net
Total assets
Liabilities and equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other current liabilities
Total current liabilities
Long-term debt, excluding current portion
Due to O&M and subsidiaries
Intercompany debt
Deferred income taxes
Other liabilities
Total liabilities
Equity
Common stock
Paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive income
(loss)
Total Owens & Minor, Inc. shareholders’
equity
Noncontrolling interest
Total equity
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
58,190
$
13,641
$
26,057
$
— $
—
—
1,627
59,817
16
—
—
—
1,434,186
6,885
474,533
750,046
76,036
1,314,256
95,516
247,271
19,972
236,612
—
55,781
66,049
14,391
155,109
261,606
96,309
27,613
22,341
34,248
—
19,586
(3,247)
(681)
(1,508)
(5,436)
—
—
—
(270,860)
(1,434,186)
(7,135)
97,888
537,335
763,756
231,264
1,630,243
191,841
274,884
42,313
—
—
75,117
$
1,500,904
$
1,969,408
$
461,703
$ (1,717,617) $
2,214,398
$
45,300
$
518,545
$
42,542
$
—
—
6,464
51,764
205,754
270,860
—
—
—
528,378
126,544
187,394
658,994
18,201
43,110
92,318
672,174
6,592
—
138,890
30,141
58,578
906,375
—
242,024
831,327
7,267
1,349
156,142
207,300
3,037
—
—
12,417
4,876
227,630
(3,250) $
—
(2,352)
—
(5,602)
—
(270,860)
(138,890)
(6,289)
—
(421,641)
1,500
258,635
(36,941)
(1,500)
(500,659)
(794,386)
603,137
25,468
42,107
254,924
925,636
215,383
—
—
36,269
63,454
1,240,742
126,544
187,394
658,994
(406)
(10,318)
9,749
569
(406)
972,526
1,063,033
—
—
972,526
1,063,033
232,943
1,130
234,073
461,703
(1,295,976)
—
(1,295,976)
$ (1,717,617) $
972,526
1,130
973,656
2,214,398
Total liabilities and equity
$
1,500,904
$
1,969,408
$
57
Year ended December 31, 2013
Statements of Cash Flows
Operating activities:
Net income (loss)
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Equity in earnings of subsidiaries
Depreciation and amortization
Share-based compensation expense
Deferred income tax (benefit) expense
Provision for losses on accounts and notes
receivable
Changes in operating assets and liabilities:
Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other assets and liabilities
Other, net
Cash provided by (used for) operating
activities
Investing activities:
Additions to computer software and intangible
assets
Additions to property and equipment
Proceeds from sale of property and equipment
Cash used for investing activities
Financing activities:
Change in intercompany advances
Cash dividends paid
Repurchases of common stock
Proceeds from exercise of stock options
Excess tax benefits related to share-based
compensation
Other, net
Cash provided by (used for) financing
activities
Effect of exchange rate changes on cash and
cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
Condensed Consolidating Financial Information
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
110,882
$
123,856
$
(3,990) $
(119,866) $
110,882
—
119,084
(119,084)
14
—
—
—
—
—
(45,300)
1,774
(1,541)
—
35,712
6,381
5,821
14,860
—
(2,108)
278
509
(22,055)
(170)
77,320
(12,068)
515
(16,522)
(7,676)
15,286
(22,043)
(97)
(53,255)
215,590
(21,781)
—
—
—
—
145,354
(60,731)
(18,876)
5,352
898
(2,541)
(21,773)
(21,029)
2,746
(40,056)
(184,092)
—
—
—
(10,237)
(7,090)
305
(17,022)
38,738
—
—
—
—
(3,071)
—
(3,011)
69,456
(187,163)
35,727
—
—
2,521
16,201
(11,629)
(555)
58,190
13,641
26,057
—
—
—
—
(68)
782
68
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50,586
6,381
3,713
787
(38,645)
(7,064)
47,374
(32,337)
(1,123)
140,554
(32,010)
(28,119)
3,051
(57,078)
—
(60,731)
(18,876)
5,352
898
(8,623)
(81,980)
2,521
4,017
97,888
$
74,391
$
2,012
$
25,502
$
— $
101,905
58
Year ended December 31, 2012
Statements of Cash Flows
Operating activities:
Net income (loss)
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Equity in earnings of subsidiaries
Depreciation and amortization
Deferred income tax expense
Share-based compensation expense
Provision for losses on accounts and notes
receivable
Changes in operating assets and liabilities:
Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other assets and liabilities
Other, net
Cash provided by (used for) operating
activities
Investing activities:
Acquisition, net of cash acquired
Additions to property and equipment
Additions to computer software and intangible
assets
Proceeds from sale of property and equipment
Cash used for investing activities
Financing activities:
Change in intercompany advances
Cash dividends paid
Repurchases of common stock
Financing costs paid
Excess tax benefits related to share-based
compensation
Proceeds from exercise of stock options
Other, net
Cash provided by (used for) financing
activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
Condensed Consolidating Financial Information
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
109,003
$
134,276
$
(13,462) $
(120,814) $
109,003
—
120,133
(120,133)
1
—
—
—
—
—
(67,800)
19
(1,738)
—
34,944
2,933
5,697
4,659
(1,873)
—
587
417
31,513
56,235
55,941
(2,653)
1,236
(7,599)
1,818
(3,585)
(1,859)
(71)
(80,648)
320,709
(21,555)
—
—
—
—
—
86,131
(55,681)
(15,000)
—
1,293
4,986
(2,901)
—
(4,249)
(27,960)
1,057
(155,210)
(5,583)
(1,171)
2,241
(31,152)
(159,723)
(287,200)
—
—
(1,303)
—
—
(2,222)
201,069
—
—
—
—
—
2,413
18,828
(290,725)
203,482
—
—
2,734
(61,820)
(1,168)
24,938
120,010
14,809
1,119
—
—
—
—
3,247
681
(3,250)
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39,604
1,060
5,697
1,004
27,161
58,734
(18,694)
(4,490)
(573)
218,506
(155,210)
(9,832)
(29,131)
3,298
(190,875)
—
(55,681)
(15,000)
(1,303)
1,293
4,986
(2,710)
(68,415)
2,734
(38,050)
135,938
97,888
$
58,190
$
13,641
$
26,057
$
— $
59
Year ended December 31, 2011
Statements of Cash Flows
Operating activities:
Net income (loss)
Adjustments to reconcile net income to cash
(used for) provided by operating activities:
Equity in earnings of subsidiaries
Depreciation and amortization
Deferred income tax benefit
Share-based compensation expense
Provision for losses on accounts and notes
receivable
Pension contributions
Changes in operating assets and liabilities:
Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other assets and liabilities
Other, net
Cash provided by (used for) operating
activities of continuing operations
Investing activities:
Additions to property and equipment
Additions to computer software and intangible
assets
Proceeds from sale of property and equipment
Cash used for investing activities of continuing
operations
Financing activities:
Change in intercompany advances
Cash dividends paid
Repurchases of common stock
Proceeds from termination of interest rate swaps
Excess tax benefits related to share-based
compensation
Proceeds from exercise of stock options
Other, net
Cash provided by (used for) financing
activities of continuing operations
Discontinued operations:
Operating cash flows
Net cash used for discontinued operations
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
Condensed Consolidating Financial Information
Owens &
Minor, Inc.
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
115,198
$
122,555
$
(346) $
(122,209) $
115,198
—
—
—
—
—
—
(125)
(85)
86
145
(97)
(422)
(183)
(137)
—
(320)
(122,209)
—
—
—
—
—
313
—
113,100
539
(998)
—
34,135
14,520
5,674
2,176
(409)
(37,461)
(86,165)
(69,128)
(25,338)
2,339
105,943
(37,102)
—
—
—
—
(87,415)
(50,909)
(16,124)
4,005
2,154
9,179
(3,720)
(24,798)
(11,197)
2,430
(33,565)
85,276
2,139
—
—
—
—
—
(2,116)
—
—
—
—
—
—
(142,830)
83,160
2,139
—
—
—
—
(278)
(278)
(36,887)
12,493
1,119
156,897
2,316
—
122,209
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
120,010
$
14,809
$
1,119
$
— $
60
—
34,135
14,520
5,674
2,176
(409)
(37,273)
(86,250)
44,058
(24,654)
1,244
68,419
(24,981)
(11,334)
2,430
(33,885)
—
(50,909)
(16,124)
4,005
2,154
9,179
(5,836)
(57,531)
(278)
(278)
(23,275)
159,213
135,938
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Owens & Minor, Inc.:
We have audited the accompanying consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of December 31, 2013
and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash
flows for each of the years in the
period ended December 31, 2013. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Owens & Minor, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash
flows for each of the years in the
period ended December 31, 2013, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Owens & Minor, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 24, 2014, expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Richmond, Virginia
February 24, 2014
61
SELECTED QUARTERLY FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share data)
Net revenue (3)
Gross margin
Net income
Net income attributable to Owens & Minor, Inc. per
common share:
Basic
Diluted
Cash dividends per common share
Market price:
High
Low
(in thousands, except per share data)
Net revenue (3)
Gross margin
Net income
Net income attributable to Owens & Minor, Inc. per
common share:
Basic
Diluted
Cash dividends per common share
Market price:
High
Low
Year Ended December 31, 2013 (1)
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,246,384
279,052
26,098
0.41
0.41
0.24
32.56
29.17
$
$
$
$
$
$
$
$
2,236,077
273,431
28,872
0.46
0.46
0.24
35.43
30.12
$
$
$
$
$
$
$
$
2,270,547
273,329
27,970
0.44
0.44
0.24
36.26
33.50
Year Ended December 31, 2012 (2)
1st
Quarter
2,217,882
214,328
29,360
0.46
0.46
0.22
31.28
27.59
2nd
Quarter
2,185,444
211,429
30,113
0.48
0.48
0.22
30.63
27.64
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3rd
Quarter
2,170,790
228,123
24,597
0.39
0.39
0.22
31.10
27.81
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,318,524
291,263
27,942
0.44
0.44
0.24
38.23
33.95
4th
Quarter
2,294,208
270,774
24,934
0.40
0.39
0.22
30.27
27.01
_____________________________
(1)
We incurred charges of $2.0 million ($1.5 million after tax, or $0.03 per diluted common share) in the first quarter
of 2013, $0.6 million ($0.4 million after tax) in the second quarter of 2013, $2.7 million ($1.9 million after tax, or
$0.03 per diluted common share) in the third quarter of 2013, and $7.0 million ($5.0 million after tax, or $0.08 per
diluted common share) in the fourth quarter of 2013 associated with acquisition-related and exit and realignment
activities.
(2)
(3)
We incurred charges of $0.6 million ($0.4 million after tax) in the second quarter of 2012, $7.8 million ($6.6 million
after tax, or $0.10 per diluted common share) in the third quarter of 2012 and $1.7 million ($1.2 million after tax,
or $0.02 per diluted common share) in the fourth quarter of 2012 associated with acquisition-related and exit and
realignment activities.
The first three quarters of 2013 and the third and fourth quarter of 2012 have been revised to reflect current revenue
presentation. See Note 1 of Notes to Consolidated Financial Statements.
62
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Index to Exhibits
Amended and Restated Articles of Incorporation of Owens & Minor, Inc. (incorporated herein by reference
to our Current Report on Form 8-K, Exhibit 3.1, dated July 29, 2008)
Amended and Restated Bylaws of Owens & Minor, Inc. (incorporated herein by reference to our Current
Report on Form 8-K, Exhibit 3.1, dated November 5, 2013)
Indenture, dated as of April 7, 2006, for the Senior Notes due 2016 among the Company, Owens & Minor
Distribution, Inc., Owens & Minor Medical, Inc., Owens & Minor Healthcare Supply, Inc., Access Diabetic
Supply, LLC and SunTrust Bank, as trustee (incorporated herein by reference to the Company’s Current
Report on Form 8-K, Exhibit 4.2, dated April 7, 2006)
Form of Global Security for the Senior Notes due 2016 (incorporated herein by reference to the Company’s
Current Report on Form 8-K, Exhibit 4.3, dated April 7, 2006)
Rights Agreement dated as of April 30, 2004, between Owens & Minor, Inc., and Bank of New York, as
Rights Agent (incorporated herein by reference to the Company’s Annual Report on Form 10-K, Exhibit 4.6,
for the year ended December 31, 2003)
Owens & Minor, Inc. 2003 Directors’ Compensation Plan (incorporated herein by reference to Annex B of
the Company’s definitive Proxy Statement filed pursuant to Section 14(a) of the Securities Exchange Act on
March 13, 2003 (File No. 001-09810))*
Amendment to 2003 Directors’ Compensation Plan (incorporated herein by reference to the Company’s
Quarterly Report on Form 10-Q, Exhibit 10.6, for the quarter ended March 31, 2008)*
Form of Director Restricted Stock Grant Agreement (incorporated herein by reference to the Company’s
Quarterly Report on Form 10-Q, Exhibit 10.3, for the quarter ended March 31, 2008)*
Owens & Minor, Inc. Directors’ Deferred Compensation Plan, as amended and restated effective January 1,
2005 (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q, Exhibit 10.3, for
the quarter ended September 30, 2008)*
Deferral Election Form for The Owens & Minor, Inc. Directors’ Deferred Compensation Plan (incorporated
by reference to the Company’s Annual Report on Form 10-K, Exhibit 10.9 for the year ended December 31,
2010)*
Form of Owens & Minor, Inc. Executive Severance Agreement effective January 1, 2011 (incorporated by
reference to the Company’s Annual Report on Form 10-K, Exhibit 10.10 for the year ended December 31,
2010)*
Owens & Minor, Inc. Supplemental Executive Retirement Plan, as amended and restated effective
January 1, 2005 (“SERP”) (incorporated herein by reference to the Company’s Quarterly Report on
Form 10-Q, Exhibit 10.1, for the quarter ended September 30, 2008)*
Resolutions of the Board of Directors of the Company amending the SERP (incorporated by reference to the
Company’s Annual Report on Form 10-K, Exhibit 10.12 for the year ended December 31, 2011)*
Owens & Minor, Inc. Amended and Restated Management Equity Ownership Program and Stock
Ownership Rewards Program (incorporated by reference to the Company’s Annual Report on Form 10-K,
Exhibit 10.15, for the year ended December 31, 2009)*
10.10
Amendment to MEOP effective January 1, 2014*--filed herewith
10.11
10.12
Owens & Minor, Inc. Executive Deferred Compensation and Retirement Plan effective January 1, 2013
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q Exhibit 10.1 for the quarter
ended March 31, 2013)*
Owens & Minor, Inc. Pension Plan, as amended and restated effective January 1, 1994 (“Pension Plan”)
(incorporated herein by reference to the Company’s Annual Report on Form 10-K, Exhibit 10(c), for the
year ended December 31, 1996)*
63
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Amendment No. 1 to Pension Plan (incorporated herein by reference to the Company’s Annual Report on
Form 10-K, Exhibit 10(d), for the year ended December 31, 1996)*
Amendment No. 2 to Pension Plan (incorporated herein by reference to the Company’s Annual Report on
Form 10-K, Exhibit 10.5, for the year ended December 31, 1998)*
Resolutions of the Board of Directors of the Company amending the Owens & Minor, Inc. Pension Plan.
(incorporated herein by reference to the Company’s Current Report on Form 8-K, Exhibit 10.5, dated May
3, 2006)*
Amendment No. 3 to Pension Plan (incorporated herein by reference to the Company’s Quarterly Report on
Form 10-Q, Exhibit 10.2, for the quarter ended September 30, 2008)*
Fourth Amendment to Pension Plan (incorporated herein by reference to the Company’s Annual Report on
Form 10-K, Exhibit 10.24, for the year ended December 31, 2009)*
Fifth, Sixth, and Seventh Amendments to Pension Plan (incorporated by reference to the Company’s Annual
Report on Form 10-K, Exhibit 10.22 for the year ended December 31, 2010)*
Owens & Minor, Inc. 2005 Stock Incentive Plan, as amended (incorporated herein by reference to the
Company’s Registration Statement on Form S-8, Registration No. 333-124965)*
Resolution of the Board of Directors of the Company amending the Owens & Minor, Inc. 2005 Stock
Incentive Plan (incorporated herein by reference to the Company’s Annual Report on Form 10-K, Exhibit
10.21, for the year ended December 31, 2007)*
Amendment to Owens & Minor, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to the
Company’s Quarterly Report on Form 10-Q, Exhibit 10.4, for the quarter ended March 31, 2008)*
Amendment to Owens & Minor, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to the
Company’s definitive Proxy Statement filed pursuant to Section 14(a) of the Securities Exchange Act on
March 17, 2010 (File No. 001-09810))*
Form of Owens & Minor, Inc. Stock Option Grant Agreement under 2005 Stock Incentive Plan
(incorporated herein by reference to the company’s Current Report on Form 8-K, Exhibit 10.1, dated June
23, 2005)*
Form of Owens & Minor, Inc. Restricted Stock Grant Agreement under 2005 Stock Incentive Plan
(incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q, Exhibit 10.2, for the
quarter ended March 31, 2008)*
Form of Performance Share Award Agreement (incorporated by reference to the Company’s Annual Report
on Form 10-K, Exhibit 10.31 for the year ended December 31, 2012) *
Form of Performance Share Award Agreement *--filed herewith
Form of Annual Executive Incentive Program (incorporated by reference to the Company’s Annual Report
on Form 10-K, Exhibit 10.32 for the year ended December 31, 2012) *
Owens & Minor, Inc. Officer Severance Policy Terms (incorporated herein by reference to the Company’s
Current Report on Form 8-K, Exhibit 10.1, dated December 19, 2005)*
Policy on Recoupment of Executive Incentive Compensation (incorporated herein by reference to the
Company’s Annual Report on Form 10-K, Exhibit 10.36, for the year ended December 31, 2009)*
Credit Agreement dated as of June 5, 2012 by and among Owens & Minor Distribution, Inc., and Owens &
Minor Medical, Inc. (as Borrowers), Owens & Minor, Inc. and certain of its domestic subsidiaries (as
Guarantors), Wells Fargo Bank, N.A. (as Administrative Agent), JPMorgan Chase Bank, N.A. (as
Syndication Agent) and a syndicate of banks as specified on the signature pages thereof (incorporated herein
by reference to the Company’s Current Report on Form 8-K, Exhibit 10.1, dated June 8, 2012)
64
10.31
11.1
21.1
23.1
31.1
31.2
32.1
32.2
Share Purchase Agreement dated August 31, 2012 between Celesio AG, Admenta Deutschland GmbH,
Admenta Denmark ApS, Admenta France S.A. and OCP Portugal Produtos Farmaceuticos, S.A. (as Sellers)
and O&M-Movianto Nederland B.V., O&M-Movianto UK Holdings Ltd, O&M-Movianto France Holdings
SAS (as Purchasers) and Owens & Minor, Inc. (as Purchasers’ Guarantor) (incorporated herein by reference
to our Current Report on Form 8-K, Exhibit10.1, dated September 4, 2012)
Calculation of Net Income per Common Share. Information related to this item is in Part II, Item 8, Notes to
Consolidated Financial Statements, Note 15-Net Income per Common Share
Subsidiaries of Registrant
Consent of KPMG LLP, independent registered public accounting firm
Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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
* Management contract or compensatory plan or arrangement.
65
Pursuant to the requirements of Section 13 or 15(d) 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, on the 24th day of February, 2014.
SIGNATURES
OWENS & MINOR, INC.
/s/ Craig R. Smith
Craig R. Smith
Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on the 24th day of February, 2014:
/s/ Martha H. Marsh
Martha H. Marsh
Director
/s/ Eddie N. Moore, Jr.
Eddie N. Moore, Jr.
Director
/s/ James E. Rogers
James E. Rogers
Lead Director
/s/ David S. Simmons
David S. Simmons
Director
/s/ Robert C. Sledd
Robert C. Sledd
Director
/s/ Anne Marie Whittemore
Anne Marie Whittemore
Director
/s/ Craig R. Smith
Craig R. Smith
Chairman & Chief Executive Officer
/s/ Richard A. Meier
Richard A. Meier
Executive Vice President & Chief Financial Officer
/s/ Stuart M. Essig
Stuart M. Essig
Director
/s/ Richard E. Fogg
Richard E. Fogg
Director
/s/ John W. Gerdelman
John W. Gerdelman
Director
/s/ Lemuel E. Lewis
Lemuel E. Lewis
Director
66
Corporate Officers
Craig R. Smith (62)
Chairman & Chief Executive Officer
Chairman of the Board since April 2013 and Chief Executive Officer since 2005. Mr. Smith also served as President from 1999
until August 2013. Mr. Smith has been with the company since 1989.
James L. Bierman (61)
President & Chief Operating Officer
President since August 2013 and Chief Operating Officer since March 2012. Previously, Mr. Bierman served as Executive Vice
President & Chief Operating Officer from March 2012 until August 2013. Mr. Bierman served as Executive Vice President &
Chief Financial Officer from April 2011 to March 2012. Prior to that, Mr. Bierman served as Senior Vice President & Chief
Financial Officer from 2007 to 2011. Mr. Bierman joined the company in 2007.
Richard A. Meier (54)
Executive Vice President & Chief Financial Officer
Executive Vice President & Chief Financial Officer since joining Owens & Minor in March 2013. Mr. Meier served from 2010
to 2012 as Executive Vice President & Chief Financial Officer of Teleflex, Inc., a global provider of specialty medical devices.
Prior to that, he served as President & Chief Operating Officer of Advanced Medical Optics, Inc., from 2007 to 2009, and as
Chief Financial Officer and in a variety of other finance and operations roles from 2002 through 2007.
Charles C. Colpo (56)
Senior Vice President, Strategic Relationships
Senior Vice President, Strategic Relationships since August 2013. From March 2012 until August 2013, Mr. Colpo served as
Senior Vice President, Operations. Prior to that, Mr. Colpo served as Executive Vice President & Chief Operating Officer from
2010 to 2012. Mr. Colpo served as Executive Vice President, Administration from 2008 until 2010 and as Senior Vice
President, Operations, from 1999 until 2008. He has been with the company since 1981.
Erika T. Davis (50)
Senior Vice President, Administration & Operations
Senior Vice President, Administration & Operations since August 2013. Prior to that, Ms. Davis served as Senior Vice
President, Human Resources, from 2001 until August 2013. Ms. Davis has been with the company since 1993.
Grace R. den Hartog (62)
Senior Vice President, General Counsel & Corporate Secretary
Senior Vice President, General Counsel & Corporate Secretary since joining Owens & Minor in 2003. Previously, Ms. den
Hartog served as a partner of McGuireWoods LLP from 1990 to 2003.
D. Todd Healy (51)
Senior Vice President, Provider Services
Senior Vice President, Provider Services since August 2013. Prior to that, Mr. Healy served as Regional Vice President, North
Region from 2004 to August 2013. He has served in general manager, division vice president and area vice president positions
since joining Owens & Minor in 1994.
67
Richard W. Mears (53)
Senior Vice President, Chief Information Officer
Senior Vice President, Chief Information Officer since joining Owens & Minor in 2005. Previously, Mr. Mears was an
Executive Director with Perot Systems (now Dell Perot Systems) from 2003 to 2005.
Brian J. Shotto (50)
Senior Vice President, Manufacturer Services
Senior Vice President, Manufacturer Services since August 2013. Previously, Mr. Shotto served as Senior Vice President,
Specialty Services from October 2011 until August 2013. Mr. Shotto served as a Principal Consultant for the Blue Fin Group
from 2009 until 2011. Prior to that, he served as Vice President, Distribution Strategy - Healthcare Logistics Strategy Group,
UPS, from 2006 to 2009, a company he joined in 2000. Mr. Shotto joined Owens & Minor in 2011.
Mark A. Van Sumeren (56)
Senior Vice President, Strategy & Business Development
Senior Vice President, Strategy & Business Development since 2009 and Senior Vice President, Business Development, from
2007 to 2009. Prior to that, Mr. Van Sumeren was Senior Vice President, OMSolutionsSM from 2003 to 2006. Mr. Van Sumeren
served as Vice President for Cap Gemini Ernst & Young from 2000 to 2003. He has been with the company since 2003.
Numbers inside parentheses indicate age.
68
Subsidiaries of Registrant
Exhibit 21.1
Subsidiary
Owens & Minor Medical, Inc.
O&M Funding Corp.
Owens & Minor Distribution, Inc.
OM Solutions International, Inc.
Owens & Minor Canada, Inc.
Owens & Minor Global Resources, LLC
Owens & Minor Healthcare Supply, Inc.
Access Diabetic Supply, LLC
Access Respiratory Supply, Inc.
Medical Supply Group, Inc.
Key Diabetes Supply Co.
OMI International, Ltd.
Mira MEDsource Holding Company Limited
Mira MEDsource (Shanghai) Company Limited
Owens & Minor International Logistics, Inc.
O&M Worldwide, LLC
GNB Associates LLC
Rutherford Holdings CV
Lockwood Enterprises CV
O&M-Movianto Nederland B.V.
O&M-Movianto UK Holdings Ltd.
O&M-Movianto France Holdings S.A.S.
Movianto Belgium NV
Movianto Ceska republika sro
Movianto Nordic Aps
Movianto France SAS
Movianto GmbH
Movianto Deutschland GmbH
Movianto Portugal SL
Movianto Slovensko sro
AVS Health Espana SL
Movianto Espana SL
Movianto Schweiz GmbH
Healthcare Services Group Ltd
Movianto UK Ltd.
Movianto Transport Solutions Ltd.
Healthcare Product Services Ltd.
Pharmacare Logistics Ltd.
State of
Incorporation/
Organization
Virginia
Virginia
Virginia
Virginia
Virginia
Virginia
Virginia
Florida
Florida
Virginia
Michigan
N/A
N/A
N/A
Virginia
Virginia
Virginia
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
69
Assumed Name
OM HealthCare Logistics
AOM HealthCare Solutions
AOM HealthCare Solutions
Country
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
British Virgin Islands
Hong Kong
Peoples Republic of China
USA
USA
USA
Netherlands
Netherlands
Netherlands
United Kingdom
France
Belgium
Czech Republic
Denmark
France
Germany
Germany
Portugal
Slovakia
Spain
Spain
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Owens & Minor, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 33-32497, 33-41402, 333-106361,
333-124965, and 333-142716) on Form S-8 of Owens & Minor, Inc. of our report dated February 24, 2014, with
respect to the consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of December 31, 2013 and
2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity,
and cash flows for each of the years in the three-year period ended December 31, 2013, and the effectiveness of
internal control over financial reporting as of December 31, 2013, which reports appear in the December 31, 2013
annual report on Form 10-K of Owens & Minor, Inc.
Richmond, Virginia
February 24, 2014
70
CERTIFICATION 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
Exhibit 31.1
I, Craig R. Smith, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013, of Owens & Minor,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
significant role in the registrant’s internal control over financial reporting.
b) Any fraud, whether or not material, that involves management or other employees who have a
Date: February 24, 2014
/s/ Craig R. Smith
Craig R. Smith
Chairman & Chief Executive Officer
Owens & Minor, Inc.
71
CERTIFICATION 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
Exhibit 31.2
I, Richard A. Meier, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013, of Owens & Minor,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
significant role in the registrant’s internal control over financial reporting.
b) Any fraud, whether or not material, that involves management or other employees who have a
Date: February 24, 2014
/s/ Richard A. Meier
Richard A. Meier
Executive Vice President & Chief Financial Officer
Owens & Minor, Inc.
72
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Owens & Minor, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig R.
Smith, Chairman & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Craig R. Smith
Craig R. Smith
Chairman & Chief Executive Officer
Owens & Minor, Inc.
February 24, 2014
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Owens & Minor, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard A.
Meier, Executive Vice President & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Richard A. Meier
Richard A. Meier
Executive Vice President & Chief Financial Officer
Owens & Minor, Inc.
February 24, 2014
73
THIS PAGE DOES NOT PRINT.
HOLDING PAGE FOR THE BACK OF THE 10-K
CORPORATE INFORmATION
Annual Shareholders’ meeting
The annual meeting of Owens & Minor, Inc.’s shareholders will
be held at 10:00 a.m. on Thursday, May 1, 2014, at Owens &
Minor, Inc., 9120 Lockwood Boulevard, Mechanicsville,
Virginia, 23116; 804-723-7000.
Transfer Agent, Registrar and Dividend Disbursing Agent
Computershare Shareowner Services
P.O. Box 30170
College Station, TX 77842-3170
Website: www.computershare.com/investor
Toll-free: 866-252-0358
(Inside the United States and Canada)
201-680-6578
(Outside the United States and Canada)
Stock Purchase and Dividend Reinvestment Plan
Our transfer agent, Computershare Shareowner Services
(“Computershare”), offers a Direct Purchase & Sale Plan for
shares of Owens & Minor, Inc. common stock known as the
Computershare CIP Plan (“CIP Plan”). The CIP Plan offers
registered shareholders of Owens & Minor and interested first-
time investors a convenient way to buy, hold and sell shares of
Owens & Minor common stock. Information may be obtained
through the “Buy Stock Direct” link at www.computershare.
com/investor, or by contacting Computershare (see contact
information above).
Shareholder Records
Correspondence concerning stock holdings, lost or missing
dividend checks, or changes of address for shares of Owens &
Minor, Inc’s. common stock should be directed to Computershare
at the address below:
Owens & Minor, Inc.
c/o Computershare
P.O. Box 30170
College Station, TX 77842-3170
Duplicate mailings
When a shareholder owns shares in more than one account, or
when several shareholders live at the same address, they may
receive multiple copies of company mailings. To eliminate
duplicate mailings, please call Computershare or consider
enrolling in electronic delivery (via Computershare’s website
above), which offers secure online access to financial documents
and shareholder communications.
Independent Auditors
KPMG LLP
Richmond, Virginia
Communications & Investor Relations
Press Releases
Owens & Minor, Inc.’s press releases are available at
www.owens-minor.com
Investor Relations
804-723-7555
Information for Investors
The company files annual, quarterly and current reports,
information statements and other
information with the
Securities and Exchange Commission (SEC). The public may
read and copy any materials that the company files with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC. The address of that site is http://www.sec.gov. The address
of the company’s website is www.owens-minor.com. Through a
link to the SEC’s Internet site on the Investor Relations portion
of our website, we make available all of our filings with the SEC,
including our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to
those reports, as well as beneficial ownership reports filed with
the SEC by directors, officers and other reporting persons relating
to holdings in Owens & Minor, Inc. securities. This information
is available as soon as the filing is accepted by the SEC.
Corporate Governance
The company’s Bylaws, Corporate Governance Guidelines, Code
of Honor and the charters of the Audit, Compensation & Benefits,
and Governance & Nominating Committees are available on the
company’s website at www.owens-minor.com and are available
in print to any shareholder upon request by writing to:
Corporate Secretary
Owens & Minor, Inc.
9120 Lockwood Boulevard
Mechanicsville, Virginia 23116
Communications with the Board of Directors
The Board of Directors has approved a process for shareholders
to send communications to the Board. Shareholders can send
written communications to the Board, any committee of the
Board, the Lead Director or any other individual director at the
following address: P.O. Box 26383, Richmond, Virginia 23260.
Certifications
The company’s Chief Executive Officer certified to the New York
Stock Exchange (NYSE) within 30 days after the company’s 2013
Annual Meeting of Shareholders that he was not aware of any
violation by the company of NYSE corporate governance listing
standards. The company also filed with the SEC as exhibits
31.1, 31.2, 32.1 and 32.2 to its Annual Report on Form 10-K for
the year ended December 31, 2013, certifications by its Chief
Executive Officer and Chief Financial Officer.
Our mission
To create consistent value for our customers and supply-chain
partners that will maximize shareholder value and long-term
earnings growth; we will do this by managing our business with
integrity and the highest ethical standards, while acting in a
socially responsible manner with particular emphasis on the
well-being of our teammates and the communities we serve.
Our Vision
Connecting the World of Medical Products to the Point of Care.TM
Our Values
We believe in high integrity as the guiding principle
of doing business.
We believe in our teammates and their well-being.
We believe in providing superior customer service.
We believe in supporting the communities we serve.
We believe in delivering long-term value to our
shareholders.
Corporate Office
804-723-7000
www.owens-minor.com
Street Address
9120 Lockwood Boulevard
Mechanicsville, Virginia 23116
Mailing Address
Post Office Box 27626
Richmond, Virginia 23261-7626