OMI 10-Q Quarter ended Sept. 30, 2013

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2013

OR

For the transition period from to

Commission file number 1-9810

Owens & Minor, Inc.

(Exact name of Registrant as specified in its charter)

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

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

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

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

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

The number of shares of Owens & Minor, Inc.’s common stock outstanding as of November 1, 2013, was 63,121,207 shares.

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Owens & Minor, Inc. and Subsidiaries

Index

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Owens & Minor, Inc. and Subsidiaries

(unaudited)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

(unaudited)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

(unaudited)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(unaudited)

See accompanying notes to consolidated financial statements.

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Owens & Minor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, unless otherwise indicated)

1. Basis of Presentation and Use of Estimates

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). 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. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.

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

Use of Estimates

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

2. Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable, financing receivables, accounts payable and financing payables included in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings and average remaining maturities (Level 2). See Note 8 for the fair value of long-term debt.

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 $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.

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.

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Measurement period adjustments primarily relate to additional market information obtained regarding acquired assets.

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 arising from the acquisition 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 includes 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 operations and administrative functions from the former owner. We incurred $1.5 million and $8.4 million in pre-tax acquisition-related costs in the first nine months of 2013 and 2012.

4. Financing Receivables

At September 30, 2013 and December 31, 2012, we had financing receivables of $148.8 million and $124.5 million and related payables of $149.2 million and $130.1 million outstanding under our order-to-cash program and product financing arrangements, which were included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.

5. Goodwill and Intangible Assets

The following table summarizes the changes in the carrying amount of goodwill through September 30, 2013:

Intangible assets at September 30, 2013, and December 31, 2012, were as follows:

Amortization expense for intangible assets was $0.7 million and $0.8 million for the three months ended September 30, 2013 and 2012, and $2.7 million and $1.9 million for the nine months ended September 30, 2013 and 2012.

Based on the current carrying value of intangible assets subject to amortization, estimated amortization expense is $0.7 million for the remainder of 2013, $4.5 million for 2014, $5.1 million for 2015, $5.2 million for 2016, $5.0 million for 2017 and $4.1 million for 2018.

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6. Exit and Realignment Costs

We periodically incur exit and realignment and other charges associated with optimizing our operations, which includes the consolidation of distribution centers, the realignment of our distribution network, and the closure of offsite warehouses. In the current quarter, we recognized $2.1 million associated with these activities, of which $1.9 million was in the Domestic segment and $0.2 million was in the International segment. During the first nine months of 2013, we recognized total charges of $3.9 million, including $3.2 million in the Domestic segment and $0.7 million in the International segment. The year to date charge includes $1.3 million in loss accruals associated with our operating leases and estimated severance. The remaining charges of $2.6 million are comprised of costs that are expensed as incurred and not reflected in the table below, including $1.4 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 $3.0 million over the remainder of 2013 for activities initiated in the Domestic segment through September 30, 2013.

The following table summarizes the activity related to exit and realignment cost accruals through September 30, 2013

There were no exit and realignment charges in the third quarter or year to date period for 2012.

7. 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.

Certain of our foreign subsidiaries have health and welfare plans covering substantially all of their respective employees. Our expense for these plans totaled $0.9 million for the nine months ended September 30, 2013.

The components of net periodic benefit cost, which are included in selling, general and administrative expenses, for the three and nine months ended September 30, 2013 and 2012, were as follows:

We have $200 million of senior notes outstanding, which mature on April 15, 2016 and bear interest at 6.35% payable semi-annually (Senior Notes). We may redeem the Senior Notes, in whole or in part, at a redemption price of the greater of 100% of the principal amount of the Senior Notes or the present value of remaining scheduled payments of principal and interest discounted at the applicable Treasury Rate plus 0.25%. As of September 30, 2013 and December 31, 2012, the estimated fair value of the Senior Notes was $217.5 million and $219.5 million, and the related carrying amount was $204.5 million and $205.8 million. The estimated fair value interest rate used to compute the fair value of the Senior Notes at September 30, 2013 and December 31, 2012 was 2.75% and 3.19%.

We have 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. 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 on the Credit Agreement, which is subject to adjustment quarterly, is based on the London Interbank Offered Rate (LIBOR), the Federal Funds Rate or the Prime Rate, plus an adjustment based on the better of our debt ratings or leverage ratio (Credit Spread) as defined by the Credit Agreement. We are charged a commitment fee of between 17.5 and 42.5 basis points on the unused

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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 September 30, 2013, we had no borrowings and letters of credit of approximately $5.0 million outstanding under the Credit Agreement, leaving $345.0 million available for borrowing. We also have a $1.4 million letter of credit outstanding as of September 30, 2013, which supports our facilities leased in Europe.

9. Income Taxes

The provision for income taxes was $17.9 million and $54.4 million for the three and nine months ended September 30, 2013, compared to $19.0 million and $57.7 million for the same periods in 2012. The effective tax rate was 39.0% and 39.6% for the three and nine months ended September 30, 2013, compared to 43.6% and 40.7% for the same periods in 2012. The decrease in the effective tax rate quarter over quarter is due to the impact of non-deductable acquisition-related costs in the third quarter of 2012 incurred as a result of the Movianto acquisition. The decrease in the effective tax rate for the year-to-date period of 2013 is primarily the result of benefits recognized upon the conclusion of examinations of our 2009 and 2010 federal income tax returns and certain state income tax returns. The liability for unrecognized tax benefits was $4.8 million at September 30, 2013, compared to $12.3 million at December 31, 2012. The decrease was a result of the conclusion of these examinations. Included in the liability at September 30, 2013 were $3.4 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

10. Net Income per Common Share

The following summarizes the calculation of net income per common share attributable to common shareholders for the three and nine months ended September 30, 2013 and 2012.

11. Shareholders’ Equity

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 plans and may be suspended or discontinued at any time. During the nine months ended September 30, 2013, we repurchased in open-market transactions and retired approximately 471 thousand shares of our common stock for an aggregate of $15.7 million, or an average price per share of $33.32. As of September 30, 2013, we have approximately $3.2 million remaining under the repurchase program. We have elected to allocate any excess of share repurchase price over par value to retained earnings.

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12. Accumulated Other Comprehensive Income

The following table shows the changes in accumulated other comprehensive income (loss) by component for the three months ended September 30, 2013 and 2012:

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The following table shows the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2013 and 2012:

We include amounts reclassified out of accumulated other comprehensive income related to defined benefit pension plans as a component of net periodic pension cost recorded in selling, general & administrative expenses. For the three months ended September 30, 2013 and 2012, we reclassified $0.3 million and $0.2 million of actuarial net losses. For the nine months ended September 30, 2013, we reclassified $1.0 million of actuarial net losses. For the nine months ended September 30, 2012 we reclassified $0.8 million of actuarial net losses and $0.2 million of prior service costs.

13. Commitments and Contingencies

We have contractual obligations that are required to be paid to customers in the event that certain contractual performance targets are not achieved as of specified dates, generally within 36 months from inception of the contract. These contingent obligations totaled $2.6 million as of September 30, 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: remainder of 2013 – $0.3 million; 2014 – $0.9 million; 2015 – $0.7 million; and 2016 – $0.7 million. None of these contingent obligations were accrued at September 30, 2013, as we do not consider any of them probable. We deferred the recognition of fees that are contingent upon the company’s future performance under the terms of these contracts. As of September 30, 2013, $1.2 million of deferred revenue related to outstanding contractual performance targets was included in other accrued liabilities.

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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. In the future, the company will receive an ongoing tax incentive that will vary with eligible revenues generated by sales to California-based customers, which amounted to $0.4 million in the current quarter.

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 contract terms range from six to 24 months and are cancellable without penalty with thirty days notice. Since the acquisition we have terminated certain of these agreements and the maximum obligations in 2013 under these agreements is approximately $3.9 million, of which $3.8 million was incurred through the end of the third quarter.

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.

14. Segment Information

We evaluate the performance of our segments based on the operating earnings of the segments, excluding acquisition-related and exit and realignment charges.

The following tables present financial information by segment: