Business context and reporting period
Issuer discrepancy: The supplied filing identifies Owens & Minor, Inc. and subsidiaries, not ACCENDRA HEALTH INC. This summary reflects the filing text provided. It covers the unaudited quarter and six months ended June 30, 2011, compared with the same 2010 periods. Owens & Minor distributes medical and surgical supplies and provides related supply-chain services.
Financial performance
Amounts are in millions of dollars except per-share data.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $2,131.4 | $2,019.9 | $4,255.3 | $3,989.6 |
| Gross margin | $216.1 | $198.9 | $426.8 | $395.9 |
| Operating earnings | $51.0 | $52.2 | $102.0 | $101.3 |
| Net income | $29.2 | $29.5 | $57.9 | $57.3 |
| Diluted EPS | $0.46 | $0.46 | $0.91 | $0.91 |
| Gross margin % of revenue | 10.14% | 9.85% | 10.03% | 9.92% |
| Operating earnings % of revenue | 2.39% | 2.58% | 2.40% | 2.54% |
For the six months, operating cash flow was negative $34.5 million versus positive $183.1 million a year earlier; investing cash flow was negative $13.7 million, and financing cash flow was positive $48.4 million. Cash was $159.2 million at June 30, 2011. Working-capital movements—receivables and inventory increases and a decrease in accounts payable—were key operating cash uses.
At June 30, total assets were $1.906 billion, current assets $1.486 billion, and current liabilities $733.0 million. Long-term debt was $212.1 million; shareholders’ equity was $895.8 million. The company had $200 million of 6.35% senior notes due in 2016 and a $350 million revolving facility, with no revolver borrowings and $345 million available after letters of credit. It reported compliance with debt covenants.
Material changes versus the prior comparable period
- Q2 revenue rose 5.5%; six-month revenue rose 6.7%. Growth reflected higher sales to existing customers and new customers, partly offset by lost-customer sales.
- Gross margin dollars increased 8.6% in Q2 and 7.8% year to date. Fee-for-service revenue, including third-party logistics and supply-chain consulting, supported margin improvement.
- SG&A rose 12.0% in Q2 and 9.5% year to date, including costs to convert and serve new third-party logistics business, labor, delivery and consulting expenses. Operating earnings fell 2.2% in Q2 but increased 0.7% year to date.
- Q2 net income declined slightly; six-month net income increased 1.1%. Diluted EPS was unchanged in both comparisons.
- Operating cash flow shifted from a $183.1 million inflow to a $34.5 million outflow, principally reflecting working-capital timing. Year-to-date capital expenditures were $13.7 million versus $20.2 million in the prior-year period.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Management said available cash and financing sources should be sufficient for working capital, capital expenditures, strategic growth, debt and lease payments, dividends, repurchases and other foreseeable needs.
- Management cited risks including economic conditions, customer concentration and credit, customer retention and acquisition, supplier funding and pricing, regulation, competition, execution of strategic initiatives, operating-cost control, financing access and rates, technology, litigation and tax contingencies.
- In April 2011 the company entered into swaps on $175 million of notes, effectively converting 87.5% of the notes to variable-rate exposure. The swaps were terminated in July 2011; the filing says their $4.0 million termination-date fair value would be amortized into interest income over the debt’s remaining term. The financial-statement note reports a $2.9 million fair value at June 30.
- A $4.6 million class-action settlement receipt was held for distribution to customers and included in accrued liabilities, not treated as company income. A $3.8 million pool of customer performance-related contingent obligations was not accrued because management did not consider payment probable; $1.1 million of related deferred revenue was recorded.
- California was reviewing possible local sales-tax incentives; any payment and amount were uncertain. The company also remained subject to audits of certain pre-2009 discontinued diabetes-business reimbursements.
- The company repurchased 151,581 shares for $5.1 million at an average $33.55 under a $50 million authorization, leaving approximately $44.9 million. The quarterly dividend was $0.20 per share, up from $0.177 a year earlier; future dividends remain at the board’s discretion.
Important facts for investors to verify
- Confirm the correct issuer: the supplied filing is for Owens & Minor, Inc., despite the request naming ACCENDRA HEALTH INC.
- Assess whether revenue growth and improved gross margin can offset rising SG&A and the lower Q2 operating margin.
- Track working-capital needs and operating cash flow, particularly receivables, inventory, and accounts payable.
- Review debt covenant headroom, revolver availability, and the effect of the July swap termination on interest exposure and income.
- Monitor customer retention, new-contract economics, contingent customer obligations, tax-incentive review, and any developments in reimbursement audits or legal matters.