-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M+BulLl2X8QveATjEiB1tc3ClZdI9Xbfp60Djz8qZu3GwFkBulJ/Q+P5OPFjQGke aKzzBSMdqb7dWF4ynIRgKA== /in/edgar/work/20000810/0000920527-00-000022/0000920527-00-000022.txt : 20000921 0000920527-00-000022.hdr.sgml : 20000921 ACCESSION NUMBER: 0000920527-00-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSS WORLD MEDICAL INC CENTRAL INDEX KEY: 0000920527 STANDARD INDUSTRIAL CLASSIFICATION: [5047 ] IRS NUMBER: 592280364 STATE OF INCORPORATION: FL FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23832 FILM NUMBER: 691545 BUSINESS ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32216 BUSINESS PHONE: 9043323000 MAIL ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32216 FORMER COMPANY: FORMER CONFORMED NAME: PHYSICIAN SALES & SERVICE INC /FL/ DATE OF NAME CHANGE: 19940318 10-Q 1 0001.txt PSS WORLD MEDICAL, INC. FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 ------------- [ ] 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 0-23832 PSS WORLD MEDICAL, INC. (Exact name of registrant as specified in its charter) Florida 59-2280364 ------- ---------- (State or other jurisdiction (IRS employer of incorporation) Identification number) 4345 Southpoint Blvd. Jacksonville, Florida 32216 --------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number (904) 332-3000 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 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. [X] Yes [ ] No As of August 8, 2000 a total of 71,077,236 shares of common stock, par value $.01 per share, of the registrant were outstanding. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES JUNE 30, 2000 INDEX
PAGE NUMBER PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets - June 30, 2000 and March 31, 2000 3 Condensed Consolidated Statements of Operations - For the Three Months Ended June 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - For the Three Months Ended June 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements - June 30, 2000 and 1999 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 22 Item 2 - Change in Securities and Use of Proceeds 22 Item 6 - Exhibits and Reports on Form 8-K 23 SIGNATURES 26
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Share Data)
June 30, March 31, 2000 2000 ------------------- ------------------ (Unaudited) * ASSETS Current Assets: Cash and cash equivalents $ 41,830 $ 60,414 Marketable securities 1,861 4,328 Accounts receivable, net 286,133 284,441 Inventories, net 165,661 178,038 Employee advances 877 973 Prepaid expenses and other 55,702 57,515 ------------------- ------------------ Total current assets 552,064 585,709 Property and equipment, net 67,785 65,783 Other Assets: Intangibles, net 199,080 202,242 Other 25,036 19,683 ------------------- ------------------ Total assets $ 843,965 $ 873,417 =================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 118,690 $ 124,448 Accrued expenses 36,641 35,434 Current maturities of long-term debt and capital lease obligations 2,465 4,274 Other 7,005 7,482 ------------------- ------------------ Total current liabilities 164,801 171,638 Long-term debt and capital lease obligations, net of current portion 229,572 254,959 Other 5,578 7,193 ------------------- ------------------ Total liabilities 399,951 433,790 ------------------- ------------------ Shareholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.01 par value; 150,000,000 shares authorized, 71,077,236 shares issued and outstanding at June 30, 2000 and March 31, 2000 711 711 Additional paid-in capital 349,186 349,186 Retained earnings 96,575 90,951 Cumulative other comprehensive income (1,736) (390) ------------------- ------------------ 444,736 440,458 Unearned ESOP shares (722) (831) ------------------- ------------------ Total shareholders' equity 444,014 439,627 ------------------- ------------------ Total liabilities and shareholders' equity $ 843,965 $ 873,417 =================== ================== * Condensed from audited financial statements. The accompanying notes are an integral part of these condensed consolidated statements
3 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in Thousands, Except Per Share Data)
Three Months Ended -------------------------------- June 30, 2000 June 30, 1999 --------------- ---------------- Net sales $ 470,213 $ 437,001 Cost of goods sold 357,159 329,774 --------------- ---------------- Gross profit 113,054 107,227 General and administrative expenses 69,765 58,026 Selling expenses 29,378 27,323 --------------- ---------------- Income from operations 13,911 21,878 --------------- ---------------- Other income (expense): Interest expense (5,035) (3,511) Interest and investment income 700 451 Other income 812 1,058 --------------- ---------------- (3,523) (2,002) --------------- ---------------- Income before provision for income taxes and 10,388 19,876 cumulative effect of accounting change Provision for income taxes 4,764 8,191 --------------- ---------------- Income before cumulative effect of accounting change 5,624 11,685 Cumulative effect of accounting change -- (1,444) --------------- ---------------- Net income $ 5,624 $ 10,241 =============== ================ Earnings per share - Basic: Income before cumulative effect of accounting change $ 0.08 $ 0.16 Cumulative effect of accounting change -- (0.02) --------------- ---------------- Net income $ 0.08 $ 0.14 =============== ================ Earnings per share - Diluted: Income before cumulative effect of accounting change $ 0.08 $ 0.16 Cumulative effect of accounting change -- (0.02) --------------- ---------------- Net income $ 0.08 $ 0.14 =============== ================ The accompanying notes are an integral part of these condensed consolidated statements.
4 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Three Months Ended ------------------------------------ June 30, 2000 June 30,1999 ------------------ ----------------- Cash Flows From Operating Activities: Net income $ 5,624 $ 10,241 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change -- 1,444 Depreciation and amortization 5,474 4,485 Amortization of debt issuance costs 201 183 Provision for doubtful accounts 1,484 151 Gain (loss) on sale of fixed assets 7 (33) Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable, net (3,172) (1,148) Inventories 12,377 25,546 Prepaid expenses and other current assets (3,142) (7,045) Other assets (2,831) (2,965) Accounts payable, accrued expenses and other liabilities (3,134) (14,173) ------------------ ----------------- Net cash provided by operating activities 12,888 16,686 ------------------ ----------------- Cash Flows From Investing Activities: Purchases of marketable securities -- (9,168) Proceeds from sale of fixed assets 8 38 Capital expenditures (4,407) (5,147) Purchases of businesses, net of cash acquired -- (13,085) Payments on noncompete agreements (168) (486) ------------------ ----------------- Net cash used in investing activities (4,567) (27,848) ------------------ ----------------- Cash Flows From Financing Activities: Proceeds from borrowings 43 11,000 Repayment of borrowings (27,074) (1,720) Principal payments under capital lease obligations (35) (78) Proceeds from issuance of common stock -- 8 Other 161 (263) Net cash (used in) provided by financing activities (26,905) 8,947 ------------------ ----------------- Net decrease in cash and cash equivalents (18,584) (2,215) Cash and cash equivalents, beginning of period 60,414 41,106 ------------------ ----------------- Cash and cash equivalents, end of period $ 41,830 $ 38,891 ================== ================= The accompanying notes are an integral part of these condensed consolidated statements.
5 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited) (Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted) NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements of PSS World Medical, Inc. ("PSS" or the "Company") reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and related notes in the Company's 2000 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to the Securities and Exchange Commission rules and regulations. Financial statements for the Company's subsidiaries outside the United States are translated into U.S. dollars at period-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting translation adjustments are recorded in the other comprehensive income component of shareholders' equity. The Company operates on a thirteen week quarter which ends on the Friday closest to each calendar quarter end. For purposes of presentation and clarity, calendar quarter dates will be used for discussion and tables in this filing. The results of operations for the interim periods covered by this report may not necessarily be indicative of operating results for the full fiscal year. Certain fiscal 2000 amounts have been reclassified to conform to fiscal 2001 presentation. NOTE 2 - BUSINESS ACQUISITIONS Purchase Acquisitions There were no acquisitions during the three months ended June 30, 2000. During the three months ended June 30, 1999, the Company acquired certain assets and assumed certain liabilities of one physician supply and equipment distributor, four imaging supply and equipment distributors, and two long-term care distributors. The following is a summary of the transactions: June 30, 1999 ------------- Number of acquisitions.............................. 7 Total consideration................................. $ 20,552 Cash paid, net of cash acquired..................... 13,085 Goodwill recorded................................... 10,931 Value of Noncompete Agreements...................... 575 6 The operations of the acquired companies have been included in the Company's results of operations subsequent to the dates of acquisition. Supplemental pro forma information, assuming these acquisitions had been made at the beginning of the year, is not provided, as the results would not be materially different from the Company's reported results of operations. These acquisitions were accounted for under the purchase method of accounting, and accordingly, the assets of the acquired companies have been recorded at their estimated fair values at the dates of the acquisitions. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill and is amortized over 15 to 30 years. The accompanying consolidated financial statements reflect the preliminary allocation of the purchase price. The allocation of the purchase price, performed using values and estimates available as of the date of the financial statements, has not been finalized due to certain pre-acquisition contingencies identified by the Company and the nature of the estimates required in the establishment of the Company's merger integration plans. Accordingly, goodwill associated with these acquisitions may increase or decrease in the next twelve months. The terms of certain of the Company's recent acquisition agreements provide for additional consideration to be paid if the acquired entity's results of operations exceed certain targeted levels. Targeted levels are generally set above the historical experience of the acquired entity at the time of acquisition. Such additional consideration is to be paid in cash or with the Company's common stock and is recorded when earned as additional purchase price. The maximum amount of remaining contingent consideration is approximately $13.5 million (payable through fiscal 2003). During the three months ended June 30, 2000, there were no adjustments to goodwill. During the three months ended June 30, 1999, the Company recorded $593 of merger integration costs and expenses directly to goodwill as incurred as these costs were contemplated at the time of acquisition. In addition, the Company recorded $990 of additional goodwill at the time an integration plan was formalized. NOTE 3 - CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES Charges Included In General and Administrative Expenses In addition to typical general and administrative expenses, this income statement caption includes charges related to merger activity, restructuring activity, and other special items. The following table summarizes charges included in general and administrative expenses in the accompanying consolidated statements of operations: Three Months Ended June 30, 2000 June 30, 1999 ------------- ------------- Merger costs and expenses $ 1,575 $ 372 Restructuring costs and expenses 1,240 513 Other 786 -- ------------- ------------- Total $ 3,601 $ 885 ============= ============= 7 Merger Costs and Expenses The Company's policy is to accrue merger costs and expenses at the commitment date of an integration plan if certain criteria under EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity ("EITF 94-3") or EITF 95-14, Recognition of Liabilities in Anticipation of a Business Combination ("EITF 95-14"), are met. Merger costs and expenses recorded at the commitment date primarily include charges for involuntary employee termination costs, branch shut-down costs, lease termination costs, and other exit costs. If the criteria described in EITF 94-3 or EITF 95-14 are not met, the Company records merger costs and expenses as incurred. Merger costs expensed as incurred include the following: (1) costs to pack and move inventory from one facility to another or within a facility in a consolidation of facilities, (2) relocation costs paid to employees in relation to an acquisition accounted for under the pooling-of-interests method of accounting, (3) systems or training costs to convert the acquired companies to the current existing information system, and (4) training costs related to conforming the acquired companies operational policies to that of the Company's operational policies. In addition, amounts incurred in excess of the original amount accrued at the commitment date are expensed as incurred. Effective February 1, 2000, the Board of Directors approved and adopted the PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World Medical, Inc. Corporate Office Employee Retention Bonus Plan (collectively the "Retention Plans"). As part of the Company's strategic alternatives process, management adopted these plans to retain certain officers and key employees during the transition period. During the three months ended June 30, 2000, the Company accrued $1,271 related to the Retention Plans. In addition, merger costs and expenses for the three months ended June 30, 2000 and 1999 included $304 and $372, respectively, of merger charges expensed as incurred, which primarily related to branch shutdown costs. Refer to Note 4, Accrued Merger and Restructuring Costs and Expenses, for further discussion regarding the merger plans. Restructuring Costs and Expenses Restructuring costs and expenses for the three months ended June 30, 2000 and 1999 included $1,240 and $727, respectively, of charges that were expensed as incurred, which primarily relate to other exit costs. Other exit costs include costs to pack and move inventory, costs to set up new facilities, employee relocation costs, and other related facility closure costs. In addition, during the three months ended June 30, 1999, the Company reversed $214 of restructuring costs and expenses into income, which related to an involuntary employee termination costs for restructuring Plan A. Refer to Note 4, Accrued Merger and Restructuring Costs and Expenses, for further discussion regarding restructuring plans. Other During the three months ended June 30, 2000, the Imaging Business incurred $94 of professional fees for acquisitions not consummated. In addition, the Company incurred $692 in legal and professional fees and other costs pursuant to the strategic alternative process announced in January 2000. NOTE 4 - ACCRUED MERGER AND RESTRUCTURING COSTS AND EXPENSES Summary of Accrued Merger Costs and Expenses In connection with the consummation of business combinations, management often develops formal plans to exit certain activities, involuntarily terminate employees, and relocate employees of the acquired companies. Management's plans to exit an activity often include identification of duplicate facilities for closure and identification of facilities for consolidation into other facilities. 8 Generally, completion of the integration plans will occur within one year from the date in which the plans are formalized and adopted by management. However, intervening events occurring prior to completion of the plan, such as subsequent acquisitions or system conversion issues, can significantly impact a plan that had been previously established. Such intervening events may cause modifications to the plans and are accounted for on a prospective basis. At the end of each quarter, management reevaluates its integration plans and adjusts previous estimates. As part of the integration plans, certain costs are recognized at the date in which the plan is formalized and adopted by management (commitment date). These costs are generally related to employee terminations and relocation, lease terminations, and branch shutdown. In addition, there are certain costs that do not meet the criteria for accrual at the commitment date and are expensed as the plan is implemented (refer to Note 3, Charges Included in General and Administrative Expenses). Involuntary employee termination costs are employee severance costs and termination benefits. Lease termination costs are lease cancellation fees and forfeited deposits. Branch shutdown costs include costs related to facility closure costs. Employee relocation costs are moving costs of employees of an acquired company in transactions accounted for under the purchase method of accounting. Accrued merger costs and expenses, classified as accrued expenses in the accompanying consolidated balance sheet, were $969 and $1,089 at June 30, 2000 and March 31, 2000, respectively. The discussion and rollforward of the accrued merger costs and expenses below summarize the significant and nonsignificant integration plans adopted by management for business combinations accounted for under the purchase method of accounting and pooling-of-interests method of accounting. Integration plans are considered to be significant if the charge recorded to establish the accrual is in excess of 5% of consolidated pretax income. Significant Pooling-of-Interests Business Combination Plan The Company formalized and adopted an integration plan in December 1997 to integrate the operations of S&W X-Ray, Inc. ("S&W") with the Imaging Business. As of June 30, 2000, all of the employees have been terminated and all of the seven identified distribution facilities have been shut down. Therefore, all costs related to the merger plan had been incurred at June 30, 2000, except for lease termination costs for one location for which payment will extend through fiscal 2002. During the three months ended June 30, 2000, $22 of lease expense was charged against the accrual leaving a remaining accrual of $80. Nonsignificant Poolings-of-Interests Business Combination Plans The Imaging Business acquired TriStar Imaging Systems, Inc. ("TriStar") in October 1998, and management formalized and adopted an integration plan in late fiscal 1999 to integrate the operations of the acquired company. All costs related to the merger plan had been incurred at June 30, 2000, except for lease termination costs for which payment will extend through fiscal 2007. During the three months ended June 30, 2000, $30 of lease expense was charged against the accrual leaving a remaining accrual of $515. Nonsignificant Purchase Business Combination Plans The following accrued merger costs and expenses were recognized and additional goodwill was recorded at the date in which the integration plans were formalized and adopted by management. The following is a summary of the merger activity for the three months ended June 30, 2000 which related to three nonsignificant purchase business combinations completed during fiscal 1999: 9 Involuntary Employee Lease Termination Termination Costs Costs Total ------------- ------------- -------------- Balance at March 31, 2000 $ 56 $ 386 $ 442 Adjustments -- -- -- Additions -- -- -- Utilized (39) (29) (68) ------------- ------------- -------------- Balance at June 30, 2000 $ 17 $ 357 $ 374 ============= ============= ============== The Imaging Business acquired South Jersey X-Ray, Inc. in October 1998, and management formalized and adopted an integration plan during the three months ended June 30, 1999 to integrate the operations of the acquired company. Approximately $307 of the $374 remaining accrued merger costs and expenses at June 30, 2000 relate to this integration plan. As of June 30, 2000, all locations have been shut down and all employees were terminated as a result of the plan. However, lease termination payments will extend through fiscal 2004. Summary of Accrued Restructuring Costs and Expenses Primarily as a result of the impact of the Gulf South merger, in order to improve customer service, reduce costs, and improve productivity and asset utilization, the Company decided to realign and consolidate its operations. Accordingly, the Company implemented a restructuring plan during the fourth quarter of fiscal 1998 which impacted all divisions ("Plan A"). Subsequently, the Company adopted a second restructuring plan during the first quarter of fiscal 1999 related to the Gulf South division ("Plan B") to further consolidate its operations. During the second quarter of fiscal 2000, management evaluated the Company's overall cost structure and implemented cost reductions in order to meet internal profitability targets. In addition, management decided to improve its distribution model and relocate the corporate office for the GSMS division to Jacksonville, Florida where the corporate offices for the DI and PSS divisions exist. The Company implemented the restructuring plan during the second quarter of fiscal 2000, which impacted all divisions ("Plan C"). The total number of employees to be terminated was 272. During the fourth quarter of fiscal 2000, the Imaging Business' management made a discretionary decision to change its business strategy and the way it operates to improve future operations. These changes include restructuring the Imaging Business sales force, terminating approximately 50 service engineers, and closure of two distribution centers ("Plan D"). Accrued restructuring costs and expenses related to Plans A, B, C and D, classified as accrued expenses in the accompanying consolidated balance sheets, totaled $1,149 and $1,607 at June 30, 2000 and March 31, 2000, respectively. The following is a summary of the restructuring plan activity for the three months ended June 30, 2000:
Involuntary Employee Lease Branch Termination Termination Shutdown Costs Costs Costs Total ------------- ------------- -------------- -------------- Balance at March 31, 2000 $ 376 $ 857 $ 374 $ 1,607 Adjustments -- -- -- -- Additions -- -- -- -- Utilized (270) (145) (43) (458) ------------- ------------- -------------- -------------- Balance at June 30, 2000 $ 106 $ 712 $ 331 $ 1,149 ============= ============= ============== ==============
10 Plan A As of December 31, 1999, all employees were terminated and all of the locations were merged into existing locations. The accruals related to this plan were fully utilized at June 30, 2000. Plan B As of December 31, 1999, all of the six locations had been shut down and all employees were terminated as a result of the plan. Approximately $152 of lease termination payments remain accrued at June 30, 2000 for which payments will extend through fiscal 2002. Plan C All employees have been terminated at March 31, 2000. Accrued restructuring costs and expenses related to Plan C at June 30, 2000 were approximately $997, of which $560 relates to lease terminations, $106 to involuntary employee terminations, and $331 to branch shut down costs. Plan D All employees have been terminated at June 30, 2000, and the accrued restructuring costs and the accruals related to this plan were fully utilized at June 30, 2000. NOTE 5 - COMPREHENSIVE INCOME Comprehensive income is defined as net income plus direct adjustments to shareholders' equity. The following details the components of comprehensive income for the periods presented:
Three Months Ended ------------------------------- June 30, 2000 June 30, 1999 ------------- ------------- Net income........................................ $ 5,624 $ 10,241 ------------- ------------- Other comprehensive (expense) income, net of tax: Foreign currency translation adjustment....... 161 (263) Unrealized loss on available for sale security (1,507) -- ------------- ------------- Comprehensive income.............................. $ 4,278 $ 9,978 ============= =============
NOTE 6 - EARNINGS PER SHARE In accordance with SFAS No. 128, Earnings Per Share, the calculation of basic net earnings per common share and diluted earnings per common share is presented below (share amounts in thousands, except per share data): 11
Three Months Ended ------------------------------ June 30, June 30, 2000 1999 ------------- -------------- Net income..................................................... $ 5,624 $ 10,241 ============= ============== Earnings per share - Basic: Income before cumulative effect of accounting change........ $ 0.08 $ 0.16 Cumulative effect........................................... -- (0.02) ------------- -------------- Net income.................................................. $ 0.08 $ 0.14 ============= ============== Earnings per share - Basic: Income before cumulative effect of accounting change........ $ 0.08 $ 0.16 Cumulative effect........................................... -- (0.02) ------------- -------------- Net income.................................................. $ 0.08 $ 0.14 ============= ============== Weighted average shares outstanding: Common shares............................................... 71,128 70,796 Assumed exercise of stock options........................... 123 355 ------------- -------------- Diluted shares outstanding.................................. 71,251 71,151 ============= ==============
NOTE 7 - segment information SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, requires segment reporting in interim periods and disclosures regarding products and services, geographic areas, and major customers. The Company's reportable segments are strategic businesses that offer different products and services to different segments of the health care industry, and are based upon how management regularly evaluates the Company. These segments are managed separately because of different customers and products. These segments include Physician Sales & Service division (the "Physician Supply Business"), Diagnostic Imaging, Inc. ("DI" or the "Imaging Business"), Gulf South Medical Supply, Inc. ("GSMS" or the "Long-Term Care Business"), and WorldMed International, Inc. ("WorldMed Int'l") combined with the Holding Company. The Physician Supply Business is a distributor of medical supplies, equipment and pharmaceuticals to office-based physicians in the United States. DI is a distributor of medical diagnostic imaging supplies, chemicals, equipment, and service to the acute and alternate-care markets in the United States. GSMS is a distributor of medical supplies and related products to the long-term care market in the United States. WorldMed Int'l along with WorldMed, Inc. manages and develops PSS' European medical equipment and supply distribution market The Company primarily evaluates the operating performance of its segments based on net sales and income from operations. The following table presents financial information about the Company's business segments: 12
Three Months Ended -------------------------------- June 30, 2000 June 30, 1999 ------------- ------------- NET SALES: Physician Supply Business $ 177,215 $ 172,905 Imaging Business 196,750 164,140 Long-Term Care Business 91,197 92,203 Other (a) 5,051 7,753 ------------- ------------- Total net sales $ 470,213 $ 437,001 ============= ============= CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES: Physician Supply Business $ 75 $ 12 Imaging Business 1,170 322 Long-Term Care Business 387 551 Other (a) 1,969 -- ------------- ------------- Total charges included in general and administrative expenses $ 3,601 $ 885 ============= ============= INCOME FROM OPERATIONS: Physician Supply Business $ 11,587 $ 11,258 Imaging Business 3,496 6,960 Long-Term Care Business 1,789 3,105 Other (a) (2,961) 555 ------------- ------------- Total income from operations $ 13,911 $ 21,878 ============= ============= DEPRECIATION: Physician Supply Business $ 1,009 $ 985 Imaging Business 813 685 Long-Term Care Business 461 346 Other (a) 107 65 ------------- ------------- Total depreciation $ 2,390 $ 2,081 ============= ============= AMORTIZATION OF INTANGIBLE AND OTHER ASSETS: Physician Supply Business $ 428 $ 518 Imaging Business 2,005 1,266 Long-Term Care Business 560 540 Other (a) 292 263 ------------- ------------- Total amortization of intangible and other assets $ 3,285 $ 2,587 ============= ============= PROVISION FOR DOUBTFUL ACCOUNTS: Physician Supply Business $ (77) $ (7) Imaging Business 367 (342) Long-Term Care Business 1,194 500 ------------- ------------- Total provision for doubtful accounts $ 1,484 $ 151 ============= ============= CAPITAL EXPENDITURES: Physician Supply Business $ 2,756 $ 2,453 Imaging Business 1,227 1,283 Long-Term Care Business 200 1,129 Other (a) 224 282 ------------- ------------- Total capital expenditures $ 4,407 $ 5,147 ============= ============= June 30, 2000 March 31, 2000 ------------- -------------- ASSETS: Physician Supply Business $ 242,763 $ 243,020 Imaging Business 341,217 346,073 Long-Term Care Business 186,806 182,024 Other (a) 73,179 102,300 ------------- ------------- Total assets $ 843,965 $ 873,417 ============= ============= (a) Other includes the holding company and the International subsidiaries
13 NOTE 8 - COMMITMENTS AND CONTINGENCIES The Company has employment agreements with certain executive officers which provide that in the event of their termination or resignation, under certain conditions, the Company may be required to continue salary payments and provide insurance for a period ranging from 12 to 36 months for the Chief Executive Officer and from 3 to 12 months for other executives and to repurchase a portion or all of the shares of common stock held by the executives upon their demand at the fair market value at the time of repurchase. The period of salary and insurance continuation and the level of stock repurchases are based on the conditions of the termination or resignation. During fiscal 2000, the Board of Directors approved and adopted the PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World Medical, Inc. Corporate Office Employee Retention Bonus Plan. Refer to Note 3, Charges included in General and Administrative Expenses for further discussion. PSS and certain of its current officers and directors were named as defendants in a purported securities class action lawsuit filed on or about May 28, 1998. The allegations are based upon a decline in the PSS stock price following announcements by PSS in May 1998 regarding the Gulf South merger that resulted in earnings below analyst's expectations. The Company believes that the allegations contained in the complaints are without merit and intends to defend vigorously against the claims. However, the lawsuit is in the earliest stages, and there can be no assurances that this litigation will ultimately be resolved on terms that are favorable to the Company. Although the Company does not manufacture products, the distribution of medical supplies and equipment entails inherent risks of product liability. The Company has not experienced any significant product liability claims and maintains product liability insurance coverage. In addition, the Company is party to various legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of uncertainty, management believes that the outcome of any proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations. On September 30, 1999, DI entered into a three year distributorship agreement with an imaging supply vendor. The agreement stipulates that, among other things, in the event of termination of the agreement due to a change in control of DI, the Company will pay liquidated damages to the vendor in the amount of the lesser of $6 million or $250,000 times the number of months remaining under the agreement. NOTE 9 - AGREEMENT TO MERGE WITH FISHER SCIENTIFIC INTERNATIONAL, INC. The Company entered into an Agreement and Plan of Merger dated June 21, 2000 with Fisher Scientific International, Inc. ("Fisher"), pursuant to which PSS and Fisher will combine business operations and PSS will become a wholly owned subsidiary of Fisher. The merger is subject to various conditions, including approval of the shareholders of PSS and Fisher, filings with and compliance with securities and antitrust laws, the financial and operating performance of PSS and certain other matters. 14 ITEM 2. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PSS World Medical, Inc. (the "Company" or "PSS") is a specialty marketer and distributor of medical products to physicians, alternate-site imaging centers, long-term care providers, home care providers, and hospitals through 101 service centers to customers in all 50 states and four European countries. Since its inception in 1983, the Company has become a leader in three of the market segments it serves with a focused, market specific approach to customer service, a consultative sales force, strategic acquisitions, strong arrangements with product manufacturers, innovative systems, and a unique culture of performance. The Company, through its Physician Sales & Service division, is the leading distributor of medical supplies, equipment and pharmaceuticals to office-based physicians in the United States based on revenues, number of physician-office customers, number and quality of sales representatives, number of service centers, and exclusively distributed products. Physician Sales & Service currently operates 51 medical supply distribution service centers with approximately 735 sales representatives ("Physician Supply Business") serving over 100,000 physician offices (representing approximately 50% of all physician offices) in all 50 states. The Physician Supply Business' primary market is the approximately 400,000 physicians who practice medicine in approximately 200,000 office sites throughout the United States. The Company, through its wholly owned subsidiary Diagnostic Imaging, Inc. ("DI"), is the leading distributor of medical diagnostic imaging supplies, chemicals, equipment, and service to the acute care and alternate-care markets in the United States based on revenues, number of service specialists, number of distribution centers, and number of sales representatives. DI currently operates 34 imaging distribution service centers with approximately 825 service specialists and 210 sales representatives ("Imaging Business") serving over 45,000 customer sites in 42 states. The Imaging Business' primary market is the approximately 5,000 acute-care hospitals, 3,000 imaging centers, and 100,000 private practice physicians, veterinarians and chiropractors. Through its wholly owned subsidiary Gulf South Medical Supply, Inc. ("GSMS"), the Company is a leading national distributor of medical supplies and related products to the long-term care industry in the United States based on revenues, number of sales representatives, and number of service centers. GSMS currently operates 14 distribution service centers with approximately 131 sales representatives ("Long-Term Care Business") serving over 14,000 long-term care accounts in all 50 states. The Long-Term Care Business' primary market is comprised of a large number of independent operators, small to mid-sized local and regional chains, and several national chains representing over 17,000 long-term care sites. In addition to its operations in the United States, the Company, through its wholly owned subsidiary WorldMed International, Inc. ("WorldMed"), operates two European service centers ("International Business") distributing medical products to the physician office and hospital markets in Belgium, France, Germany, and Luxembourg. INDUSTRY According to industry estimates, the United States medical supply and equipment segment of the health care industry represents a $34 billion market comprised of distribution of medical products to hospitals, home health care agencies, imaging centers, physician offices, dental offices, and long-term care facilities. The Company's primary focus includes distribution to the physician office, providers of imaging services, and long-term care facilities that comprise $14 billion or approximately 40% of the overall market. 15 Revenues of the medical products distribution industry are estimated to be growing as a result of a growing and aging population, increased health care awareness, proliferation of medical technology and testing, and expanding third-party insurance coverage. In addition, the physician market is benefiting from the shift of procedures and diagnostic testing from hospitals to alternate sites, particularly physician offices, despite a migration of significantly lower hospital medical product pricing into the physician office market. The health care industry is subject to extensive government regulation, licensure, and operating procedures. National health care reform has been the subject of a number of legislative initiatives by Congress. Additionally, government and private insurance programs fund the cost of a significant portion of medical care in the United States. In recent years, government-imposed limits on reimbursement of hospitals, long-term care facilities, and other health care providers have affect spending budgets in certain markets within the medical products industry. Recently, Congress has passed radical changes to reimbursements for nursing homes and home care providers. The industry has struggled with these changes and the ability of providers, distributors, and manufacturers to adopt to the changes is not yet determined. These changes also effect some distributors who directly bill the government for these providers. The industry estimates that approximately 19% of the beds represented by homes in the long-term care industry have filed for bankruptcy protection, which also is the Company's percentage for fiscal 2000. Over the past few years, the health care industry has undergone significant consolidation. Physician provider groups, long-term care facilities, and other alternate-site providers along with the hospitals continue to consolidate. The consolidation creates new and larger customers. However, the majority of the market serviced by the Company remains a large number of small customers with no single customer exceeding 10% of the consolidated Company's revenues. However, the Long-Term Care Business depends on a limited number of large customers for a significant portion of its net sales and approximately 37% of the Long-Term Care Business revenues for the three months ended December 31, 1999 represented sales to its top five customers. Growth in the Long-Term Care Business, as well as consolidation of the health care industry, may increase the Company's dependence on large customers. RESULTS OF OPERATIONS The following is management's discussion and analysis of the results of operations for the three months ended June 30, 2000 and 1999. THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED JUNE 30, 1999 Net Sales. Net sales for the three months ended June 30, 2000 totaled $470.2 million, an increase of 33.2 million, or 7.6%, over the three months ended June 30, 1999 total of $437.0 million. Although the majority of the sales growth is due to acquisitions completed in fiscal 2000, the Company has successfully implemented its strategies to (i) convert and replace manufacturer recalled products in its Physician division, (ii) replace with new products the revenues interrupted by supplier backorders in the Imaging division, and (iii) maintain revenue while tightening credit policies in the Long-term Care division. 16 Gross Profit. Gross profit for the three months ended June 30, 2000 totaled $113.1 million, an increase of $5.9 million, or 5.5%, over the three months June 30, 1999 total of $107.2 million. The increase in gross profit dollars is primarily attributable to the sales growth described above. Gross profit as a percentage of net sales was 24.1% and 24.5% for the three months ended June 30, 2000 and 1999, respectively. The decrease in gross profit as a percent of net sales is attributable to (i) the increased mix of the Imaging division revenues as a percent of total revenues, (ii) the decrease in gross margin in the Imaging division as a result of vendor supply interruption of parts which has decreased higher margin service labor revenues, offset by (iii) an increase in the sales mix of higher margin diagnostic equipment and service, (iv) an increase in sales of higher margin private label products, (v) the effect of negotiated lower product purchasing costs which resulted, and (vi) the elimination of lower margin acquired Imaging Business revenues. Beginning in fiscal 1999 and continuing into fiscal 2000, the Company has experienced margin pressures in the Long-Term Care Business as a result of its large chain customers renegotiating prices due to the implementation of PPS. The Company expects this trend to continue in the Long-Term Care Business. General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2000 totaled $69.8 million, an increase of $11.8 million, or 20.3%, from the three months ended June 30, 1999 total of $58.0 million. General and administrative expense as a percentage of net sales increased to 14.8% from 13.3% for the comparable three-month period. General and administrative expenses includes charges related to merger activity, restructuring activity, and other special items. See Note 3, Charges Included in General and Administrative Expenses, to the condensed consolidated financial statements for additional discussion. In addition to items characterized as charges related to merger activity, restructuring activity, and other special items, the Company has incurred incremental costs to implement its strategies to replace and convert products recalled and backordered by manufacturers. These incremental costs have not been leveraged with incremental sales. The sales generated by incremental costs have only replaced recalled and backordered revenues. The Company believes there will be a return to prior levels of cost leveraging in future periods. Selling Expenses. Selling expenses for the three months ended June 30, 2000 totaled $29.4 million, an increase of $2.1 million, or 7.7%, over the three months ended June 30, 1999 total of $27.3 million. Selling expense as a percentage of net sales was approximately 6.3% for the three months ended June 30, 2000 and 1999. The Company utilizes a variable commission plan, which pays commissions based on gross profit as a percentage of net sales. Operating Income. Operating income for the three months ended June 30, 2000 totaled $13.9 million, a decrease of $8.0 million, or 36.5%, over the three months ended June 30, 1999 total of 21.9 million. As a percentage of net sales, operating income decreased to 3.0% from 5.0% from the comparable prior year period primarily due to the impact of the factors described above. Interest Expense. Interest expense for the three months ended June 30, 2000 totaled $5.0 million, an increase of $1.5 million, or 42.9%, over the three months ended June 30, 1999 total of $3.5 million. The increase in interest expense for the three month period is primarily attributable to higher debt balances under the revolving credit facility over the prior year period primarily due to acquisitions completed during fiscal 2000. Interest and Investment Income. Interest and investment income for the three months ended June 30, 2000 totaled $0.7 million, an increase of $0.2 million, or 40%, over the three months ended June 30, 1999 total of $0.5 million. 17 Other Income. Other income for the three months ended June 30, 2000 totaled $0.8 million, a decrease of $0.3 million, or 27.3%, over the three months ended June 30, 1999 total of $1.1 million. Normally, other income primarily consists of finance charges on customer accounts and financing performance incentives. Provision for Income Taxes. Provision for income taxes for the three months ended June 30, 2000 totaled $4.8 million, a decrease of $3.4 million, or 41.5%, over the three months ended June 30, 1999 total of $8.2 million. The effective income tax rate was approximately 45.9% and 41.2% for the three months ended June 30, 2000 and 1999, respectively. The effective tax rate is generally higher than the Company's statutory rate due to the to the nondeductible nature of certain merger related costs and the impact of the Company's foreign subsidiary. Net Income. Net income for the three months ended June 30, 2000 totaled $5.6 million, a decrease of $4.6 million, or 45.1%, over the three months ended June 30, 1999 total of $10.2 million. As a percentage of net sales, net income decreased to 1.2% from 2.3% for the comparable prior year period primarily due to the factors described above. LIQUIDITY AND CAPITAL RESOURCES As the Company's business grows, its cash and working capital requirements will also continue to increase as a result of the need to finance acquisitions and anticipated growth of the Company's operations. This growth will be funded through a combination of cash flow from operations, revolving credit borrowings and proceeds from any future public offerings. Net cash provided by operating activities was $12.9 million and $16.7 million for the three months ended June 30, 2000 and 1999, respectively. The variation in operating cash flows primarily results from a decrease in operating income as discussed in prior sections of the MD&A. Net cash used in investing activities was ($4.6) million and ($27.8) million for the three months ended June 30, 2000 and 1999, respectively. The decrease in cash outflows from investing activities primarily results from a reduction of purchase business combinations over the comparable period and a reduction in investments made in marketable securities. Net cash (used in) provided by financing activities was ($26.9) million and $8.9 million for the three months ended June 30, 2000 and 1999, respectively. The increase in cash outflows for financing activities primarily results from a net $27 million principal payment on the revolving credit facility during the three months ended June 30, 2000. This payment was funded by approximately $21 million of investments that were held at March 31, 2000 and $6 million of operating cash flow. The Company had working capital of $387.3 million and $414.1 million as of June 30, 2000 and March 31, 2000, respectively. Accounts receivable, net of allowances, were $286.1 million and $284.4 million at June 30, 2000 and March 31, 2000. The average number of days sales in accounts receivable outstanding was approximately 54.6 and 55.8 days for the three months ended June 30, 2000 and the year ended March 31, 2000, respectively. Inventories were $165.7 million and $178.0 million as of June 30, 2000 and March 31, 2000, respectively. The Company had inventory turnover of 8.3x and 8.0x for the three months ended June 30, 2000 and the year ended March 31, 2000, respectively. The following table presents EBITDA and other financial data for the three months ended June 30, 2000 and June 30, 1999 (in thousands): 18
Three Months Ended ---------------------------- June 30, 2000 June 30, 1999 ------------- ------------- Other Financial Data: Income before provision for income taxes and $ 10,388 $ 19,876 cumulative effect of accounting change Plus: Interest Expense 5,035 3,511 ------------- ------------- EBIT (a) 15,423 23,387 Plus: Depreciation and amortization 5,474 4,485 ------------- ------------- EBITDA (b) 20,897 27,872 Unusual Charges Included in Continuing Operations 3,601 885 Cash Paid For Unusual Charges Included in Continuing (2,534) (3,384) Operations ------------- ------------- Adjusted EBITDA (c) $ 21,964 $ 25,373 EBITDA Coverage (d) 4.2x 7.9x EBITDA Margin (e) 4.4% 6.4% Adjusted EBITDA Coverage (f) 4.4x 7.2x Adjusted EBITDA Margin (g) 4.7% 5.8% Cash provided by operating activities $ 12,888 $ 16,686 Cash used in investing activities $ (4,567) $ (27,848) Cash (used in) provided by financing activities $ (26,905) $ 8,947 In addition, the following presents the calculation of EBITDA, as defined in the Merger Agreement with Fisher Scientific International, Inc.: June 30, 2000 ------------- Operating income $ 13,911 Plus: Depreciation and amortization 5,474 Merger, nonrecurring and restructuring charges and expenses 3,601 Interest income on trade receivables 606 EBITDA, as defined (h) $ 23,592
(a) EBIT represents income before income taxes plus interest expense. (b) EBITDA represents EBIT plus depreciation and amortization. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles ("GAAP"). EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative measure to income from operations or net income computed in accordance with GAAP, as an indicator of the Company's operating performance, as an alternative to cash flow from operating activities, or as a measure of liquidity. In addition, EBITDA does not provide information regarding cash flows from investing and financing activities which are integral to assessing the effects on the Company's financial position and liquidity as well as understanding the Company's historical growth. The Company believes that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors, and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (c) Adjusted EBITDA represents EBITDA plus unusual charges included in continuing operations less cash paid for unusual charges included in continuing operations. (d) EBITDA coverage represents the ratio of EBITDA to interest expense. (e) EBITDA margin represents the ratio of EBITDA to net sales. (f) Adjusted EBITDA coverage represents the ratio of Adjusted EBITDA to interest expense. (g) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to net sales. 19 (h) As defined in article 8.2(e) of the Merger Agreement included in Form 8-K which was filed on June 27, 2000. On October 7, 1997, the Company issued, in a private offering under Rule 144A of the Securities Act of 1933, an aggregate principal amount of $125.0 million of its 8.5% senior subordinated notes due in 2007 (the "Private Notes") with net proceeds to the Company of $119.5 million after deduction for offering costs. The Private Notes are unconditionally guaranteed on a senior subordinated basis by all of the Company's domestic subsidiaries. On February 10, 1998, the Company closed its offer to exchange the Private Notes for senior subordinated notes (the "Notes") of the Company with substantially identical terms to the Private Notes (except that the Notes do not contain terms with respect to transfer restrictions). Interest on the Notes accrues from the date of original issuance and is payable semiannually on April 1 and October 1 of each year, commencing on April 1, 1998, at a rate of 8.5% per annum. The semiannual payments of approximately $5.3 million will be funded by the operating cash flow of the Company. No other principal payments on the Notes are required over the next five years. The Notes contain certain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness. Provided, however, that no event of default exist, additional indebtedness may be incurred if the Company maintains a consolidated fixed charge coverage ratio, after giving effect to such additional indebtedness, of greater than 2.0 to 1.0. On February 11, 1999, the Company entered into a $140.0 million senior revolving credit facility with a syndicate of financial institutions with NationsBank, N.A. as principal agent. Borrowings under the credit facility are available for working capital, capital expenditures, and acquisitions, and are secured by the common stock and assets of the Company and its subsidiaries. The credit facility expires February 10, 2004 and borrowings bear interest at certain floating rates selected by the Company at the time of borrowing. The credit facility contains certain affirmative and negative covenants, the most restrictive of which require maintenance of a maximum leverage ratio of 3.5 to 1.0, maintenance of consolidated net worth of $337.0 million, and maintenance of a minimum fixed charge coverage ratio of 2.0 to 1.0. In addition, the covenants limit additional indebtedness and asset dispositions, require majority lender approval on acquisitions with a total purchase price greater than $75.0 million, and restrict payments of dividends. On October 20, 1999, the Company amended its $140.0 million senior revolving credit facility to allow for repurchases of up to $50.0 million of the Company's common stock through October 31, 2000. In addition, the amendment modified the consolidated net worth maintenance covenant to reduce the $337.0 million minimum compliance level by any repurchases made by the Company of its common stock. Effective August 4, 2000, the Company obtained an amendment to its senior revolving credit agreement. This amendment modifies the leverage ratio from an original 3.5 to 1.0 to no greater than 3.75 to 1.0 for the quarter ended June 30, 2000, and no greater than 4.3 to 1.0 for the quarters ended September 30 and December 31, 2000. In addition, this amendment modifies the fixed charge coverage ratio from an original 2.0 to 1.0 to no less than 1.5 to 1.0 for the quarters ended June 30, September 30, and December 31, 2000. Subsequent to these periods, the fixed charge coverage and leverage ratios revert back to their original requirements. As of June 30, 2000, the Company has not entered into any material working capital commitments that require funding. The Company believes that the expected cash flows from operations, available borrowing under the credit facility, and capital markets are sufficient to meet the Company's anticipated future requirements for working capital, capital expenditures, and acquisitions for the foreseeable future. 20 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 30, 2000, the Company did not hold any derivative financial or commodity instruments. The Company is subject to interest rate risk and certain foreign currency risk relating to its operations in Europe; however, the Company does not consider its exposure in such areas to be material. The Company's interest rate risk is related to its Senior Subordinated Notes, which bear interest at a fixed rate of 8.5%, and borrowings under its Credit Facility, which bear interest at variable rates, at the Company's option, at either the lender's base rate plus 0.25% (9.75% at June 30, 2000) or LIBOR plus 1.25% (a weighted average of 7.8% at June 30, 2000). All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated growth in revenue, gross margins and earnings, statements regarding the Company's current business strategy, the Company's projected sources and uses of cash, and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause results to differ materially are the following: the pending merger transaction and its effect on the ongoing operations of the Company and the risk that it may not be completed, the availability of sufficient capital to finance the Company's business plans on terms satisfactory to the Company; competitive factors; the ability of the Company to adequately defend or reach a settlement of outstanding litigations and investigations involving the Company or its management; changes in labor, equipment and capital costs; changes in regulations affecting the Company's business; future acquisitions or strategic partnerships; general business and economic conditions; and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. 21 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS PSS and certain of its current officers and directors are named as defendants in a purported securities class action lawsuit entitled Jack Hirsch v. PSS World Medical, Inc., et al., Civil Action No. 98-502-cv-J-20A. The action, which was filed on or about May 28, 1998, is pending in the United States District Court for the Middle District of Florida, Jacksonville Division. An amended complaint was filed on December 11, 1998. The plaintiff alleges, for himself and for a purported class of similarly situated stockholders who allegedly purchased the Company's stock between December 23, 1997 and May 8, 1998, that the defendants engaged in violations of certain provisions of the Exchange Act, and Rule 10b-5 promulgated thereunder. The allegations are based upon a decline in the PSS stock price following announcement by PSS in May 1998 regarding the Gulf South Merger which resulted in earnings below analyst's expectations. The plaintiff seeks indeterminate damages, including costs and expenses. PSS filed a motion to dismiss the first amended complaint on January 25, 1999. The court granted that motion without prejudice by order dated February 9, 2000. Plaintiffs filed their second amended complaint on March 15, 2000. PSS filed a motion to dismiss the second amended complaint on May 1, 2000, which is pending. PSS believes that the allegations contained in the second amended complaint are without merit and intends to defend vigorously against the claims. However, the lawsuit is in the earliest stages, and there can be no assurance that this litigation will be ultimately resolved on terms that are favorable to PSS. Although PSS does not manufacture products, the distribution of medical supplies and equipment entails inherent risks of product liability. PSS is a party to various legal and administrative legal proceedings and claims arising in the normal course of business. However, PSS has not experienced any significant product liability claims and maintains product liability insurance coverage. While any litigation contains an element of uncertainty, management believes that, other than as discussed above, the outcome of any proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as a part of this Quarterly Report on Form 10-Q: Exhibit Number Description - --------- ---------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation dated March 15, 1994, as amended.(12) 3.2 Amended and Restated Bylaws dated March 15, 1994.(1) 4.1 Form of Indenture, dated as of October 7, 1997, by and among the Company, the Subsidiary Guarantors named therein, and SunTrust Bank, Central Florida, National Association, as Trustee.(2) 4.2 Registration Rights Agreement, dated as of October 7, 1997, by and among the Company, the Subsidiary Guarantors named therein, BT Alex. Brown Incorporated, Salomon Brothers Inc. and NationsBanc Montgomery Securities, Inc.(2) 4.3 Form of 81/2% Senior Subordinated Note due 2007, including Form of Guarantee (Private Notes).(2) 4.4 Form of 81/2% Senior Subordinated Note due 2007, including Form of Guarantee (Exchange Notes).(2) 4.5 Shareholder Protection Rights Agreement, dated as of April 20, 1998, between PSS World Medical, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent.(11) 4.5a Amendment to Shareholder Protection Rights Agreement, dated as of June 21, 2000, between PSS World Medical, Inc. and Continental Stock Transfer & Trust Company as Rights Agent. 4.6 Agreement and Plan of Merger, dated June 21, 2000, by and among Fisher Scientific International, Inc., FSI Merger Corporation and PSS World Medical, Inc.(15) 4.7 Stock Option Agreement, dated June 21, 2000, by and between Fisher Scientific International, Inc. and PSS World Medical, Inc.(15) 4.8 Voting Agreement, dated June 21, 2000, by and among PSS World Medical, Inc. and the stockholders of Fisher Scientific International, Inc. named therein(15) 10.1 Registration Rights Agreement between the Company and Tullis-Dickerson Capital Focus, LP, dated as of March 16, 1994. (3) 10.2 Employment Agreement for Patrick C. Kelly.(14) 10.2a Amendment to Employment Agreement for Patrick C. Kelly(18) 10.3 Incentive Stock Option Plan dated May 14, 1986.(3) 23 Exhibit Number Description - -------- ---------------------------------------------------------------- 10.4 Shareholders Agreement dated March 26, 1986, between the Company, the Charthouse Co., Underwood,Santioni and Dunaway.(3) 10.5 Shareholders Agreement dated April 10, 1986, between the Company and Clyde Young.(3) 10.6 Shareholders Agreement between the Company and John D. Barrow. (3) 10.7 Amended and Restated Directors Stock Plan.(7) 10.8 Amended and Restated 1994 Long-Term Incentive Plan.(7) 10.9 Amended and Restated 1994 Long-Term Stock Plan.(7) 10.10 1994 Employee Stock Purchase Plan.(4) 10.11 1994 Amended Incentive Stock Option Plan.(3) 10.12 PSS World Medical, Inc. 1999 Long-Term Incentive Plan(16) 10.13 Distributorship Agreement between Abbott Laboratories and Physician Sales & Service, Inc. (Portions omitted as confidential--Separately filed with Commission).(5) 10.14 Stock Purchase Agreement between Abbott Laboratories and Physician Sales & Service, Inc.(5) 10.15 Amendment to Employee Stock Ownership Plan.(7) 10.15a Amendment and Restatement of the Physician Sales and Service, Inc. Employee Stock Ownership and Savings Plan.(8) 10.15b First Amendment to the Physician Sales and Service, Inc. Employee Stock Ownership and Savings Plan.(7) 10.16 Third Amended and Restated Agreement and Plan of Merger By and Among Taylor Medical, Inc. and Physician Sales & Service, Inc. (including exhibits thereto).(6) 10.17 Agreement and Plan of Merger by and Among Physician Sales & Service, Inc., PSS Merger Corp. and Treadway Enterprises, Inc. (8) 10.18 Amended and Restated Agreement and Plan of Merger, dated as of August 22, 1997, among the Company, Diagnostic Imaging, Inc., PSS Merger Corp. and S&W X-ray, Inc.(9) 10.19 Agreement and Plan of Merger dated December 14, 1997 by and among the Company, PSS Merger Corp. and Gulf South Medical Supply, Inc.(10) 10.20 Credit Agreement dated as of February 11, 1999 among the Company, the several lenders from time to time hereto and NationsBank, N.A., as Agent and Issuing Lender.(14) 10.21 First Amendment dated as of October 20, 1999 to the Credit Agreement dates as of February 11, 1999 among the Company, the several lenders from time to time hereto and NationsBank, N.A. as Agent and Issuing Lender.(17) 27 Financial Data Schedule (for SEC use only) 24 (1) Incorporated by Reference to the Company's Registration Statement on Form S-3, Registration No. 33-97524. (2) Incorporated by Reference to the Company's Registration Statement on Form S-4, Registration No. 333-39679. (3) Incorporated by Reference from the Company's Registration Statement on Form S-1, Registration No. 33-76580. (4) Incorporated by Reference to the Company's Registration Statement on Form S-8, Registration No. 33-80657. (5) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1995. (6) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1996. (7) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996. (8) Incorporated by Reference to the Company's Current Report on Form 8-K, filed January 3, 1997. (9) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-33453. (10) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-44323. (11) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 22, 1998. (12) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 8, 1998. (13) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended April 3, 1998. (14) Incorporated by Reference to the Company's Current Report on Form 8-K, filed February 23, 1999. (15) Incorporated by Reference to the Company's Current Report on Form 8-K, filed June 27, 2000. (16) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999. (17) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1999. (18) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. (b) Reports on Form 8-K The following current reports on Form 8-K were filed during the quarter ended June 30, 2000: Date of Report Items Reported -------------- --------------------------------------------------- May 31, 2000 Announcing that on May 26, 2000, PSS dismissed Ernst & Young LLP as the accountants for its Gulf South Medical Supply, Inc. subsidiary and that from such date, PSS will rely on the opinion of its primary auditor, Arthur Andersen LLP. June 9, 2000 Amending the Form 8-K filed on May 31, 2000 to amend certain items and file the response letter of Ernst & Young LLP. June 27, 2000 Announcing that PSS World Medical, Inc. had entered into an Agreement and Plan of Merger dated June 21, 2000 with Fisher Scientific International, Inc. and a Stock Option Agreement and Voting Agreement relating to the proposed merger. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jacksonville, State of Florida, on August 8, 2000. PSS WORLD MEDICAL, INC. By: /s/ David A. Smith ------------------------------ David A. Smith, Executive Vice President and Chief Financial Officer 26 Exhibit 4.5a AMENDMENT NO. 1 TO SHAREHOLDER PROTECTION RIGHTS AGREEMENT This Amendment No. 1, dated as of June 21, 2000 (this "Amendment"), between PSS World Medical, Inc., a Florida corporation (the "Company"), and Continental Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"), constitutes the first amendment to the Shareholder Protection Rights Agreement, dated as of April 20, 1998 (the "Agreement"), between the Company and the Rights Agent. W I T N E S S E T H: WHEREAS, Company proposes to enter into an Agreement and Plan of Merger, dated as of June 21, 2000 (the "Merger Agreement"), among Fisher Scientific International, Inc., a Delaware corporation ("Parent"), FSI Merger Corporation, a Florida corporation ("Merger Sub"), and Company, pursuant to which Company will represent and warrant, among other things, that that the Agreement has been amended (a) to render the Agreement inapplicable to the Merger and the other transactions contemplated thereby, including the Stock Option Agreement, dated as of the date of the Merger Agreement between Parent and Company (the "Stock Option Agreement"), (b) to ensure that in connection with the Merger, the Stock Option Agreement and the transactions contemplated thereby that (i) Parent and Purchaser, or either of them, are not deemed to be an Acquiring Person pursuant to the Agreement and (ii) no "Stock Acquisition Date," "Flip-in Date" or "Flip-Over Transaction or Event" occurs by reason of the execution and delivery of the Merger Agreement and the transactions contemplated thereby, including the purchase of any Company Common Stock by Parent pursuant to the Stock Option Agreement and (c) so that Company will have no obligations under the Company Rights or the Agreement in connection with the Merger or the transactions (including any purchase of Company Common Stock pursuant to the Stock Option Agreement) and the holders of Shares and the associated Company Rights will have no rights under the Company Rights or the Company Rights Agreement in connection with the Merger or the transactions (including any purchase of Company Common Stock pursuant to the Stock Option Agreement); and WHEREAS, the Board of Directors of Company has determined that it is necessary and desirable to amend, pursuant to Section 5.4 of the Agreement, the Agreement to comply with the terms of the Merger Agreement; and WHEREAS, the Board of Directors of Company, at a meeting of such Board duly called and held on June 21, 2000, voted in favor of the adoption of this Amendment. NOW, THEREFORE, in consideration of the foregoing, the mutual agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 1.1 of the Agreement is hereby amended by adding the following sentence at the end of the definition of "Acquiring Person" contained in such Section: "Notwithstanding the foregoing, no Person shall become an `Acquiring Person' solely as a result of the execution and delivery of or the consummation of the transactions contemplated by the Agreement and Plan of Merger, dated as of June 21, 2000 (the "Merger Agreement"), among Fisher Scientific International, Inc., a Delaware corporation, and its wholly-owned subsidiary, FSI Merger Corporation, a Florida corporation, and the Company (the "Merger Agreement"), and the ancillary agreements thereto, including, without limitation, the Stock Option Agreement, dated as of the date of the Merger Agreement, between Parent and Company (the "Stock Option Agreement")." 27 2. Section 1.1 of the Agreement is hereby amended by adding the following sentence at the end of the of the definition of "Flip-In Date" contained in such Section: "Notwithstanding the foregoing, no `Flip-In Date' shall occur solely as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Merger Agreement and the ancillary agreements thereto, including, without limitation, the Stock Option Agreement." 3. Section 1.1 of the Agreement is hereby amended by adding the following sentence at the end of the definition of "Flip-Over Transaction or Event" contained in such Section: "Notwithstanding the foregoing, no `Flip-Over Transaction or Event' shall occur solely as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Merger Agreement and the ancillary agreements thereto, including, without limitation, the Stock Option Agreement." 4. Section 1.1 of the Agreement is hereby amended by adding the following sentence at the end of the definition of "Separation Time" contained in such Section: "Notwithstanding the foregoing, neither the announcement of the execution and delivery of the Merger Agreement or of the calling of a shareholders meeting to approve and adopt the Merger Agreement nor the filing of the Proxy Statement/Prospectus (as defined in the Merger Agreement) or any amendment thereto nor any distribution of the prospectus contained therein nor any other action taken to facilitate the consummation of the transactions contemplated by the Merger Agreement and the ancillary agreements thereto shall be deemed the commencement of a tender or exchange offer for the purposes of this Agreement." 5. Section 1.1 of the Agreement is hereby amended by adding the following sentence at the end of the definition of "Stock Acquisition Date" contained in such Section: "Notwithstanding the foregoing, no `Stock Acquisition Date' shall occur solely as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Merger Agreement and the ancillary agreements thereto, including, without limitation, the Stock Option Agreement." 6. Section 5.14 of the Agreement is hereby amended by adding the following sentence at the end thereof: "The execution and delivery of, and the consummation of the transactions contemplated by, the Merger Agreement and Amendment No. 1 to this Agreement have been approved as of June 21, 2000 by the Board of Directors of the Company for all purposes under this Section 5.14." 7. Terms used herein without definition, but defined in the Agreement, shall have the meanings assigned to them in the Agreement. Other than as amended hereby, all other provisions of the Agreement shall remain in full force and effect. [Signatures on Next Page] 28 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and attested as of the day and year first above written. PSS WORLD MEDICAL, INC. By: /s/ Patrick C. Kelly ------------------------------- Name: Patrick C. Kelly Title: Chief Executive Officer CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: /s/ William F. Seegraber --------------------------------- Name: William F. Seegraber Title: Vice President 29 PSS WORLD MEDICAL, INC. June 18, 2000 Continental Stock Transfer & Trust Company, as Rights Agent Gentlemen: This is to certify that the attached Amendment No. 1 to Shareholder Protection Rights Agreement, dated as of June 21, 2000, satisfies the terms of the first sentence of Section 5.4 of the Shareholder Protection Rights Agreement, dated as of April 20, 1998, between PSS World Medical, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent. PSS WORLD MEDICAL, INC. By: /s/ Patrick C. Kelly ------------------------- Name: Patrick C. Kelly Title: Chief Executive Officer 30 EX-27 2 0002.txt FDS --
5 This schedule contains summary information extracted from Form 10-Q for the period ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 0000920527 PSS World Medical, Inc. 1,000 3-MOS MAR-31-2000 APR-01-2000 JUN-30-2000 41,830 1,861 298,352 12,218 165,661 552,064 107,018 39,233 843,965 164,801 229,572 0 0 711 443,303 843,965 470,213 470,213 357,159 357,159 99,143 1,484 5,035 10,388 4,764 5,624 0 0 0 0 0.08 0.08
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