UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 28, 2012
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-23832
PSS WORLD MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Florida | 59-2280364 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
4345 Southpoint Blvd. | ||
Jacksonville, Florida | 32216 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (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 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. x Yes ¨ 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). x Yes ¨ 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 large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
The number of shares of common stock, par value $0.01 per share, of the registrant outstanding as of February 1, 2013 was 50,328,830 shares.
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
DECEMBER 28, 2012
TABLE OF CONTENTS
Item |
Page | |||||
1 | ||||||
Part IFinancial Information |
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1. |
Financial Statements: |
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Unaudited Condensed Consolidated Balance Sheets as of December 28, 2012 and March 30, 2012 |
2 | |||||
3 | ||||||
4 | ||||||
Unaudited Notes to Condensed Consolidated Financial Statements |
5 | |||||
2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
30 | ||||
3. |
43 | |||||
4. |
43 | |||||
1. |
43 | |||||
1A. |
43 | |||||
2. |
44 | |||||
6. |
45 | |||||
46 |
CAUTIONARY STATEMENTS
Management may from time-to-time make written or oral statements with respect to the Companys annual or long-term goals, including statements contained in this Quarterly Report on Form 10-Q, the Annual Report on Form 10-K for the fiscal year ended March 30, 2012, Current Reports on Form 8-K, and reports to shareholders that are forward-looking statements within the meaning, and subject to the protections of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical earnings and those currently anticipated or projected. Management cautions readers not to place undue reliance on any of the Companys forward-looking statements, which speak only as of the date made.
Words such as anticipates, expects, intends, plans, purpose, mission, believes, seeks, estimates, may, could, and similar expressions identify forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q that involve risks and uncertainties include, without limitation:
| Managements expectation that the Company will complete the combination with McKesson Corporation under the terms disclosed within the Agreement and Plan of Merger, as discussed in Footnote 3, Discontinued Operations and Plan of Merger; |
| Managements belief that the lawsuit filed on behalf of an alleged public stockholder of PSS is without merit and will not delay the planned merger with McKesson Corporation, as discussed in Footnote 13, Commitments and Contingencies; |
| Managements belief that the outcome of other legal proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Companys consolidated financial position, liquidity, or results of operations; |
| Managements expectation that future working capital needs, capital expenditures, and the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, proceeds from the Companys debt offerings, capital markets, and/or other financing arrangements; |
| Managements expectation that the reorganization of the Companys global sourcing subsidiaries will have a sustained positive impact on the Companys effective tax rate; and |
| Managements estimation and expectation of future payouts of long-term incentive compensation. |
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, management has identified important factors that could affect the Companys financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements about the Companys goals or expectations. The Companys future results could be adversely affected by a variety of factors, including those discussed in Item 1A-Risk Factors in the Companys 2012 Form 10-K and this Form 10-Q. In addition, all forward-looking statements that are made by or attributable to the Company are qualified in their entirety by and should be read in conjunction with this cautionary notice and the risks described or referred to in Item 1A-Risk Factors of the Companys 2012 Form 10-K and this Form 10-Q. The Company has no obligation to and does not undertake to update, revise, or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements are made.
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 2012 AND MARCH 30, 2012
(Dollars in Thousands)
December 28, 2012 |
March 30, 2012 |
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ASSETS | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 216,134 | $ | 163,152 | ||||
Accounts receivable, net of allowance for doubtful accounts of $4,004 and $3,410 as of December 28, 2012 and March 30, 2012, respectively |
204,186 | 189,542 | ||||||
Inventories |
177,482 | 147,198 | ||||||
Prepaid expenses |
6,354 | 4,936 | ||||||
Other current assets |
53,120 | 39,250 | ||||||
Assets held for sale (a) |
252,420 | 277,378 | ||||||
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Total current assets |
909,696 | 821,456 | ||||||
Property and equipment, net of accumulated depreciation of $148,611 and $134,235 as of December 28, 2012 and March 30, 2012, respectively |
82,420 | 80,151 | ||||||
Other Assets: |
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Goodwill |
143,476 | 109,457 | ||||||
Intangibles, net of accumulated amortization of $19,008 and $14,037 as of December 28, 2012 and March 30, 2012, respectively |
52,270 | 33,546 | ||||||
Other assets |
118,954 | 111,360 | ||||||
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Total assets (a) |
$ | 1,306,816 | $ | 1,155,970 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current Liabilities: |
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Accounts payable |
$ | 147,379 | $ | 118,719 | ||||
Accrued expenses |
55,892 | 37,436 | ||||||
Current portion of long-term debt |
212,387 | | ||||||
Other current liabilities |
39,842 | 8,015 | ||||||
Liabilities held for sale (a) |
40,516 | 37,640 | ||||||
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Total current liabilities |
496,016 | 201,810 | ||||||
Long-term debt, excluding current portion |
250,000 | 454,916 | ||||||
Other noncurrent liabilities |
109,431 | 108,433 | ||||||
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Total liabilities (a) |
855,447 | 765,159 | ||||||
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Commitments and contingencies (Note 13) |
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Equity: |
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PSS World Medical Inc. shareholders equity: |
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Preferred stock, $0.01 par value; 1,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $0.01 par value; 150,000,000 shares authorized, 50,328,843 and 50,312,323 shares issued and outstanding as of December 28, 2012 and March 30, 2012, respectively |
495 | 495 | ||||||
Retained earnings |
447,779 | 386,633 | ||||||
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Total PSS World Medical, Inc. shareholders equity |
448,274 | 387,128 | ||||||
Noncontrolling interest |
3,095 | 3,683 | ||||||
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Total equity |
451,369 | 390,811 | ||||||
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Total liabilities and equity |
$ | 1,306,816 | $ | 1,155,970 | ||||
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(a) | See Footnote 3, Discontinued Operations and Plan of Merger, for discussion of assets and liabilities held for sale. See Footnote 4, Variable Interest Entity, for discussion of the assets and liabilities related to the Companys consolidated variable interest entities. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 28, 2012 AND DECEMBER 30, 2011
(In Thousands, Except Per Share Data)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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Net sales |
$ | 433,912 | $ | 394,203 | $ | 1,264,099 | $ | 1,166,404 | ||||||||
Cost of goods sold |
288,500 | 263,122 | 840,222 | 782,723 | ||||||||||||
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Gross profit |
145,412 | 131,081 | 423,877 | 383,681 | ||||||||||||
General and administrative expenses |
83,858 | 70,436 | 241,810 | 210,046 | ||||||||||||
Selling expenses |
37,547 | 32,707 | 109,835 | 95,686 | ||||||||||||
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Income from operations |
24,007 | 27,938 | 72,232 | 77,949 | ||||||||||||
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Other income (expense): |
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Interest expense |
(8,778 | ) | (4,784 | ) | (25,820 | ) | (13,864 | ) | ||||||||
Interest income |
16 | 15 | 43 | 59 | ||||||||||||
Other income, net |
415 | 596 | 1,138 | 1,564 | ||||||||||||
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Other expense, net |
(8,347 | ) | (4,173 | ) | (24,639 | ) | (12,241 | ) | ||||||||
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Income from continuing operations before provision for income taxes |
15,660 | 23,765 | 47,593 | 65,708 | ||||||||||||
Provision for income taxes |
5,126 | 7,943 | 15,420 | 23,382 | ||||||||||||
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Income from continuing operations |
10,534 | 15,822 | 32,173 | 42,326 | ||||||||||||
Discontinued operations: |
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Income from discontinued operations, net of taxes |
2,335 | 4,307 | 6,626 | 12,075 | ||||||||||||
Gain on sale of discontinued operation, net of taxes |
25,778 | | 25,778 | | ||||||||||||
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Total income from discontinued operations |
28,113 | 4,307 | 32,404 | 12,075 | ||||||||||||
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Net income |
38,647 | 20,129 | 64,577 | 54,401 | ||||||||||||
Net income (loss) attributable to noncontrolling interest |
(73 | ) | (3 | ) | (157 | ) | 48 | |||||||||
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Net income attributable to PSS World Medical, Inc. |
$ | 38,720 | $ | 20,132 | $ | 64,734 | $ | 54,353 | ||||||||
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Earnings per common share - Basic: |
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Continuing operations |
$ | 0.21 | $ | 0.31 | $ | 0.65 | $ | 0.80 | ||||||||
Discontinued operations |
0.57 | 0.08 | 0.66 | 0.23 | ||||||||||||
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Attributable to PSS World Medical, Inc. |
$ | 0.78 | $ | 0.39 | $ | 1.31 | $ | 1.03 | ||||||||
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Earnings per common share - Diluted: |
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Continuing operations |
$ | 0.20 | $ | 0.30 | $ | 0.63 | $ | 0.78 | ||||||||
Discontinued operations |
0.54 | 0.08 | 0.64 | 0.22 | ||||||||||||
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Attributable to PSS World Medical, Inc. |
$ | 0.74 | $ | 0.38 | $ | 1.27 | $ | 1.00 | ||||||||
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Weighted average common shares outstanding: |
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Basic |
49,466 | 51,308 | 49,464 | 52,594 | ||||||||||||
Diluted |
52,252 | 52,435 | 50,863 | 54,593 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 28, 2012 AND DECEMBER 30, 2011
(Dollars in Thousands)
Nine Months Ended | ||||||||
December 28, 2012 |
December 30, 2011 |
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Cash Flows From Operating Activities: |
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Net income |
$ | 64,577 | $ | 54,401 | ||||
Less: Income from discontinued operations |
(32,404 | ) | (12,075 | ) | ||||
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Income from continuing operations |
32,173 | 42,326 | ||||||
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: |
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Depreciation |
16,799 | 15,861 | ||||||
Benefit from deferred income taxes |
(13,702 | ) | (4,083 | ) | ||||
Amortization of debt discount and issuance costs |
8,709 | 7,588 | ||||||
Amortization of intangible assets |
7,280 | 4,966 | ||||||
Noncash compensation expense |
4,126 | 5,944 | ||||||
Provision for doubtful accounts |
1,808 | 1,647 | ||||||
Provision for deferred compensation |
810 | 838 | ||||||
Gain on sale of property and equipment |
(9 | ) | (2 | ) | ||||
Changes in operating assets and liabilities, net of effects from business combinations and discontinued operations: |
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Accounts receivable, net |
(5,064 | ) | (2,326 | ) | ||||
Inventories |
(22,252 | ) | (33,833 | ) | ||||
Prepaid expenses and other current assets |
(9,669 | ) | 29,921 | |||||
Other assets |
(5,535 | ) | (21,530 | ) | ||||
Accounts payable |
24,705 | 25,700 | ||||||
Accrued expenses and other liabilities |
32,761 | (31,905 | ) | |||||
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Net cash provided by operating activities from continuing operations |
72,940 | 41,112 | ||||||
Net cash provided by discontinued operations |
13,546 | 24,857 | ||||||
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Net cash provided by operating activities |
86,486 | 65,969 | ||||||
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Cash Flows From Investing Activities: |
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Payments for business acquisitions, net of cash acquired |
(73,558 | ) | (16,794 | ) | ||||
Capital expenditures |
(16,462 | ) | (15,622 | ) | ||||
Other |
(168 | ) | (189 | ) | ||||
Proceeds from sale of discontinued operations, net |
66,533 | | ||||||
Net cash used in investing activities, discontinued operations |
(1,812 | ) | (24,827 | ) | ||||
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Net cash used in investing activities |
(25,467 | ) | (57,432 | ) | ||||
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Cash Flows From Financing Activities: |
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Purchase and retirement of common stock |
(7,803 | ) | (115,760 | ) | ||||
Excess tax benefits from stock-based compensation arrangements |
390 | 1,443 | ||||||
Payment for debt issuance costs |
(685 | ) | (1,835 | ) | ||||
Proceeds from exercise of stock options |
61 | 555 | ||||||
Proceeds from borrowings on the revolving line of credit |
| 325,783 | ||||||
Repayments on the revolving line of credit |
| (209,533 | ) | |||||
Payment of contingent consideration on business acquisitions |
| (4,000 | ) | |||||
Payments under capital lease obligations |
| (547 | ) | |||||
Other |
| (1,523 | ) | |||||
Net cash used in financing activities, discontinued operations |
| (30 | ) | |||||
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Net cash used in financing activities |
(8,037 | ) | (5,447 | ) | ||||
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Net increase in cash and cash equivalents |
52,982 | 3,090 | ||||||
Cash and cash equivalents, beginning of period |
163,152 | 29,348 | ||||||
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Cash and cash equivalents, end of period |
$ | 216,134 | $ | 32,438 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 2012 AND DECEMBER 30, 2011
(In Thousands, Except Share and Per Share Data, Unless Otherwise Noted)
1. | BACKGROUND AND BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and the rules and regulations of the United States Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to the SEC rules and regulations. The unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of PSS World Medical, Inc. and its wholly-owned subsidiaries (the Company or PSS). The Company holds an interest in a variable interest entity (VIE) that is consolidated by the Company. See Footnote 4, Variable Interest Entity, for additional information. All significant intercompany balances and transactions have been eliminated in consolidation.
The unaudited condensed consolidated balance sheet as of March 30, 2012 has been derived from the Companys audited consolidated financial statements for the fiscal year ended March 30, 2012, adjusted for discontinued operations. The financial statements and related notes included in this report should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2012 and are reported as of the most recent quarter end, December 28, 2012, as discussed below and further in Footnote 3, Discontinued Operations and Plan of Merger.
The Company reports its year-end and quarter-end financial position, results of operations, and cash flows as of the Friday closest to calendar month end, determined using the number of business days. Fiscal years 2013 and 2012 each consist of 52 weeks or 253 selling days. The three and nine months ended December 28, 2012 and December 30, 2011 each consist of 62 and 189 selling days, respectively.
The results of operations for the interim periods covered by this report may not be indicative of operating results for the full fiscal year or any other interim periods.
On October 24, 2012, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) under which McKesson Corporation will acquire all of PSS World Medical Inc.s outstanding shares for $29.00 per share in cash. The transaction, which has been approved by the boards of directors of both companies, is subject to customary closing conditions, including the approval of the Companys shareholders. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan (the restructuring plan) designed to transform the Company. The restructuring plan included the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. Additionally, the plan included the integration of all distribution operations into one common distribution infrastructure, and the redesign of the Companys shared services segment. On November 5, 2012, the Company completed the sale of its specialty dental distribution business. As of December 28, 2012, the Company determined that the business serving skilled nursing facilities met the held for sale criteria, and therefore, its results are presented separately as discontinued operations within the accompanying Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations, and the Unaudited Condensed Consolidated Statements of Cash Flows. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information.
As part of the restructuring plan, the previously reported segments, Physician Business and Extended Care Business, have been aligned into four operating segments: Physician, Laboratory, Dispensing, and Home Care & Hospice, which serve a diverse customer base. A fifth reporting segment, Shared Services, consists of departments that support the operating segments through the delivery of standardized service.
5
The Physician business provides products and services to primary care and front line caregivers, including those affiliated with or owned by health systems. The Laboratory business provides laboratory equipment, supplies and services to individual physician office laboratories, clinics and small hospital laboratories. The Dispensing business provides dispensing solutions to physician business practices which include repackaging of pharmaceutical products, dispensing management solutions, and claims processing services to allow such practices to dispense medical products to their patients on-site. The Home Care & Hospice business provides products and services to caregivers to allow them to efficiently deliver care to patients in the home or hospice settings.
Reclassification
Certain items previously reported in financial statement captions and in the unaudited notes to the condensed consolidated financial statements have been reclassified to conform to the current financial statement presentation.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued amended guidance to simplify how entities test indefinite-lived intangible assets for impairment. The objective of the amendments in this Accounting Standards Update (ASU) is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. This ASU permits an entity to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after September 15, 2012, or the Companys fiscal year 2014. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this update.
During the nine months ended December 28, 2012, the Company adopted an ASU that provides new guidance on the presentation of comprehensive income and requires changes in stockholders equity to be presented either (i) in a single continuous statement of comprehensive income, or (ii) in two separate consecutive statements. The ASU requires retrospective application. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The adoption of this standard did not have an effect on the Companys statements of financial condition or results of operations, as the Company has no other comprehensive income items to disclose.
During the nine months ended December 28, 2012, the Company adopted an ASU that amends guidance to simplify the method in which entities test goodwill for impairment. This ASU allows an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Additional disclosure is required by this update, including an explanation of qualitative factors used in the goodwill analysis. The adoption of this standard did not have an effect on the Companys statements of financial condition or results of operations.
Stock Repurchase Program
From time to time, the Companys Board of Directors authorizes the purchase of its outstanding common shares. The Company is authorized to repurchase a determined amount of its total common stock, which can be made in the open market, privately negotiated transactions, and other transactions publicly disclosed through filings with the SEC.
6
The following table summarizes the common stock repurchases and Board of Directors authorizations during the period from March 30, 2012 to December 28, 2012:
(in thousands) | Shares | |||
Shares available for repurchase as of March 30, 2012 |
437 | |||
Shares repurchased |
(385 | ) | ||
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Shares available for repurchase as of December 28, 2012 |
52 | |||
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During the three months ended December 28, 2012, there were no material repurchases of common stock. During the nine months ended December 28, 2012, the Company repurchased approximately 0.4 million shares of common stock at an average price of $20.27 per common share for $7,803, which reduced common stock and additional paid-in capital by approximately $4 and $7,799, respectively.
During fiscal year ended March 30, 2012, the Companys additional paid-in capital balance was reduced to zero as a result of share repurchases. In accordance with ASC 505, Equity, retirements of the Companys shares may be recorded to additional paid-in capital to the extent that previous net gains from sales or retirements of the same class of stock remain, and otherwise should be recorded to retained earnings. As of December 28, 2012 and March 30, 2012, retained earnings was reduced by $3,514 and $7,154, respectively, which represented share repurchases occurring after the additional paid-in capital balance had been reduced to zero.
2. | PURCHASE BUSINESS COMBINATIONS |
During the nine months ended December 28, 2012, the Company completed acquisitions that were individually immaterial but material in the aggregate (the 2013 acquisitions). Net sales attributable to the 2013 acquisitions since their respective acquisition dates were approximately $65,619. The combined purchase price of the 2013 acquisitions was $78,497, of which $3,900 was held in escrow and $6,550 was held by the Company to secure certain potential future adjustments or claims. Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill related to the 2013 acquisitions in the amount of $33,676 is tax deductible.
As of December 28, 2012, the purchase accounting for the 2013 acquisitions and certain acquisitions made during fiscal year 2012 (the 2012 acquisitions) had not been finalized, due to pending valuation analysis results and working capital adjustments. Therefore, the fair value of the assets acquired and liabilities assumed as of the acquisition dates may continue to be adjusted in future periods.
During the nine months ended December 28, 2012, the Company received cash payments of $450 and paid $2,075 for working capital adjustments related to prior year acquisitions and other acquisition-related adjustments. Additionally, the Company paid $4,000 in contingent consideration during the nine months ended December 30, 2011 related to the earn-out components of purchase agreements executed in fiscal year 2010. There were no contingent consideration payments during the nine months ended December 28, 2012.
7
Opening Balance Sheets
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the dates of the 2013 and 2012 acquisitions, as adjusted:
2013 acquisitions | 2012 acquisitions | |||||||||||||||||||||||
(in thousands) | Opening Balance Sheet |
Measurement Period Adjustment |
Opening Balance Sheet As Adjusted December 28, 2012 |
Opening Balance Sheet As Adjusted March 30, 2012 |
Measurement Period Adjustment |
Opening Balance Sheet As Adjusted December 28, 2012 |
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Current assets (a) |
$ | 21,057 | $ | (836 | ) | $ | 20,221 | $ | 7,188 | $ | (249 | ) | $ | 6,939 | ||||||||||
Assets held for sale |
| | | 40,570 | 75 | 40,645 | ||||||||||||||||||
Goodwill |
36,971 | (3,295 | ) | 33,676 | 22,574 | 343 | 22,917 | |||||||||||||||||
Intangible assets |
21,780 | 4,030 | 25,810 | 10,020 | | 10,020 | ||||||||||||||||||
Noncurrent assets (b) |
4,756 | | 4,756 | 4,741 | | 4,741 | ||||||||||||||||||
Accounts payable and other current liabilities |
(6,067 | ) | (305 | ) | (6,372 | ) | (3,297 | ) | (25 | ) | (3,322 | ) | ||||||||||||
Liabilities held for sale |
| | | (11,755 | ) | | (11,755 | ) | ||||||||||||||||
Noncurrent liabilities (c) |
| | | (406 | ) | | (406 | ) | ||||||||||||||||
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Net assets acquired |
$ | 78,497 | $ | (406 | ) | $ | 78,091 | $ | 69,635 | $ | 144 | $ | 69,779 | |||||||||||
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(a) | The following represents balances within Current assets as of December 28, 2012: 2013 acquisitions accounts receivable $11,388, inventory $8,225, and other current assets $608; 2012 acquisitions accounts receivable $3,765, inventory $1,603, current deferred income taxes $675, and other current assets $896. |
(b) | The following represents balances within Noncurrent assets as of December 28, 2012: 2013 acquisitions property and equipment $4,721 and other noncurrent assets $35; 2012 acquisitions property and equipment $40 and other noncurrent assets $4,701. |
(c) | The following represents balances within Noncurrent liabilities as of December 28, 2012: 2012 acquisitions noncurrent deferred tax liabilities $380 and other noncurrent liabilities $26. |
The following table presents unaudited pro forma financial information as if the closing of the 2013 acquisitions had occurred on the first day of fiscal year 2012 (April 2, 2011) after giving effect to certain purchase accounting adjustments:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(in thousands) | December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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Net sales: |
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PSS World Medical, Inc. (as reported) |
$ | 433,912 | $ | 394,203 | $ | 1,264,099 | $ | 1,166,404 | ||||||||
Supplemental Net Sales - 2013 acquisitions (a) |
1,709 | 31,200 | 18,512 | 91,085 | ||||||||||||
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Total Pro Forma Net Sales |
$ | 435,621 | $ | 425,403 | $ | 1,282,611 | $ | 1,257,489 | ||||||||
Net income attributed to PSS World Medical, Inc.: |
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PSS World Medical, Inc. (as reported) |
$ | 38,720 | $ | 20,132 | $ | 64,734 | $ | 54,353 | ||||||||
Supplemental Net Income - 2013 acquisitions (a) |
21 | 667 | 140 | 1,809 | ||||||||||||
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Total Pro Forma Net Income |
$ | 38,741 | $ | 20,799 | $ | 64,874 | $ | 56,162 | ||||||||
Net income per common share: |
||||||||||||||||
Basic |
$ | 0.78 | $ | 0.41 | $ | 1.31 | $ | 1.07 | ||||||||
Diluted |
$ | 0.74 | $ | 0.40 | $ | 1.28 | $ | 1.03 |
(a) | Represents pro forma net sales and net income balances during the period which are not already included in the net sales and net income balances of PSS World Medical, Inc. (as reported). Therefore, Supplemental net sales and Supplemental net income balances during the three and nine months ended December 28, 2012 will represent partial periods based on the date of acquisition. |
8
Pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the 2013 acquisitions occurred on the date indicated above or that may result in the future and does not reflect potential synergies, integration costs or other such costs and savings.
3. | DISCONTINUED OPERATIONS AND PLAN OF MERGER |
Discontinued Operations
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan designed to transform the Company. The restructuring plan included the sale of two businesses serving skilled nursing facilities and specialty dental practices, the integration of all distribution operations into one common distribution infrastructure, and the redesign of the Companys shared services segment. As of June 29, 2012, the Company determined that the businesses met the held for sale criteria, and therefore, the results are presented separately as discontinued operations within the accompanying Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations, and the Unaudited Condensed Consolidated Statements of Cash Flows.
On November 5, 2012, the Company completed the sale of its specialty dental distribution business to a third party (Buyer), pursuant to an Asset Purchase Agreement dated as of September 26, 2012. Under the Asset Purchase Agreement, the purchase price was $68,000 plus an adjustment for the difference between the base working capital and the final closing working capital. The cash proceeds received during third quarter of fiscal year 2013 were reduced by approximately $1,467 for transaction costs. Cash proceeds received from the transaction were approximately $66,533. In connection with the closing of the transaction, the Company and the Buyer entered into a Transition Services Agreement, pursuant to which the Company will provide certain services to the Buyer for a period not to exceed one year. The incremental costs incurred related to providing services under the transition services agreement are included in general and administrative expenses and the reimbursement for these expenses are included in other income in the accompanying statements of operations.
The results of operations of the specialty dental distribution business and the estimated gain on sale have been classified as discontinued operations. The estimated gain on sale is subject to change based on final measurement period adjustments made to the purchase price.
The assets and liabilities of discontinued operations included on the Unaudited Condensed Consolidated Balance Sheets as of December 28, 2012 and March 30, 2012 are as follows:
December 28, 2012 |
March 30, 2012 |
|||||||
(in thousands) | ||||||||
Accounts receivable, net |
$ | 63,829 | $ | 68,158 | ||||
Inventories |
64,877 | 66,388 | ||||||
Prepaid and other current assets |
6,621 | 7,068 | ||||||
Property and equipment, net |
22,234 | 20,885 | ||||||
Goodwill |
80,514 | 92,295 | ||||||
Intangibles, net |
12,946 | 21,054 | ||||||
Other noncurrent assets |
1,399 | 1,530 | ||||||
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Assets held for sale |
$ | 252,420 | $ | 277,378 | ||||
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Accounts payable |
$ | 26,569 | $ | 27,814 | ||||
Accrued expenses |
9,540 | 4,317 | ||||||
Other current liabilities |
3,343 | 4,026 | ||||||
Other noncurrent liabilities |
1,064 | 1,483 | ||||||
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Liabilities held for sale |
$ | 40,516 | $ | 37,640 | ||||
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9
The following table summarizes the net sales and total income from discontinued operations for the three and nine months ended December 28, 2012 and December 30, 2011:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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(in thousands) | ||||||||||||||||
Net sales |
$ | 121,908 | $ | 133,492 | $ | 386,689 | $ | 396,729 | ||||||||
Income from discontinued operations before provision for income taxes(a) |
45,527 | 6,768 | 52,730 | 19,491 | ||||||||||||
Provision for income taxes |
17,414 | 2,461 | 20,326 | 7,416 | ||||||||||||
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Income from discontinued operations, net of taxes |
$ | 28,113 | $ | 4,307 | $ | 32,404 | $ | 12,075 | ||||||||
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(a) | For the three and nine months ended December 28, 2012, amount includes a gain on sale of $41,745. |
During the nine months ended December 28, 2012, the Company incurred $7,306 of costs associated with the strategic restructuring plan, including retention bonuses for employees and accounting, legal, and other professional fees.
Plan of Merger
On October 24, 2012, the Company entered into the Merger Agreement with McKesson Corporation, a Delaware corporation (Parent) and Palm Merger Sub, Inc., a Florida corporation and a direct wholly owned Subsidiary of Parent (together with Parent, the Acquiring Parties) under which the Acquiring Parties will acquire all of the Companys outstanding shares for $29.00 per share in cash. The transaction, which has been approved by the boards of directors of both companies, is subject to customary closing conditions, including the approval of the Companys shareholders.
During the nine months ended December 28, 2012, the Company incurred $4,726 of costs associated with the planned merger, including retention bonuses for employees and accounting, legal, and other professional fees.
Debt Agreements
If a change in control of the Company occurs, each holder of the 2012 Notes will have the right to require the Company to repurchase all or part of their outstanding notes for cash at 101% of the aggregate principal amount of the securities repurchased plus accrued and unpaid interest. On January 25, 2013, the Company provided a conditional notice to the holders of the 2012 Notes that the Company has elected to redeem all of the 2012 Notes outstanding on February 25, 2013 (the Redemption Date). On the Redemption Date, the 2012 Notes will be redeemed at a redemption price equal to 100% of the principal amount plus a redemption premium and accrued and unpaid interest. The redemption is contingent upon the completion of the merger with McKesson.
Additionally, upon the occurrence of a change in control, each holder of the 2008 Notes will have the opportunity to exchange all or part of their outstanding notes for cash at a price determined under the related indenture. On February 1, 2013, the Company provided notice to the holders of the 2008 Notes that the planned merger with McKesson would constitute a fundamental change as defined by the related indenture, and that on or around the date of the planned merger, the holders of common stock of the Company shall be entitled to receive consideration for each share of common stock owned. This entitlement is contingent upon the completion of the merger with McKesson.
Incentive Compensation
Additionally, upon the occurrence of a change in control (i) all outstanding employee options shall become fully exercisable, (ii) time-based vesting restrictions on all outstanding restricted stock awards shall lapse, and (iii) the target payout opportunities attainable under all outstanding performance-based equity and cash-based awards shall be deemed to have been fully earned as of the date of the change in control based upon an assumed achievement of all relevant performance goals at the target level.
10
4. | VARIABLE INTEREST ENTITY |
On June 25, 2010, the Company entered into an agreement with Pathway Health Services, Inc. (Pathway), a consulting services company within the extended care market, under which the Company purchased a $3,300 convertible note issued by Pathway. The note may be converted, at the Companys discretion, into 73% of Pathways common stock. The Company also acquired a call option and issued a put option for Pathways common stock, both of which may be exercised if certain sales thresholds are met and time restrictions lapse. Under the agreement, the Company obtained a majority of seats and control of Pathways Board of Directors. The convertible note is considered a variable interest and the Company was determined to be the primary beneficiary of Pathway.
The Company has consolidated Pathway under the purchase method of accounting and recorded noncontrolling interest under current accounting guidance for consolidations. The consolidated assets and liabilities, operating results and cash flows of Pathway are not considered significant to the Companys financial position, operating results, or cash flows. Pathways assets cannot be used to settle the Companys obligations and Pathways creditors have no recourse to the general credit of the Company.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan which included the sale of two business units serving skilled nursing facilities and specialty dental practices. The Companys variable interest in Pathway has been included in the disposal group as part of the restructuring plan. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information on the Companys fiscal year 2013 strategic restructuring plan and corresponding discontinued operations.
5. | EARNINGS PER SHARE |
Basic earnings per common share attributable to PSS World Medical, Inc. is computed by dividing Net income attributable to PSS World Medical, Inc. by the weighted average number of the Companys common shares outstanding during the period. Diluted earnings per common share attributable to PSS World Medical, Inc. is computed by dividing Net income attributable to PSS World Medical, Inc. by the weighted average number of the Companys common shares and common equivalent shares outstanding during the period adjusted for the potential dilutive effect of stock options and restricted stock using the treasury stock method and the potential dilutive effect of outstanding convertible senior notes. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.
The following table sets forth computational data for the denominator in the basic and diluted earnings per common share calculation for the three and nine months ended December 28, 2012 and December 30, 2011:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(in thousands) | December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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Denominator-weighted average shares outstanding used in computing basic earnings per common share |
49,466 | 51,308 | 49,464 | 52,594 | ||||||||||||
Assumed conversion of the 2008 Notes |
2,241 | 648 | 926 | 1,482 | ||||||||||||
Assumed vesting of restricted stock |
527 | 419 | 455 | 444 | ||||||||||||
Assumed exercise of stock options (a) |
18 | 60 | 18 | 73 | ||||||||||||
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Denominator-weighted average shares outstanding used in computing diluted earnings per common share |
52,252 | 52,435 | 50,863 | 54,593 | ||||||||||||
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(a) | There were no anti-dilutive options outstanding as of December 28, 2012 and December 30, 2011. |
The Company included shares underlying its 2008 Notes in its diluted weighted average shares outstanding during the three and nine months ended December 28, 2012. Under the treasury stock method of accounting for share dilution, shares that would be issuable upon conversion were included, based upon the amount by which the average stock price for the period exceeded the conversion price of $21.22.
If the average price of the Companys common stock exceeds $28.29 per share, additional potential shares that may be issued related to outstanding warrants, using the treasury stock method, will also be included. Prior to conversion, certain outstanding purchased options are not considered for purposes of the dilutive earnings per share calculation as their effect is considered to be anti-dilutive.
11
6. | ACCRUED EXPENSES |
Accrued expenses from continuing operations as of December 28, 2012 and March 30, 2012 were as follows:
As of | ||||||||
(in thousands) | December 28, 2012 |
March 30, 2012 |
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Accrued payroll |
$ | 23,796 | $ | 14,913 | ||||
Accrued interest |
8,227 | 2,565 | ||||||
Accrued annual incentive compensation |
5,318 | 1,184 | ||||||
Other (a) |
18,551 | 18,774 | ||||||
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Accrued expenses |
$ | 55,892 | $ | 37,436 | ||||
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(a) | Amounts within the Other category of total accrued expenses were not considered individually significant as of December 28, 2012 and March 30, 2012. |
7. | INCENTIVE AND STOCK-BASED COMPENSATION |
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the cost as compensation expense on a straight-line basis, net of estimated forfeitures, over the awards estimated vesting period. The Companys stock-based compensation expense is recorded in General and administrative expenses on the Unaudited Condensed Consolidated Statements of Operations.
Restricted Stock Awards
The Company issues (i) restricted stock which vests based on the recipients continued service over time (Time-Based Awards) and (ii) restricted stock or restricted stock units which vest based on the Company achieving specified performance measurements (Performance-Based Awards).
Fiscal Year 2013 Issuances of Performance-Based Awards
On June 22, 2012, the Companys Compensation Committee of the Board of Directors (the Compensation Committee) approved awards of performance-accelerated restricted stock units (PARS Units) and performance-based restricted stock units (Performance Shares) to certain of the Companys executive officers. These awards were granted under the Companys 2006 Incentive Plan.
PARS Units
The PARS Units will vest on the five-year anniversary of the grant date and convert to shares of common stock, subject to accelerated vesting after three years if the Company achieves an income from continuing operations target, excluding the effect of any restructuring charges and exit costs and the impact of any changes in generally accepted accounting principles promulgated by standard setting bodies. Upon vesting, the grantees may defer acceptance of the units to a later date, whereas the units will remain outstanding. Additionally, PARS Units will vest upon a change in control, as discussed in Footnote 3, Discontinued Operations and Plan of Merger.
Performance Shares
The Performance Shares, which are denominated in terms of a target number of shares, may vest after three years in an amount up to 250% of the target number of shares for exceptional performance, but will be forfeited if performance falls below a designated threshold. A portion of the award will be measured on the Companys net income from continuing operations, excluding the effect of any restructuring charges and exit costs and the impact of any changes in generally accepted accounting principles promulgated by standard setting bodies. The ultimate number of shares delivered to recipients and the related compensation cost recognized as expense will be based on actual performance.
12
The remaining Performance Shares will be measured based on relative total shareholder return (TSR), or the Companys stock price return as compared to companies in the Midcap 400 Index as of the beginning of the 3-year period running from fiscal year 2013 to fiscal year 2015. Upon a change in control, Performance Shares will vest at the target, as discussed in Footnote 3, Discontinued Operations and Plan of Merger.
The fair value of the TSR awards is calculated using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the derived service periods using the straight-line method regardless of the outcome of the market conditions, so long as the award holder remains an employee through the derived service period.
The Monte Carlo simulation model utilized the following inputs and assumptions:
As of | ||||
June 29, 2012 | ||||
Term of award (in years) |
3 | |||
Volatility |
28.1 | % | ||
Risk-free interest rate |
0.4 | % | ||
Expected dividend yield |
0.0 | % | ||
Actual TSR |
(18.9 | )% | ||
Stock beta |
0.7 | |||
Fair value |
$ | 24.63 |
Stock Options
On July 2, 2012, the Company granted 305,185 stock options under the Companys 2006 incentive Stock Plan to certain of the Companys executive officers. The stock options are exercisable on or after the third anniversary date provided the closing price at the time of exercise is at least $27.05. Additionally, the stock options will vest upon a change in control, as discussed in Footnote 3, Discontinued Operations and Plan of Merger.
The fair value of stock options granted was estimated as of the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
As of | ||||
July 2, 2012 | ||||
Expected dividend yield |
0.0 | % | ||
Volatility |
30.0 | % | ||
Risk-free interest rate |
0.85 | % | ||
Expected life (in years) |
6.0 |
Based on these assumptions, the estimated fair value of the options granted during the nine months ended December 28, 2012, was approximately $1,935. As of December 28, 2012, there was $1,617 of unrecognized compensation cost related to the options granted during the nine months ended December 28, 2012.
Stock Award Modification
During the nine months ended December 28, 2012, the Compensation Committee approved an amendment to the outstanding Performance Shares and PARS Units held by certain of the Companys executive officers to provide that the calculation of the earnings per share targets and the Companys level of achievement of such targets will be based on earnings per share from continuing operations, excluding the effect of any restructuring charges and exit costs. The earnings per share growth rates that must be achieved in order to earn the awards were not changed.
Based on the revised performance targets, stock based compensation expenses decreased $901 ($559, net of tax), or $0.01 per diluted share during the nine months ended December 28, 2012.
13
Change in Estimate
During the three and nine months ended December 28, 2012, the Company changed its estimate of the number of shares to be earned on its performance based awards.
During the three months ended December 28, 2012, the Company did not recognize stock-based compensation expense as a result of the change in performance estimate on TSRs. During the nine months ended December 28, 2012, stock based compensation expenses related to performance shares decreased $1,480 ($918, net of tax), or $0.02 per diluted share.
Activity for Stock-Based Awards
Outstanding stock-based awards granted under equity incentive plans as of December 28, 2012 and March 30, 2012 are as follows:
Performance-Based Awards | Time-Based Awards | Stock Options |
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Performance Shares |
PARS | TSR | ||||||||||||||||||||||||||
(in thousands) | Units | Units | Shares | Units | Shares | Deferred Units |
Shares | |||||||||||||||||||||
Balance, March 30, 2012 |
301 | 274 | 471 | | 302 | 8 | 49 | |||||||||||||||||||||
Granted |
144 | 118 | 15 | 59 | 159 | 3 | 305 | |||||||||||||||||||||
Increase (decrease) from change in estimate |
(221 | ) | | | 59 | | | | ||||||||||||||||||||
Vested / Exercised |
(139 | ) | (88 | ) | | | (65 | ) | | (8 | ) | |||||||||||||||||
Forfeited |
(85 | ) | | (19 | ) | | (14 | ) | | | ||||||||||||||||||
Expired |
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Balance, December 28, 2012 |
| 304 | 467 | 118 | 382 | 11 | 346 | |||||||||||||||||||||
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Total stock-based compensation expense included in income from continuing operations during the three months ended December 28, 2012 and December 30, 2011 was approximately $1,634 and $1,949, respectively, with related income tax benefits of $621 and $741, respectively. Total stock-based compensation expense included in income from continuing operations during the nine months ended December 28, 2012 and December 30, 2011 was approximately $3,164 and $5,357, respectively, with related income tax benefits of $1,202 and $2,036, respectively. No stock-based compensation expense was included in income from discontinued operations.
As of December 28, 2012, there was $12,587 of unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the stock incentive plans. If the merger with McKesson should not be completed, the compensation cost related to these non-vested awards would be recognized over a weighted average period of 4.2 years.
8. | DEBT |
Outstanding debt consists of the following, in order of seniority:
As of | ||||||||
(in thousands) | December 28, 2012 |
March 30, 2012 |
||||||
2012 Notes |
$ | 250,000 | $ | 250,000 | ||||
2008 Notes |
212,387 | 204,916 | ||||||
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Total debt |
462,387 | 454,916 | ||||||
Less: Current portion of long-term debt |
212,387 | | ||||||
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Long-term debt |
$ | 250,000 | $ | 454,916 | ||||
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14
2012 Notes
On February 24, 2012, the Company issued $250.0 million aggregate principal 6.375% senior notes, which mature on March 1, 2022 (the 2012 Notes). Interest on the notes is payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2012. The 2012 Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Companys domestic subsidiaries (the Guarantor Subsidiaries). Refer to Footnote 14, Condensed Consolidating Financial Information, for further information regarding the Guarantor Subsidiaries.
The gross carrying value of the Companys 2012 Notes as of December 28, 2012 and March 30, 2012 was $250,000 and the fair value, which is estimated using a third party valuation model, was approximately $295,000 and $257,500, respectively.
Refer to Footnote 3, Discontinued Operations and Plan of Merger, for information related to the Company pending merger with McKesson.
2008 Notes
In August 2008, the Company issued $230.0 million principal amount 3.125% senior convertible notes, which mature on August 1, 2014 (the 2008 Notes). Interest on the notes is payable semi-annually in arrears on February 1 and August 1 of each year. The notes will be convertible into cash up to the principal amount of the notes and shares of the Companys common stock for any conversion value in excess of the principal amount under certain circumstances. The ability of note holders to convert is assessed on a quarterly basis. Conversion may be triggered during any calendar quarter in which the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than $27.59 per share or, as defined, 130% of the applicable conversion price of $21.22 per share (Contingent Conversion Trigger). The Contingent Conversion Trigger was met during the nine months ended December 28, 2012 and the notes may be converted into cash and common stock. As of December 28, 2012, the if-converted value exceeded the principal amount of the 2008 Notes by $82,976. Accordingly, the Company reclassified the net book value of the 2008 Notes from Long-term debt, excluding current portion to Current portion of long-term debt on the Unaudited Condensed Consolidated Balance Sheets. See Footnote 5, Earnings Per Share, for additional information.
Refer to Footnote 3, Discontinued Operations and Plan of Merger, for information related to the Company pending merger with McKesson.
As of December 28, 2012 and March 30, 2012, the fair value of the 2008 Notes was approximately $324,645 and $302,174, respectively.
The principal balances, unamortized discounts and net carrying amounts of the liability components and the equity components for the Companys 2008 Notes as of December 28, 2012 and March 30, 2012 are as follows:
Liability Component | Equity Component | |||||||||||||||
(in thousands) 2008 Notes |
Principal Balance |
Unamortized Discount |
Net Carrying Amount |
Carrying Amount Pretax (a) |
||||||||||||
As of December 28, 2012 |
$ | 230,000 | $ | (17,613 | ) | $ | 212,387 | $ | 55,636 | |||||||
As of March 30, 2012 |
$ | 230,000 | $ | (25,084 | ) | $ | 204,916 | $ | 55,636 |
(a) | The Company recognized a deferred tax liability of $20,523 related to the issuance of the 2008 Notes. |
15
Under the terms of the 2008 Notes agreement, certain events are triggered upon a change in control of the Company. On October 24, 2012, the Company entered into the Merger Agreement under which McKesson Corporation will acquire all of its outstanding shares. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information.
Revolving Line of Credit
The Company maintains an asset-based revolving line of credit (the RLOC) under a credit agreement (the Credit Agreement) with the following features and key terms: (i) a five-year term, maturing on November 16, 2016; (ii) a facility size of $300.0 million, with increased borrowing capacity of up to $100.0 million via an accordion feature; and (iii) conditional covenants based on the Companys borrowing availability and fixed charge coverage ratio requirements. Availability depends on a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements, and certain other reserves. Borrowings under the RLOC bear interest at the banks base rate or at LIBOR plus applicable margins. Additionally, the RLOC incurs fees at a fixed rate of 0.25% for any unused portion of the facility.
Under the RLOC, the Company and certain of its subsidiaries are subject to certain covenants, including but not limited to, limitations on: (i) selling or transferring assets, (ii) making certain permitted investments, and (iii) incurring additional indebtedness and liens. However, these covenants may not apply if the Company maintains sufficient Availability under the credit facility and satisfies fixed charge coverage ratios.
Borrowings under the RLOC are anticipated to fund future requirements for working capital, capital expenditures, acquisitions, repurchases of the Companys common stock, and the issuance of letters of credit, if necessary.
The Company had no outstanding borrowings under the RLOC as of December 28, 2012 and March 30, 2012. After reducing availability for outstanding borrowings and letter of credit commitments, the Company has sufficient assets based on eligible accounts receivable and inventory to borrow $279.5 million under the RLOC. During the nine months ended December 28, 2012, the Company had no borrowings under the RLOC, and as a result, had no average daily interest rate for the period.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan. The sale of the business serving skilled nursing facilities was expected to increase the Companys available cash balances, while reducing the Companys assets used to calculate its borrowing base under the RLOC. If the merger with McKesson should not be completed, the Company estimates availability under the RLOC would be approximately $210.2 million as of December 28, 2012, as adjusted for the assumed sale of the skilled nursing facility business.
9. | FAIR VALUE MEASUREMENTS |
The Company records and discloses certain financial and non-financial assets and liabilities at their fair value. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liabilitys fair value is defined as the estimate amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.
Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1: | Inputs using unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access. | |
Level 2: | Inputs or other than quoted prices in markets that are observable for the asset or liability, either directly or indirectly. | |
Level 3: | Inputs that are both significant to the fair value measurement and unobservable. |
16
As of December 28, 2012 and March 30, 2012, the fair value of the Companys financial assets and/or liabilities are measured using Level 1 or Level 3 inputs. The following table presents the Companys assets and liabilities which are measured at fair value on a recurring basis as of December 28, 2012 and March 30, 2012, by level within the fair value hierarchy:
(in thousands) | ||||||||||||
December 28, 2012 |
Level 1 | Level 3 | Total | |||||||||
Assets: |
||||||||||||
Conversion option on VIE convertible note (a) |
$ | | $ | 583 | $ | 583 | ||||||
Liabilities: |
||||||||||||
Deferred compensation (b) |
$ | 103,493 | $ | | $ | 103,493 | ||||||
Contingent consideration (c) |
| 415 | 415 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
$ | 103,493 | $ | 415 | $ | 103,908 | ||||||
March 30, 2012 |
Level 1 | Level 3 | Total | |||||||||
Assets: |
||||||||||||
Conversion option on VIE convertible note (a) |
$ | | $ | 701 | $ | 701 | ||||||
Liabilities: |
||||||||||||
Deferred compensation (b) |
$ | 94,394 | $ | | $ | 94,394 | ||||||
Contingent consideration (c) |
| 493 | 493 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
$ | 94,394 | $ | 493 | $ | 94,887 |
(a) | Represents the Companys conversion option to acquire 73% of the outstanding common stock in the Companys consolidated variable interest entity (VIE), which is located in Assets held for sale on the Companys Unaudited Condensed Consolidated Balance Sheets. See Footnote 4, Variable Interest Entity, for further information. The conversion option was calculated using an internal model that utilizes as its basis, unobservable inputs, including estimated interest rates based upon the estimated market interest rate which the VIE would have paid on a high-yield note in the open market. Significant increases (decreases) in any of those inputs would result in a significantly lower (higher) fair value measurement. The unobservable inputs are not considered to be interrelated. The remaining investment in Pathway has been eliminated in consolidation. |
(b) | Represents the Companys obligation to pay benefits under its non-qualified deferred compensation plans, which is included in Other noncurrent liabilities on the Companys Unaudited Condensed Consolidated Balance Sheets. The obligation to pay benefits is based on participants allocation percentages to plan investments. The investments are measured using quoted market prices. |
(c) | Represents the estimated fair value of the additional variable cash consideration payable in connection with the Companys acquisitions that are contingent upon the achievement of certain performance milestones. The Company estimated the fair value using expected future cash flows over the period in which the obligations are expected to be settled, and applied a discount rate that appropriately captures a market participants view of the risk associated with the obligation. Significant increases (decreases) to values of the unobservable inputs would result in a significantly lower (higher) fair value measurement. The unobservable inputs are not considered to be interrelated. The liabilities are included in Liabilities held for sale on the Companys Unaudited Condensed Consolidated Balance Sheets, depending on the period of expected payout. |
The following table summarizes the change in the fair value for Level 3 instruments for the nine months ended December 28, 2012:
(in thousands) | Level 3 Instruments |
|||
Assets: |
||||
Balance as of March 30, 2012 |
$ | 701 | ||
Fair value adjustment included in earnings |
(118 | ) | ||
|
|
|||
Balance as of December 28, 2012 |
$ | 583 | ||
|
|
|||
Liabilities: |
||||
Balance as of March 30, 2012 |
$ | 493 | ||
Settlement adjustment |
(133 | ) | ||
Fair value adjustment included in earnings |
55 | |||
|
|
|||
Balance as of December 28, 2012 |
$ | 415 | ||
|
|
17
The carrying amounts of the Companys current financial instruments, including cash and cash equivalents, short-term trade receivables, and accounts payable, approximate fair value due to the short-term nature of these assets and liabilities.
10. | SUPPLEMENTAL CASH FLOW INFORMATION |
The Companys supplemental disclosures for the nine months ended December 28, 2012 and December 30, 2011 are as follows:
For the Nine Months Ended | ||||||||
(in thousands) | December 28, 2012 |
December 30, 2011 |
||||||
Cash paid for: |
||||||||
Interest |
$ | 12,445 | $ | 4,338 | ||||
Income taxes, net |
$ | 22,561 | $ | 35,911 |
During the nine months ended December 28, 2012, the amount of cash paid for income taxes decreased primarily due to the carryover of residual payments made during fiscal year 2012.
During the nine months ended December 28, 2012, the amount of cash paid for interest increased primarily due to the first semi-annual payment made on the 2012 Notes.
During the nine months ended December 28, 2012 and December 30, 2011, the Company had no material non-cash transactions.
11. | SEGMENT INFORMATION |
The Company goes to market through strategic businesses that offer products and services to customers within the healthcare industry. The reportable segments are determined based on the factors management utilizes to regularly evaluate the performance of the Company. The reportable segments are managed separately based on the distinct customers and the product and service offerings required by the markets they serve. The Company evaluates the operating performance of its segments based on a number of financial measures, including net sales and income from operations before interest, income taxes and results of discontinued operations.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan designed to transform the Company. The restructuring plan included the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. As part of the restructuring plan, the previously reported Physician Business and Extended Care Business segments have been realigned into four strategic business segments including: Physician, Laboratory, Dispensing, and Home Care & Hospice. Each of the segments serve a distinct customer base or provide a distinct product and service offering to the same customer base.
The Company allocates certain components of net sales, cost of goods sold and operating expenses to each of the reportable segments. These allocated components represent specific revenues or costs not specifically identifiable to an individual reportable segment. Management determined the methodology utilized to allocate these items to be reasonable and consistently applied for each period presented, based on inputs and cost drivers common to each reportable segment.
The strategic business segments share healthcare distribution services infrastructure and support costs. The costs of shared healthcare distribution services infrastructure and support are charged to each segment directly, if specifically identifiable, or allocated to each segment based on methodologies reasonably determined by management.
Shared Services includes expenses associated with corporate functions that support the segments through the development of strategic solutions and the delivery of standardized service and transaction processing. Shared Services allocates a portion of its costs to the segments to the extent the segments use the support services provided, based on an estimation of the direct costs attributable to those services. For those operating segments that use Shared Services, the allocation of shared operating costs is generally proportionate to the revenues of the respective segment.
18
The following tables present financial information about the business segments:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(in thousands) | December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
||||||||||||
Net Sales: |
||||||||||||||||
Physician |
$ | 255,066 | $ | 248,862 | $ | 765,915 | $ | 745,934 | ||||||||
Laboratory |
135,597 | 96,434 | 356,775 | 280,383 | ||||||||||||
Dispensing |
21,231 | 22,695 | 67,630 | 61,921 | ||||||||||||
Home Care & Hospice |
21,652 | 25,773 | 72,776 | 76,631 | ||||||||||||
Shared Services |
366 | 439 | 1,003 | 1,535 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 433,912 | $ | 394,203 | $ | 1,264,099 | $ | 1,166,404 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (Loss) from Operations: (a) |
||||||||||||||||
Physician |
$ | 25,693 | $ | 23,936 | $ | 69,026 | $ | 68,701 | ||||||||
Laboratory |
13,295 | 9,838 | 32,626 | 28,265 | ||||||||||||
Dispensing |
(1,211 | ) | 2,740 | (379 | ) | 5,372 | ||||||||||
Home Care & Hospice |
2,348 | 2,430 | 6,956 | 7,637 | ||||||||||||
Shared Services |
(16,118 | ) | (11,006 | ) | (35,997 | ) | (32,026 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income from operations |
24,007 | 27,938 | 72,232 | 77,949 | ||||||||||||
Interest expense |
(8,778 | ) | (4,784 | ) | (25,820 | ) | (13,864 | ) | ||||||||
Interest income |
16 | 15 | 43 | 59 | ||||||||||||
Other income, net |
415 | 596 | 1,138 | 1,564 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from Continuing Operations Before Provision for Income Taxes: |
$ | 15,660 | $ | 23,765 | $ | 47,593 | $ | 65,708 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and Amortization: (b) |
||||||||||||||||
Physician |
$ | 2,582 | $ | 2,501 | $ | 7,885 | $ | 7,342 | ||||||||
Laboratory |
773 | 381 | 2,097 | 1,113 | ||||||||||||
Dispensing |
1,928 | 1,216 | 5,060 | 3,381 | ||||||||||||
Home Care & Hospice |
215 | 257 | 645 | 763 | ||||||||||||
Shared Services |
2,814 | 2,795 | 8,392 | 8,228 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total depreciation and amortization |
$ | 8,312 | $ | 7,150 | $ | 24,079 | $ | 20,827 | ||||||||
|
|
|
|
|
|
|
|
As of | ||||||||
December 28, 2012 |
March 30, 2012 |
|||||||
Total Assets: |
||||||||
Operating segments |
$ | 741,489 | $ | 610,859 | ||||
Shared Services |
312,907 | 267,733 | ||||||
Assets held for sale |
252,420 | 277,378 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,306,816 | $ | 1,155,970 | ||||
|
|
|
|
(a) | Operating income includes an allocation of costs of healthcare distribution services as defined above. |
(b) | Depreciation and amortization includes an allocated cost of healthcare distribution services as defined above. |
Total assets are not disclosed by operating segment as certain assets are shared amongst the segments, such as inventory and accounts receivable. It is not practicable to specifically allocate such assets to the operating segments.
19
12. | INCOME TAXES |
The Companys provision for income taxes and effective tax rate for the three and nine months ended December 28, 2012 and December 30, 2011 are presented in the following table:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
|||||||||||||||||||||||||||||||||||||
(dollars in millions) | Amount | Effective Rate |
Amount | Effective Rate |
Decrease | Amount | Effective Rate |
Amount | Effective Rate |
Decrease | ||||||||||||||||||||||||||||||
Total Company |
$ | 5.1 | 32.7 | % | $ | 7.9 | 33.4 | % | $ | (2.8 | ) | $ | 15.4 | 32.4 | % | $ | 23.4 | 35.6 | % | $ | (8.0 | ) |
The effective rate for the three and nine months ended December 28, 2012 and December 30, 2011 was impacted by a reorganization of the Companys non-U.S. global sourcing subsidiaries. This reorganization increased the responsibilities and contributions of the non-U.S. subsidiaries, proportionally increasing their income and reducing the income of the U.S. subsidiaries. As the non-U.S. subsidiaries are generally subject to tax at rates lower than the U.S. subsidiaries, an increase in the proportion of the Companys taxable earnings originating outside the U.S. favorably impacts the effective tax rate.
13. | COMMITMENTS AND CONTINGENCIES |
Litigation
On December 5, 2012, a putative class action complaint was filed on behalf of an alleged public stockholder of PSS. The lawsuit, Baltimore County Employees Retirement System v. Gary A. Corless, et al., Case No. 16-2012-CA-013015-XXXX-MA, was filed in the Circuit Court of the Fourth Judicial Circuit in and for Duval County, Florida. The defendants in the lawsuit include PSS, members of the Companys board of directors, McKesson, The Goldman Sachs Group, Inc., and Goldman, Sachs & Co. The lawsuit alleges, among other things, that PSS directors breached their fiduciary duties in connection with the proposed merger by failing to maximize stockholder value and by failing to disclose material information in the November 16, 2012 Preliminary Proxy Statement, and that McKesson and the Goldman Sachs entities aided and abetted the various breaches of fiduciary duty. In addition to monetary damages in an unspecified amount and other remedies, the lawsuit seeks to enjoin PSS and its directors from consummating the merger. The lawsuit is in its preliminary stage. The Company believes this lawsuit is without merit, and intends to vigorously defend against the action. The Company believes that the lawsuit will not delay the planned merger with McKesson.
The Company is party to other various legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of uncertainty, the Company, after consultation with legal counsel, believes that the outcome of such other proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Companys consolidated financial position, liquidity, or results of operations.
Commitments and Other 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 pay severance to the executive officers in amounts ranging from one to two times their base salary and target annual bonus. In the event that a termination or resignation follows or is in connection with a change in control, the Company may be required to pay severance to the executive officers in amounts ranging from one and one-half to three times their base salary and target annual bonus. The Company may also be required to continue welfare benefit plan coverage for the executive officers following a termination or resignation for a period ranging from twelve months to two years.
During the nine months ended December 28, 2012, the Company amended the employment agreements of certain executive officers. The amendments to the employment agreements were included as exhibits to reports previously filed with the SEC.
20
If a supply agreement related to the Companys store brands, including Select Medical Products and other specialty brand products (collectively known as store brand or store brands) between a vendor and the Company were to be terminated, then the Company may be required to purchase from the vendor all remaining finished and unfinished products and product-materials ordered or held by the vendor. As of December 28, 2012, the Company had no material obligation to purchase remaining products or materials due to a termination of a supply agreement with a vendor who supplies store brand products to the Company.
14. | CONDENSED CONSOLIDATING FINANCIAL INFORMATION |
The 2012 Notes of the Company (the Parent) are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of its domestic subsidiaries (the Guarantor Subsidiaries). The guarantees made by the Guarantor Subsidiaries will rank senior in right of payment to all of their existing and future obligations expressly subordinated or junior in right of payment to the notes, equal with all of their existing and future unsecured unsubordinated obligations, and will be effectively subordinated to any of their existing and future secured obligations to the extent of the value of the assets securing such obligations.
The following tables present the condensed consolidating financial information of the Parent, the Guarantor Subsidiaries, and the subsidiaries that are not guarantors (the Non-Guarantor Subsidiaries) as of December 28, 2012 and March 30, 2012 and for the years ended December 28, 2012 and December 30, 2011.
21
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 28, 2012
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 150,045 | $ | 25,217 | $ | 40,872 | $ | | $ | 216,134 | ||||||||||
Accounts receivable, net |
137,502 | 66,684 | | | 204,186 | |||||||||||||||
Inventories |
129,811 | 47,465 | 206 | | 177,482 | |||||||||||||||
Intercompany receivable (payable) |
367,765 | (352,030 | ) | (2,355 | ) | (13,380 | ) | | ||||||||||||
Prepaid expenses and other current assets |
54,227 | 4,905 | 342 | | 59,474 | |||||||||||||||
Assets held for sale |
| 252,986 | 2,183 | (2,749 | ) | 252,420 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
839,350 | 45,227 | 41,248 | (16,129 | ) | 909,696 | ||||||||||||||
Property and equipment, net |
41,784 | 40,564 | 72 | | 82,420 | |||||||||||||||
Other Assets: |
||||||||||||||||||||
Goodwill |
34,824 | 108,652 | | | 143,476 | |||||||||||||||
Intangibles, net |
10,242 | 42,028 | | | 52,270 | |||||||||||||||
Investment in subsidiaries |
161,501 | 37,719 | | (199,220 | ) | | ||||||||||||||
Other assets |
102,075 | 16,844 | 35 | | 118,954 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 1,189,776 | $ | 291,034 | $ | 41,355 | $ | (215,349 | ) | $ | 1,306,816 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 117,534 | $ | 29,257 | $ | 588 | $ | | $ | 147,379 | ||||||||||
Accrued expenses |
36,827 | 19,024 | 41 | | 55,892 | |||||||||||||||
Current portion of long-term debt |
212,387 | | | | 212,387 | |||||||||||||||
Other current liabilities |
29,268 | 10,652 | (78 | ) | | 39,842 | ||||||||||||||
Liabilities held for sale |
| 41,956 | 3,152 | (4,592 | ) | 40,516 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
396,016 | 100,889 | 3,703 | (4,592 | ) | 496,016 | ||||||||||||||
Revolving line of credit and long-term debt, excluding current portion |
250,000 | | | | 250,000 | |||||||||||||||
Other noncurrent liabilities |
92,392 | 17,039 | | | 109,431 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
738,408 | 117,928 | 3,703 | (4,592 | ) | 855,447 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
PSS World Medical Inc. shareholders equity: |
||||||||||||||||||||
Total PSS World Medical, Inc. shareholders equity |
451,368 | 173,106 | 37,652 | (213,852 | ) | 448,274 | ||||||||||||||
Noncontrolling interest |
| | | 3,095 | 3,095 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
451,368 | 173,106 | 37,652 | (210,757 | ) | 451,369 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 1,189,776 | $ | 291,034 | $ | 41,355 | $ | (215,349 | ) | $ | 1,306,816 | |||||||||
|
|
|
|
|
|
|
|
|
|
22
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 30, 2012
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 117,448 | $ | 13,529 | $ | 32,175 | $ | | $ | 163,152 | ||||||||||
Accounts receivable, net |
137,214 | 22,591 | 29,737 | | 189,542 | |||||||||||||||
Inventories |
113,635 | 33,310 | 253 | | 147,198 | |||||||||||||||
Intercompany receivable (payable) |
290,404 | (253,925 | ) | (37,043 | ) | 564 | | |||||||||||||
Prepaid expenses and other current assets |
39,483 | 4,590 | 113 | | 44,186 | |||||||||||||||
Assets held for sale |
26,975 | 250,522 | 2,526 | (2,645 | ) | 277,378 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
725,159 | 70,617 | 27,761 | (2,081 | ) | 821,456 | ||||||||||||||
Property and equipment, net |
39,854 | 40,189 | 108 | | 80,151 | |||||||||||||||
Other Assets: |
||||||||||||||||||||
Goodwill |
31,319 | 78,138 | | | 109,457 | |||||||||||||||
Intangibles, net |
10,435 | 23,111 | | | 33,546 | |||||||||||||||
Investment in subsidiaries |
184,218 | 23,942 | | (208,160 | ) | | ||||||||||||||
Other assets |
95,951 | 15,373 | 36 | | 111,360 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 1,086,936 | $ | 251,370 | $ | 27,905 | $ | (210,241 | ) | $ | 1,155,970 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 122,254 | $ | (4,121 | ) | $ | 586 | $ | | $ | 118,719 | |||||||||
Accrued expenses |
20,211 | 17,176 | 49 | | 37,436 | |||||||||||||||
Other current liabilities |
2,667 | 5,348 | | | 8,015 | |||||||||||||||
Liabilities held for sale |
4,025 | 36,456 | 3,095 | (5,936 | ) | 37,640 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
149,157 | 54,859 | 3,730 | (5,936 | ) | 201,810 | ||||||||||||||
Revolving line of credit and long-term debt, excluding current portion |
454,916 | | | | 454,916 | |||||||||||||||
Other noncurrent liabilities |
92,052 | 16,381 | | | 108,433 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
696,125 | 71,240 | 3,730 | (5,936 | ) | 765,159 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
PSS World Medical Inc. shareholders equity: |
||||||||||||||||||||
Total PSS World Medical, Inc. shareholders equity |
390,811 | 179,536 | 24,175 | (207,394 | ) | 387,128 | ||||||||||||||
Noncontrolling interest |
| 594 | | 3,089 | 3,683 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
390,811 | 180,130 | 24,175 | (204,305 | ) | 390,811 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 1,086,936 | $ | 251,370 | $ | 27,905 | $ | (210,241 | ) | $ | 1,155,970 | |||||||||
|
|
|
|
|
|
|
|
|
|
23
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 28, 2012
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 309,264 | $ | 122,903 | $ | 27,295 | $ | (25,550 | ) | $ | 433,912 | |||||||||
Cost of goods sold |
216,844 | 70,265 | 21,524 | (20,133 | ) | 288,500 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
92,420 | 52,638 | 5,771 | (5,417 | ) | 145,412 | ||||||||||||||
General and administrative expenses |
57,262 | 25,468 | 1,128 | | 83,858 | |||||||||||||||
Selling expenses |
27,815 | 9,732 | | | 37,547 | |||||||||||||||
Equity earnings of subsidiaries |
9,947 | 4,689 | | (14,636 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
17,290 | 22,127 | 4,643 | (20,053 | ) | 24,007 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense): |
||||||||||||||||||||
Interest expense |
(8,770 | ) | (8 | ) | | | (8,778 | ) | ||||||||||||
Interest income |
364 | (348 | ) | | | 16 | ||||||||||||||
Other income, net |
249 | 167 | (1 | ) | | 415 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense, net |
(8,157 | ) | (189 | ) | (1 | ) | | (8,347 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before provision for income taxes |
9,133 | 21,938 | 4,642 | (20,053 | ) | 15,660 | ||||||||||||||
(Benefit) provision for income taxes |
(8,629 | ) | 13,755 | | | 5,126 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
17,762 | 8,183 | 4,642 | (20,053 | ) | 10,534 | ||||||||||||||
Income from discontinued operations, net of taxes |
26,297 | 1,764 | 47 | 5 | 28,113 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
44,059 | 9,947 | 4,689 | (20,048 | ) | 38,647 | ||||||||||||||
Net (loss) income attributable to noncontrolling interest |
| (120 | ) | | 47 | (73 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to PSS World Medical, Inc. |
$ | 44,059 | $ | 10,067 | $ | 4,689 | $ | (20,095 | ) | $ | 38,720 | |||||||||
|
|
|
|
|
|
|
|
|
|
24
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 30, 2011
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 293,712 | $ | 98,046 | $ | 2,445 | $ | | $ | 394,203 | ||||||||||
Cost of goods sold |
208,739 | 53,043 | 1,340 | | 263,122 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
84,973 | 45,003 | 1,105 | | 131,081 | |||||||||||||||
General and administrative expenses |
48,723 | 20,815 | 898 | | 70,436 | |||||||||||||||
Selling expenses |
25,219 | 7,488 | | | 32,707 | |||||||||||||||
Equity earnings of subsidiaries |
6,674 | 243 | | (6,917 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
17,705 | 16,943 | 207 | (6,917 | ) | 27,938 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense): |
||||||||||||||||||||
Interest expense |
(4,723 | ) | (61 | ) | | | (4,784 | ) | ||||||||||||
Interest income |
359 | (344 | ) | | | 15 | ||||||||||||||
Other income, net |
435 | 161 | | | 596 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense, net |
(3,929 | ) | (244 | ) | | | (4,173 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before provision for income taxes |
13,776 | 16,699 | 207 | (6,917 | ) | 23,765 | ||||||||||||||
(Benefit) provision for income taxes |
(5,170 | ) | 13,113 | | | 7,943 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
18,946 | 3,586 | 207 | (6,917 | ) | 15,822 | ||||||||||||||
Income from discontinued operations, net of taxes |
1,179 | 3,087 | 36 | 5 | 4,307 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
20,125 | 6,673 | 243 | (6,912 | ) | 20,129 | ||||||||||||||
Net income (loss) attributable to noncontrolling interest |
| 33 | | (36 | ) | (3 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to PSS World Medical, Inc. |
$ | 20,125 | $ | 6,640 | $ | 243 | $ | (6,876 | ) | $ | 20,132 | |||||||||
|
|
|
|
|
|
|
|
|
|
25
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 28, 2012
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 905,918 | $ | 343,483 | $ | 80,770 | $ | (66,072 | ) | $ | 1,264,099 | |||||||||
Cost of goods sold |
638,060 | 188,980 | 63,846 | (50,664 | ) | 840,222 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
267,858 | 154,503 | 16,924 | (15,408 | ) | 423,877 | ||||||||||||||
General and administrative expenses |
162,595 | 75,813 | 3,402 | | 241,810 | |||||||||||||||
Selling expenses |
81,526 | 28,309 | | | 109,835 | |||||||||||||||
Equity earnings of subsidiaries |
26,399 | 13,551 | | (39,950 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
50,136 | 63,932 | 13,522 | (55,358 | ) | 72,232 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense): |
||||||||||||||||||||
Interest expense |
(25,794 | ) | (26 | ) | | | (25,820 | ) | ||||||||||||
Interest income |
1,069 | (1,027 | ) | 1 | | 43 | ||||||||||||||
Other income, net |
627 | 514 | (3 | ) | | 1,138 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense, net |
(24,098 | ) | (539 | ) | (2 | ) | | (24,639 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before provision for income taxes |
26,038 | 63,393 | 13,520 | (55,358 | ) | 47,593 | ||||||||||||||
(Benefit) provision for income taxes |
(25,328 | ) | 40,748 | | | 15,420 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
51,366 | 22,645 | 13,520 | (55,358 | ) | 32,173 | ||||||||||||||
Income from discontinued operations, net of taxes |
28,604 | 3,754 | 31 | 15 | 32,404 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
79,970 | 26,399 | 13,551 | (55,343 | ) | 64,577 | ||||||||||||||
Net (loss) income attributable to noncontrolling interest |
| (164 | ) | | 7 | (157 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to PSS World Medical, Inc. |
$ | 79,970 | $ | 26,563 | $ | 13,551 | $ | (55,350 | ) | $ | 64,734 | |||||||||
|
|
|
|
|
|
|
|
|
|
26
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 30, 2011
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 873,574 | $ | 284,024 | $ | 8,806 | $ | | $ | 1,166,404 | ||||||||||
Cost of goods sold |
622,570 | 157,581 | 2,572 | | 782,723 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
251,004 | 126,443 | 6,234 | | 383,681 | |||||||||||||||
General and administrative expenses |
146,981 | 60,260 | 2,805 | | 210,046 | |||||||||||||||
Selling expenses |
74,186 | 21,500 | | | 95,686 | |||||||||||||||
Equity earnings of subsidiaries |
17,868 | 3,591 | | (21,459 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
47,705 | 48,274 | 3,429 | (21,459 | ) | 77,949 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense): |
||||||||||||||||||||
Interest expense |
(13,530 | ) | (334 | ) | | | (13,864 | ) | ||||||||||||
Interest income |
1,026 | (967 | ) | | | 59 | ||||||||||||||
Other income, net |
1,043 | 533 | (12 | ) | | 1,564 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense, net |
(11,461 | ) | (768 | ) | (12 | ) | | (12,241 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before provision for income taxes |
36,244 | 47,506 | 3,417 | (21,459 | ) | 65,708 | ||||||||||||||
(Benefit) provision for income taxes |
(14,886 | ) | 38,268 | | | 23,382 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
51,130 | 9,238 | 3,417 | (21,459 | ) | 42,326 | ||||||||||||||
Income from discontinued operations, net of taxes |
3,256 | 8,630 | 174 | 15 | 12,075 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
54,386 | 17,868 | 3,591 | (21,444 | ) | 54,401 | ||||||||||||||
Net income (loss) attributable to noncontrolling interest |
| 90 | | (42 | ) | 48 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to PSS World Medical, Inc. |
$ | 54,386 | $ | 17,778 | $ | 3,591 | $ | (21,402 | ) | $ | 54,353 | |||||||||
|
|
|
|
|
|
|
|
|
|
27
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 28, 2012
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (46,835 | ) | $ | 124,125 | $ | 9,118 | $ | 78 | $ | 86,486 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||
Payments for business combinations, net of cash acquired |
(5,620 | ) | (67,438 | ) | (500 | ) | | (73,558 | ) | |||||||||||
Capital expenditures |
(6,373 | ) | (10,088 | ) | (1 | ) | | (16,462 | ) | |||||||||||
Proceeds from sale of discontinued operations |
66,533 | | | | 66,533 | |||||||||||||||
Other |
7 | (175 | ) | | | (168 | ) | |||||||||||||
Net cash (used in) provided by investing activities, discontinued operations |
(300 | ) | (1,513 | ) | 1 | | (1,812 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities |
54,247 | (79,214 | ) | (500 | ) | | (25,467 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||
Purchase and retirement of common stock |
(7,803 | ) | | | | (7,803 | ) | |||||||||||||
Excess tax benefits from stock-based compensation arrangements |
390 | | | | 390 | |||||||||||||||
Payment for debt issuance costs |
(685 | ) | | | | (685 | ) | |||||||||||||
Proceeds from exercise of stock options |
61 | | | | 61 | |||||||||||||||
Intercompany dividend |
33,222 | (33,223 | ) | 1 | | | ||||||||||||||
Net cash provided by financing activities, discontinued operations |
| | 78 | (78 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
25,185 | (33,223 | ) | 79 | (78 | ) | (8,037 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase in cash and cash equivalents |
32,597 | 11,688 | 8,697 | | 52,982 | |||||||||||||||
Cash and cash equivalents, beginning of period |
117,448 | 13,529 | 32,175 | | 163,152 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 150,045 | $ | 25,217 | $ | 40,872 | $ | | $ | 216,134 | ||||||||||
|
|
|
|
|
|
|
|
|
|
28
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 30, 2011
(Dollars in Thousands)
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (36,856 | ) | $ | 99,912 | $ | 2,913 | $ | | $ | 65,969 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||
Payments for business combinations, net of cash acquired |
(524 | ) | (16,270 | ) | | | (16,794 | ) | ||||||||||||
Capital expenditures |
(2,224 | ) | (13,393 | ) | (5 | ) | | (15,622 | ) | |||||||||||
Other |
(189 | ) | | | | (189 | ) | |||||||||||||
Net cash used in investing activities, discontinued operations |
(22 | ) | (24,788 | ) | (17 | ) | | (24,827 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
(2,959 | ) | (54,451 | ) | (22 | ) | | (57,432 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||
Purchase and retirement of common stock |
(115,760 | ) | | | | (115,760 | ) | |||||||||||||
Excess tax benefits from stock-based compensation arrangements |
1,443 | | | | 1,443 | |||||||||||||||
Proceeds from exercise of stock options |
555 | | | | 555 | |||||||||||||||
Proceeds from borrowings on the revolving line of credit |
325,783 | | | | 325,783 | |||||||||||||||
Repayments on the revolving line of credit |
(209,533 | ) | | | | (209,533 | ) | |||||||||||||
Payment of contingent consideration on business acquisitions |
| (4,000 | ) | | | (4,000 | ) | |||||||||||||
Payment for debt issuance costs |
(1,835 | ) | | | | (1,835 | ) | |||||||||||||
Payments under capital lease obligations |
(33 | ) | (514 | ) | | | (547 | ) | ||||||||||||
Intercompany dividend |
29,234 | (29,234 | ) | | | | ||||||||||||||
Other |
(1,523 | ) | | | | (1,523 | ) | |||||||||||||
Net cash used in financing activities, discontinued operations |
| (30 | ) | | | (30 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided (used in) by financing activities |
28,331 | (33,778 | ) | | | (5,447 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(11,484 | ) | 11,683 | 2,891 | | 3,090 | ||||||||||||||
Cash and cash equivalents, beginning of period |
13,901 | 3,568 | 11,879 | | 29,348 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 2,417 | $ | 15,251 | $ | 14,770 | $ | | $ | 32,438 | ||||||||||
|
|
|
|
|
|
|
|
|
|
29
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
THE COMPANY
PSS World Medical, Inc. (the Company or PSS), a Florida corporation, began operations in 1983. The Company markets and distributes medical products and services to front-line caregivers throughout the United States. With approximately 4,000 team members, PSS is a leader in the markets it serves with innovative approaches to customer service and operational excellence. Its stated purpose is to strengthen the clinical success and financial health of caregivers by solving their biggest problems, and its stated mission is to improve caregivers financial performance by 20%. The Company is focused to accelerate growth in four markets Physician, Laboratory, Dispensing, and Home Care & Hospice with products and solutions that deliver high quality, cost effective, and convenient patient care. The Company has full service distribution centers strategically located to efficiently serve all 50 states throughout the United States.
On October 24, 2012, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) under which McKesson Corporation will acquire all of its outstanding shares for $29.00 per share in cash. The transaction, which has been approved by the boards of directors of both companies, is subject to customary closing conditions, including the approval of the Companys shareholders. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan designed to transform the Company by focusing on four lines of business physician, laboratory, dispensing, and home care and hospice. The Company formerly conducted business through two operating segments, the Physician Business and the Extended Care Business. For information on comparative segment net sales, segment profit and loss, and related financial information, refer to Footnote 11, Segment Information, of the unaudited condensed consolidated financial statements.
The restructuring plan included the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. Additionally, the plan included the integration of all distribution operations into one common distribution infrastructure, and the redesign of the shared services segment. The transformation is designed to accelerate revenue growth and reduce operating costs as a percentage of net sales, while streamlining decision making and execution, and improving customer service.
EXECUTIVE OVERVIEW
During the third quarter of fiscal year 2013, net sales from continuing operations increased 10.1% and net sales from discontinued operations decreased 8.7% compared to the same period in the prior fiscal year.
Net sales in the Physician business during the three months ended December 28, 2012 increased 2.5% compared to the same period in the prior fiscal year. The increase in net sales was attributable to revenue generated from acquisitions and an increase in net sales to health systems.
Net sales in the Laboratory business during the three months ended December 28, 2012 increased 40.6% compared to the same period in the prior fiscal year. The increase in net sales was primarily attributable to revenue generated from acquisitions and an early and more widespread influenza season.
Net sales in the Dispensing business during the three months ended December 28, 2012 decreased 6.5% compared to the same period of the prior fiscal year. The decrease is attributable to lower claim volume due to the loss of certain customers, as well as reduced volume of government relabeling business in the current fiscal year, and lower average per claim value, partially offset by net sales from acquisitions.
Net sales in the Home Care & Hospice business during the three months ended December 28, 2012 decreased 16.0% compared to the same period in the prior fiscal year. The decrease is attributable to the loss of a significant national home health agency customer.
30
Consolidated general and administrative expenses from continuing operations increased $13.5 million, or 19.1% compared to the third quarter of the prior fiscal year, mainly attributable to costs associated with the planned merger and additional expenses incurred from acquisitions completed during the current and prior fiscal years, as well as investments made to advance the Companys long-term business plan.
Consolidated selling expenses from continuing operations increased $4.8 million, or 14.8% compared to the third quarter of the prior fiscal year, due to an increase in commission expenses. Commissions are generally paid to sales representatives based on gross profit dollars and gross margin, which increased 10.9% and 26 basis points, respectively.
Cash flow provided by operating activities during the three and nine months ended December 28, 2012 was $38.0 million and $86.5 million, respectively. The Companys cash flows from operating activities along with available cash balances funded acquisitions, investments in capital projects, and the repurchase of approximately 0.4 million common shares during the nine months ended December 28, 2012.
The following significantly impacted the Companys financial and operating results during the nine months ended December 28, 2012.
Acquisitions
During the nine months ended December 28, 2012, the Company made strategic acquisitions in the physician, dispensing and laboratory markets. The total purchase price of the acquisitions was $78.5 million, of which $6.6 million was held by the Company to secure certain potential future adjustments or claims, and $1.6 million net was paid for working capital adjustments related to prior year acquisitions and other acquisition-related adjustments. Refer to Footnote 2, Purchase Business Combinations, for additional information.
Restructuring Plan
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan designed to transform the Company by focusing on four lines of business physician, laboratory, dispensing, and home care and hospice. The transformation was designed to accelerate revenue growth and reduce operating costs as a percentage of net sales, while streamlining decision making and execution, and improving customer service.
The restructuring plan included the sale of two businesses serving skilled nursing facilities and specialty dental practices, the integration of all distribution operations into one common distribution infrastructure, and the redesign of the shared services segment. Current results of operations may not be indicative of future results. During the three and nine months ended December 28, 2012, the Company incurred $1.7 million and $7.3 million, respectively, of costs associated with the strategic restructuring plan.
Sale of Specialty Dental Business
On November 5, 2012, the Company completed the sale of its specialty dental distribution business to a third party for a sale price of $68.0 million, subject to working capital adjustments. During the nine months ended December 28, 2012, the Company recorded a $25.8 million gain as a result of the sale. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information.
31
NET SALES
The following table summarizes net sales period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
December 28, | December 30, | Percent | December 28, | December 30, | Percent | |||||||||||||||||||
(dollars in millions) | 2012 | 2011 | Change | 2012 | 2011 | Change | ||||||||||||||||||
Physician |
$ | 255.1 | $ | 248.9 | 2.5 | % | $ | 765.9 | $ | 745.9 | 2.7 | % | ||||||||||||
Laboratory |
135.6 | 96.4 | 40.6 | 356.8 | 280.4 | 27.2 | ||||||||||||||||||
Dispensing |
21.2 | 22.7 | (6.5 | ) | 67.6 | 61.9 | 9.2 | |||||||||||||||||
Home Care & Hospice |
21.7 | 25.8 | (16.0 | ) | 72.8 | 76.6 | (5.0 | ) | ||||||||||||||||
Shared Services |
0.3 | 0.4 | (16.5 | ) | 1.0 | 1.6 | (34.7 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total continuing operations |
$ | 433.9 | $ | 394.2 | 10.1 | % | $ | 1,264.1 | $ | 1,166.4 | 8.4 | % | ||||||||||||
|
|
|
|
|
|
|
|
Physician
Management evaluates the Physician business by product category. The following table summarizes the growth rate by product category period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
December 28, | December 30, | Percent | December 28, | December 30, | Percent | |||||||||||||||||||
(dollars in millions) | 2012 | 2011 | Change | 2012 | 2011 | Change | ||||||||||||||||||
Branded(a) |
$ | 95.4 | $ | 96.0 | (0.6 | )% | $ | 290.5 | $ | 289.6 | 0.3 | % | ||||||||||||
Store brand products(b) |
52.0 | 49.0 | 6.0 | 156.7 | 144.8 | 8.2 | ||||||||||||||||||
Pharmaceuticals |
77.6 | 76.5 | 1.5 | 234.6 | 229.9 | 2.0 | ||||||||||||||||||
Equipment (c) |
26.8 | 25.6 | 4.7 | 76.6 | 76.1 | 0.6 | ||||||||||||||||||
Other |
3.3 | 1.8 | 83.3 | 7.5 | 5.5 | 36.4 | ||||||||||||||||||
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Total |
$ | 255.1 | $ | 248.9 | 2.5 | % | $ | 765.9 | $ | 745.9 | 2.7 | % | ||||||||||||
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Selling days |
62 | 62 | 189 | 189 |
(a) | Branded products are comprised of disposables from branded manufacturers. |
(b) | Store brand products are the Companys brands of disposables and equipment. |
(c) | Equipment from branded manufacturers. |
Overall, net sales in the Physician business during the three and nine months ended December 28, 2012 were positively impacted by revenue from acquisitions, an increase in net sales to health systems, and an increase in influenza-related product sales.
Net sales of branded products in the Physician business remained relatively flat during the three and nine months ended December 28, 2012 when compared to the same period in the prior fiscal year due to revenue from acquisitions and an increase in net sales to health systems, offset by a decrease in net sales due to customer conversions from branded products to the Companys store brands, which generally have lower prices.
Net sales of store brand products in the Physician business increased during the three and nine months ended December 28, 2012 when compared to the same period in the prior fiscal year due to continued focus on the expansion of the store brands product category, which generally have lower prices. This focus resulted in new customer sales, as well as customer conversions from branded products to the Companys store brands.
Net sales of pharmaceutical products in the Physician business remained relatively flat during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year. Net sales of pharmaceutical products in the Physician business increased during the nine months ended December 28, 2012 due to an increase in net sales of non-influenza vaccines.
Net sales of equipment in the Physician business increased during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year due to an increase in net sales to health systems. Net sales of equipment in the Physician business remained relatively flat during the nine months ended December 28, 2012.
32
Net sales of products and services in the other category in the Physician business increased during the three and nine months ended December 28, 2012 when compared to the same period in the prior fiscal year due to an increase in net sales of healthcare information technology products and services.
Laboratory
Management evaluates the Laboratory business by product category. The following table summarizes the growth rate by product category period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
(dollars in millions) | December 28, 2012 |
December 30, 2011 |
Percent Change |
December 28, 2012 |
December 30, 2011 |
Percent Change |
||||||||||||||||||
Lab diagnostics |
$ | 118.5 | $ | 81.5 | 45.3 | % | $ | 310.2 | $ | 239.6 | 29.5 | % | ||||||||||||
Store brand products and services |
8.3 | 8.0 | 3.2 | 24.1 | 23.6 | 2.2 | ||||||||||||||||||
Equipment |
8.8 | 6.5 | 36.0 | 21.3 | 16.0 | 33.1 | ||||||||||||||||||
Other |
| 0.4 | (100.0 | ) | 1.2 | 1.2 | | |||||||||||||||||
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Total |
$ | 135.6 | $ | 96.4 | 40.6 | % | $ | 356.8 | $ | 280.4 | 27.2 | % | ||||||||||||
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Selling days |
62 | 62 | 189 | 189 |
Overall, net sales in the Laboratory business during the three and nine months ended December 28, 2012 were positively impacted by revenue from acquisitions and an early and more widespread influenza season.
Net sales of lab diagnostic products in the Laboratory business increased during the three and nine months ended December 28, 2012 due to revenue from acquisitions and an early and more widespread influenza season when compared to the same period in the prior fiscal year.
Net sales of store brand products and services in the Laboratory business increased during the three months ended December 28, 2012 due to an increase in net sales of our brand reagents, test kits, and calibrators, partially offset by a decrease in net sales of store brand equipment.
Net sales of equipment in the Laboratory business increased during the three and nine months ended December 28, 2012 primarily due to current and prior year acquisitions.
Dispensing
Management evaluates the Dispensing business by service category. The following table summarizes the growth rate by service category period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
(dollars in millions) | December 28, 2012 |
December 30, 2011 |
Percent Change |
December 28, 2012 |
December 30, 2011 |
Percent Change |
||||||||||||||||||
Repack operations |
$ | 12.7 | $ | 12.7 | (0.2 | )% | $ | 38.2 | $ | 35.5 | 7.5 | % | ||||||||||||
Management services |
7.5 | 8.9 | (15.1 | ) | 25.9 | 25.1 | 3.0 | |||||||||||||||||
Other |
1.0 | 1.1 | (9.1 | ) | 3.5 | 1.3 | 181.5 | |||||||||||||||||
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Total |
$ | 21.2 | $ | 22.7 | (6.5 | )% | $ | 67.6 | $ | 61.9 | 9.2 | % | ||||||||||||
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Selling days |
62 | 62 | 189 | 189 |
Net sales during the three months ended December 28, 2012 decreased due to lower claim volume due to the loss of certain customers, as well as reduced volume of government relabeling business in the current fiscal year, and lower average per claim value, partially offset by net sales from acquisitions. Net sales during the nine months ended December 28, 2012 were positively impacted by acquisitions of companies providing physician dispensing products and services during the current and prior fiscal years.
33
Home Care & Hospice
Management evaluates the Home Care & Hospice business by customer category. The following table summarizes the change in net sales period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
(dollars in millions) | December 28, 2012 |
December 30, 2011 |
Percent Change |
December 28, 2012 |
December 30, 2011 |
Percent Change |
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Home Care |
$ | 12.4 | $ | 15.3 | (18.8 | )% | $ | 42.4 | $ | 45.8 | (7.5 | )% | ||||||||||||
Hospice |
8.9 | 9.4 | (5.0 | ) | 27.9 | 28.2 | (1.4 | ) | ||||||||||||||||
Other |
0.4 | 1.1 | (71.6 | ) | 2.5 | 2.6 | (1.5 | ) | ||||||||||||||||
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Total |
$ | 21.7 | $ | 25.8 | (16.0 | )% | $ | 72.8 | $ | 76.6 | (5.0 | )% | ||||||||||||
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Selling days |
62 | 62 | 189 | 189 |
Overall, net sales during the three months ended December 28, 2012 decreased when compared to the same period in the prior fiscal year due to the loss of significant home health agency and hospice customers.
GROSS PROFIT
Gross profit dollars for the Physician business increased $4.7 million and gross margin increased 103 basis points during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year. Gross profit dollars increased $12.5 million and gross margin increased 77 basis points during the nine months ended December 28, 2012 when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of an increase in net sales. The increase in gross margin was a result of net sales growth in the Companys store brand products, which generally have higher gross margins than the Companys other product categories, and product pricing tools developed by the Company.
Gross profit dollars for the Laboratory business increased $11.4 million and gross margin increased 3 basis points during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year. Gross profit dollars increased $23.0 million and gross margin increased 18 basis points during the nine months ended December 28, 2012 when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of current and prior year acquisitions. The increase in gross margin was attributable to higher margin reagent and diagnostics from acquisitions and product mix, offset by an increase in influenza test kits which have relatively lower gross margins.
Gross profit dollars for the Dispensing business decreased $0.9 million and gross margin decreased 50 basis points during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year. The decrease in gross profit dollars was due to the loss of certain customers. Gross profit dollars increased $5.1 million and gross margin increased 328 basis points during the nine months ended December 28, 2012 when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of an increase in net sales. The increase in gross margin during the nine months ended December 28, 2012 was due to an increase in claims processing services performed in-house when compared to the same period in the prior fiscal year, and current year acquisitions.
Gross profit dollars for the Home Care & Hospice business decreased $0.9 million while gross margin increased 238 basis points during the three months ended December 28, 2012 when compared to the same period in the prior fiscal year. Gross profit dollars decreased $0.4 million while gross margin increased 124 basis points during the nine months ended December 28, 2012 when compared to the same period in the prior fiscal year. The decrease in gross profits dollars and the increase in gross margin was due to the loss of a large, lower-margin national customer.
34
GENERAL AND ADMINISTRATIVE EXPENSES
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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(dollars in millions) | Amount | % of Net Sales |
Amount | % of Net Sales |
Increase (Decrease) |
Amount | % of Net Sales |
Amount | % of Net Sales |
Increase | ||||||||||||||||||||||||||||||
Physician (a) |
$ | 38.4 | 15.1 | % | $ | 37.3 | 15.0 | % | $ | 1.1 | $ | 118.9 | 15.5 | % | $ | 112.6 | 15.1 | % | $ | 6.3 | ||||||||||||||||||||
Laboratory (a) |
14.6 | 10.8 | 9.7 | 10.1 | 4.9 | 42.0 | 11.8 | 29.7 | 10.6 | 12.3 | ||||||||||||||||||||||||||||||
Dispensing (a) |
9.8 | 46.1 | 6.9 | 30.3 | 2.9 | 28.5 | 42.2 | 19.6 | 31.7 | 8.9 | ||||||||||||||||||||||||||||||
Home Care & Hospice (a) |
4.8 | 22.1 | 5.5 | 21.4 | (0.7 | ) | 16.4 | 22.5 | 16.1 | 21.1 | 0.3 | |||||||||||||||||||||||||||||
Shared Services (b) |
16.3 | 3.7 | 11.0 | 2.8 | 5.3 | 36.0 | 2.8 | 32.0 | 2.7 | 4.0 | ||||||||||||||||||||||||||||||
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Total (b) |
$ | 83.9 | 19.3 | % | $ | 70.4 | 17.9 | % | $ | 13.5 | $ | 241.8 | 19.1 | % | $ | 210.0 | 18.0 | % | $ | 31.8 | ||||||||||||||||||||
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(a) | General and administrative expenses as a percentage of net sales is calculated based on reportable segment net sales. |
(b) | General and administrative expenses as a percentage of net sales is calculated based on consolidated net sales from continuing operations. |
Physician
General and administrative expenses remained relatively flat during the three months ended December 28, 2012, when compared to the same period in the prior fiscal year.
General and administrative expenses increased $6.3 million during the nine months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in cost to deliver of $2.1 million related to the growth in net sales, and additional expenses from acquired companies; (ii) an increase in payroll and payroll-related expenses of $1.4 million as a result of acquisitions; (iii) an increase in depreciation and amortization expense of $0.5 million due to the addition of property and equipment and intangible assets related to acquisitions; and (iv) an increase in legal fees of $0.3 million related to acquisitions, and other less significant changes.
Laboratory
General and administrative expenses increased $4.9 million during the three months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll-related expenses of $1.6 million as a result of acquisitions; (ii) an increase in cost to deliver of $0.9 million related to the growth in net sales, and additional expenses from acquired companies; (iii) an increase in allocated corporate expenses of $0.6 million; and (iv) an increase in depreciation and amortization expense of $0.4 million due to the addition of property and equipment and intangible assets related to acquisitions, and other less significant changes.
General and administrative expenses increased $12.3 million during the nine months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll-related expenses of $4.0 million as a result of acquisitions; (ii) an increase in cost to deliver of $2.1 million related to the growth in net sales, and additional expenses from acquired companies; (iii) an increase in allocated corporate expenses of $1.7 million; and (iv) an increase in depreciation and amortization expense of $1.0 million due to the addition of property and equipment and intangible assets related to acquisitions, and other less significant changes.
Dispensing
General and administrative expenses increased $2.9 million during the three months ended December 28, 2012, when compared to the same period in the prior fiscal year. The increase was attributable to (i) an increase in payroll and payroll-related expenses of $0.6 million as a result of acquisitions; (ii) an increase in depreciation and amortization expense of $0.7 million due to the addition of property and equipment and intangible assets related to acquisitions; and (iii) an increase in cost to deliver of $0.3 million related to additional expenses from acquired companies, and other less significant changes.
35
General and administrative expenses increased $8.9 million during the nine months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll-related expenses of $2.5 million as a result of acquisitions; (ii) an increase in depreciation and amortization expense of $1.7 million due to the addition of property and equipment and intangible assets related to acquisitions; (iii) an increase in cost to deliver of $1.2 million related to the growth in net sales; and (iv) an increase in allocated corporate expenses of $0.6 million, and additional expenses from acquired companies.
Home Care & Hospice
During the three and nine months ended December 28, 2012, general and administrative expenses remained flat when compared to the same period in the prior fiscal year.
Shared Services
General and administrative expenses increased $5.3 million during the three months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) accrued retention bonuses and other costs associated with the planned merger of $4.7 million; (ii) an increase in medical expenses of $1.4 million; and (iii) an increase in payroll and payroll related expenses of $0.6 million, partially offset by an increase in allocated corporate expenses of $0.7 million.
General and administrative expenses increased $4.0 million during the nine months ended December 28, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) accrued retention bonuses and other costs associated with the planned merger of $4.7 million; (ii) an increase in medical expenses of $3.7 million; and (iii) an increase in payroll and payroll related expenses of $2.3 million. The increase was partially offset by (i) a decrease in incentive and stock-based compensation expense of $3.0 million related to a change in estimated payouts of performance incentives and the modification of the Performance Shares for certain of the Companys executive officers; and (ii) an increase in allocated corporate expenses of $2.2 million.
SELLING EXPENSES
The following table summarizes selling expenses as a percentage of net sales period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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(dollars in millions) | Amount | % of Net Sales |
Amount | % of Net Sales |
Increase (Decrease) |
Amount | % of Net Sales |
Amount | % of Net Sales |
Increase | ||||||||||||||||||||||||||||||
Physician |
$ | 22.9 | 9.0 | % | $ | 21.1 | 8.5 | % | $ | 1.8 | $ | 68.5 | 8.9 | % | $ | 62.7 | 8.4 | % | $ | 5.8 | ||||||||||||||||||||
Laboratory |
11.3 | 8.3 | 8.3 | 8.6 | 3.0 | 30.3 | 8.5 | 24.0 | 8.6 | 6.3 | ||||||||||||||||||||||||||||||
Dispensing |
2.6 | 12.2 | 2.4 | 10.7 | 0.2 | 8.6 | 12.7 | 6.6 | 10.6 | 2.0 | ||||||||||||||||||||||||||||||
Home Care & Hospice |
0.7 | 3.5 | 0.9 | 3.2 | (0.2 | ) | 2.4 | 3.3 | 2.4 | 3.1 | | |||||||||||||||||||||||||||||
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Total |
$ | 37.5 | 8.7 | % | $ | 32.7 | 8.3 | % | $ | 4.8 | $ | 109.8 | 8.7 | % | $ | 95.7 | 8.2 | % | $ | 14.1 | ||||||||||||||||||||
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Selling expenses are principally driven by commission expenses, which are generally paid to sales representatives based on gross profit dollars, gross margin, and other measures of profitability. The change in selling expenses for the Physician, Laboratory, Dispensing, and Home Care & Hospice businesses was relatively consistent with the change in gross profit dollars and gross margin during the three and nine months ended December 28, 2012. In addition, the Company continues to expand its sales force and add health systems sales personnel, which contributed to increased selling expenses.
36
PROVISION FOR INCOME TAXES
The following table summarizes the provision for income taxes period over period:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
December 28, 2012 |
December 30, 2011 |
December 28, 2012 |
December 30, 2011 |
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(dollars in millions) | Amount | Effective Rate |
Amount | Effective Rate |
Decrease | Amount | Effective Rate |
Amount | Effective Rate |
Decrease | ||||||||||||||||||||||||||||||
Total Company |
$ | 5.1 | 32.7 | % | $ | 7.9 | 33.4 | % | $ | (2.8 | ) | $ | 15.4 | 32.4 | % | $ | 23.4 | 35.6 | % | $ | (8.0 | ) |
The effective rate for the three and nine months ended December 28, 2012 was impacted by a reorganization of the Companys non-U.S. global sourcing subsidiaries. This reorganization, completed during the third quarter of fiscal year 2012, increased responsibilities and contributions of the non-U.S. subsidiaries, proportionally increasing their income and reducing the income of the U.S. subsidiaries. As the non-U.S. subsidiaries are generally subject to tax at rates lower than the U.S. subsidiaries, an increase in the proportion of the Companys taxable earnings originating outside the U.S. favorably impacts the effective tax rate. The Company expects this global reorganization to continue to have a sustained positive impact on its effective tax rate; however, the Company cannot determine what impact, if any, the strategic restructuring plan may have on the tax rate in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources Highlights
Cash flows from operations are impacted by segment profitability and changes in operating working capital. Management monitors operating working capital performance through the following metrics:
As of | ||||||||
December 28, 2012 |
December 30, 2011 |
|||||||
Days Sales Outstanding: (a) |
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Consolidated |
41.5 | 41.4 | ||||||
Days On Hand: (b) |
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Consolidated |
55.2 | 56.4 | ||||||
Days in Accounts Payable: (c) |
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Consolidated |
43.4 | 41.6 | ||||||
Cash Conversion Days: (d) |
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Consolidated |
53.4 | 56.2 | ||||||
Inventory Turnover: (e) |
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Consolidated |
6.5 | 6.4 | ||||||
Return on Committed Capital (f) |
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Consolidated |
35.5 | % | 40.9 | % |
(a) | Days sales outstanding (DSO) is average accounts receivable divided by average daily net sales. Average accounts receivable is the sum of accounts receivable, net of the allowance for doubtful accounts, at the beginning and end of the most recent four quarters divided by five. Average daily net sales are net sales for the most recent four quarters divided by 360. Note: Prior year DSO is calculated using a four quarter accounts receivable average and a three quarter daily net sales average. |
(b) | Days on hand (DOH) is average inventory divided by average daily cost of goods sold (COGS). Average inventory is the sum of inventory at the beginning and end of the most recent four quarters divided by five. Average daily COGS is COGS for the most recent four quarters divided by 360. Note: Prior year DOH is calculated using a four quarter inventory average and a three quarter daily COGS average. |
(c) | Days in accounts payable (DIP) is average accounts payable divided by average daily COGS. Average accounts payable is the sum of accounts payable at the beginning and end of the most recent four quarters divided by five. Note: Prior year DIP is calculated using a four quarter accounts payable average and a three quarter daily COGS average. |
37
(d) | Cash conversion days is the sum of DSO and DOH, less DIP. |
(e) | Inventory turnover is 360 divided by DOH. |
(f) | Return on committed capital (ROCC) is defined as return divided by average committed capital. Return is calculated as net income plus (i) provision for income taxes, (ii) amortization, and (iii) interest expense; less interest income for the current quarterly period. Average committed capital is calculated as total assets, less (i) cash, (ii) goodwill and intangibles, and (iii) liabilities, excluding current and long-term debt, for the current and previous quarterly periods, divided by two. |
In addition to cash flow, the Company monitors other components of liquidity and capital structure, including the following:
As of | ||||||||
(dollars in millions) | December 28, 2012 |
March 30, 2012 |
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Capital Structure: |
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2012 Notes(a) |
$ | 250.0 | $ | 250.0 | ||||
2008 Notes(a) |
212.4 | 204.9 | ||||||
Cash and cash equivalents |
(216.1 | ) | (163.2 | ) | ||||
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Net debt |
246.3 | 291.7 | ||||||
Total equity |
451.4 | 390.8 | ||||||
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Total Capital |
$ | 697.7 | $ | 682.5 | ||||
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Operating Working Capital: |
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Accounts receivable, net |
$ | 204.2 | $ | 189.5 | ||||
Inventories |
177.5 | 147.2 | ||||||
Accounts payable |
(147.4 | ) | (118.7 | ) | ||||
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Operating Working Capital |
$ | 234.3 | $ | 218.0 | ||||
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(a) | Outstanding debt is presented in order of seniority. |
Cash Flows from Operating Activities
Net cash provided by operating activities was $86.5 million and $66.0 million for the nine months ended December 28, 2012 and December 30, 2011, respectively. The increase in cash provided by operating activities was the result of an increase in net income offset by an increase in operating working capital of $16.3 million.
As of December 28, 2012, the Company has a deferred income tax liability of $17.3 million (tax-effected) related to interest deductions taken for tax purposes on its 2004 Notes. The liability is fully deferred and will be paid ratably from fiscal year 2014 to fiscal year 2018 in accordance with the American Recovery and Reinvestment Act of 2009.
Cash Flows from Investing Activities
Net cash used in investing activities was $25.5 million and $57.4 million during the nine months ended December 28, 2012 and December 30, 2011, respectively, and included the following:
| Capital expenditures totaled $16.5 million and $15.6 million during the nine months ended December 28, 2012 and December 30, 2011, respectively, of which approximately $12.7 million and $12.9 million, respectively, related primarily to the development and enhancement of the Companys ERP and supply chain systems, electronic commerce platforms, and internal productivity software. Capital expenditures related to distribution center expansions and enhancements were approximately $1.6 million and $0.9 million during the nine months ended December 28, 2012 and December 30, 2011, respectively. |
| Payments for business acquisitions, net of cash acquired, were $73.6 million and $16.8 million during the nine months ended December 28, 2012 and December 30, 2011, respectively. See Footnote 2, Purchase Business Combinations, for additional information. |
38
Cash Flows from Financing Activities
Net cash used in financing activities was $8.0 million and $5.4 million during the nine months ended December 28, 2012 and December 30, 2011, respectively, and was impacted by the following factors:
| The Company repurchased approximately 0.4 million shares of common stock at an average price of $20.27 per common share for approximately $7.8 million, during the nine months ended December 28, 2012. The Company repurchased approximately 4.6 million shares of common stock at an average price of $25.30 per common share for approximately $115.8 million, during the nine months ended December 30, 2011. |
| The Company recognized excess tax benefits from stock-based compensation arrangements of approximately $0.4 million and $1.4 million during the nine months ended December 28, 2012 and December 30, 2011, respectively. |
| The Company paid debt issuance costs of approximately $0.7 million and $1.8 million during the nine months ended December 28, 2012 and December 30, 2011, respectively. |
| The Company did not borrow on its RLOC during the nine months ended December 28, 2012. The Company borrowed $325.8 million and repaid $209.5 million on its RLOC resulting in an outstanding balance of $116.3 million as of December 30, 2011. |
| There were no contingent consideration payments made during the nine months ended December 28, 2012. The Company paid $4.0 million in contingent consideration during the nine months ended December 30, 2011 related to an earn-out from a prior period acquisition. |
Capital Resources
The Company closely monitors the capital and credit markets. While market conditions have improved, volatility remains that may restrict access to capital and the costs associated with issuing or refinancing debt may increase relative to the Companys current position. While the Company believes it is well positioned, there can be no guarantee the recent disruptions in the overall economy and the financial markets will not adversely impact the business and results of operations.
The Company finances its business through cash from operating activities, the proceeds from the 2012 Notes and 2008 Notes offerings, and the $300.0 million RLOC. The ability to generate sufficient cash from operating activities is dependent on the continued demand for the Companys products and services and its access to those products and services from suppliers. The Companys capital structure provides the financial resources to support the Companys core business strategies and revenue growth. The RLOC, which is an asset-based agreement, is collateralized by the Companys accounts receivable and inventory. The Companys long-term priorities for use of its capital include programs to grow sales, make fold-in and strategic acquisitions, and repurchase its common stock.
As the Companys business grows, its cash and working capital requirements are expected to increase. The Company expects the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the RLOC, proceeds from the issuance of its 2012 Notes, capital markets, and/or other financing arrangements.
On May 8, 2012, the Companys Board of Directors approved a strategic restructuring plan. The restructuring plan was designed to include the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. The sale of the businesses were expected to increase the Companys available cash balances, while reducing the Companys assets used to calculate its borrowing base under the RLOC. On November 5, 2012, the Company completed the sale of its specialty dental distribution business. If the merger with McKesson should not be completed, the Company estimates availability under the RLOC would be approximately $210.2 million as of December 28, 2012 as adjusted for the assumed sale of the business serving skilled nursing facilities.
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As of December 28, 2012, the Company has not entered into any material working capital commitments that require funding, other than the items discussed below and the obligations included in the future contractual obligations table included in the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2012.
Based on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors, the Company may seek to retire a portion of its outstanding equity through cash purchases and/or reduce its debt. The Company may also seek to issue additional equity or debt to meet its future liquidity requirements. Such transactions may occur in the open market, privately negotiated transactions, or otherwise. The amounts involved could be material.
Reclassification of the 2008 Notes
The 2008 Notes will be convertible into cash up to the principal amount of the notes and shares of the Companys common stock for any conversion value in excess of the principal amount under certain circumstances. The ability of note holders to convert is assessed on a quarterly basis. Conversion is triggered during any calendar quarter in which the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 130% of the applicable conversion price of $21.22 per share (Contingent Conversion Trigger). The Contingent Conversion Trigger was met during the three months ended December 28, 2012 and the notes may be converted into cash and common stock. As of December 28, 2012, the if-converted value exceeded the principal amount of the 2008 Notes by $83.0 million. Accordingly, the Company reclassified the net book value of the 2008 Notes from Long-term debt, excluding current portion to Current portion of long-term debt on the Unaudited Condensed Consolidated Balance Sheets.
Convertible Note Hedge Transactions
In connection with the offering of the 2008 Notes, the Company also entered into convertible note hedge transactions with respect to its common stock (the purchased options) with a major financial institution (the counterparty). The Company paid an aggregate amount of $54.1 million to the counterparty for the purchased options. The purchased options cover, subject to anti-dilution adjustments substantially identical to those in the notes, approximately 10.8 million shares of common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to adjustment, and are exercisable at each conversion date of the notes. The purchased options will expire upon the earlier of (i) the last day the notes remain outstanding or (ii) the second scheduled trading day immediately preceding the maturity date of the notes.
The purchased options are intended to reduce the potential dilution upon conversion of the notes in the event that the market value per share of the common stock, as measured under the notes, at the time of exercise is greater than the conversion price of the notes.
The purchased options are separate transactions, entered into by the Company with the counterparty, and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the purchased options.
Warrant Transactions
The Company also entered into warrant transactions (the warrants), whereby the Company sold to the counterparty warrants in an aggregate amount of $25.4 million to acquire, subject to anti-dilution adjustments, up to 10.8 million shares of common stock at a strike price of $28.29 per share of common stock, also subject to adjustment. The warrants will expire after the purchased options in approximately ratable portions on a series of expiration dates commencing on November 3, 2014.
The warrants are separate transactions, entered into by the Company with the counterparties, and are not part of the terms of the 2008 Notes. Holders of the 2008 Notes do not have any rights with respect to the warrants.
The combination of the purchased options and warrants will generally have the effect of increasing the conversion price of the 2008 Notes to approximately $28.29 per share, representing a 68.5% premium based on the closing sale price of the Companys common stock of $16.79 per share on August 4, 2008.
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Impact on Diluted Weighted Average Shares
In accordance with ASC 260, Earnings Per Share, and the Companys stated policy of settling the principal amount in cash, the Company was required to include shares underlying the 2008 Notes in its diluted weighted average shares outstanding since the average stock price per share for the period exceeded $21.22 (the conversion price for the senior convertible notes). Only the number of shares that would be issuable under the treasury stock method of accounting for share dilution was included, which was based upon the amount by which the average stock price exceeded the conversion price. If the average stock price of the Companys common stock exceeds $28.29 per share as outlined in the terms of the agreement, it will also include the effect of the additional potential shares that may be issued related to the warrants, which may negatively impact the Companys diluted weighted average shares and diluted earnings per share.
The purchased options are not included in the calculation of diluted earnings per share prior to the conversion of the 2008 Notes, as their effect is considered anti-dilutive. As of December 28, 2012, the purchased options were in the money and would have been convertible into approximately 3.0 million shares of the Companys common stock. The exercise of the purchased options is restricted to each conversion date of the 2008 Notes.
Change in Control
If a change in control of the Company occurs, as discussed in Footnote 3, Discontinued Operations and Plan of Merger, each holder of the 2012 Notes will have the right to require the Company to repurchase all or part of their outstanding notes for cash at 101% of the aggregate principal amount of the securities repurchased plus accrued and unpaid interest. On January 25, 2013, the Company provided a conditional notice to the holders of the 2012 Notes that the Company has elected to redeem all of the 2012 Notes outstanding on February 25, 2013 (the Redemption Date). On the Redemption Date, the 2012 Notes will be redeemed at a redemption price equal to 100% of the principal amount plus a redemption premium and accrued and unpaid interest. The redemption is contingent upon the completion of the merger with McKesson.
Additionally, upon the occurrence of a change in control, each holder of the 2008 Notes will have the opportunity to exchange all or part of their outstanding notes for cash at a price determined under the related indenture. On February 1, 2013, the Company provided notice to the holders of the 2008 Notes that the planned merger with McKesson would constitute a fundamental change as defined by the related indenture, and that on or around the date of the planned merger, the holders of common stock of the Company shall be entitled to receive consideration for each share of common stock owned. This entitlement is contingent upon the completion of the merger with McKesson.
If a change in control occurs, (i) all outstanding options shall become fully exercisable, (ii) time-based vesting restrictions on all outstanding awards shall lapse, and (iii) the target payout opportunities attainable under all outstanding performance-based awards shall be deemed to have been fully earned as of the date of the change in control based upon an assumed achievement of all relevant performance goals at the target level.
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Future Contractual Obligations
In the normal course of business, the Company enters into obligations and commitments that require future contractual payments. The following table presents scheduled payments under contractual obligations for the Company:
Fiscal Years | ||||||||||||||||||||||||||||
(in thousands) | 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | |||||||||||||||||||||
Revolving line of credit(a) |
$ | 188 | $ | 750 | $ | 750 | $ | 750 | $ | 468 | $ | | $ | 2,906 | ||||||||||||||
Senior unsecured notes(b) |
7,969 | 15,938 | 15,938 | 15,938 | 15,938 | 281,873 | 353,594 | |||||||||||||||||||||
Convertible senior notes(b), (c) |
244,375 | | | | | | 244,375 | |||||||||||||||||||||
Operating lease obligations(d) |
6,541 | 22,277 | 14,047 | 7,974 | 4,356 | 4,656 | 59,851 | |||||||||||||||||||||
Purchase commitments(e) |
131 | | | | | | 131 | |||||||||||||||||||||
Obligations from acquisitions(f) |
35 | 7,638 | 1,187 | | | | 8,860 | |||||||||||||||||||||
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Total(g) |
$ | 259,239 | $ | 46,603 | $ | 31,922 | $ | 24,662 | $ | 20,762 | $ | 286,529 | $ | 669,717 | ||||||||||||||
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(a) | Amounts represent payments for interest and borrowings on the revolving line of credit, which expires on November 16, 2016. |
(b) | Amounts include interest expense. |
(c) | Under the terms of the convertible note agreement, the notes are convertible during any calendar quarter in which the closing price of the Companys stock for a certain number of days is greater than $27.59 per share. The Contingent Conversion Trigger was met during the nine months ended December 28, 2012 and the notes may be converted into cash and common stock. The Company reclassified the net book value of the 2008 Notes from Long-term debt, excluding current portion to Current portion of long-term debt on the Unaudited Condensed Consolidated Balance Sheets. See Footnote 8, Debt, for further information regarding the 2008 Notes. |
(d) | Amounts represent contractual obligations for operating leases of the Company as of December 28, 2012. Currently, it is managements intent to either renegotiate existing leases or execute new leases prior to or upon their expiration date of such agreements. |
(e) | Amounts represent estimated obligations to be paid related to various shipping contracts and future purchases of certain vaccines. If a supply agreement for store brand products were to be terminated, then the Company may be required to purchase from the vendor all remaining finished and unfinished products and product-materials held by the vendor. As of December 28, 2012, the Company had no material obligation to purchase remaining products or materials due to a termination of a supply agreement with a vendor who supplies store brand products to the Company. |
(f) | Amounts represent estimated obligations to be paid to sellers of previously acquired businesses for contingent consideration, interest, and funds held to secure any adjustments or claims that may arise. |
(g) | As of December 28, 2012, the Company had gross unrecognized tax benefits of $1.6 million. This amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement with the respective taxing authorities. Additionally, the Company has a liability of $103.5 million related to a deferred compensation program recorded in Other noncurrent liabilities on the Unaudited Condensed Consolidated Balance Sheets. The amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement and the liability is offset by the cash surrender value of corporate-owned life insurance policies recorded in Other assets on the Unaudited Condensed Consolidated Balance Sheets. |
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
Critical Accounting Estimates are disclosed in the Annual Report on Form 10-K for the fiscal year ended March 30, 2012 filed on May 29, 2012 under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations. There have been no material changes in the Companys Critical Accounting Estimates, as disclosed in the Annual Report.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued amended guidance to simplify how entities test indefinite-lived intangible assets for impairment. The objective of the amendments in this Accounting Standards Update (ASU) is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. This ASU permits an entity to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after September 15, 2012, or the Companys fiscal year 2014. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this update.
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During the nine months ended December 28, 2012, the Company adopted an ASU that provides new guidance on the presentation of comprehensive income and requires changes in stockholders equity to be presented either (i) in a single continuous statement of comprehensive income, or (ii) in two separate consecutive statements. The ASU requires retrospective application. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The adoption of this standard did not have an effect on the Companys statements of financial condition or results of operations, as the Company has no other comprehensive income items to disclose.
During the nine months ended December 28, 2012, the Company adopted an ASU that amends guidance to simplify the method in which entities test goodwill for impairment. This ASU allows an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Additional disclosure is required by this update, including an explanation of qualitative factors used in the goodwill analysis. The adoption of this standard did not have an effect on the Companys statements of financial condition or results of operations.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company believes there has been no material change in its exposure to market risk from that discussed in Item 7A in the Annual Report on Form 10-K for the fiscal year ended March 30, 2012 filed on May 29, 2012.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 240.15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report (the Evaluation Date). Based on the evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is accumulated and communicated to the Companys management, including the Companys Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting that occurred during the nine months ended December 28, 2012 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
On December 5, 2012, a putative class action complaint was filed on behalf of an alleged public stockholder of PSS. The lawsuit, Baltimore County Employees Retirement System v. Gary A. Corless, et al., Case No. 16-2012-CA-013015-XXXX-MA, was filed in the Circuit Court of the Fourth Judicial Circuit in and for Duval County, Florida. See Footnote 13, Commitments and Contingencies, for additional information.
ITEM 1A. | RISK FACTORS |
In addition to the other information set forth in this Quarterly Report on Form 10-Q, investors should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2012, filed on May 29, 2012. Such factors could have a material adverse effect on
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the Companys financial position, results of operations, or cash flows. The Company has potential exposure to risks other than those described in the Companys Annual Report on Form 10-K. Additional risks and uncertainties not currently known to management, or risks that management currently deem to be immaterial, could have a material adverse effect on the Companys financial position, results of operations, or cash flows.
The Company believes there have been no material changes from the risk factors disclosed in Part I, Item 1A, Risk Factors, in the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2012, other than those noted below:
Risks Related to the Planned Merger:
The merger with McKesson Corporation is subject to customary closing conditions.
The merger with McKesson Corporation is subject to customary closing conditions, including the approval of the Companys shareholders. The timing of the merger is subject to factors beyond the Companys control. While the Company expects to complete the merger shortly following a special shareholder meeting, the merger may not be completed by such time or at all.
Failure to complete the merger could negatively impact the market price of the Companys common stock and the Companys future business and financial results.
Failure to complete the merger with McKesson Corporation could negatively impact the market price of the Companys common stock to the extent that the current market price reflects an assumption that the merger will be completed. In addition, such failure could negatively impact the Companys future business and financial results because of, among other things, the disruption that could occur as a result of uncertainties relating to a failure to complete the merger and the potential inability to recover certain transaction costs related to the merger. In addition, the attention of the Companys management will have been diverted to the merger instead of the Companys operations and pursuit of other opportunities that could have been beneficial to the Company.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Sales and Purchases of Equity Securities
The Company repurchases its common stock under a stock repurchase program authorized by the Companys Board of Directors. As of March 30, 2012, there were 0.4 million shares available for repurchase under the existing stock repurchase program. These shares may be purchased in the open market, in privately negotiated transactions, or otherwise. The share repurchase program does not have an expiration date.
The following table summarizes the Companys repurchase activity during the three months ended December 28, 2012:
Period |
Total Number of Shares Purchased (a) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May yet be Purchased Under the Plans or Programs |
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September 29 - October 28 |
2,876 | $ | 21.60 | 2,876 | 52,281 | |||||||||||
October 29 - November 28 |
| | | 52,281 | ||||||||||||
November 29 - December 28 |
| | | 52,281 | ||||||||||||
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Total third quarter |
2,876 | $ | 21.60 | 2,876 | 52,281 | |||||||||||
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(a) | Includes shares repurchased for net share settlement of employee share-based awards. |
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ITEM 6. | EXHIBITS |
(a) | Exhibits required by Item 601 of Regulation S-K: |
Exhibit Number |
Description | |
10.2a* | Termination Amendment to the PSS World Medical, Inc. Employee Stock Purchase Plan. | |
10.8a* | December 2012 Amendment to the Conformed Amended and Restated Savings Plan. | |
10.8b* | January 2013 Amendment to the Conformed Amended and Restated Savings Plan. | |
31.1 | Rule 13a-14(a) Certification of the Chief Executive Officer. | |
31.2 | Rule 13a-14(a) Certification of the Chief Financial Officer. | |
32.1 | Section 1350 Certification of the Chief Executive Officer. | |
32.2 | Section 1350 Certification of the Chief Financial Officer. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Represents a management contract or compensatory plan or arrangement. |
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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 February 6, 2013.
PSS WORLD MEDICAL, INC. | ||
By: | /s/ David M. Bronson | |
David M. Bronson | ||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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Exhibit 10.2a
TERMINATION AMENDMENT
TO THE
PSS WORLD MEDICAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
(formerly known as the
Physician Sales & Service, Inc. Employee Stock Purchase Plan)
This Termination Amendment to the PSS World Medical, Inc. Employee Stock Purchase Plan (formerly known as the Physician Sales & Service, Inc. Employee Stock Purchase Plan) is adopted by PSS World Medical, Inc. (the Company), effective as of October 31, 2012.
W I T N E S S E T H
WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Employee Stock Purchase Plan (the Plan); and
WHEREAS, Section 12.05 of the Plan authorizes and empowers the Board of Directors of the Company to amend or terminate the Plan at any time; and
WHEREAS, the Company desires to terminate the Plan so that no further Offering periods shall be offered under the Plan after October 31, 2012; and
WHEREAS, in accordance with the terms of the Plan, this termination shall not adversely affect the rights of any Participant with an option under the Plan to purchase Common Stock, without the consent of the Participant.
NOW, THEREFORE, effective as of 11:59 p.m. on October 31, 2012, the Plan is hereby terminated and amended as follows:
1. Section 2.04, Offering Commencement Date, shall be amended by the addition of a new sentence added to the end thereof, which shall read as follows:
Effective October 31, 2012, there shall be no further Offering Commencement Dates under the Plan.
2. Section 2.05, Offering Termination Date, shall be amended by the addition of a new sentence added to the end thereof, which shall read as follows:
The final Offering Termination Date under the Plan shall be October 31, 2012.
3. Section 3.01, Initial Eligibility, shall be amended by the addition of a new sentence added to the end thereof, which shall read as follows:
Effective October 31, 2012, no new Employees shall be permitted to commence participation under the Plan.
4. Section 4.01, Offerings, shall be amended by the addition of a new sentence added to the end thereof, which shall read as follows:
Effective October 31, 2012, there shall be no further monthly Offerings made under the Plan.
IN WITNESS WHEREOF, this Termination Amendment is effective as of the date set forth above.
PSS WORLD MEDICAL, INC. | ||||||||
By: | /s/ David D. Klarner | |||||||
Dated: | October 31, 2012 |
Its: | Senior Vice President and Treasurer |
2
Exhibit 10.8a
DECEMBER 2012 AMENDMENT
TO THE
PSS WORLD MEDICAL, INC. SAVINGS PLAN
This December 2012 Amendment (the Amendment) to the PSS World Medical, Inc. Savings Plan is made and entered into by PSS World Medical, Inc. (the Company), this 31st day of December 2012, and is effective as of January 1, 2013.
WITNESSETH:
WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Savings Plan (the Plan); and
WHEREAS, the Company is authorized and empowered to amend the Plan; and
WHEREAS, the Company desires to amend the Plan to include the name of an additional employer recently acquired by the Company as an Employer within the meaning of the Plan and to amend the Plan to credit Participants years of service with such employer as Years of Service under the Plan.
NOW, THEREFORE, the Plan shall be amended as follows:
1. Section 1.28 of the Plan shall be amended in its entirety to read as follows:
1.28 Employer shall mean the Company, Gulf South Medical Supply, Inc., PSS Service, Inc., World Med Shared Services, Inc., Physician Sales & Service, Inc., Physician Sales & Service Limited Partnership, Proclaim, Inc., PSS Holding, Inc., Ancillary Management Solutions, Inc., Cascade Medical Supply, ThriftyMed, Inc., ClaimOne, LLC, Dispensing Solutions, Inc., Linear Medical Solutions, LLC, Southeast Medical Solutions RX, LLC (formerly Stat RX USA), LLC, BottomLine Medical Solutions, LLC, Theratech, Inc., Standard Medical Supply, Inc., Keltman Pharmaceutical, Inc., Federal Medical Supply, Inc., Blue Medical Supply, Inc., Xcel Supply, LLC, Professional Laboratory Systems, Inc., Rebel Distributors Corporation, Infolabs, LLC, Shenandoah Medical Supply, Inc., Select Rx, LLC and any other subsidiary, related corporation, or other entity that adopts this Plan with the consent of the Company.
2. Section 1.71 of the Plan shall be amended by the addition of a new subparagraph (s), which shall read in its entirety as follows:
(s) For each Employee who was employed by Select Rx, LLC on November 30, 2012, such Employees Years of Service shall include, for all purposes of the Plan, service with Select Rx, LLC and each of its subsidiaries.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date set forth hereinabove. All of the provisions of the Plan not specifically mentioned in this Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this Amendment.
PSS WORLD MEDICAL, INC. | ||
By: | /s/ David D. Klarner | |
Its: | Senior Vice President and Treasurer |
Exhibit 10.8b
JANUARY 2013 AMENDMENT
TO THE
PSS WORLD MEDICAL, INC. SAVINGS PLAN
This January 2013 Amendment (the Amendment) to the PSS World Medical, Inc. Savings Plan is made and entered into by PSS World Medical, Inc. (the Company), this 22nd day of January 2013, and is effective as of February 1, 2013.
WITNESSETH:
WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Savings Plan (the Plan); and
WHEREAS, the Company is authorized and empowered to amend the Plan; and
WHEREAS, the Company desires to amend the Plan to include the name of an additional employer recently acquired by the Company as an Employer within the meaning of the Plan and to amend the Plan to credit Participants years of service with such employer as Years of Service under the Plan.
NOW, THEREFORE, the Plan shall be amended as follows:
1. Section 1.28 of the Plan shall be amended in its entirety to read as follows:
1.28 Employer shall mean the Company, Gulf South Medical Supply, Inc., PSS Service, Inc., World Med Shared Services, Inc., Physician Sales & Service, Inc., Physician Sales & Service Limited Partnership, Proclaim, Inc., PSS Holding, Inc., Ancillary Management Solutions, Inc., Cascade Medical Supply, ThriftyMed, Inc., ClaimOne, LLC, Dispensing Solutions, Inc., Linear Medical Solutions, LLC, Southeast Medical Solutions RX, LLC (formerly Stat RX USA), LLC, BottomLine Medical Solutions, LLC, Theratech, Inc., Standard Medical Supply, Inc., Keltman Pharmaceutical, Inc., Federal Medical Supply, Inc., Blue Medical Supply, Inc., Xcel Supply, LLC, Professional Laboratory Systems, Inc., Rebel Distributors Corporation, Infolabs, LLC, Shenandoah Medical Supply, Inc., Select Rx, LLC, Family Care Medical Products, Inc. (dba OneSource Healthcare), and any other subsidiary, related corporation, or other entity that adopts this Plan with the consent of the Company.
2. Section 1.71 of the Plan shall be amended by the addition of a new subparagraph (t), which shall read in its entirety as follows:
(t) For each Employee who was employed by Family Care Medical Products, Inc. (dba OneSource Healthcare) on December 28, 2012, such Employees
Years of Service shall include, for all purposes of the Plan, service with Family Care Medical Products, Inc. (dba OneSource Healthcare) and each of its subsidiaries.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date set forth hereinabove. All of the provisions of the Plan not specifically mentioned in this Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this Amendment.
PSS WORLD MEDICAL, INC. | ||
By: | /s/ David D. Klarner | |
Its: | Senior Vice President and Treasurer |
Exhibit 31.1
CERTIFICATION
I, Gary A. Corless, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of PSS World Medical, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
February 6, 2013
/s/ Gary A. Corless |
Gary A. Corless |
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, David M. Bronson, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of PSS World Medical, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
February 6, 2013
/s/ David M. Bronson |
David M. Bronson |
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary A. Corless, President and Chief Executive Officer of PSS World Medical, Inc. (the Company), hereby certify that the Companys Quarterly Report on Form 10-Q for the three months ended December 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Gary A. Corless |
Gary A. Corless |
President and Chief Executive Officer |
February 6, 2013
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David M. Bronson, Executive Vice President and Chief Financial Officer of PSS World Medical, Inc. (the Company), hereby certify that the Companys Quarterly Report on Form 10-Q for the three months ended December 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ David M. Bronson |
David M. Bronson |
Executive Vice President and Chief Financial Officer |
February 6, 2013
Debt (Details) (USD $)
|
9 Months Ended | 0 Months Ended | 9 Months Ended | 0 Months Ended | 9 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 28, 2012
|
Mar. 30, 2012
|
Feb. 24, 2012
|
Aug. 04, 2008
|
Dec. 28, 2012
Revolving Line of Credit [Member]
|
Mar. 30, 2012
Revolving Line of Credit [Member]
|
Dec. 28, 2012
Revolving Line of Credit [Member]
Operation Or Asset Disposal [Member]
|
Feb. 24, 2012
2012 Notes [Member]
|
Dec. 28, 2012
2012 Notes [Member]
|
Mar. 30, 2012
2012 Notes [Member]
|
Aug. 04, 2008
2008 Notes [Member]
|
Dec. 28, 2012
2008 Notes [Member]
|
Mar. 30, 2012
2008 Notes [Member]
|
|||||
Debt Instrument [Line Items] | |||||||||||||||||
Debt, long-term and short-term, combined amount, total | $ 462,387,000 | $ 454,916,000 | $ 250,000,000 | $ 250,000,000 | $ 212,387,000 | $ 204,916,000 | |||||||||||
Less: Current portion of long-term debt | 212,387,000 | 0 | |||||||||||||||
Long-term debt | 250,000,000 | 454,916,000 | |||||||||||||||
Debt Instruments [Abstract] | |||||||||||||||||
Debt instrument, description | On February 24, 2012, the Company issued $250.0 million aggregate principal 6.375% senior notes, which mature on March 1, 2022 (the “2012 Notes”). Interest on the notes is payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2012. The 2012 Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company’s domestic subsidiaries (the “Guarantor Subsidiaries”). Refer to Footnote 14, Condensed Consolidating Financial Information, for further information regarding the Guarantor Subsidiaries. | In August 2008, the Company issued $230.0 million principal amount 3.125% senior convertible notes, which mature on August 1, 2014 (the “2008 Notes”). Interest on the notes is payable semi-annually in arrears on February 1 and August 1 of each year. The notes will be convertible into cash up to the principal amount of the notes and shares of the Company’s common stock for any conversion value in excess of the principal amount under certain circumstances. The ability of note holders to convert is assessed on a quarterly basis. Conversion may be triggered during any calendar quarter in which the closing sale price of the Company’s common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than $27.59 per share or, as defined, 130% of the applicable conversion price of $21.22 per share (“Contingent Conversion Trigger”). | |||||||||||||||
Stated interest rate | 6.375% | 3.125% | |||||||||||||||
Payment terms, interest | Interest on the notes is payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2012. | Interest on the notes is payable semi-annually in arrears on February 1 and August 1 of each year. | |||||||||||||||
Frequency of periodic payment, interest | semi-annually | semi-annually | |||||||||||||||
Date of first required payment, interestst | Sep. 01, 2012 | ||||||||||||||||
Terms of conversion feature | The notes will be convertible into cash up to the principal amount of the notes and shares of the Company’s common stock for any conversion value in excess of the principal amount under certain circumstances. The ability of note holders to convert is assessed on a quarterly basis. Conversion may be triggered during any calendar quarter in which the closing sale price of the Company’s common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than $27.59 per share or, as defined, 130% of the applicable conversion price of $21.22 per share (“Contingent Conversion Trigger”). | ||||||||||||||||
Principal balance | 250,000,000 | 230,000,000 | 250,000,000 | 230,000,000 | 230,000,000 | ||||||||||||
Unamortized discount | (17,613,000) | (25,084,000) | |||||||||||||||
Net carrying amount | 212,387,000 | 204,916,000 | |||||||||||||||
Equity component, carrying amount pretax | 55,636,000 | [1] | 55,636,000 | [1] | |||||||||||||
Deferred tax liability related to the issuance of convertible debt | 20,523,000 | ||||||||||||||||
Fair value of unsecured notes | 295,000,000 | 257,500,000 | |||||||||||||||
Fair value of convertible debt | 324,645,000 | 302,174,000 | |||||||||||||||
Value if-converted in excess of principle | 82,976,000 | ||||||||||||||||
Debt instrument, convertible, stock price trigger | $ 27.59 | ||||||||||||||||
Debt instrument, convertible, stock price trigger percentage | 130.00% | ||||||||||||||||
Convertible debt, conversion price | $ 21.22 | $ 21.22 | |||||||||||||||
Line of Credit Facility [Abstract] | |||||||||||||||||
Revlolving line of credit, description | The Company maintains an asset-based revolving line of credit (the “RLOC”) under a credit agreement (the “Credit Agreement”) with the following features and key terms: (i) a five-year term, maturing on November 16, 2016; (ii) a facility size of $300.0 million, with increased borrowing capacity of up to $100.0 million via an accordion feature; and (iii) conditional covenants based on the Company’s borrowing availability and fixed charge coverage ratio requirements. Availability depends on a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements, and certain other reserves. Borrowings under the RLOC bear interest at the bank’s base rate or at LIBOR plus applicable margins. Additionally, the RLOC incurs fees at a fixed rate of 0.25% for any unused portion of the facility. | ||||||||||||||||
Term, period | five-year term | ||||||||||||||||
Maturity date | Nov. 16, 2016 | ||||||||||||||||
Maximum borrowing capacity | 300,000,000 | ||||||||||||||||
Additional borrowing capacity available via accordian feature | 100,000,000 | ||||||||||||||||
Fixed interest rate on unused portion of the facility | 0.25% | ||||||||||||||||
Covenant terms | Under the RLOC, the Company and certain of its subsidiaries are subject to certain covenants, including but not limited to, limitations on: (i) selling or transferring assets, (ii) making certain permitted investments, and (iii) incurring additional indebtedness and liens. However, these covenants may not apply if the Company maintains sufficient Availability under the credit facility and satisfies fixed charge coverage ratios. | ||||||||||||||||
Outstanding borrowings | 0 | 0 | |||||||||||||||
Remaining borrowing capacity | $ 279,500,000 | $ 210,200,000 | |||||||||||||||
Average daily interest rate, excluding debt issuance costs and unused line fees | 0.00% | ||||||||||||||||
|
Purchase Business Combinations (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 28, 2012
|
Dec. 30, 2011
|
Dec. 28, 2012
|
Dec. 30, 2011
|
Mar. 30, 2012
|
||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||||||
Cash received working capital adjustment | $ 450 | $ 450 | ||||||||||||||||||
Cash paid working capital adjustment | 2,075 | 2,075 | ||||||||||||||||||
Payment of contingent consideration on business acquisitions | 0 | 4,000 | ||||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||||
Assets held for sale | 252,420 | [1] | 252,420 | [1] | 277,378 | [1] | ||||||||||||||
Liabilities held for sale | (40,516) | [1] | (40,516) | [1] | (37,640) | [1] | ||||||||||||||
Business Acquisition, Pro Forma Information [Abstract] | ||||||||||||||||||||
Net sales | 433,912 | 394,203 | 1,264,099 | 1,166,404 | ||||||||||||||||
Total pro forma net sales | 435,621 | 425,403 | 1,282,611 | 1,257,489 | ||||||||||||||||
Net income | 38,720 | 20,132 | 64,734 | 54,353 | ||||||||||||||||
Total pro forma net income | 38,741 | 20,799 | 64,874 | 56,162 | ||||||||||||||||
Pro forma earnings per share, basic | $ 0.78 | $ 0.41 | $ 1.31 | $ 1.07 | ||||||||||||||||
Pro forma earnings per share, diluted | $ 0.74 | $ 0.40 | $ 1.28 | $ 1.03 | ||||||||||||||||
2013 Acquisitions [Member]
|
||||||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||||||
Net sales since respective acquisition dates | 65,619 | |||||||||||||||||||
Combined purchase price | 78,497 | 78,497 | ||||||||||||||||||
Amount of payments for business acquisitions held in escrow | 3,900 | 3,900 | ||||||||||||||||||
Amount of payments for business acquisitions held by the Company | 6,550 | 6,550 | ||||||||||||||||||
Amount of goodwill acquired that is tax deductible | 33,676 | 33,676 | ||||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||||
Current assets | 20,221 | [2] | 20,221 | [2] | 21,057 | |||||||||||||||
Assets held for sale | 0 | 0 | 0 | |||||||||||||||||
Goodwill | 33,676 | 33,676 | 36,971 | |||||||||||||||||
Intangible assets | 25,810 | 25,810 | 21,780 | |||||||||||||||||
Noncurrent assets | 4,756 | [3] | 4,756 | [3] | 4,756 | |||||||||||||||
Accounts payable and other current liabilities | (6,372) | (6,372) | (6,067) | |||||||||||||||||
Liabilities held for sale | 0 | 0 | 0 | |||||||||||||||||
Noncurrent liabilities | 0 | [4] | 0 | [4] | 0 | |||||||||||||||
Net assets acquired | 78,091 | 78,091 | 78,497 | |||||||||||||||||
Accounts receivable | 11,388 | 11,388 | ||||||||||||||||||
Inventory | 8,225 | 8,225 | ||||||||||||||||||
Other current assets | 608 | 608 | ||||||||||||||||||
Property and equipment | 4,721 | 4,721 | ||||||||||||||||||
Other noncurrent assets | 35 | 35 | ||||||||||||||||||
Business Acquisition, Pro Forma Information [Abstract] | ||||||||||||||||||||
Net sales | 1,709 | [5] | 31,200 | [5] | ||||||||||||||||
Net income | 21 | [5] | 667 | [5] | ||||||||||||||||
2013 Acquisitions [Member] | Purchase Price Allocation Adjustments [Member]
|
||||||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||||
Current assets | (836) | (836) | ||||||||||||||||||
Assets held for sale | 0 | 0 | ||||||||||||||||||
Goodwill | (3,295) | (3,295) | ||||||||||||||||||
Intangible assets | 4,030 | 4,030 | ||||||||||||||||||
Noncurrent assets | 0 | 0 | ||||||||||||||||||
Accounts payable and other current liabilities | (305) | (305) | ||||||||||||||||||
Liabilities held for sale | 0 | 0 | ||||||||||||||||||
Noncurrent liabilities | 0 | 0 | ||||||||||||||||||
Net assets acquired | (406) | (406) | ||||||||||||||||||
2012 Acquisitions [Member]
|
||||||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||||
Current assets | 6,939 | [2] | 6,939 | [2] | 7,188 | |||||||||||||||
Assets held for sale | 40,645 | 40,645 | 40,570 | |||||||||||||||||
Goodwill | 22,917 | 22,917 | 22,574 | |||||||||||||||||
Intangible assets | 10,020 | 10,020 | 10,020 | |||||||||||||||||
Noncurrent assets | 4,741 | [3] | 4,741 | [3] | 4,741 | |||||||||||||||
Accounts payable and other current liabilities | (3,322) | (3,322) | (3,297) | |||||||||||||||||
Liabilities held for sale | (11,755) | (11,755) | (11,755) | |||||||||||||||||
Noncurrent liabilities | (406) | [4] | (406) | [4] | (406) | |||||||||||||||
Net assets acquired | 69,779 | 69,779 | 69,635 | |||||||||||||||||
Accounts receivable | 3,765 | 3,765 | ||||||||||||||||||
Inventory | 1,603 | 1,603 | ||||||||||||||||||
Current deferred income taxes | 675 | 675 | ||||||||||||||||||
Other current assets | 896 | 896 | ||||||||||||||||||
Property and equipment | 40 | 40 | ||||||||||||||||||
Other noncurrent assets | 4,701 | 4,701 | ||||||||||||||||||
Noncurrent deferred tax liabilities | 380 | 380 | ||||||||||||||||||
Other noncurrent liabilities | 26 | 26 | ||||||||||||||||||
Business Acquisition, Pro Forma Information [Abstract] | ||||||||||||||||||||
Net sales | 18,512 | [5] | 91,085 | [5] | ||||||||||||||||
Net income | 140 | [5] | 1,809 | [5] | ||||||||||||||||
2012 Acquisitions [Member] | Purchase Price Allocation Adjustments [Member]
|
||||||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||||
Current assets | (249) | (249) | ||||||||||||||||||
Assets held for sale | 75 | 75 | ||||||||||||||||||
Goodwill | 343 | 343 | ||||||||||||||||||
Intangible assets | 0 | 0 | ||||||||||||||||||
Noncurrent assets | 0 | 0 | ||||||||||||||||||
Accounts payable and other current liabilities | (25) | (25) | ||||||||||||||||||
Liabilities held for sale | 0 | 0 | ||||||||||||||||||
Noncurrent liabilities | 0 | 0 | ||||||||||||||||||
Net assets acquired | $ 144 | $ 144 | ||||||||||||||||||
|
Incentive and Stock-Based Compensation (Tables)
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 28, 2012
|
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Incentive And Stock-based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Compensation, Activity [Table Text Block] |
|
Segment Information (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 28, 2012
|
Dec. 30, 2011
|
Dec. 28, 2012
|
Dec. 30, 2011
|
Mar. 30, 2012
|
||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | $ 433,912 | $ 394,203 | $ 1,264,099 | $ 1,166,404 | ||||||
Income (loss) from operations | 24,007 | 27,938 | 72,232 | 77,949 | ||||||
Interest expense | (8,778) | (4,784) | (25,820) | (13,864) | ||||||
Interest Income | 16 | 15 | 43 | 59 | ||||||
Other income, net | 415 | 596 | 1,138 | 1,564 | ||||||
Income from continuing operations before provision for income taxes | 15,660 | 23,765 | 47,593 | 65,708 | ||||||
Depreciation and Amortization | 8,312 | 7,150 | 24,079 | 20,827 | ||||||
Total assets | 1,306,816 | [1] | 1,306,816 | [1] | 1,155,970 | [1] | ||||
Physician [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | 255,066 | 248,862 | 765,915 | 745,934 | ||||||
Income (loss) from operations | 25,693 | 23,936 | 69,026 | 68,701 | ||||||
Depreciation and Amortization | 2,582 | 2,501 | 7,885 | 7,342 | ||||||
Laboratory [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | 135,597 | 96,434 | 356,775 | 280,383 | ||||||
Income (loss) from operations | 13,295 | 9,838 | 32,626 | 28,265 | ||||||
Depreciation and Amortization | 773 | 381 | 2,097 | 1,113 | ||||||
Dispensing [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | 21,231 | 22,695 | 67,630 | 61,921 | ||||||
Income (loss) from operations | (1,211) | 2,740 | (379) | 5,372 | ||||||
Depreciation and Amortization | 1,928 | 1,216 | 5,060 | 3,381 | ||||||
Home Care & Hospice [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | 21,652 | 25,773 | 72,776 | 76,631 | ||||||
Income (loss) from operations | 2,348 | 2,430 | 6,956 | 7,637 | ||||||
Depreciation and Amortization | 215 | 257 | 645 | 763 | ||||||
Operating Segments [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Total assets | 741,489 | 741,489 | 610,859 | |||||||
Shared Services [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Net sales | 366 | 439 | 1,003 | 1,535 | ||||||
Income (loss) from operations | (16,118) | (11,006) | (35,997) | (32,026) | ||||||
Depreciation and Amortization | 2,814 | 2,795 | 8,392 | 8,228 | ||||||
Total assets | 312,907 | 312,907 | 267,733 | |||||||
Assets Held For Sale [Member]
|
||||||||||
Segment Reporting Information [Line Items] | ||||||||||
Total assets | $ 252,420 | $ 252,420 | $ 277,378 | |||||||
|
Accrued Expenses (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 28, 2012
|
Mar. 30, 2012
|
||||
---|---|---|---|---|---|---|
Accrued Liabilities, Current [Abstract] | ||||||
Accrued payroll | $ 23,796 | $ 14,913 | ||||
Accrued interest | 8,227 | 2,565 | ||||
Accrued annual incentive compensation | 5,318 | 1,184 | ||||
Other | 18,551 | [1] | 18,774 | [1] | ||
Accrued expenses | $ 55,892 | $ 37,436 | ||||
|
Variable Interest Entity
|
9 Months Ended |
---|---|
Dec. 28, 2012
|
|
Variable Interest Entity [Abstract] | |
VARIABLE INTEREST ENTITY | On June 25, 2010, the Company entered into an agreement with Pathway Health Services, Inc. (“Pathway”), a consulting services company within the extended care market, under which the Company purchased a $3,300 convertible note issued by Pathway. The note may be converted, at the Company's discretion, into 73% of Pathway's common stock. The Company also acquired a call option and issued a put option for Pathway's common stock, both of which may be exercised if certain sales thresholds are met and time restrictions lapse. Under the agreement, the Company obtained a majority of seats and control of Pathway's Board of Directors. The convertible note is considered a variable interest and the Company was determined to be the primary beneficiary of Pathway. The Company has consolidated Pathway under the purchase method of accounting and recorded noncontrolling interest under current accounting guidance for consolidations. The consolidated assets and liabilities, operating results and cash flows of Pathway are not considered significant to the Company's financial position, operating results, or cash flows. Pathway's assets cannot be used to settle the Company's obligations and Pathway's creditors have no recourse to the general credit of the Company. On May 8, 2012, the Company's Board of Directors approved a strategic restructuring plan which included the sale of two business units serving skilled nursing facilities and specialty dental practices. The Company's variable interest in Pathway has been included in the disposal group as part of the restructuring plan. See Footnote 3, Discontinued Operations and Plan of Merger, for additional information on the Company's fiscal year 2013 strategic restructuring plan and corresponding discontinued operations. |