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 March 31, 2000
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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 1-9810
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Owens & Minor, Inc.
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(Exact name of Registrant as specified in its charter)
Virginia 54-1701843
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Cox Road, Glen Allen, Virginia 23060
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(Address of principal executive offices) (Zip Code)
Post Office Box 27626, Richmond, Virginia 23261-7626
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(Mailing address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
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The number of shares of Owens & Minor, Inc.'s common stock outstanding as
of April 28, 2000, was 32,835,392 shares.
1
Owens & Minor, Inc. and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
2
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
2000 1999
-------------- --------------
Net sales $ 854,549 $ 741,084
Cost of goods sold 764,781 662,355
----------- -----------
Gross margin 89,768 78,729
----------- -----------
Selling, general and administrative expenses 65,233 58,598
Depreciation and amortization 5,161 4,461
Interest expense, net 3,305 3,096
Discount on accounts receivable securitization 1,859 995
Distributions on mandatorily redeemable
preferred securities 1,774 1,774
----------- -----------
Total expenses 77,332 68,924
----------- -----------
Income before income taxes 12,436 9,805
Income tax provision 5,596 4,314
----------- -----------
Net income $ 6,840 $ 5,491
=========== ===========
Net income per common share-basic $ 0.21 $ 0.17
=========== ===========
Net income per common share-diluted $ 0.20 $ 0.17
=========== ===========
Cash dividends per common share $ 0.06 $ 0.05
=========== ===========
See accompanying notes to consolidated financial statements.
3
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data) March 31, December 31,
2000 1999
----------- ------------
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 552 $ 669
Accounts and notes receivable, net
of allowance of $6,496 and $6,479 207,813 226,927
Merchandise inventories 338,711 342,478
Other current assets 11,287 19,172
---------- -----------
Total current assets 558,363 589,246
Property and equipment, net of accumulated
depreciation of $54,756 and $52,516 24,804 25,877
Goodwill, net of accumulated
amortization of $29,486 and $27,989 209,340 210,837
Other assets, net 41,538 39,040
---------- -----------
Total assets $ 834,045 $ 865,000
========== ===========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 288,875 $ 303,490
Accrued payroll and related liabilities 4,112 6,883
Other accrued liabilities 61,497 59,425
---------- -----------
Total current liabilities 354,484 369,798
Long-term debt 151,333 174,553
Other liabilities 7,525 6,268
---------- -----------
Total liabilities 513,342 550,619
---------- -----------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust, holding
solely convertible debentures of Owens & Minor, Inc. 132,000 132,000
---------- -----------
Shareholders' equity
Preferred stock, par value $100 per share;
authorized - 10,000 shares
Series A; Participating Cumulative
Preferred Stock; none issued - -
Common stock, par value $2 per share;
authorized - 200,000 shares; issued and
outstanding - 32,824 shares and 32,711 shares 65,648 65,422
Paid-in capital 12,850 12,890
Retained earnings 108,939 104,069
Accumulated other comprehensive income 1,266 -
---------- -----------
Total shareholders' equity 188,703 182,381
---------- -----------
Total liabilities and shareholders' equity $ 834,045 $ 865,000
========== ===========
See accompanying notes to consolidated financial statements.
4
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) Three Months Ended
(Unaudited) March 31,
------------------------------
2000 1999
----------- -----------
Operating activities
Net income $ 6,840 $ 5,491
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,161 4,461
Provision for LIFO reserve 1,200 610
Provision for losses on accounts and notes receivable 94 240
Changes in operating assets and liabilities:
Accounts and notes receivable 19,020 (18,217)
Merchandise inventories 2,567 (26,773)
Accounts payable (1,793) 68,307
Net change in other current assets
and current liabilities 6,566 3,393
Other, net 1,740 428
---------- ----------
Cash provided by operating activities 41,395 37,940
---------- ----------
Investing activities
Additions to property and equipment (1,268) (2,124)
Additions to computer software (2,872) (134)
Other, net 20 (1,179)
---------- ----------
Cash used for investing activities (4,120) (3,437)
---------- ----------
Financing activities
Reduction of debt (22,600) -
Other financing, net (12,822) (32,765)
Cash dividends paid (1,970) (1,634)
Proceeds from exercise of stock options - 80
---------- ----------
Cash used for financing activities (37,392) (34,319)
---------- ----------
Net increase (decrease) in cash and cash equivalents (117) 184
Cash and cash equivalents at beginning of period 669 546
---------- ----------
Cash and cash equivalents at end of period $ 552 $ 730
========== ==========
See accompanying notes to consolidated financial statements.
5
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which are comprised only of
normal recurring accruals and the use of estimates) necessary to present
fairly the consolidated financial position of Owens & Minor, Inc. and its
wholly-owned subsidiaries (O&M or the company) as of March 31, 2000 and the
consolidated results of operations and cash flows for the three month
periods ended March 31, 2000 and 1999.
2. Interim Results of Operations
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
3. Interim Gross Margin Reporting
The company uses estimated gross margin rates to determine the cost of
goods sold during interim periods. To improve the accuracy of its estimated
gross margins for interim reporting purposes, the company takes physical
inventory counts at selected distribution centers. Reported results of
operations for the three month periods ended March 31, 2000 and 1999
reflect the results of such counts, to the extent that they are materially
different from estimated amounts. Management will continue a program of
interim physical inventories at selected distribution centers to the extent
it deems appropriate to ensure the accuracy of interim reporting and to
minimize year-end adjustments.
4. Investment
In October 1999, in a private offering, the company purchased an equity
investment in Neoforma.com, Inc. (Neoforma), a provider of business-to-
business e-commerce services in the healthcare industry. In January 2000,
Neoforma made an initial public offering, at which time the shares held by
O&M were converted to common stock. The investment is classified as
available-for-sale, in accordance with Statement of Financial Accounting
Standards No.115, Accounting for Certain Investments in Debt and Equity
Securities, and is included in other assets, net in the consolidated
balance sheets at fair value, with unrealized gains and losses, net of tax,
reported as accumulated other comprehensive income. At March 31, 2000, the
estimated fair value (based on the quoted market price), gross unrealized
gain and cost basis of this investment were $3.5 million, $2.3 million and
$1.2 million. At December 31, 1999, the investment was stated at its cost
basis of $1.2 million, as there was no market for the securities at that
time.
5. Acquisition
On July 30, 1999, the company acquired certain net assets of Medix, Inc.
(Medix), a distributor of medical and surgical supplies. The acquisition
has been accounted for by the purchase method and, accordingly, the
operating results of Medix have been included in the company's consolidated
financial statements since the date of acquisition. Assuming the
acquisition had been made at January 1, 1999, consolidated net sales, on a
pro forma basis, would have been approximately $791 million for the three
months ended March 31, 1999. Consolidated net income and net income per
share on a pro forma basis would not have been materially different from
the results reported.
In connection with the acquisition, management adopted a plan for
integration of the businesses which includes closure of some Medix
facilities and consolidation of certain administrative
6
functions. An accrual was established to provide for certain costs of this
plan. The following table sets forth the activity in the accrual during the
three months ended March 31, 2000:
(In thousands) Balance at Balance at
December 31, 1999 Charges March 31, 2000
------------------------------------- --------------------- ------------- -----------------
Losses under lease commitments $ 1,609 $ 107 $ 1,502
Employee separations 339 38 301
Other 685 32 653
------------------------------------- --------------------- ------------- -----------------
Total $ 2,633 $ 177 $ 2,456
------------------------------------- --------------------- ------------- -----------------
As of March 31, 2000, 16 employees had been terminated. The integration of
the Medix business is expected to be substantially complete by mid-2000.
6. Restructuring Reserve
As a result of the Columbia/HCA Healthcare Corporation contract
cancellation in the second quarter of 1998, the company recorded a
nonrecurring restructuring charge to downsize operations. The following
table sets forth the activity in the restructuring reserve during the three
months ended March 31, 2000:
(In thousands) Balance at Balance at
December 31, 1999 Charges March 31, 2000
------------------------------------- --------------------- ------------- -----------------
Losses under lease commitments $ 2,304 $ 327 $ 1,977
Asset write-offs 3,316 175 3,141
Employee separations 13 7 6
Other 477 1 476
------------------------------------- --------------------- ------------- -----------------
Total $ 6,110 $ 510 $ 5,600
------------------------------------- --------------------- ------------- -----------------
7. Net Income per Common Share
The following sets forth the computation of basic and diluted net income
per common share:
(In thousands, except per share data) Three Months Ended
March 31,
----------------------------------------
2000 1999
----------------- ----------------
Numerator:
Numerator for basic net income per common share - net income $ 6,840 $ 5,491
Distributions on convertible mandatorily redeemable preferred securities,
net of income taxes 976 993
--------------------------------------------------------------------------------------------------------------------------
Numerator for diluted net income per common share - net income attributable
to common stock after assumed conversions $ 7,816 $ 6,484
--------------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic net income per common share - weighted
average shares 32,585 32,556
Effect of dilutive securities:
Conversion of mandatorily redeemable preferred securities 6,400 6,400
Stock options and restricted stock 234 129
--------------------------------------------------------------------------------------------------------------------------
Denominator for diluted net income per common share - adjusted weighted
average shares and assumed conversions 39,219 39,085
--------------------------------------------------------------------------------------------------------------------------
Net income per common share - basic $ 0.21 $ 0.17
Net income per common share - diluted $ 0.20 $ 0.17
--------------------------------------------------------------------------------------------------------------------------
7
8. Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information
for: Owens & Minor, Inc.; on a combined basis, the guarantors of Owens &
Minor, Inc.'s 10 7/8% Senior Subordinated 10-year Notes (Notes); and the
non-guarantor subsidiaries of the Notes. Separate financial statements of
the guarantor subsidiaries are not presented because the guarantors are
jointly, severally and unconditionally liable under the guarantees and the
company believes the condensed consolidating financial information is more
meaningful in understanding the financial position, results of operations
and cash flows of the guarantor subsidiaries.
8
Condensed Consolidating Financial Information
(In thousands)
For the three months ended Owens & Guarantor Non-guarantor
March 31, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 854,549 $ - $ - $ 854,549
Cost of goods sold - 764,781 - - 764,781
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 89,768 - - 89,768
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Selling, general and administrative expenses - 64,948 285 - 65,233
Depreciation and amortization - 5,161 - - 5,161
Interest expense, net 4,576 (1,271) - - 3,305
Intercompany interest expense, net (2,164) 7,199 (5,035) - -
Discount on accounts receivable securitization - 7 1,852 - 1,859
Distributions on mandatorily redeemable preferred - - 1,774 - 1,774
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,412 76,044 (1,124) - 77,332
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,412) 13,724 1,124 - 12,436
Income tax provision (benefit) (1,061) 5,995 662 - 5,596
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,351) $ 7,729 $ 462 $ - $ 6,840
- -----------------------------------------------------------------------------------------------------------------------------------
For the three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 741,084 $ - $ - $ 741,084
Cost of goods sold - 662,355 - 662,355
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 78,729 - - 78,729
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5 58,501 92 - 58,598
Depreciation and amortization - 4,461 - - 4,461
Interest expense, net 4,149 (1,053) - - 3,096
Intercompany interest expense, net (1,696) 5,657 (3,961) - -
Discount on accounts receivable securitization - 6 989 - 995
Distributions on mandatorily redeemable preferred - - 1,774 - 1,774
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,458 67,572 (1,106) - 68,924
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,458) 11,157 1,106 - 9,805
Income tax provision (benefit) (1,082) 4,897 499 - 4,314
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,376) $ 6,260 $ 607 $ - $ 5,491
- -----------------------------------------------------------------------------------------------------------------------------------
9
Condensed Consolidating Financial Information
(In thousands)
Owens & Guarantor Non-guarantor
March 31, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 44 $ 1 $ - $ 552
Accounts and notes receivable, net - 81,436 126,377 - 207,813
Merchandise inventories - 338,661 50 - 338,711
Intercompany advances, net 134,982 - - (134,982) -
Other current assets - 11,287 - - 11,287
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 135,489 431,428 126,428 (134,982) 558,363
Property and equipment, net - 24,800 4 - 24,804
Goodwill, net - 209,340 - - 209,340
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 11,905 28,798 835 - 41,538
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 452,835 $ 709,367 $ 263,350 $ (591,507) $ 834,045
===================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 288,845 $ 30 $ - $ 288,875
Accrued payroll and related liabilities - 4,112 - - 4,112
Intercompany advances, net - 35,674 99,308 (134,982) -
Other accrued liabilities 5,105 54,787 1,605 - 61,497
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,105 383,418 100,943 (134,982) 354,484
Long-term debt 150,000 1,333 - - 151,333
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities - 7,525 - - 7,525
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 291,188 392,276 100,943 (271,065) 513,342
- -----------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust, holding
solely convertible debentures of Owens & Minor, Inc. - - 132,000 - 132,000
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 65,648 40,879 5,583 (46,462) 65,648
Paid-in capital 12,850 258,979 15,001 (273,980) 12,850
Retained earnings 81,883 17,233 9,823 - 108,939
Accumulated other comprehensive income 1,266 - - - 1,266
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 161,647 317,091 30,407 (320,442) 188,703
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 452,835 $ 709,367 $ 263,350 $ (591,507) $ 834,045
===================================================================================================================================
10
Condensed Consolidating Financial Information
(In thousands)
==================================================================================================================================
Owens & Guarantor Non-guarantor
December 31, 1999 Minor, Inc Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 158 $ 4 $ - $ 669
Accounts and notes receivable, net - 112,088 114,839 - 226,927
Merchandise inventories - 342,478 - - 342,478
Intercompany advances, net 157,711 - - (157,711) -
Other current assets - 19,172 - - 19,172
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 158,218 473,896 114,843 (157,711) 589,246
Property and equipment, net - 25,877 - - 25,877
Goodwill, net - 210,837 - - 210,837
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 9,894 27,933 1,213 - 39,040
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 473,553 $ 753,544 $ 252,139 $ (614,236) $ 865,000
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 303,490 $ - $ - $ 303,490
Accrued payroll and related liabilities - 6,883 - - 6,883
Intercompany advances, net - 69,220 88,491 (157,711) -
Other accrued liabilities 1,354 56,368 1,703 - 59,425
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,354 435,961 90,194 (157,711) 369,798
Long-term debt 172,600 1,953 - - 174,553
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities - 6,268 - - 6,278
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 310,037 444,182 90,194 (293,794) 550,619
- ----------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust, holding
solely convertible debentures of Owens & Minor,
Inc. - - 132,000 - 132,000
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 65,422 40,879 5,583 (46,462) 65,422
Paid-in capital 12,890 258,979 15,001 (273,980) 12,890
Retained earnings 85,204 9,504 9,361 - 104,069
- ----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 163,516 309,362 29,945 (320,442) 182,381
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 473,553 $ 753,544 $ 252,139 $ (614,236) $ 865,000
==================================================================================================================================
11
Condensed Consolidating Financial Information
(In thousands)
===================================================================================================================================
For the three months ended Owens & Guarantor Non-guarantor
March 31, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating activities
Net income (loss) $ (1,351) $ 7,729 $ 462 $ - $ 6,840
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization - 5,161 - - 5,161
Provision for LIFO reserve - 1,200 - - 1,200
Provision for losses on accounts and notes receivable - 210 (116) - 94
Changes in operating assets and liabilities:
Accounts and notes receivable - 30,442 (11,422) - 19,020
Merchandise inventories - 2,617 (50) - 2,567
Accounts payable - (1,823) 30 - (1,793)
Net change in other current assets
and current liabilities 3,750 2,536 280 - 6,566
Other, net 477 1,263 - - 1,740
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 2,876 49,335 (10,816) - 41,395
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (1,264) (4) - (1,268)
Additions to computer software - (2,872) - - (2,872)
Other, net - 20 - - 20
- -----------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (4,116) (4) - (4,120)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities
Reduction of debt (22,600) - - - (22,600)
Change in intercompany advances 21,694 (32,511) 10,817 - -
Other financing, net - (12,822) - - (12,822)
Cash dividends paid (1,970) - - - (1,970)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (2,876) (45,333) 10,817 - (37,392)
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents - (114) (3) - (117)
Cash and cash equivalents at beginning of period 507 158 4 - 669
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 507 $ 44 $ 1 $ - $ 552
===================================================================================================================================
12
Condensed Consolidating Financial Information
(In thousands)
===================================================================================================================================
For the three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating activities
Net income (loss) $ (1,376) $ 6,260 $ 607 $ - $ 5,491
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization - 4,461 - - 4,461
Provision for LIFO reserve - 610 - - 610
Provision for losses on accounts and notes receivable - 184 56 - 240
Changes in operating assets and liabilities:
Accounts and notes receivable - 12,906 (31,123) - (18,217)
Merchandise inventories - (26,773) - - (26,773)
Accounts payable - 68,307 - - 68,307
Net change in other current assets
and current liabilities 3,566 (172) (1) - 3,393
Other, net 412 17 (1) - 428
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 2,602 65,800 (30,462) - 37,940
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (2,124) - - (2,124)
Additions to computer software - (134) - - (134)
Other, net - 21 (1,200) - (1,179)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (2,237) (1,200) - (3,437)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities
Change in intercompany advances (1,048) (30,614) 31,662 - -
Other financing, net - (32,765) - - (32,765)
Cash dividends paid (1,634) - - - (1,634)
Proceeds from exercise of stock options 80 - - - 80
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (2,602) (63,379) 31,662 - (34,319)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents - 184 - - 184
Cash and cash equivalents at beginning of period 505 40 1 - 546
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 505 $ 224 $ 1 $ - $ 730
===================================================================================================================================
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following management discussion and analysis describes material changes in
the financial condition of Owens & Minor, Inc. and its wholly-owned subsidiaries
(O&M or the company) since December 31, 1999. Trends of a material nature are
discussed to the extent known and considered relevant. This discussion should be
read in conjunction with the consolidated financial statements, related notes
thereto and management's discussion and analysis of financial condition and
results of operations included in the company's 1999 Annual Report on Form 10-K
for the year ended December 31, 1999.
Financial Condition, Liquidity and Capital Resources
Liquidity. The company's liquidity improved during the first quarter of 2000.
Combined outstanding debt and off balance sheet accounts receivable
securitization borrowings were reduced by $20.5 million to $260.3 million at
March 31, 2000, from $280.8 million at December 31, 1999. The reduction was due
to the positive impact of cash flow from operations.
The company expects that its available financing will be sufficient to fund its
working capital needs and long-term strategic growth, although this cannot be
assured. At March 31, 2000, the company had $225.0 million of unused credit
under its revolving credit facility and approximately $42.3 million under its
receivables financing facility.
Effective April 24, 2000, the company replaced its revolving credit facility
with a new agreement expiring in April 2003. The credit limit of the new
facility is $225.0 million, unchanged from the previous facility, and the
interest is based on LIBOR or the Prime Rate, at the company's discretion. Under
the new facility, the company is charged a commitment fee of between 0.20% and
0.275% on the unused portion of the facility, and a utilization fee of 0.25%
will be charged if borrowings exceed $112.5 million. The terms of the new
agreement limit the amount of indebtedness that the company may incur, require
the company to maintain certain levels of net worth, current ratio, leverage
ratio and fixed charge coverage, and restrict the ability of the company to
materially alter the character of the business through consolidation, merger or
purchase or sale of assets.
Working Capital Management. The company's working capital decreased by $15.6
million from December 31, 1999 to $203.9 million at March 31, 2000, primarily
due to collections of accounts receivable. Accounts receivable, excluding the
impact of the company's accounts receivable securitization facility, decreased
by $17.0 million to $315.5 million at March 31, 2000.
Capital Expenditures. Capital expenditures were approximately $4.1 million in
the first three months of 2000, of which approximately $3.6 million was for
computer hardware and software. The company expects to continue supporting
strategic initiatives and improving operational efficiency through investments
in technology including system upgrades. These capital expenditures are expected
to be funded through cash flow from operations.
Results of Operations
First quarter of 2000 compared with first quarter of 1999
Net sales. Net sales increased 15.3% to $854.5 million in the first quarter of
2000 from $741.1 million in the first quarter of 1999. Excluding the sales
generated by Medix, net sales increased 9.0%. Most of this increase resulted
from increased penetration of existing accounts, most significantly Tenet
BuyPower, whose distribution contract began in February 1999 and therefore
contributed to only two months' sales in the first quarter of 1999.
14
Gross margin. Gross margin as a percentage of net sales decreased slightly to
10.5% in the first quarter of 2000 compared with 10.6% for the first quarter of
1999. The decrease was a result of a lower sales base in the first quarter of
1999.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses as a percentage of net sales decreased to 7.6% of
net sales for the first quarter of 2000, compared to 7.9% for the first quarter
of 1999. The decrease as a percentage of sales was the result of the higher
sales base in the first quarter of 2000 and the elimination of the need for Year
2000 remediation efforts. Expenses in the first quarter of 1999 included
spending of $1.0 million on Year 2000 initiatives.
Depreciation and amortization. Depreciation and amortization expense for the
quarter increased by approximately 15.7% from 1999, due, in part, to goodwill
amortization of approximately $0.4 million resulting from the Medix acquisition.
In addition, depreciation expense increased as a result of higher capital
spending associated with information technology initiatives. O&M anticipates
similar increases in depreciation throughout the rest of 2000.
Interest expense, net, and discount on accounts receivable securitization
(financing costs). Financing costs totaled $5.2 million in the first quarter of
2000, compared with $4.1 million in the first quarter of 1999. The increase in
financing costs is due to an increase in debt (including amounts financed under
the company's off balance sheet accounts receivable securitization facility) of
approximately $45.3 million since the first quarter of 1999. The increase in
debt resulted from the Medix acquisition, partially offset by positive cash
flows from operations.
The company expects to continue to manage its financing costs by continuing its
working capital reduction initiatives and management of interest rate risks,
although the future results of these initiatives cannot be assured.
Income taxes. The income tax provision was $5.6 million in the first quarter of
2000 compared with $4.3 million in the same period in 1999. The effective tax
rate was 45.0%, compared to 44.0% for the same period in 1999. This rate
increase results primarily from increases in certain nondeductible expenses.
Net income. Net income increased to $6.8 million in the first quarter of 2000
from $5.5 million in the first quarter of 1999. The increase is primarily due to
the increase in sales and success in controlling operating expenses.
New Health Exchange
In April 2000, the company announced an agreement in principle with four other
leading healthcare distributors to form an Internet-based company that would be
an independent, commercially neutral healthcare product information exchange
focused on streamlining the healthcare supply chain. The companies involved
expect to complete a definitive joint-venture agreement by the end of July and
begin implementation of the exchange by the end of the year. The founding
members expect the new exchange to require investments totaling more than $100
million. The amount to be invested by O&M has not been determined at this time.
Recent Accounting Pronouncements.
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. In May 1999, the FASB delayed the effective
date of this standard by one year. The company will be required to adopt the
provisions of this standard beginning on January 1, 2001. Management believes
the effect of the adoption of this standard will be
15
limited to financial statement presentation and disclosure and will not have a
material effect on the company's financial condition or results of operations.
Risks
The company is subject to risks associated with changes in the medical industry,
including continued efforts to control costs, which place pressure on operating
margin, and changes in the way medical and surgical services are delivered to
patients. The loss of one of the company's larger customers could have a
significant effect on its business. However, management believes that the
company's competitive position in the marketplace and its ability to control
costs would enable it to continue profitable operations and attract new
customers in the event of such a loss.
Forward-looking Statements
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, including, but not
limited to, general economic and business conditions, competition, changing
trends in customer profiles, outcome of outstanding litigation and changes in
government regulations. Although O&M believes its expectations with respect to
the forward-looking statements are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
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 company's Annual Report on Form 10-K
for the year ended December 31, 1999.
16
Part II. Other Information
Item 1. Legal Proceedings
Certain legal proceedings pending against the company are described in the
company's Annual Report on Form 10-K for the year ended December 31, 1999.
Through March 31, 2000, there have been no material developments in any legal
proceedings reported in such Annual Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4 Credit Agreement dated as of April 24, 2000 by and among Owens
& Minor, Inc., as Borrower, Certain of its Subsidiaries, as
Guarantors, the banks identified herein, First Union National
Bank and SunTrust Bank, as Syndication Agents, Bank One, N.A.,
as Managing Agent, The Bank of Nova Scotia, as Co-Agent, and
Bank of America, N.A., as Administrative Agent
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the quarter for
which this Quarterly Report is filed.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Owens & Minor, Inc.
-------------------------------------
(Registrant)
Date May 11, 2000 /s/ Richard F. Bozard
---------------------- -------------------------------------
Richard F. Bozard
Vice President & Treasurer
Acting Chief Financial Officer
Date May 11, 2000 /s/ Olwen B. Cape
---------------------- -------------------------------------
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
Exhibits Filed with SEC
-----------------------
Exhibit #
- ---------
4 Credit Agreement dated as of April 24, 2000 by and among Owens &
Minor, Inc., as Borrower, Certain of its Subsidiaries, as
Guarantors, the banks identified herein, First Union National
Bank and SunTrust Bank, as Syndication Agents, Bank One, N.A.,
as Managing Agent, The Bank of Nova Scotia, as Co-Agent, and
Bank of America, N.A., as Administrative Agent.