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, 2001
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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 ___
---
The number of shares of Owens & Minor, Inc.'s common stock outstanding as
of April 26, 2001, was 33,376,663 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, 2001 and 2000 3
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 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,
--------------------------------------
2001 2000
--------------- --------------
Net sales $ 924,508 $ 856,742
Cost of goods sold 825,625 764,781
--------------- --------------
Gross margin 98,883 91,961
--------------- --------------
Selling, general and administrative expenses 72,701 67,426
Depreciation and amortization 5,607 5,161
Interest expense, net 3,423 3,305
Discount on accounts receivable securitization 1,609 1,859
Distributions on mandatorily redeemable
preferred securities 1,774 1,774
--------------- --------------
Total expenses 85,114 79,525
--------------- --------------
Income before income taxes 13,769 12,436
Income tax provision 6,058 5,596
--------------- --------------
Net income $ 7,711 $ 6,840
=============== ==============
Net income per common share - basic $ 0.23 $ 0.21
=============== ==============
Net income per common share - diluted $ 0.22 $ 0.20
=============== ==============
Cash dividends per common share $ 0.0625 $ 0.0600
=============== ==============
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,
2001 2000
----------- -------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 949 $ 626
Accounts and notes receivable, net
of allowance of $6,459 and $6,419 250,955 261,905
Merchandise inventories 335,785 315,570
Other current assets 14,148 16,190
------------ -------------
Total current assets 601,837 594,291
Property and equipment, net of accumulated
depreciation of $60,027 and $58,876 26,848 24,239
Goodwill, net of accumulated
amortization of $35,474 and $33,977 203,352 204,849
Other assets, net 42,643 44,169
------------ -------------
Total assets $ 874,680 $ 867,548
============ =============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 297,094 $ 291,507
Accrued payroll and related liabilities 4,244 9,940
Other accrued liabilities 61,843 59,207
------------ -------------
Total current liabilities 363,181 360,654
Long-term debt 150,689 152,872
Other liabilities 9,604 9,250
------------ -------------
Total liabilities 523,474 522,776
------------ -------------
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 - 33,293 shares and 33,180 shares 66,586 66,360
Paid-in capital 18,568 18,039
Retained earnings 134,632 129,001
Accumulated other comprehensive loss (580) (628)
------------ -------------
Total shareholders' equity 219,206 212,772
------------ -------------
Total liabilities and shareholders' equity $ 874,680 $ 867,548
============ =============
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,
---------------------------------
2001 2000
--------- ---------
Operating activities
Net income $ 7,711 $ 6,840
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,607 5,161
Provision for LIFO reserve 1,300 1,200
Provision for losses on accounts and notes receivable 248 94
Sales of accounts receivable, net 15,000 2,064
Changes in operating assets and liabilities:
Accounts and notes receivable (4,298) 16,956
Merchandise inventories (21,515) 2,567
Accounts payable 11,187 (1,793)
Net change in other current assets
and current liabilities (1,690) 6,566
Other, net 923 1,740
--------- ---------
Cash provided by operating activities 14,473 41,395
--------- ---------
Investing activities
Additions to property and equipment (5,013) (1,268)
Additions to computer software (590) (2,872)
Other, net 109 20
--------- ---------
Cash used for investing activities (5,494) (4,120)
--------- ---------
Financing activities
Reduction of debt (1,600) (22,600)
Other financing, net (5,600) (12,822)
Cash dividends paid (2,080) (1,970)
Proceeds from exercise of stock options 624 -
--------- ---------
Cash used for financing activities (8,656) (37,392)
--------- ---------
Net increase (decrease) in cash and cash equivalents 323 (117)
Cash and cash equivalents at beginning of period 626 669
--------- ---------
Cash and cash equivalents at end of period $ 949 $ 552
========= =========
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, 2001 and the
consolidated results of operations and cash flows for the three month
periods ended March 31, 2001 and 2000.
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, 2001 and 2000
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. Reclassification of Shipping Fees
In the fourth quarter of 2000, the company adopted the provisions of
Emerging Issues Task Force (EITF) Issue 00-10, Accounting for Shipping and
Handling Fees and Costs. As a result, the company reclassified certain
amounts billed to customers for shipping from selling, general and
administrative (SG&A) expenses to net sales for all prior periods. As a
result, net sales, gross margin, and SG&A expenses for the first quarter of
2000 have been increased by $2.2 million.
5. Acquisition
In 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. 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 functions. An accrual was established to provide for certain
costs of this plan. The following table sets forth the activity in the
accrual since December 31, 2000:
(in thousands) Balance at Balance at
December 31, March 31,
2000 Charges 2001
-----------------------------------------------------------------------------
Losses under lease commitments $1,285 $ 7 $1,278
Employee separations 83 19 64
Other 281 - 281
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Total $1,649 $26 $1,623
=============================================================================
6
As of March 31, 2001, approximately 40 employees had been terminated. No
employees were terminated under the plan in the first quarter of 2001. The
integration of the Medix business is expected to be completed by late 2001.
6. Restructuring Reserve
As a result of the cancellation of a significant customer contract in 1998,
the company recorded a nonrecurring restructuring charge to downsize
operations. The following table sets forth the activity in the restructuring
reserve since December 31, 2000:
(in thousands) Balance at Balance at
December 31, March 31,
2000 Charges 2001
-------------------------------------------------------------------------------------
Losses under lease commitments $2,718 $117 $2,601
Asset write-offs 821 - 821
-------------------------------------------------------------------------------------
Total $3,539 $117 $3,422
=====================================================================================
7. Off Balance Sheet Receivables Financing Facility
Under the terms of its Receivables Financing Facility, O&M Funding is
entitled to transfer, without recourse, certain of the company's trade
receivables and receive up to $225.0 million from a group of unrelated third
party purchasers. At March 31, 2001 and December 31, 2000, net accounts
receivable of $95.0 million and $80.0 million had been sold under the
agreement and, as a result, have been excluded from the consolidated balance
sheet.
8. Derivative Financial Instruments
On January 1, 2001, the company adopted the provisions of Statement of
Financial Accounting Standards No. (SFAS) 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities. SFAS 133 requires that
an entity recognize all derivatives as either assets or liabilities measured
at fair value. The accounting treatment for changes in the fair value of a
derivative depends upon the intended use of the derivative and the resulting
designation.
The company enters into interest rate swaps as part of its interest rate risk
management strategy. The purpose of these swaps is to maintain the company's
desired mix of fixed to floating rate financing, and to minimize interest
expense related to fixed rate financing. The company's interest rate swap
agreements as of March 31, 2001 included $100.0 million notional amounts that
effectively converted a portion of the company's fixed rate financing
instruments to variable rates. These swaps are designated as fair value
hedges of a portion of the company's 10.875% Senior Subordinated 10-year
Notes (Notes), and are assumed to have no ineffectiveness under the
provisions of SFAS 133. The adoption of this Standard did not have a material
impact on the company's results of operations or financial position.
7
9. Comprehensive Income
The company's comprehensive income for the three months ended March 31,
2001 and 2000 is shown in the table below. Other comprehensive income is
comprised of changes in unrealized gain or loss on investment, net of
income tax.
(in thousands) Three Months Ended
March 31,
-------------------------------------------
2001 2000
----------------- ----------------
Net income $7,711 $6,840
Other comprehensive income - change in unrealized gain (loss) on investment,
net of tax 48 1,266
----------------- ----------------
Comprehensive income $7,759 $8,106
================= ================
10. 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,
--------------------------------------------
2001 2000
------------------- -----------------
Numerator:
Numerator for basic net income per common share - net income $ 7,711 $ 6,840
Distributions on convertible mandatorily redeemable preferred securities,
net of income taxes 993 976
- ------------------------------------------------------------------------------------------------------------------------------
Numerator for diluted net income per common share - net income attributable
to common stock after assumed conversions $ 8,704 $ 7,816
- ------------------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic net income per common share - weighted average shares 32,989 32,585
Effect of dilutive securities:
Conversion of mandatorily redeemable preferred securities 6,400 6,400
Stock options and restricted stock 524 234
- ------------------------------------------------------------------------------------------------------------------------------
Denominator for diluted net income per common share - adjusted weighted
average shares and assumed conversions 39,913 39,219
- ------------------------------------------------------------------------------------------------------------------------------
Net income per common share - basic $ 0.23 $ 0.21
Net income per common share - diluted $ 0.22 $ 0.20
==============================================================================================================================
11. 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 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, 2001 Minor, Inc. Subsidiaries Subsidiaries Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 924,508 $ - $ 924,508
Cost of goods sold - 825,625 - 825,625
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 98,883 - 98,883
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 72,444 257 72,701
Depreciation and amortization - 5,607 - 5,607
Interest expense, net 4,383 (960) - 3,423
Intercompany interest expense, net (1,826) 7,432 (5,606) -
Discount on accounts receivable securitization - 3 1,606 1,609
Distributions on mandatorily redeemable preferred securities - - 1,774 1,774
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,557 84,526 (1,969) 85,114
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,557) 14,357 1,969 13,769
Income tax provision (benefit) (1,125) 6,302 881 6,058
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,432) $ 8,055 $ 1,088 $ 7,711
====================================================================================================================================
For the three months ended Owens & Guarantor Non-guarantor
March 31, 2000 Minor, Inc. Subsidiaries Subsidiaries Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 856,742 $ - $ 856,742
Cost of goods sold - 764,781 - 764,781
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 91,961 - 91,961
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 67,141 285 67,426
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 securities - - 1,774 1,774
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,412 78,237 (1,124) 79,525
===================================================================================================================================
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
===================================================================================================================================
9
Condensed Consolidating Financial Information
(in thousands)
====================================================================================================================================
Owens & Guarantor Non-guarantor
March 31, 2001 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 441 $ 1 $ - $ 949
Accounts and notes receivable, net - 11,885 239,070 - 250,955
Merchandise inventories - 335,785 - - 335,785
Intercompany advances, net 129,167 80,027 (209,194) - -
Other current assets 4 14,144 - - 14,148
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 129,678 442,282 29,877 - 601,837
Property and equipment, net - 26,845 3 - 26,848
Goodwill, net - 203,352 - - 203,352
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 8,543 33,969 131 - 42,643
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 443,662 $ 721,449 $ 166,094 $ (456,525) $ 874,680
====================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 297,094 $ - $ - $ 297,094
Accrued payroll and related liabilities - 4,244 - - 4,244
Other accrued liabilities 5,367 57,008 (532) - 61,843
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,367 358,346 (532) - 363,181
Long-term debt 150,689 - - - 150,689
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities (930) 10,536 (2) - 9,604
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 291,209 368,882 (534) (136,083) 523,474
- ------------------------------------------------------------------------------------------------------------------------------------
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 66,586 40,879 5,583 (46,462) 66,586
Paid-in capital 18,568 258,979 15,001 (273,980) 18,568
Retained earnings 67,879 52,709 14,044 - 134,632
Accumulated other comprehensive loss (580) - - - (580)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 152,453 352,567 34,628 (320,442) 219,206
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 443,662 $ 721,449 $ 166,094 $ (456,525) $ 874,680
====================================================================================================================================
10
Condensed Consolidating Financial Information
(in thousands)
====================================================================================================================================
Owens & Guarantor Non-guarantor
December 31, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 118 $ 1 $ - $ 626
Accounts and notes receivable, net - 24,224 237,681 - 261,905
Merchandise inventories - 315,570 - - 315,570
Intercompany advances, net 129,447 79,645 (209,092) - -
Other current assets 17 16,173 - - 16,190
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 129,971 435,730 28,590 - 594,291
Property and equipment, net - 24,236 3 - 24,239
Goodwill, net - 204,849 - - 204,849
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 8,735 35,157 277 - 44,169
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 444,147 $ 714,973 $ 164,953 $ (456,525) $ 867,548
===================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 291,507 $ - $ - $ 291,507
Accrued payroll and related liabilities - 9,940 - - 9,940
Other accrued liabilities 1,632 58,159 (584) - 59,207
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,632 359,606 (584) - 360,654
Long-term debt 152,200 672 - - 152,872
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities (930) 10,183 (3) - 9,250
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 288,985 370,461 (587) (136,083) 522,776
- -----------------------------------------------------------------------------------------------------------------------------------
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 66,360 40,879 5,583 (46,462) 66,360
Paid-in capital 18,039 258,979 15,001 (273,980) 18,039
Retained earnings 71,391 44,654 12,956 - 129,001
Accumulated other comprehensive loss (628) - - - (628)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 155,162 344,512 33,540 (320,442) 212,772
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 444,147 $ 714,973 $ 164,953 $ (456,525) $ 867,548
===================================================================================================================================
11
Condensed Consolidating Financial Information
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the three months ended Owens & Guarantor Non-guarantor
March 31, 2001 Minor, Inc. Subsidiaries Subsidiaries Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating activities
Net income (loss) $ (1,432) $ 8,055 $ 1,088 $ 7,711
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization - 5,607 - 5,607
Provision for LIFO reserve - 1,300 - 1,300
Provision for losses on accounts and notes receivable - 465 (217) 248
Sales of accounts receivable, net - - 15,000 15,000
Changes in operating assets and liabilities:
Accounts and notes receivable - 11,874 (16,172) (4,298)
Merchandise inventories - (21,515) - (21,515)
Accounts payable - 11,187 - 11,187
Net change in other current assets
and current liabilities 3,746 (5,608) 172 (1,690)
Other, net 462 434 27 923
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 2,776 11,799 (102) 14,473
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (5,013) - (5,013)
Additions to computer software - (590) - (590)
Other, net - 109 - 109
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (5,494) - (5,494)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Reduction of debt (1,600) - - (1,600)
Change in intercompany advances 280 (382) 102 -
Other financing, net - (5,600) - (5,600)
Cash dividends paid (2,080) - - (2,080)
Proceeds from exercise of stock options 624 - - 624
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (2,776) (5,982) 102 (8,656)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents - 323 - 323
Cash and cash equivalents at beginning of period 507 118 1 626
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 507 $ 441 $ 1 $ 949
- ------------------------------------------------------------------------------------------------------------------------------------
12
Condensed Consolidating Financial Information
(in thousands)
====================================================================================================================================
For the three months ended Owens & Guarantor Non-guarantor
March 31, 2000 Minor, Inc. Subsidiaries Subsidiaries 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
Sales of accounts receivable, net - - 2,064 2,064
Changes in operating assets and liabilities:
Accounts and notes receivable - 30,442 (13,486) 16,956
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
=================================================================================================================================
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, 2000. 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 2000 Annual Report on Form 10-K
for the year ended December 31, 2000.
Financial Condition, Liquidity and Capital Resources
Liquidity. Combined outstanding debt and off balance sheet accounts receivable
securitization increased by $13.5 million to $247.0 million at March 31, 2001,
from $233.5 million at December 31, 2000. This increase was primarily a result
of increased inventory levels to support current sales volume. Excluding sales
of accounts receivable and their subsequent collections under the receivables
financing facility, $0.5 million of cash was used for operating activities in
the first three months of 2001, compared with $39.3 million provided by
operating activities in the first quarter of 2000. This decrease in operating
cash flow resulted primarily from increased purchases of inventory necessary to
support current sales volume.
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, 2001, the company had $224.4 million of unused credit
under its revolving credit facility and the ability to sell an additional $130.0
million of accounts receivable under its receivables financing facility.
Working Capital Management. The company's working capital increased by $5.0
million from December 31, 2000 to $238.7 million at March 31, 2001, primarily
due to increased inventory levels.
Capital Expenditures. Capital expenditures were $5.6 million in the first three
months of 2001, including $3.3 million for the purchase of land to be used for
the company's future headquarters. The company spent $1.5 million to purchase
computer hardware and software. The company expects to continue supporting
strategic initiatives and improving operational efficiency through investments
in technology, including system upgrades and the development of electronic
commerce. These capital expenditures are expected to be funded through cash
flow from operations.
Results of Operations
First quarter of 2001 compared with first quarter of 2000
Net sales. Net sales increased 8% to $924.5 million in the first quarter of
2001 from $856.7 million in the first quarter of 2000. This increase resulted
primarily from further penetration of existing accounts.
Gross margin. Gross margin for the first quarter of 2001 was 10.7% of net
sales, consistent with the first quarter of 2000. Customer margins decreased
slightly from last year. These decreases, however, were offset by favorable
vendor initiatives.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses for the first quarter of 2001 were 7.9% of net
sales, consistent with the first quarter of 2000.
14
Depreciation and amortization. Depreciation and amortization expense for the
quarter increased to $5.6 million, or 9% from the first quarter of 2000.
Excluding goodwill amortization of $1.5 million in both periods, depreciation
and amortization increased 12% primarily as a result of continued investments in
computer software.
Interest expense, net, and discount on accounts receivable securitization
(financing costs). Net financing costs totaled $5.0 million for the first
quarter of 2001, compared with $5.2 million in the first quarter of 2000.
Excluding collections of customer finance charges, financing costs for the first
quarter decreased $0.2 million from the first quarter of 2000. While market
interest rates were slightly higher in the first quarter of 2001, average
outstanding financing decreased from the same period of 2000.
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 $6.1 million in the first quarter of
2001 compared with $5.6 million in the same period in 2000. The effective tax
rate was 44.0%, compared to 45.0% for the same period in 2000. This rate
decrease results primarily from decreases in certain nondeductible expenses.
Net income. Net income increased to $7.7 million in the first quarter of 2001
from $6.8 million in the first quarter of 2000. The increase is primarily due
to the increase in sales while controlling operating and financing costs.
Recent Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board issued SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, a replacement of SFAS 125 of the same title. SFAS 140 revises
the standards for securitizations and other transfers of financial assets and
expands the disclosure requirements for such transactions, while carrying over
many of the provisions of SFAS 125 without change. The provisions of SFAS 140
are effective for transfers of financial assets and extinguishments of
liabilities occurring after March 31, 2001, and are to be applied prospectively.
Management expects that the pronouncement will not require a change in the
company's accounting treatment of sales of accounts receivable under its
Receivables Financing Facility, or have any material effect on the company's
consolidated financial position, results of operations, or cash flows. The
company adopted the disclosure requirements of SFAS 140 in 2000.
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.
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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, 2000.
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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, 2000.
Through March 31, 2001, 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
None.
(b) Reports on Form 8-K
The company filed a Current Report on Form 8-K dated March 20, 2001, under
Items 5 and 7, with respect to the appointment of Jeffrey Kaczka as Senior
Vice President, Chief Financial Officer of the company.
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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 7, 2001 /s/ Jeffrey Kaczka
----------------- ____________________________
Jeffrey Kaczka
Senior Vice President
Chief Financial Officer
Date May 7, 2001 /s/ Olwen B. Cape
----------------- ____________________________
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
18